G.R. No.
170290 April 11, 2012 Certificates of Dollar Time Deposit that
PHILIPPINE DEPOSIT INSURANCE
CORPORATION, Petitioner,
vs.
CITIBANK, N.A. and BANK OF AMERICA,
S.T. & N.A., Respondents.
DECISION
MENDOZA, J.:
This is a petition for review under Rule 45 of
the 1997 Revised Rules of Civil Procedure,
assailing the October 27, 2005 Decision1 of
the Court of Appeals (CA) in CA-G.R. CV No.
61316, entitled "Citibank, N.A. and Bank of
America, S.T. & N.A. v. Philippine Deposit
Insurance Corporation."
The Facts
Petitioner Philippine Deposit Insurance
Corporation (PDIC) is a government
instrumentality created by virtue of
Republic Act (R.A.) No. 3591, as amended
by R.A. No. 9302.2
Respondent Citibank, N.A. (Citibank) is a
banking corporation while respondent Bank
of America, S.T. & N.A. (BA) is a national
banking association, both of which are duly
organized and existing under the laws of
the United States of America and duly
licensed to do business in the Philippines,
with offices in Makati City.3
In 1977, PDIC conducted an examination of
the books of account of Citibank. It
discovered that Citibank, in the course of its
banking business, from September 30, 1974
to June 30, 1977, received from its head
office and other foreign branches a total of
₱11,923,163,908.00 in dollars, covered by
were interest-bearing with corresponding
maturity dates.4 These funds, which were
lodged in the books of Citibank under the
account "Their Account-Head
Office/Branches-Foreign Currency," were
not reported to PDIC as deposit liabilities
that were subject to assessment for
insurance.5 As such, in a letter dated March
16, 1978, PDIC assessed Citibank for
deficiency in the sum of ₱1,595,081.96.6
Similarly, sometime in 1979, PDIC examined
the books of accounts of BA which revealed
that from September 30, 1976 to June 30,
1978, BA received from its head office and
its other foreign branches a total of
₱629,311,869.10 in dollars, covered by
Certificates of Dollar Time Deposit that
were interest-bearing with corresponding
maturity dates and lodged in their books
under the account "Due to Head
Office/Branches."7 Because BA also
excluded these from its deposit liabilities,
PDIC wrote to BA on October 9, 1979,
seeking the remittance of ₱109,264.83
representing deficiency premium
assessments for dollar deposits.8
Believing that litigation would inevitably
arise from this dispute, Citibank and BA
each filed a petition for declaratory relief
before the Court of First Instance (now the
Regional Trial Court) of Rizal on July 19,
1979 and December 11, 1979,
respectively.9 In their petitions, Citibank and
BA sought a declaratory judgment stating
that the money placements they received
from their head office and other foreign
branches were not deposits and did not
give rise to insurable deposit liabilities
under Sections 3 and 4 of R.A. No. 3591 (the
PDIC Charter) and, as a consequence, the
deficiency assessments made by PDIC were
improper and erroneous.10 The cases were
then consolidated.11
On June 29, 1998, the Regional Trial Court,
Branch 163, Pasig City (RTC) promulgated its
Decision12 in favor of Citibank and BA, ruling
that the subject money placements were
not deposits and did not give rise to
insurable deposit liabilities, and that the
deficiency assessments issued by PDIC were
improper and erroneous. Therefore,
Citibank and BA were not liable to pay the
same. The RTC reasoned out that the
money placements subject of the petitions
were not assessable for insurance purposes
under the PDIC Charter because said
placements were deposits made outside of
the Philippines and, under Section 3.05(b)
of the PDIC Rules and Regulations,13 such
deposits are excluded from the
computation of deposit liabilities. Section
3(f) of the PDIC Charter likewise excludes
from the definition of the term "deposit"
any obligation of a bank payable at the
office of the bank located outside the
Philippines. The RTC further stated that
there was no depositor-depository
relationship between the respondents and
their head office or other branches. As a
result, such deposits were not included as
third-party deposits that must be insured.
Rather, they were considered inter-branch
deposits which were excluded from the
assessment base, in accordance with the
practice of the United States Federal
Deposit Insurance Corporation (FDIC) after
which PDIC was patterned.
Aggrieved, PDIC appealed to the CA which
affirmed the ruling of the RTC in its October
27, 2005 Decision. In so ruling, the CA found
that the money placements were received
as part of the bank’s internal dealings by
Citibank and BA as agents of their
respective head offices. This showed that
the head office and the Philippine branch
were considered as the same entity. Thus,
no bank deposit could have arisen from the
transactions between the Philippine branch
and the head office because there did not
exist two separate contracting parties to act
as depositor and depositary.14 Secondly, the
CA called attention to the purpose for the
creation of PDIC which was to protect the
deposits of depositors in the Philippines and
not the deposits of the same bank through
its head office or foreign
branches.15 Thirdly, because there was no
law or jurisprudence on the treatment of
inter-branch deposits between the
Philippine branch of a foreign bank and its
head office and other branches for
purposes of insurance, the CA was guided
by the procedure observed by the FDIC
which considered inter-branch deposits as
non-assessable.16 Finally, the CA cited
Section 3(f) of R.A. No. 3591, which
specifically excludes obligations payable at
the office of the bank located outside the
Philippines from the definition of a deposit
or an insured deposit. Since the subject
money placements were made in the
respective head offices of Citibank and BA
located outside the Philippines, then such
placements could not be subject to
assessment under the PDIC Charter.17
Hence, this petition.
The Issues
PDIC raises the issue of whether or not the
subject dollar deposits are assessable for
insurance purposes under the PDIC Charter
with the following assigned errors:
A.
The appellate court erred in ruling that the
subject dollar deposits are money
placements, thus, they are not subject to
the provisions of Republic Act No. 6426
otherwise known as the "Foreign Currency
Deposit Act of the Philippines."
B.
The appellate court erred in ruling that the
subject dollar deposits are not covered by
the PDIC insurance.18
Respondents similarly identify only one
issue in this case:
Whether or not the money placements
subject matter of these petitions are
assessable for insurance purposes under
the PDIC Act.19
The sole question to be resolved in this case
is whether the funds placed in the
Philippine branch by the head office and
foreign branches of Citibank and BA are
insurable deposits under the PDIC Charter
and, as such, are subject to assessment for
insurance premiums.
The Court’s Ruling
The Court rules in the negative.
A branch has no separate legal personality;
Purpose of the PDIC
PDIC argues that the head offices of
Citibank and BA and their individual foreign
branches are separate and independent
entities. It insists that under American
jurisprudence, a bank’s head office and its
branches have a principal-agent
relationship only if they operate in the same
jurisdiction. In the case of foreign branches,
however, no such relationship exists
because the head office and said foreign
branches are deemed to be two distinct
entities.20 Under Philippine law, specifically,
Section 3(b) of R.A. No. 3591, which defines
the terms "bank" and "banking
institutions," PDIC contends that the law
treats a branch of a foreign bank as a
separate and independent banking unit.21
The respondents, on the other hand,
initially point out that the factual findings of
the RTC and the CA, with regard to the
nature of the money placements, the
capacity in which the same were received
by the respondents and the exclusion of
inter-branch deposits from assessment, can
no longer be disturbed and should be
accorded great weight by this Court.22 They
also argue that the money placements are
not deposits. They postulate that for a
deposit to exist, there must be at least two
parties – a depositor and a depository –
each with a legal personality distinct from
the other. Because the respondents’
respective head offices and their branches
form only a single legal entity, there is no
creditor-debtor relationship and the funds
placed in the Philippine branch belong to
one and the same bank. A bank cannot have
a deposit with itself.23
This Court is of the opinion that the key to
the resolution of this controversy is the
relationship of the Philippine branches of
Citibank and BA to their respective head
offices and their other foreign branches.
The Court begins by examining the manner
by which a foreign corporation can establish
its presence in the Philippines. It may
choose to incorporate its own subsidiary as
a domestic corporation, in which case such
subsidiary would have its own separate and
independent legal personality to conduct
business in the country. In the alternative, it
may create a branch in the Philippines,
which would not be a legally independent
unit, and simply obtain a license to do
business in the Philippines.24
In the case of Citibank and BA, it is apparent
that they both did not incorporate a
separate domestic corporation to represent
its business interests in the Philippines.
Their Philippine branches are, as the name
implies, merely branches, without a
separate legal personality from their parent
company, Citibank and BA. Thus, being one
and the same entity, the funds placed by
the respondents in their respective
branches in the Philippines should not be
treated as deposits made by third parties
subject to deposit insurance under the PDIC
Charter.
For lack of judicial precedents on this issue,
the Court seeks guidance from American
jurisprudence.1âwphi1 In the leading case
of Sokoloff v. The National City Bank of New
York,25 where the Supreme Court of New
York held:
Where a bank maintains branches, each
branch becomes a separate business entity
with separate books of account. A
depositor in one branch cannot issue checks
or drafts upon another branch or demand
payment from such other branch, and in
many other respects the branches are
considered separate corporate entities and
as distinct from one another as any other
bank. Nevertheless, when considered with
relation to the parent bank they are not
independent agencies; they are, what their
name imports, merely branches, and are
subject to the supervision and control of
the parent bank, and are instrumentalities
whereby the parent bank carries on its
business, and are established for its own
particular purposes, and their business
conduct and policies are controlled by the
parent bank and their property and assets
belong to the parent bank, although
nominally held in the names of the
particular branches. Ultimate liability for a
debt of a branch would rest upon the
parent bank. [Emphases supplied]
This ruling was later reiterated in the more
recent case of United States v. BCCI
Holdings Luxembourg26 where the United
States Court of Appeals, District of
Columbia Circuit, emphasized that "while
individual bank branches may be treated as
independent of one another, each branch,
unless separately incorporated, must be
viewed as a part of the parent bank rather
than as an independent entity."
In addition, Philippine banking laws also
support the conclusion that the head office
of a foreign bank and its branches are
considered as one legal entity. Section 75 of
R.A. No. 8791 (The General Banking Law of
2000) and Section 5 of R.A. No. 7221 (An
Act Liberalizing the Entry of Foreign Banks)
both require the head office of a foreign
bank to guarantee the prompt payment of
all the liabilities of its Philippine branch, to
wit:
Republic Act No. 8791:
Sec. 75. Head Office Guarantee. – In order
to provide effective protection of the
interests of the depositors and other
creditors of Philippine branches of a foreign
bank, the head office of such branches shall
fully guarantee the prompt payment of all
liabilities of its Philippine branch.
Residents and citizens of the Philippines
who are creditors of a branch in the
Philippines of foreign bank shall have
preferential rights to the assets of such
branch in accordance with the existing laws.
Republic Act No. 7721:
Sec. 5. Head Office Guarantee. – The head
office of foreign bank branches shall
guarantee prompt payment of all liabilities
of its Philippine branches.
Moreover, PDIC must be reminded of the
purpose for its creation, as espoused in
Section 1 of R.A. No. 3591 (The PDIC
Charter) which provides:
Section 1. There is hereby created a
Philippine Deposit Insurance Corporation
hereinafter referred to as the "Corporation"
which shall insure, as herein provided, the
deposits of all banks which are entitled to
the benefits of insurance under this Act,
and which shall have the powers
hereinafter granted.
The Corporation shall, as a basic policy,
promote and safeguard the interests of the
depositing public by way of providing
permanent and continuing insurance
coverage on all insured deposits.
R.A. No. 9576, which amended the PDIC
Charter, reaffirmed the rationale for the
establishment of the PDIC:
Section 1. Statement of State Policy and
Objectives. - It is hereby declared to be the
policy of the State to strengthen the
mandatory deposit insurance coverage
system to generate, preserve, maintain
faith and confidence in the country's
banking system, and protect it from illegal
schemes and machinations.
Towards this end, the government must
extend all means and mechanisms
necessary for the Philippine Deposit
Insurance Corporation to effectively fulfill
its vital task of promoting and safeguarding
the interests of the depositing public by
way of providing permanent and continuing
insurance coverage on all insured deposits,
and in helping develop a sound and stable
banking system at all times.
The purpose of the PDIC is to protect the
depositing public in the event of a bank
closure. It has already been sufficiently
established by US jurisprudence and
Philippine statutes that the head office shall
answer for the liabilities of its branch. Now,
suppose the Philippine branch of Citibank
suddenly closes for some reason. Citibank
N.A. would then be required to answer for
the deposit liabilities of Citibank Philippines.
If the Court were to adopt the posture of
PDIC that the head office and the branch
are two separate entities and that the funds
placed by the head office and its foreign
branches with the Philippine branch are
considered deposits within the meaning of
the PDIC Charter, it would result to the
incongruous situation where Citibank, as
the head office, would be placed in the
ridiculous position of having to reimburse
itself, as depositor, for the losses it may
incur occasioned by the closure of Citibank
Philippines. Surely our law makers could not
have envisioned such a preposterous
circumstance when they created PDIC.
Finally, the Court agrees with the CA ruling
that there is nothing in the definition of a
"bank" and a "banking institution" in
Section 3(b) of the PDIC Charter27 which
explicitly states that the head office of a
foreign bank and its other branches are
separate and distinct from their Philippine
branches.
There is no need to complicate the matter
when it can be solved by simple logic
bolstered by law and jurisprudence. Based
on the foregoing, it is clear that the head
office of a bank and its branches are
considered as one under the eyes of the
law. While branches are treated as separate
business units for commercial and financial
reporting purposes, in the end, the head
office remains responsible and answerable
for the liabilities of its branches which are
under its supervision and control. As such, it
is unreasonable for PDIC to require the
respondents, Citibank and BA, to insure the
money placements made by their home
office and other branches. Deposit
insurance is superfluous and entirely
unnecessary when, as in this case, the
institution holding the funds and the one
which made the placements are one and
the same legal entity.
Funds not a deposit under the definition
of the PDIC Charter;
Excluded from assessment
PDIC avers that the funds are dollar
deposits and not money placements. Citing
R.A. No. 6848, it defines money placement
as a deposit which is received with
authority to invest. Because there is no
evidence to indicate that the respondents
were authorized to invest the subject dollar
deposits, it argues that the same cannot be
considered money placements.28 PDIC then
goes on to assert that the funds received by
Citibank and BA are deposits, as
contemplated by Section 3(f) of R.A. No.
3591, for the following reasons: (1) the
dollar deposits were received by Citibank
and BA in the course of their banking
operations from their respective head office
and foreign branches and were recorded in
their books as "Account-Head
Office/Branches-Time Deposits" pursuant to
Central Bank Circular No. 343 which
implements R.A. No. 6426; (2) the dollar
deposits were credited as dollar time
accounts and were covered by Certificates
of Dollar Time Deposit which were interest-
bearing and payable upon maturity, and (3)
the respondents maintain 100% foreign
currency cover for their deposit liability
arising from the dollar time deposits as
required by Section 4 of R.A. No. 6426.29
To refute PDIC’s allegations, the
respondents explain the inter-branch
transactions which necessitate the creation
of the accounts or placements subject of
this case. When the Philippine branch needs
to procure foreign currencies, it will
coordinate with a branch in another
country which handles foreign currency
purchases. Both branches have existing
accounts with their head office and when a
money placement is made in relation to the
acquisition of foreign currency from the
international market, the amount is
credited to the account of the Philippine
branch with its head office while the same
is debited from the account of the branch
which facilitated the purchase. This is
further documented by the issuance of a
certificate of time deposit with a stated
interest rate and maturity date. The interest
rate represents the cost of obtaining the
funds while the maturity date represents
the date on which the placement must be
returned. On the maturity date, the amount
previously credited to the account of the
Philippine branch is debited, together with
the cost for obtaining the funds, and
credited to the account of the other branch.
The respondents insist that the interest rate
and maturity date are simply the basis for
the debit and credit entries made by the
head office in the accounts of its branches
to reflect the inter-branch
accommodation.30 As regards the
maintenance of currency cover over the
subject money placements, the
respondents point out that they maintain
foreign currency cover in excess of what is
required by law as a matter of prudent
banking practice.31
PDIC attempts to define money placement
in order to impugn the respondents’ claim
that the funds received from their head
office and other branches are money
placements and not deposits, as defined
under the PDIC Charter. In the process, it
loses sight of the important issue in this
case, which is the determination of whether
the funds in question are subject to
assessment for deposit insurance as
required by the PDIC Charter. In its struggle
to find an adequate definition of "money
placement," PDIC desperately cites R.A. No.
6848, The Charter of the Al-Amanah Islamic
Investment Bank of the Philippines.
Reliance on the said law is unfounded
because nowhere in the law is the term
"money placement" defined. Additionally,
R.A. No. 6848 refers to the establishment of
an Islamic bank subject to the rulings of
Islamic Shari’a to assist in the development
of the Autonomous Region of Muslim
Mindanao (ARMM),32 making it utterly
irrelevant to the case at bench. Since
Citibank and BA are neither Islamic banks
nor are they located anywhere near the
ARMM, then it should be painfully obvious
that R.A. No. 6848 cannot aid us in deciding
this case.
Furthermore, PDIC heavily relies on the fact
that the respondents documented the
money placements with certificates of time
deposit to simply conclude that the funds
involved are deposits, as contemplated by
the PDIC Charter, and are consequently
subject to assessment for deposit
insurance. It is this kind of reasoning that
creates non-existent obscurities in the law
and obstructs the prompt resolution of
what is essentially a straightforward issue,
thereby causing this case to drag on for
more than three decades.1âwphi1
Noticeably, PDIC does not dispute the
veracity of the internal transactions of the
respondents which gave rise to the issuance
of the certificates of time deposit for the
funds the subject of the present dispute.
Neither does it question the findings of the
RTC and the CA that the money placements
were made, and were payable, outside of
the Philippines, thus, making them fall
under the exclusions to deposit liabilities.
PDIC also fails to impugn the truth of the
testimony of John David Shaffer, then a
Fiscal Agent and Head of the Assessment
Section of the FDIC, that inter-branch
deposits were excluded from the
assessment base. Therefore, the
determination of facts of the lower courts
shall be accepted at face value by this
Court, following the well-established
principle that factual findings of the trial
court, when adopted and confirmed by the
CA, are binding and conclusive on this
Court, and will generally not be reviewed on
appeal.33
As explained by the respondents, the
transfer of funds, which resulted from the
inter-branch transactions, took place in the
books of account of the respective branches
in their head office located in the United
States. Hence, because it is payable outside
of the Philippines, it is not considered a
deposit pursuant to Section 3(f) of the PDIC
Charter:
Sec. 3(f) The term "deposit" means the
unpaid balance of money or its equivalent
received by a bank in the usual course of
business and for which it has given or is
obliged to give credit to a commercial,
checking, savings, time or thrift account or
which is evidenced by its certificate of
deposit, and trust funds held by such bank
whether retained or deposited in any
department of said bank or deposit in
another bank, together with such other
obligations of a bank as the Board of
Directors shall find and shall prescribe by
regulations to be deposit liabilities of the
Bank; Provided, that any obligation of a
bank which is payable at the office of the
bank located outside of the Philippines
shall not be a deposit for any of the
purposes of this Act or included as part of
the total deposits or of the insured
deposits; Provided further, that any insured
bank which is incorporated under the laws
of the Philippines may elect to include for
insurance its deposit obligation payable
only at such branch. [Emphasis supplied]
The testimony of Mr. Shaffer as to the
treatment of such inter-branch deposits by
the FDIC, after which PDIC was modelled, is
also persuasive. Inter-branch deposits refer
to funds of one branch deposited in another
branch and both branches are part of the
same parent company and it is the practice
of the FDIC to exclude such inter-branch
deposits from a bank’s total deposit
liabilities subject to assessment.34
All things considered, the Court finds that
the funds in question are not deposits
within the definition of the PDIC Charter
and are, thus, excluded from assessment.
WHEREFORE, the petition is DENIED. The
October 27, 2005 Decision of the Court of
Appeals in CA-G.R. CV No. 61316 is
AFFIRMED.
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G.R. No. 171628 June 13, 2011
ARMANDO V. ALANO [Deceased],
Substituted by Elena Alano-
Torres,* Petitioner,
vs.
PLANTER'S DEVELOPMENT BANK, as
Successor-in-Interest of MAUNLAD
SAVINGS and LOAN ASSOCIATION,
INC.,*** Respondent.
DECISION
DEL CASTILLO, J.:
"No one can give what he does not have"
(Nemo dat quod non habet).
This Amended Petition for Review
on Certiorari1 under Rule 45 of the Rules of
Court assails the June 9, 2005 Decision2 and
the February 21, 2006 Resolution3 of the
Court of Appeals (CA) in CA G.R. CV No.
58554.
Factual Antecedents
Petitioner Armando V. Alano and his
brother, the late Agapito V. Alano, Jr.,
inherited from their father a parcel of land
located at Gov. Forbes St., Sampaloc,
Manila.4
On June 30, 1988, petitioner executed a
Special Power of Attorney5 authorizing his
brother to sell their property in Manila.
From the proceeds of the sale, the brothers
purchased on September 22, 1988 a
residential house located at No. 60
Encarnacion St., BF Homes, Quezon
City.6 The title of the Quezon City property,
however, was not immediately transferred
to them because the duplicate and original
copies of the title were destroyed by a fire
that gutted the Quezon City Hall Building.7
On June 27, 1990, Agapito V. Alano, Jr. died
leaving behind his wife, Lydia J. Alano
(Lydia), and four legitimate children, who
adjudicated to themselves the property in
Quezon City.8 Consequently, title to the said
property was reconstituted as Transfer
Certificate of Title (TCT) No. 18990 and
registered solely in the names of Lydia and
her four children.9 This prompted petitioner
to execute an Affidavit of Adverse
Claim10 which was annotated on TCT No.
18990.11 But because of the assurance of
his nieces that they would put things right,
petitioner agreed to delay the filing of a
case in court.12
Meanwhile, Lydia filed with the Register of
Deeds of Quezon City an Affidavit of
Cancellation of Adverse Claim,13 which
caused the cancellation of the adverse claim
annotated on TCT No. 18990.14 Thereafter,
by virtue of a Deed of Absolute
Sale15 allegedly executed by her children in
her favor, TCT No. 18990 was cancelled and
a new one, TCT No. 90388, was issued
solely in her name.16
On February 8, 1994, Slumberworld, Inc.,
represented by its President, Melecio A.
Javier, and Treasurer, Lydia, obtained from
Maunlad Savings and Loan Association, Inc.
a loan of ₱2.3 million, secured by a Real
Estate Mortgage17 over the property
covered by TCT No. 90388.18
On April 20, 1994, petitioner filed a
Complaint19 against Lydia, Melecio A. Javier,
Maunlad Savings and Loan Association, Inc.
and the Register of Deeds of Quezon City
before the Regional Trial Court (RTC) of
Quezon City, which was raffled to Branch
92. Petitioner sought the cancellation of
TCT No. 90388, the issuance of a new title
in his name for his one-half share of the
Quezon City property, and the nullification
of real estate mortgage insofar as his one-
half share is concerned.20
Defendants Maunlad Savings and Loan
Association, Inc. and the Register of Deeds
of Quezon City filed their respective
Answers.21 Defendants Lydia and Melecio A.
Javier, however, failed to file their
respective Answers. Thus, the RTC in an
Order22 dated August 29, 1994 declared
them in default.
Ruling of the Regional Trial Court
On September 12, 1996, the RTC rendered
its Decision23 declaring petitioner the owner
of one-half of the subject property since an
implied trust exists between him and the
heirs of his brother.24 The RTC, however,
sustained the validity of the real estate
mortgage.25 According to the RTC, Maunlad
Savings and Loan Association, Inc. had the
right to rely on the Torrens title as there
was no reason for it to doubt the
mortgagor’s ownership over the subject
property.26 Accordingly, the fallo of the
decision reads:
WHEREFORE, premises considered,
judgment is hereby rendered as follows:
 1. Declaring plaintiff Armando Alano
the owner of one-half of the
property in question;
2. Ordering the Register of Deeds of
Quezon City to cancel TCT No. 90388
issued in the name of Lydia J. Alano
and the corresponding owner’s
duplicate certificate and to issue a
new one in the names of Armando
V. Alano, single[,] ½ share pro
indiviso and Lydia Alano, widow, ½
share pro indiviso with the
corresponding mortgage lien
annotation in favor of the Maunlad
Savings and Loan [Association,] Inc.
upon finality of this decision;
3. Ordering the defendant Maunlad
Savings and Loan [Association,] Inc.
to surrender [the] owner’s duplicate
copy of TCT No. 90388 to the
Register of Deeds of Quezon City for
cancellation upon finality of this
decision;
4. Ordering defendants Lydia J.
Alano and Melecio Javier to jointly
and severally pay the plaintiff the
sum of ₱20,000.00 as attorney’s fees
and to pay the costs of suit.
SO ORDERED.27
Dissatisfied, petitioner moved for partial
reconsideration28 but the RTC denied the
same in its Order29 dated February 24,
1997.
Ruling of the Court of Appeals
Petitioner appealed30 to the CA but to no
avail. The CA found Maunlad Savings and
Loan Association, Inc. to be a mortgagee in
good faith since it took the necessary
precautions to ascertain the status of the
property sought to be mortgaged as well as
the identity of the mortgagor by conducting
an ocular inspection of the property and
requiring the submission of documents,
such as the latest tax receipts and tax
clearance.31 The CA thus disposed of the
appeal as follows:
WHEREFORE, premises considered, the
appeal is hereby DISMISSED for lack of
merit. The September 12, 1996 Decision of
the Regional Trial Court of Quezon City,
Branch 92, is hereby AFFIRMED.
SO ORDERED.32
Petitioner sought reconsideration33 but the
CA denied the same in its
Resolution34 dated February 21, 2006.
Issues
Hence, the present recourse, petitioner
raising the following issues:
I. WHETHER THE REAL ESTATE
MORTGAGE EXECUTED BY
DEFENDANT LYDIA J. ALANO WAS
VALID AND BINDING WITH RESPECT
TO PETITIONER’S CO-OWNER’S
SHARE IN THE SUBJECT PROPERTY.
II. WHETHER DEFENDANT MAUNLAD
SAVINGS AND LOAN ASSOCIATION,
INC. WAS AN INNOCENT
MORTGAGEE IN GOOD FAITH.
III. WHETHER PETITIONER MAY
RIGHTFULLY BE MADE TO SUFFER
THE CONSEQUENCES OF
DEFENDANT LYDIA J. ALANO’S
 WRONGFUL ACT OF MORTGAGING
THE SUBJECT PROPERTY.35
Petitioner’s Arguments
Petitioner insists that Maunlad Savings and
Loan Association, Inc. is not a mortgagee in
good faith as it failed to exercise due
diligence in inspecting and ascertaining the
status of the mortgaged property.
Petitioner calls attention to the testimony
of Credit Investigator Carlos S. Mañosca,
who admitted that when he inspected the
mortgaged property, he only checked the
finishing of the house and the number of
rooms.36 Hence, he failed to see petitioner’s
apartment at the back portion of the
property.37 Moreover, the fact that there
was an adverse claim annotated on the
previous title of the property should have
alerted Maunlad Savings and Loan
Association, Inc. to conduct further
investigation to verify the ownership of the
mortgaged property.38 All these prove that
Maunlad Savings and Loan Association, Inc.
was not a mortgagee in good faith.
Corollarily, pursuant to Articles 208539 and
49340 of the Civil Code, the real estate
mortgage executed by Lydia is void insofar
as petitioner’s share in the mortgaged
property is concerned.41
Respondent’s Arguments
Respondent contends that the issue of
whether Maunlad Savings and Loan
Association, Inc. is a mortgagee in good
faith is a question of fact, which is beyond
the jurisdiction of this Court.42 As to
petitioner’s allegation that there was a
separate apartment at the back portion of
the property, respondent claims that this
was never raised during the trial or on
appeal.43 Hence, it is barred by estoppel.44
Respondent further claims that Maunlad
Savings and Loan Association, Inc. has no
obligation to look beyond the title
considering that there was no adverse claim
annotated on TCT No. 90388 covering the
mortgaged property.45 And since the
mortgaged property was occupied by the
mortgagor Lydia, there was also no need for
Maunlad Savings and Loan Association, Inc.
to verify the extent of her possessory
rights.46
Our Ruling
The petition has merit.
The instant case is an exception to the rule
that factual issues may not be raised in a
petition under Rule 45 of the Rules of Court.
The rule that only questions of law may be
raised in a petition for review
on certiorari under Rule 45 of the Rules of
Court is not without exception. A review of
factual issues is allowed when there is a
misapprehension of facts or when the
inference drawn from the facts is manifestly
mistaken.47 This case falls under exception.
Maunlad Savings and Loan Association, Inc.
is not a mortgagee in good faith.
The general rule that a mortgagee need not
look beyond the title does not apply to
banks and other financial institutions as
greater care and due diligence is required of
them.48 Imbued with public interest, they
"are expected to be more cautious than
ordinary individuals."49 Thus, before
approving a loan, the standard practice for
banks and other financial institutions is to
conduct an ocular inspection of the
property offered to be mortgaged and
verify the genuineness of the title to
determine the real owner or owners
thereof.50 Failure to do so makes them
mortgagees in bad faith.
In this case, petitioner contends that
Maunlad Savings and Loan Association, Inc.
failed to exercise due diligence in inspecting
and ascertaining the status of the
mortgaged property because during the
ocular inspection, the credit investigator
failed to ascertain the actual occupants of
the subject property and to discover
petitioner’s apartment at the back portion
of the subject property.51
Indeed, the existence of petitioner’s
apartment at the back portion of the
subject property was never brought up
before the trial court and the appellate
court. Nevertheless, we find petitioner’s
allegation of negligence substantiated by
the testimony of the credit investigator, to
wit:
ATTY. JAVELLANA
xxxx
Q - You said also that you inspected the
property that was offered as collateral
which is a house and lot located at
Encarnacion Street, BF Homes. Did you
enter the property?
A - Yes, ma’am.
Q - And then you found out that the
property was the home of Mrs. Lydia Alano
and her children?
A - Yes, ma’am.
ATTY. JAVELLANA
Q - And you also saw that her brother-in-
law Armando Alano was also residing there?
A - I do not recall if he was there, ma’am.
Q - You did not see him there?
A - When we went there ma’am, we only
checked on the finishing of the house and
also checked as to the number of bedrooms
and number of CR, ma’am.
Q - You did not verify who were actually
residing there?
A - No, ma’am.
Q - You said that you also conducted a
neighborhood checking, did you ask the
neighbor who were residing in that
property?
A - Yes, and we were told that Lydia Alano
was the one residing there, ma’am.
Q - You did not verify from them as to
whether anybody else was residing there?
A - No, ma’am.52 (Emphasis supplied).
Clearly, while the credit investigator
conducted an ocular inspection of the
property as well as a "neighborhood
checking" and found the subject property
occupied by the mortgagor Lydia and her
children,53 he, however, failed to ascertain
whether the property was occupied by
persons other than the mortgagor. Had he
done so, he would have discovered that the
subject property is co-owned by petitioner
and the heirs of his brother. Since Maunlad
Savings and Loan Association, Inc. was
remiss in its duty in ascertaining the status
of the property to be mortgaged and
verifying the ownership thereof, it is
deemed a mortgagee in bad faith.
Consequently, the real estate mortgage
executed in its favor is valid only insofar as
the share of the mortgagor Lydia in the
subject property. We need not belabor that
under Article 49354 of the Civil Code, a co-
owner can alienate only his pro indiviso
share in the co-owned property, and not
the share of his co-owners.1âwphi1
WHEREFORE, the petition is hereby
GRANTED. The assailed June 9, 2005
Decision and the February 21, 2006
Resolution of the Court of Appeals in CA
G.R. CV No. 58554 are SET ASIDE. The
September 12, 1996 Decision of the
Regional Trial Court of Quezon City, Branch
92, is hereby MODIFIED by declaring the
mortgage in favor of respondent Maunlad
Savings and Loan Association, Inc. NULL and
VOID insofar as the ½ share of petitioner in
the subject property is concerned, and
ordering the annotation of the mortgage
lien in favor of respondent only on the ½
share of Lydia J. Alano in the subject
property.
SO ORDERED.
----------------------------------------------------------
------
G.R. No. 160843 July 11, 2006
CHINA BANKING
CORPORATION, petitioner,
vs.
MARIA G. LAGON, represented by
Armando G. Lagon and/or Jose Lagon,
Jr., respondent.
DECISION
QUISUMBING, J.:
This petition for review assails the
Decision1 dated August 21, 2003 of the
Court of Appeals in CA-G.R. CV No. 60853,
which reversed and set aside the Joint
Decision2 dated April 3, 1998 of the
Regional Trial Court of Bayombong, Nueva
Vizcaya, Branch 27, in Civil Cases Nos. 5158
and 5192, and the Resolution3 dated
November 14, 2003, denying
reconsideration.
Representatives of Maria Lagon (the
Lagons) in her behalf as the owner of three
parcels of land covered by Transfer
Certificates of Title (TCT) Nos. T-56875 and
T-11593 and Original Certificate of Title
(OCT) No. P-1228, filed two complaints
docketed as Civil Case No. 5158 and Civil
Case No. 5192. Both were filed by the
Lagons against Jao Bio Tong, China Banking
Corporation (CBC) and the Acting Provincial
Sheriff of Nueva Vizcaya. While Civil Case
No. 5158 involved lots covered by TCT Nos.
T-56875 and T-11593, Civil Case No. 5192
involves only a lot covered by OCT No. P-
1228, both put in issue the authenticity of
the Special Power of Attorney dated May
13, 1983 purportedly executed by Maria
Lagon in favor of Jao and, hence the validity
of the mortgage over the lots covered by
the said titles executed by Jao on behalf of
Maria and in favor of CBC. The Lagons
prayed for the declaration of nullity of the
special power of attorney allegedly
executed by Maria in favor of Jao and the
nullity of the real estate mortgage executed
by Jao to CBC. They also asked for the
issuance of an injunctive writ and damages.
Eventually the two cases were heard jointly.
For their part, Jao and CBC insist the
signature of Maria in the special power of
attorney was authentic. In response, CBC
filed a counterclaim for the payment of the
loans of Maria and damages. CBC also filed
a cross-claim against Jao.
During trial the following facts were
established:
Sometime in 1981, Jao asked for credit
accommodation from petitioner
for P300,000 to be secured by a parcel of
land under TCT No. T-30817 in Mariveles
Street, Quezon City. The land was in the
name of Maria Lagon. Jao represented that
he had a special power of attorney, which
he used previously to mortgage the same
property to Metropolitan Bank and Trust
Company (Metrobank). He proposed that
the proceeds of the loan be used to
pay P83,496.21 to Metrobank. Petitioner
paid the Metrobank loan and the mortgage
in favor of Metrobank was cancelled.
Subsequently, petitioner granted Jao a loan
line of P1,000,000, secured by a mortgage
on the lot covered by TCT No. T-30817. He
first borrowed P300,000. Under the same
loan line, Jao availed of four additional
loans, P300,000 on June 22, 1983; P500,000
on June 22, 1983; P50,000 on September 5,
1983; and P50,000 on December 12, 1983.
The proceeds of the loan were applied to
the obligations of respondent Maria with
the Rural Bank of Ilagan, Inc. and of Jao with
the Vizcaya Savings and Loan Association,
Inc. The latter was secured by mortgages
over the lots covered by TCT Nos. T-56875
and T-11593, both owned by Maria.
On July 28, 1983, the property under TCT
No. T-30817 was substituted with three
parcels of land covered by TCT Nos. T-56875
and T-11593 and OCT No. P-1228, the
herein contested three parcels. Jao
presented two special powers of attorney
to mortgage the three parcels of land.
The loans of Maria and Jao matured but
were unpaid. Thus, petitioner CBC prepared
petitions for extra-judicial foreclosure of the
mortgaged properties, naming Maria and
Jao as defendants. However, no foreclosure
took place because the Regional Trial Court
of Bayombong, Nueva Vizcaya, Branch 27,
upon filing of the Lagons, issued a
temporary restraining order preventing the
holding of the auction sale.4
Meanwhile, Jao died while the cases were
still on trial before Branch 27. Respondent
Maria Lagon died in 1995.
On April 3, 1998, Branch 27 dismissed the
complaints finding that there was sufficient
evidence that the signatures were
authentic. The trial court ruled as follows:
WHEREFORE, judgment is hereby
rendered in favor of defendants
China Banking Corporation (CBC)
and Jao Bio Tong ordering:
(1) the dismissal of the complaint
against both defendants and the
cross-claim of defendant CBC
against Jao;
(2) ordering the plaintiff to pay to
the defendant CBC the sum
of P19,180,331.14 which is the total
amount of the plaintiff's obligation
under all the Promissory Notes
(Exhibits "118-CBC", "119-CBC" and
"120-CBC") plus the late payment
penalty of 1/10 of 1% of the total
amount due and the interest at 26%
per annum until all the said
obligation is fully paid, or, if the
 plaintiff can not pay this sum, and
the penalty for late payment and the
interest, ordering the sale of the lots
covered by TCT Nos. T-56875 and
11593 belonging to the plaintiff and
the foreclosure of the lot covered by
OCT No. P-1228 also belonging to
the plaintiff and the proceeds
thereof applied to the payment of
the above-stated obligation in its
totality;
(3) if after the sale of the mortgaged
property, there is still a deficiency
on the above-stated obligation,
ordering the plaintiff to pay such
deficiency;
(4) ordering the plaintiff to pay to
the defendant bank CBC the sum
of P50,000.00 as and for attorney's
fees;
(5) ordering the plaintiff to pay to
the defendant bank CBC the sum
of P42,073.20 as actual damages;
(6) ordering the plaintiff to pay the
costs of the suit.
SO ORDERED.5
On appeal, the Court of Appeals on August
21, 2003, reversed and set aside the
decision of the trial court and declared the
special powers of attorney and the real
estate mortgages null and void. The Court
of Appeals held that Jao and petitioner
failed to establish the due execution and
authenticity of the special powers of
attorney because Jao admitted that these
were notarized without the personal
appearance of respondent before the
notary public. The Court of Appeals gave
credence to the testimony of respondent's
expert witness, NBI Questioned Document
Examiner Bienvenido Albacea over the
testimony of petitioner's expert witness,
Atty. Desiderio A. Pagui.
Petitioner's motion for reconsideration was
denied. In this petition, petitioner raises the
following issues:
I.
THE TESTIMONY OF PRIVATE
PRACTISING DOCUMENT EXAMINER,
ATTY. DESIDERIO PAGUI, AS
AGAINST THAT OF THE NBI
QUESTIONED EXAMINER
BIENVENIDO ALBACEA, OUGHT TO
HAVE BEEN GIVEN SUPERIOR
CREDENCE AND GREATER WEIGHT
ON APPEAL, BECAUSE:
(a) THE TRIAL COURT IS IN A
BETTER POSITION TO
EXAMINE THE REAL
EVIDENCE, AND OBSERVE
THE DEMEANOR OF THE
WITNESSES, AND CAN
THEREFORE DISCERN IF THEY
ARE TELLING THE TRUTH OR
NOT.
(b) THE CREDIBILITY OF ATTY.
DESIDERIO PAGUI AS AN
EXPERT ON QUESTIONED
DOCUMENTS WAS NOT EVEN
RAISED AS AN ISSUE IN THE
APPEAL BRIEF OF
RESPONDENT MARIA
LAGON.
(c) IN CONTRAST, THE
EXAMINATION CONDUCTED
 BY NBI DOCUMENT (a) THROUGH THE PREVIOUS
EXAMINER ALBACEA- AUTHORITY (SPECIAL POWER
OF ATTORNEY) TO
i. USED STANDARDS DEFENDANT JAO BIO TONG
THAT WERE NOT TO DEAL WITH "HER"
ADEQUATE, PROPERTIES, RESPONDENT
APPROPRIATE AND MARIA LAGON HELD OUT
CONTEMPORANEOUS SAID DEFENDANT JAO BIO
; TONG AS HER DULY
AUTHORIZED ATTORNEY-IN-
ii. DID NOT COMPLY FACT.
WITH THE FOUR (4)
REQUIREMENTS TO (b) THE PROCEEDS OF THE
THE "PROPER LOANS OBTAINED FROM
CONDITIONS UNDER PETITIONER CBC WERE USED
WHICH SCIENTIFIC TO PAY OFF THE MORTGAGE
HANDWRITING OBLIGATIONS OF
IDENTIFICATION MAY RESPONDENT MARIA LAGON
LEAD TO AN AND DEFENDANT JAO BIO
ACCURATE FINDING TONG WITH OTHER BANKING
AND UNDER WHICH A INSTITUTION.6
HANDWRITING
EXPERT MAY BE ABLE Simply stated, two issues are for resolution
TO RENDER AN now: (1) Are the special powers of attorney
ACCURATE OPINION. (SPAs) of Jao spurious, given the allegation
of forgery? (2) Are the real estate
(d) NBI DOCUMENT mortgages executed by Jao valid? Both
EXAMINER ALBACEA WAS IN depend on the threshold issue of credibility
FACT TECHNICALLY HIRED BY of respondent's expert witness, Bienvenido
RESPONDENT LAGON Albacea vis-à-vis petitioner's expert witness,
THROUGH HER ATTORNEY- Desiderio A. Pagui.
IN-FACT, ARMANDO LAGON,
BY THE DEFRAYAL OF HIS Primarily, what petitioner questions is the
TRAVELLING, LODGING AND credibility of Albacea as an expert witness.
OTHER EXPENSES. As petitioner claims, which the trial court
sustained, Atty. Pagui's testimony should be
II. given more weight since the trial court was
in a better position to examine real and
RESPONDENT MARIA LAGON IS testimonial evidence. Besides, according to
ESTOPPED FROM CONTESTING THE petitioner the credibility of Atty. Pagui was
VALIDITY OF THE SPECIAL POWER OF never raised as an issue in respondent's
ATTORNEY AND THE REAL ESTATE appeal brief.
MORTGAGES, BECAUSE:
Moreover, according to petitioner,
respondent clothed Jao with apparent
authority as her agent, hence, she cannot
now be permitted to deny the authority of
Jao to the prejudice of innocent third
parties. In addition, petitioner points out
that respondent is estopped from
questioning the validity of the mortgages
because the loans were used to pay the
obligation of Maria Lagon with other banks.
Respondent's representatives counter that
Atty. Pagui was a biased witness because he
was hired by petitioner as a practicing
private document examiner. Significantly,
they point out that respondent Maria was
in the United States at the time the SPAs
were allegedly signed before the notary
public in Nueva Vizcaya. They conclude that
the irregularity in the notarization shows
that the SPAs were spurious and the
respondent's signatures were forgeries.
Respondent's representatives also add that
contrary to the claim that Maria benefited
from the loan, Maria's estate ended up
more heavily burdened since only a small
portion of the loan obtained by Jao were
applied to Maria's obligations. Therefore,
Maria's representatives should not be
estopped from questioning the mortgages.
To begin with, the issue of whether the
SPAs are authentic is a question of fact, that
may be reviewed by this Court only under
exceptional circumstances7 like when, as in
this case, the findings of facts of the Court
of Appeals are at variance with those of the
trial court.8
We have held in prior cases that generally, a
notarized instrument is admissible in
evidence without further proof of its due
execution and is conclusive as to the
truthfulness of its contents,9 and has in its
favor the presumption of
regularity.10 However, this presumption is
not absolute and may be rebutted by clear
and convincing evidence.11
In his testimony, Jao admitted that the SPAs
were not signed in the presence of the
notary public, but pre-signed by respondent
in the United States. Likewise, respondent
neither appeared personally before the
notary public nor acknowledged to him that
the instrument was her own free and
voluntary act and deed, contrary to what
appears in the SPAs' acknowledgement.
Patently then, the notarization was irregular
and could not be given probative value.
As the respondent has repudiated the
signatures in the SPAs and it was shown
that she did not acknowledge these before
the notary public, the burden of proof to
show the SPAs' authenticity, genuineness
and due execution lay with petitioner. In
our view, petitioner failed in this task. The
contrasting testimony of the experts on the
authenticity of the signatures of Maria
could not benefit either side, considering
the admission that the notarial requisites
had not been adhered to.
Finally, with respect to the credibility of the
handwriting expert, courts are not bound to
give probative value or evidentiary value to
the opinions of handwriting experts, as
resort to handwriting experts is not
mandatory.12 The courts may place
whatever weight they choose upon such
testimonies in accordance with the facts of
the case.13
In this case, resort to handwriting experts
would not benefit either of the parties,
considering the conflicting testimonies of
the expert witnesses and as earlier
mentioned the fact that the notarial
requirements had not been met.
We are also not persuaded by petitioner's
argument that respondent benefited from
the loan. Assuming that indeed part of the
loan was used to pay for Maria's own loan,
still the incontrovertible fact remains that
the SPAs were spurious and the mortgage
unauthorized.
Moreover, petitioner could not be
considered a mortgagee in good faith. It
had knowledge that respondent was in the
United States at the time the SPAs were
allegedly executed, yet, it did not question
their due execution. Though petitioner is
not expected to conduct an exhaustive
investigation on the history of the
mortgagor's title, it cannot be excused from
the duty of exercising the due diligence
required of a banking institution.14 Banks
are expected to exercise more care and
prudence than private individuals in their
dealings, even those that involve registered
lands, for their business is affected with
public interest.15
WHEREFORE, the petition is DENIED. The
Decisiondated August 21, 2003 and the
Resolution dated November 14, 2003 of the
Court of Appeals in CA-G.R. CV No. 60853
are hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
---------------------------------------------------------
THIRD DIVISION
G.R. No. 177803, August 03, 2015
SPOUSES EMILIANO L. JALBAY, SR. AND
MAMERTA C.
JALBAY, Petitioners, v. PHILIPPINE
NATIONAL BANK, Respondent.
DECISION
PERALTA, J.:
This is a Petition for Review under Rule 45
of the Rules of Court which petitioners
spouses Emiliano L. Jalbay, Sr. and Mamerta
C. Jalbay (the Spouses Jalbay) filed, seeking
the reversal of the Court of Appeals (CA)
Decision1 dated November 29, 2006 and its
Resolution2 dated April 27, 2007 in CA-G.R.
CV No. 80896. The CA reversed the
Decision3 of the Regional Trial Court (RTC)
of Quezon City, Branch 100, which declared
the real estate mortgage in favor of
respondent Philippine National Bank (PNB)
null and void.
The facts of the case are as
follows:LawlibraryofCRAlaw
The subject property is a 257-square-meter
lot at Del-Nacia Ville No. 4, Sauyo Road,
Novaliches, Quezon City registered under
the names of the Spouses Jalbay. On June
11, 1988, the Transfer Certificate of Title
(TCT) covering said property was destroyed
when the Office of the Quezon City Register
of Deeds was gutted by fire. Upon
reconstitution, the title was issued in the
name of “Emiliano Jalbay, married to
Mamerta C. Jalbay,” and because the
Spouses Jalbay were then working and
residing abroad, the title was released to
their daughter, Virginia Agus.
Sometime in 1993, Virginia and her
husband, Danilo Agus (the Spouses Agus),
applied for a loan with PNB, Ermita Branch,
in order to acquire additional funds for their
garments business operating under the
name of VJA Garments. As a security, the
Spouses Agus constituted a real estate
mortgage over the subject lot, which they
represented as being owned by siblings
Emiliano Jalbay, Jr., and Teresita Jalbay-
Cinco. The aforesaid borrowers, however,
failed to settle their loan obligation. As a
result, PNB foreclosed the mortgage over
the property. It likewise emerged as the
highest bidder at the public auction.
Subsequently, during a short vacation in the
country, the Spouses Jalbay learned about
the mortgage and foreclosure of their
property. Contending that the real estate
mortgage and the proceedings for its
foreclosure were invalid for lack of consent
of the real registered owners, the Spouses
Jalbay filed a complaint against PNB before
the Quezon City RTC. The case was
docketed as Civil Case No. Q-97-
30800. They likewise sought to prevent the
bank from consolidating its ownership over
the parcel of land during the pendency of
the case.
On April 3, 2003, the RTC declared the
assailed real estate mortgage as null and
void and the foreclosure proceedings
without force and effect.
Aggrieved, PNB and the Spouses Agus
appealed the case before the CA for the
reversal of the RTC ruling. On November
29, 2006, the appellate court reversed and
set aside the decision of the RTC and
ordered the dismissal of the complaint.
The Spouses Jalbay thus filed a Motion for
Reconsideration but the same was
denied. Hence, the instant petition.
The Spouses Jalbay mainly posit that PNB
did not act with the requisite diligence
when it approved the loan application of
the Spouses Agus, Emiliano, Jr., and
Cinco. They claim that the RTC was correct
in finding that PNB was not a mortgagee in
good faith, making the mortgage
constituted on the subject lot null and void.
The petition lacks merit.
In reversing the RTC Decision, the CA held
that PNB followed standard banking
practices in allowing the assailed
loan. According to it, PNB cannot be said to
have acted with haste in approving the loan
application since the bank caused the
subject property to be inspected and
appraised, and even conducted a careful
credit investigation on the Spouses Agus,
Emiliano, Jr., and Cinco. Victorio Sison,
PNB’s Vice-President and Ermita Branch
Manager, testified on the witness
stand:LawlibraryofCRAlaw
xxx
x
Q. Aside from this loan application, what
other document, if any, Mr. Witness,
did the third-party defendants submit
to you for your consideration?
A. They also submitted their transfer
certificate of title which will serve as
collateral to the loans.
xxx
x
Q. x x x Now, after this transfer certificate
of title which you identified were
submitted to you, what happened next
to the loan application of the third
party defendant?
A. We processed the loan and we asked
the assistance of the credit department
to appraise the property and conduct
 investigation on the borrowers and/or
mortgagors.
Q. Was such appraisal and inspection
done as directed by you?
A. It was requested by the branch headed
by me to the credit department, whose
functions are independent from the
branch.
Q. Do you have any proof to show that
indeed there was appraisal and
investigation conducted as requested
by you?
A. I think so because once we requested
the credit department they submit
their appraisal report within one or two
weeks.
xxx
x it is expected to exercise greater care and
Q. After this Inspection and Appraisal
Report was submitted to you together
with other loan documents, what
happened next to the loan application
of third-party defendants?
A. After the appraisal report and the
investigation report were submitted to
us, we processed the loan and
accordingly we deliberated the loan.
We found nothing wrong with both
appraisal and investigation reports.
Q. And so, after you found nothing wrong
in the loan application, what happened
next?
A. We approve the application, we
required them to submit the original
TCT. After which we prepared the
corresponding Credit Agreement, the
R.E.M. and we sent that to the Register
of Deeds for registration. After the
Register of Deeds registered, then the
parties concerned signed the Credit
Agreement. We gave them also the
Promissory Note for them to sign as
evidence that the money or funds will
be released to them.4
Verily, PNB exerted the necessary diligence
in granting the loan and entering into the
assailed real estate mortgage. Not only did
it require Emiliano, Jr., Cinco, and the
Spouses Agus to submit their biodata, duly
accomplished loan application and the TCT
covering the mortgaged lot, it likewise
caused the subject property to be inspected
and appraised, and conducted a thorough
credit investigation on the persons of the
borrowers.
True, banks, in handling real estate
transactions, are required to exert a higher
degree of diligence, care, and prudence
than individuals. Unlike private individuals,
prudence in its dealings, including those
involving registered lands. A banking
institution is expected to exercise due
diligence before entering into a mortgage
contract.5 Indeed, there is a situation
where, despite the fact that the mortgagor
is not the owner of the mortgaged
property, his title being fraudulent, the
mortgage contract and any foreclosure sale
arising therefrom are given effect by reason
of public policy. This is the doctrine of "the
mortgagee in good faith," wherein buyers
or mortgagees dealing with property
covered by a Torrens Certificate of Title are
no longer required to go beyond what
appears on the face of the title.6 However,
the rule that persons dealing with
registered lands can rely solely on the
certificate of title is not applicable to
banks. Thus, before approving a loan
application, it is a standard operating
practice for these institutions to conduct an
ocular inspection of the property offered
for mortgage and to verify the veracity of
the title to determine its real owners. An
ocular inspection is necessary to protect the
true owner of the property as well as
innocent third parties with a right, interest
or claim thereon from a usurper who may
have acquired a fraudulent certificate of
title.7redarclaw
Here, the Court finds that PNB has complied
with the required degree of diligence,
prudence, and care in dealing with the
mortgagor. There was also no sign or
circumstance which could have possibly
triggered suspicion on the bank’s
part. Aside from the fact that the certificate
of title to the subject lot is authentic and
issued in the name of Emiliano Jalbay, he
also appeared to have been the one
occupying said property. Hence, there is no
compelling reason to depart from the
assailed rulings of the appellate court.
WHEREFORE, premises considered, the
petition is DENIED. The Decision of the
Court of Appeals dated November 29, 2006
and its Resolution dated April 27, 2007 in
CA-G.R. CV No. 80896 are AFFIRMED.
G.R. No. 146918 May 2, 2006
CITIBANK, N.A., Petitioner,
vs.
SPS. LUIS and CARMELITA CABAMONGAN
and their sons LUISCABAMONGAN, JR. and
LITO CABAMONGAN, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on
certiorari of the Decision1 dated January 26,
2001 and the Resolution2 dated July 30,
2001 of the Court of Appeals (CA) in CA-G.R.
CV No. 59033.
The factual background of the case is as
follows:
On August 16, 1993, spouses Luis and
Carmelita Cabamongan opened a joint
"and/or" foreign currency time deposit in
trust for their sons Luis, Jr. and Lito at the
Citibank, N.A., Makati branch, with
Reference No. 60-22214372, in the amount
of $55,216.69 for a term of 182 days or until
February 14, 1994, at 2.5625 per cent
interest per annum.3 Prior to maturity, or
on November 10, 1993, a person claiming
to be Carmelita went to the Makati branch
and pre-terminated the said foreign
currency time deposit by presenting a
passport, a Bank of America Versatele Card,
an ATM card and a Mabuhay Credit
Card.4 She filled up the necessary forms for
pre-termination of deposits with the
assistance of Account Officer Yeye San
Pedro. While the transaction was being
processed, she was casually interviewed by
San Pedro about her personal
circumstances and investment plans.5 Since
the said person failed to surrender the
original Certificate of Deposit, she had to
execute a notarized release and waiver
document in favor of Citibank, pursuant to
Citibank's internal procedure, before the
money was released to her.6 The release
and waiver document7 was not notarized on
that same day but the money was
nonetheless given to the person
withdrawing.8 The transaction lasted for
about 40 minutes.9
After said person left, San Pedro realized
that she left behind an identification
card.10 Thus, San Pedro called up
Carmelita's listed address at No. 48 Ranger
Street, Moonwalk Village, Las Pinas, Metro
Manila on the same day to have the card
picked up.11 Marites, the wife of Lito,
received San Pedro's call and was stunned
by the news that Carmelita preterminated
her foreign currency time deposit because
Carmelita was in the United States at that
time.12 The Cabamongan spouses work and
reside in California. Marites made an
overseas call to Carmelita to inform her
about what happened.13 The Cabamongan
spouses were shocked at the news. It seems
that sometime between June 10 and 16,
1993, an unidentified person broke in at the
couple's residence at No. 3268 Baldwin Park
Boulevard, Baldwin Park, California. Initially,
they reported that only Carmelita's jewelry
box was missing, but later on, they
discovered that other items, such as their
passports, bank deposit certificates,
including the subject foreign currency
deposit, and identification cards were also
missing.14 It was only then that the
Cabamongan spouses realized that their
passports and bank deposit certificates
were lost.15
Through various overseas calls, the
Cabamongan spouses informed Citibank,
thru San Pedro, that Carmelita was in the
United States and did not preterminate
their deposit and that the person who did
so was an impostor who could have also
been involved in the break-in of their
California residence. San Pedro told the
spouses to submit the necessary documents
to support their claim but Citibank
concluded nonetheless that Carmelita
indeed preterminated her deposit. In a
letter dated September 16, 1994, the
Cabamongan spouses, through counsel,
made a formal demand upon Citibank for
payment of their preterminated deposit in
the amount of $55,216.69 with legal
interests.16 In a letter dated November 28,
1994, Citibank, through counsel, refused
the Cabamongan spouses' demand for
payment, asserting that the subject deposit
was released to Carmelita upon proper
identification and verification.17
On January 27, 1995, the Cabamongan
spouses filed a complaint against Citibank
before the Regional Trial Court of Makati
for Specific Performance with Damages,
docketed as Civil Case No 95-163 and
raffled to Branch 150 (RTC).18
In its Answer dated April 20, 1995, Citibank
insists that it was not negligent of its duties
since the subject deposit was released to
Carmelita only upon proper identification
and verification.19
At the pre-trial conference the parties failed
to arrive at an amicable settlement.20 Thus,
trial on the merits ensued.
For the plaintiffs, the Cabamongan spouses
themselves and Florenda G. Negre,
Documents Examiner II of the Philippine
National Police (PNP) Crime Laboratory in
Camp Crame, Quezon City, testified. The
Cabamongan spouses, in essence, testified
that Carmelita could not have
preterminated the deposit account since
she was in California at the time of the
incident.21 Negre testified that an
examination of the questioned signature
and the samples of the standard signatures
of Carmelita submitted in the RTC showed a
significant divergence. She concluded that
they were not written by one and the same
person.22
For the respondent, Citibank presented San
Pedro and Cris Cabalatungan, Vice-
President and In-Charge of Security and
Management Division. Both San Pedro and
Cabalatungan testified that proper bank
procedure was followed and the deposit
was released to Carmelita only upon proper
identification and verification.23
On July 1, 1997, the RTC rendered a
decision in favor of the Cabamongan
spouses and against Citibank, the
dispositive portion of which reads, thus:
WHEREFORE, premises considered,
defendant Citibank, N.A., is hereby ordered
to pay the plaintiffs the following:
1) the principal amount of their
Foreign Currency Deposit (Reference
No. 6022214372) amounting to
$55,216.69 or its Phil. Currency
equivalent plus interests from
August 16, 1993 until fully paid;
2) Moral damages of P50,000.00;
3) Attorney's fees of P50,000.00;
and
4) Cost of suit.
SO ORDERED.24
The RTC reasoned that:
xxx Citibank, N.A., committed negligence
resulting to the undue suffering of the
plaintiffs. The forgery of the signatures of
plaintiff Carmelita Cabamongan on the
questioned documents has been
categorically established by the handwriting
expert. xxx Defendant bank was clearly
remiss in its duty and obligations to treat
plaintiff's account with the highest degree
of care, considering the nature of their
relationship. Banks are under the obligation
to treat the accounts of their depositors
with meticulous care. This is the reason for
their established procedure of requiring
several specimen signatures and recent
picture from potential depositors. For every
transaction, the depositor's signature is
passed upon by personnel to check and
countercheck possible irregularities and
therefore must bear the blame when they
fail to detect the forgery or discrepancy.25
Despite the favorable decision, the
Cabamongan spouses filed on October 1,
1997 a motion to partially reconsider the
decision by praying for an increase of the
amount of the damages awarded.26 Citibank
opposed the motion.27 On November 19,
1997, the RTC granted the motion for
partial reconsideration and amended the
dispositive portion of the decision as
follows:
From the foregoing, and considering all the
evidence laid down by the parties, the
dispositive portion of the court's decision
dated July 1, 1997 is hereby amended
and/or modified to read as follows:
WHEREFORE, defendant Citibank, N.A., is
hereby ordered to pay the plaintiffs the
following:
1) the principal amount of their
foreign currency deposit (Reference
No. 6022214372) amounting to
$55,216.69 or its Philippine currency
equivalent (at the time of its actual
payment or execution) plus legal
interest from Aug. 16, 1993 until
fully paid.
2) moral damages in the amount
of P200,000.00;
3) exemplary damages in the
amount of P100,000.00;
 4) attorney's fees of P100,000.00;
5) litigation expenses
of P200,000.00;
6) cost of suit.
SO ORDERED.28
Dissatisfied, Citibank filed an appeal with
the CA, docketed as CA-G.R. CV No.
59033.29 On January 26, 2001, the CA
rendered a decision sustaining the finding
of the RTC that Citibank was negligent,
ratiocinating in this wise:
In the instant case, it is beyond dispute that
the subject foreign currency deposit was
pre-terminated on 10 November 1993. But
Carmelita Cabamongan, who works as a
nursing aid (sic) at the Sierra View Care
Center in Baldwin Park, California, had
shown through her Certificate of
Employment and her Daily Time Record
from the [sic] January to December 1993
that she was in the United States at the
time of the incident.
Defendant Citibank, N.A., however, insists
that Carmelita was the one who pre-
terminated the deposit despite claims to
the contrary. Its basis for saying so is the
fact that the person who made the
transaction on the incident mentioned
presented a valid passport and three (3)
other identification cards. The attending
account officer examined these documents
and even interviewed said person. She was
satisfied that the person presenting the
documents was indeed Carmelita
Cabamongan. However, such conclusion is
belied by these following circumstances.
First, the said person did not present the
certificate of deposit issued to Carmelita
Cabamongan. This would not have been an
insurmountable obstacle as the bank, in the
absence of such certificate, allows the
termination of the deposit for as long as the
depositor executes a notarized release and
waiver document in favor of the bank.
However, this simple procedure was not
followed by the bank, as it terminated the
deposit and actually delivered the money to
the impostor without having the said
document notarized on the flimsy excuse
that another department of the bank was in
charge of notarization. The said procedure
was obviously for the protection of the
bank but it deliberately ignored such
precaution. At the very least, the conduct of
the bank amounts to negligence.
Second, in the internal memorandum of
Account Officer Yeye San Pedro regarding
the incident, she reported that upon
comparing the authentic signatures of
Carmelita Cabamongan on file with the
bank with the signatures made by the
person claiming to be Cabamongan on the
documents required for the termination of
the deposit, she noticed that one letter in
the latter [sic] signatures was different from
that in the standard signatures. She
requested said person to sign again and
scrutinized the identification cards
presented. Presumably, San Pedro was
satisfied with the second set of signatures
made as she eventually authorized the
termination of the deposit. However, upon
examination of the signatures made during
the incident by the Philippine National
Police (PNP) Crime Laboratory, the said
signatures turned out to be forgeries. As
the qualifications of Document Examiner
Florenda Negre were established and she
satisfactorily testified on her findings during
the trial, we have no reason to doubt the
validity of her findings. Again, the bank's
negligence is patent. San Pedro was able to
detect discrepancies in the signatures but
she did not exercise additional precautions
to ascertain the identity of the person she
was dealing with. In fact, the entire
transaction took only 40 minutes to
complete despite the anomalous situation.
Undoubtedly, the bank could have done a
better job.
Third, as the bank had on file pictures of its
depositors, it is inconceivable how bank
employees could have been duped by an
impostor. San Pedro admitted in her
testimony that the woman she dealt with
did not resemble the pictures appearing on
the identification cards presented but San
Pedro still went on with the sensitive
transaction. She did not mind such
disturbing anomaly because she was
convinced of the validity of the passport.
She also considered as decisive the fact that
the impostor had a mole on her face in the
same way that the person in the pictures on
the identification cards had a mole. These
explanations do not account for the
disparity between the pictures and the
actual appearance of the impostor. That
said person was allowed to withdraw the
money anyway is beyond belief.
The above circumstances point to the
bank's clear negligence. Bank transactions
pass through a successive [sic] of bank
personnel, whose duty is to check and
countercheck transactions for possible
errors. While a bank is not expected to be
infallible, it must bear the blame for failing
to discover mistakes of its employees
despite established bank procedure
involving a battery of personnel designed to
minimize if not eliminate errors. In the
instant case, Yeye San Pedro, the employee
who primarily dealt with the impostor, did
not follow bank procedure when she did
not have the waiver document notarized.
She also openly courted disaster by ignoring
discrepancies between the actual
appearance of the impostor and the
pictures she presented, as well as the
disparities between the signatures made
during the transaction and those on file
with the bank. But even if San Pedro was
negligent, why must the other employees in
the hierarchy of the bank's work flow allow
such thing to pass unnoticed and
unrectified?30
The CA, however, disagreed with the
damages awarded by the RTC. It held that,
insofar as the date from which legal interest
of 12% is to run, it should be counted from
September 16, 1994 when extrajudicial
demand was made. As to moral damages,
the CA reduced it to P100,000.00 and
deleted the awards of exemplary damages
and litigation expenses. Thus, the
dispositive portion of the CA decision reads:
WHEREFORE, the decision of the trial court
dated 01 July 1997, and its order dated 19
November 1997, are hereby AFFIRMED with
the MODIFICATION that the legal interest
for actual damages awarded in the amount
of $55,216.69 shall run from 16 September
1994; exemplary damages amounting to
P100,000.00 and litigation expenses
amounting to P200,000.00 are deleted; and
moral damages is reduced to P100,000.00.
Costs against defendant.
SO ORDERED.31
The Cabamongan spouses filed a motion for
partial reconsideration on the matter of the
award of damages in the decision.32 On July
30, 2001, the
CA granted in part said motion and
modified its decision as follows:
1. The actual damages in amount of
$55,216.69, representing the
amount of appellees' foreign
currency time deposit shall earn an
interest of 2.5625% for the period
16 August 1993 to 14 February
1994, as stipulated in the contract;
2. From 16 September 1994 until full
payment, the amount of $55,216.69
shall earn interest at the legal rate
of 12% per annum, and;
3. The award of moral damages is
reduced to P50,000.00.33
Dissatisfied, both parties filed separate
petitions for review on certiorari with this
Court. The Cabamongan spouses' petition,
docketed as G.R. No. 149234, was denied by
the Court per its Resolution dated October
17, 2001.34 On the other hand, Citibank's
petition was given due course by the Court
per Resolution dated December 10, 2001
and the parties were required to submit
their respective memoranda.35
Citibank poses the following errors for
resolution:
1. THE HONORABLE COURT OF
APPEALS GRAVELY ERRED AND
GRAVELY ABUSED ITS DISCRETION IN
UPHOLDING THE LOWER COURT'S
DECISION WHICH IS NOT BASED ON
CLEAR EVIDENCE BUT ON GRAVE
MISAPPREHENSION OF FACTS.
2. THE HONORABLE COURT OF
APPEALS GRAVELY ERRED IN
UPHOLDING THE DECISION OF THE
TRIAL COURT AWARDING MORAL
DAMAGES WHEN IN FACT THERE IS
NO BASIS IN LAW AND FACT FOR
SAID AWARD.
3. THE HONORABLE COURT OF
APPEALS GRAVELY ERRED IN RULING
THAT THE PRINCIPAL AMOUNT OF
US$55,216.69 SHOULD EARN
INTEREST AT THE RATE OF 12% PER
ANNUM FROM 16 SEPTEMBER 1994
UNTIL FULL PAYMENT.36
Anent the first ground, Citibank contends
that the CA erred in affirming the RTC's
finding that it was negligent since the said
courts failed to appreciate the extra
diligence of a good father of a family
exercised by Citibank thru San Pedro.
As to the second ground, Citibank argues
that the Cabamongan spouses are not
entitled to moral damages since moral
damages can be awarded only in cases of
breach of contract where the bank has
acted willfully, fraudulently or in bad faith.
It submits that it has not been shown in this
case that Citibank acted willfully,
fraudulently or in bad faith and mere
negligence, even if the Cabamongan
spouses suffered mental anguish or serious
anxiety on account thereof, is not a ground
for awarding moral damages.
On the third ground, Citibank avers that the
interest rate should not be 12% but the
stipulated rate of 2.5625% per annum. It
adds that there is no basis to pay the
interest rate of 12% per annum from
September 16, 1994 until full payment
because as of said date there was no legal
ground yet for the Cabamongan spouses to
demand payment of the principal and it is
only after a final judgment is issued
declaring that Citibank is obliged to return
the principal amount of US$55,216.69 when
the right to demand payment starts and
legal interest starts to run.
On the other hand, the Cabamongan
spouses contend that Citibank's negligence
has been established by evidence. As to the
interest rate, they submit that the
stipulated interest of 2.5635% should apply
for the 182-day contract period from
August 16, 1993 to February 14, 1993;
thereafter, 12% should apply. They further
contend that the RTC's award of exemplary
damages of P100,000.00 should be
maintained. They submit that the CA erred
in treating the award of litigation expenses
as lawyer's fees since they have shown that
they incurred actual expenses in litigating
their claim against Citibank. They also
contend that the CA erred in reducing the
award of moral damages in view of the
degree of mental anguish and emotional
fears, anxieties and nervousness suffered by
them.37
Subsequently, Citibank, thru a new counsel,
submitted a Supplemental
Memorandum,38 wherein it posits that,
assuming that it was negligent, the
Cabamongan spouses were guilty of
contributory negligence since they failed to
notify Citibank that they had migrated to
the United States and were residents
thereat and after having been victims of a
burglary, they should have immediately
assessed their loss and informed Citibank of
the disappearance of the bank certificate,
their passports and other identification
cards, then the fraud would not have been
perpetuated and the losses avoided. It
further argues that since the Cabamongan
spouses are guilty of contributory
negligence, the doctrine of last clear chance
is inapplicable.
Citibank's assertion that the Cabamongan
spouses are guilty of contributory
negligence and non-application of the
doctrine of last clear chance cannot pass
muster since these contentions were raised
for the first time only in their Supplemental
Memorandum. Indeed, the records show
that said contention were neither pleaded
in the petition for review and the
memorandum nor in Citibank's Answer to
the complaint or in its appellant's brief filed
with the CA. To consider the alleged facts
and arguments raised belatedly in a
supplemental pleading to herein petition
for review at this very late stage in the
proceedings would amount to trampling on
the basic principles of fair play, justice and
due process.391avvphil.net
The Court has repeatedly emphasized that,
since the banking business is impressed
with public interest, of paramount
importance thereto is the trust and
confidence of the public in general.
Consequently, the highest degree of
diligence40 is expected,41 and high standards
of integrity and performance are even
required, of it.42 By the nature of its
functions, a bank is "under obligation to
treat the accounts of its depositors with
meticulous care,43 always having in mind
the fiduciary nature of their relationship."44
In this case, it has been sufficiently shown
that the signatures of Carmelita in the
forms for pretermination of deposits are
forgeries. Citibank, with its signature
verification procedure, failed to detect the
forgery. Its negligence consisted in the
omission of that degree of diligence
required of banks. The Court has held that a
bank is "bound to know the signatures of its
customers; and if it pays a forged check, it
must be considered as making the payment
out of its own funds, and cannot ordinarily
charge the amount so paid to the account
of the depositor whose name was
forged."45 Such principle equally applies
here.
Citibank cannot label its negligence as mere
mistake or human error. Banks handle daily
transactions involving millions of
pesos.46 By the very nature of their works
the degree of responsibility, care and
trustworthiness expected of their
employees and officials is far greater than
those of ordinary clerks and
employees.47 Banks are expected to
exercise the highest degree of diligence in
the selection and supervision of their
employees.48
The Court agrees with the observation of
the CA that Citibank, thru Account Officer
San Pedro, openly courted disaster when
despite noticing discrepancies in the
signature and photograph of the person
claiming to be Carmelita and the failure to
surrender the original certificate of time
deposit, the pretermination of the account
was allowed. Even the waiver document
was not notarized, a procedure meant to
protect the bank. For not observing the
degree of diligence required of banking
institutions, whose business is impressed
with public interest, Citibank is liable for
damages.
As to the interest rate, Citibank avers that
the claim of the Cabamongan spouses does
not constitute a loan or forbearance of
money and therefore, the interest rate of
6%, not 12%, applies.
The Court does not agree.
The time deposit subject matter of herein
petition is a simple loan. The provisions of
the New Civil Code on simple loan govern
the contract between a bank and its
depositor. Specifically, Article 1980 thereof
categorically provides that ". . . savings . . .
deposits of money in banks and similar
institutions shall be governed by the
provisions concerning simple loan." Thus,
the relationship between a bank and its
depositor is that of a debtor-creditor, the
depositor being the creditor as it lends the
bank money, and the bank is the debtor
which agrees to pay the depositor on
demand.
The applicable interest rate on the actual
damages of $55,216.69, should be in
accordance with the guidelines set forth
in Eastern Shipping Lines, Inc. v. Court of
Appeals49 to wit:
I. When an obligation, regardless of
its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is
breached, the contravenor can be
held liable for damages. The
provisions under Title XVIII on
"Damages" of the Civil Code govern
in determining the measure of
recoverable damages.
II. With regard particularly to an
award of interest, in the concept of
actual and compensatory damages,
the rate of interest, as well as the
accrual thereof, is imposed, as
follows:
1. When the obligation is
breached, and it consists in
the payment of a sum of
money, i.e., a loan or
forbearance of money, the
interest due should be that
which may have been
stipulated in writing.
Furthermore, the interest
due shall itself earn legal
interest from the time it is
judicially demanded. In the
absence of stipulation, the
rate of interest shall be 12%
per annum to be computed
from default, i.e., from
judicial or extrajudicial
demand under and subject
to the provisions of Article
1169 of the Civil Code.
2. When an obligation, not
constituting a loan or
forbearance of money, is
breached, an interest on the
amount of damages awarded
may be imposed at the
discretion of the court at the
rate of 6% per annum. No
interest, however, shall be
adjudged on unliquidated
claims or damages except
when or until the demand
can be established with
reasonable certainty.
Accordingly, where the
demand is established with
reasonable certainty, the
interest shall begin to run
from the time the claim is
made judicially or
extrajudicially (Art. 1169,
Civil Code) but when such
certainty cannot be so
reasonably established at the
time the demand is made,
the interest shall begin to
run only from the date the
judgment of the court is
made (at which time the
quantification of damages
may be deemed to have
been reasonably
ascertained). The actual base
for the computation of legal
interest shall, in any case, be
on the amount finally
adjudged.
3. When the judgment of the
court awarding a sum of
money becomes final and
executory, the rate of legal
interest whether the case
falls under paragraph 1 or
paragraph 2, above, shall be
12% per annum from such
finality until its satisfaction,
this interim period being
deemed to be by then an
equivalent to a forbearance
of credit.50
Thus, in a loan or forbearance of money,
the interest due should be that stipulated in
writing, and in the absence thereof, the rate
shall be 12% per annum counted from the
time of demand. Accordingly, the stipulated
interest rate of 2.562% per annum shall
apply for the 182-day contract period from
August 16, 1993 to February 14, 1994. For
the period from the date of extra-judicial
demand, September 16, 1994, until full
payment, the rate of 12% shall apply. As for
the intervening period between February
15, 1994 to September 15, 1994, the rate of
interest then prevailing granted by Citibank
shall apply since the time deposit provided
for roll over upon maturity of the principal
and interest.51
As to moral damages, in culpa
contractual or breach of contract, as in the
case before the Court, moral damages are
recoverable only if the defendant has acted
fraudulently or in bad faith,52 or is found
guilty of gross negligence amounting to bad
faith, or in wanton disregard of his
contractual obligations.53 The act of
Citibank's employee in allowing the
pretermination of Cabamongan spouses'
account despite the noted discrepancies in
Carmelita's signature and photograph, the
absence of the original certificate of time
deposit and the lack of notarized waiver
dormant, constitutes gross negligence
amounting to bad faith under Article 2220
of the Civil Code.
There is no hard-and-fast rule in the
determination of what would be a fair
amount of moral damages since each case
must be governed by its own peculiar facts.
The yardstick should be that it is not
palpably and scandalously excessive.54 The
amount of P50,000.00 awarded by the CA is
reasonable and just. Moreover, said award
is deemed final and executory insofar as
respondents are concerned considering that
their petition for review had been denied by
the Court in its final and executory
Resolution dated October 17, 2001 in G.R.
No. 149234.
Finally, Citibank contends that the award of
attorney's fees should be deleted since such
award appears only in the dispositive
portion of the decision of the RTC and the
latter failed to elaborate, explain and justify
the same.
Article 2208 of the New Civil Code
enumerates the instances where such may
be awarded and, in all cases, it must be
reasonable, just and equitable if the same
were to be granted. Attorney's fees as part
of damages are not meant to enrich the
winning party at the expense of the losing
litigant. They are not awarded every time a
party prevails in a suit because of the policy
that no premium should be placed on the
right to litigate.55 The award of attorney's
fees is the exception rather than the
general rule. As such, it is necessary for the
court to make findings of facts and law that
would bring the case within the exception
and justify the grant of such award. The
matter of attorney's fees cannot be
mentioned only in the dispositive portion of
the decision.56 They must be clearly
explained and justified by the trial court in
the body of its decision. Consequently, the
award of attorney's fees should be deleted.
WHEREFORE, the instant petition
is PARTIALLY GRANTED. The assailed
Decision and Resolution
are AFFIRMED with MODIFICATIONS, as
follows:
1. The interest shall be computed as
follows:
a. The actual damages in
principal amount of
$55,216.69, representing the
amount of foreign currency
time deposit shall earn
interest at the stipulated rate
of 2.5625% for the period
August 16, 1993 to February
14, 1994;
b. From February 15, 1994 to
September 15, 1994, the
 principal amount of
$55,216.69 and the interest
earned as of February 14,
1994 shall earn interest at
the rate then prevailing
granted by Citibank;
c. From September 16, 1994
until full payment, the
principal amount of
$55,216.69 and the interest
earned as of September 15,
1994, shall earn interest at
the legal rate of 12% per
annum;
2. The award of attorney's fees is
DELETED.
----------------------------------------------------------
G.R. No. 168842 August 11, 2010
VICENTE GO, Petitioner,
vs.
METROPOLITAN BANK AND TRUST
CO., Respondent.
DECISION
NACHURA, J.:
Before the Court is a petition for review on
certiorari under Rule 45 of the Rules of
Court, assailing the Decision1 dated May 27,
2005 and the Resolution2 dated August 31,
2005 of the Court of Appeals (CA) in CA-G.R.
CV No. 63469.
The Facts
The facts of the case are as follows:
Petitioner filed two separate cases before
the Regional Trial Court (RTC) of Cebu. Civil
Case No. CEB-9713 was filed by petitioner
against Ma. Teresa Chua (Chua) and
Glyndah Tabañag (Tabañag) for a sum of
money with preliminary attachment. Civil
Case No. CEB-9866 was filed by petitioner
for a sum of money with damages against
herein respondent Metropolitan Bank and
Trust Company (Metrobank) and Chua.3
In both cases, petitioner alleged that he was
doing business under the name "Hope
Pharmacy" which sells medicine and other
pharmaceutical products in the City of
Cebu. Petitioner had in his employ Chua as
his pharmacist and trustee or caretaker of
the business; Tabañag, on the other hand,
took care of the receipts and invoices and
assisted Chua in making deposits for
petitioner’s accounts in the business
operations of Hope Pharmacy.4
In CEB-9713, petitioner claimed that there
were unauthorized deposits and
encashments made by Chua and Tabañag in
the total amount of One Hundred Nine
Thousand Four Hundred Thirty-three Pesos
and Thirty Centavos (₱109,433.30). He
questioned particularly the following:
(1) FEBTC Check No. 251111 dated
April 29, 1990 in the amount of
₱22,635.00 which was issued by
plaintiff’s [petitioner’s] customer
Loy Libron in payment of the stocks
purchased was deposited under
Metrobank Savings Account No.
420-920-6 belonging to the
defendant Ma. Teresa Chua;
(2) RCBC Checks Nos. 330958 and
294515, which were in blank but
pre-signed by him (plaintiff
 [petitioner] Vicente Go) for PBC 6-27-
convenience and intended for 2,000.00
279887 90
payment to plaintiff’s [petitioner’s]
suppliers, were filled up and dated PBC 1-24-
6,300.00
September 22, 1990 and September 162387 90
7, 1990 in the amount of ₱30,000.00
PBC 12-
and ₱50,000.00 respectively, and 3,300.00
162317 22-89
were deposited with defendant
Chua’s aforestated account with PBC 6-23-
Metrobank; 7,650.00
279881 90

(3) PBC Check No. 005874, drawn by PBC 7-21-

3,584.00
Elizabeth Enriquez payable to the 009005 89
Hope Pharmacy in the amount of
PBC 5-14-
₱6,798.30 was encashed by the 3,600.00
279771 90
defendant Glyndah Tabañag;
PBC 4-25-
2,000.00
(4) There were unauthorized 279726 90
deposits and encashments in the
total sum of ₱109,433.30;5 PBC 3-22-
2,800.00
168004 90
In CEB-9866, petitioner averred that there PBC 3-07-
were thirty-two (32) checks with Hope 1,700.00
167963 90
Pharmacy as payee, for varying sums,
amounting to One Million Four Hundred FEBTC 8-20-
80,085.66
Ninety-Two Thousand Five Hundred Ninety- 267793 90
Five Pesos and Six Centavos
FEBTC 7-21-
(₱1,492,595.06), that were not endorsed by 45,304.63
267761 90
him but were deposited under the personal
account of Chua with respondent FEBTC 6-03-
bank,6 and these are the following: 64,000.00
251252 90
FEBTC 8-15-
CHECK 40,078.67
DATE AMOUNT 267798 90
NO.
PBC 8-06-
FEBTC 5-23- 2,100.00
₱ 65,214.88 367292 90
251166 90
PBC 9-26-
FEBTC 5-08- 1,125.00
24,917.75 376445 90
239399 90
PBC 8-07-
FEBTC 7-24- 2,500.00
212,326.56 009056 89
251350 90
 PBC 9-12- accepted for deposit to any other account,
12,105.40 except petitioner’s account.8
376402 90
BPI 7-17- Thus, in CEB-9866, petitioner prayed that
5,240.00
197074 90 Chua and respondent bank be ordered,
jointly and severally, to pay the principal
BPI 7-06-
1,350.00 amount of ₱1,492,595.06, plus interest at
197051 90
12% from the dates of the checks, until the
BPI 9-19- obligation shall have been fully paid; moral
5,402.60 damages of Five Hundred Thousand Pesos
204358 90
(₱500,000.00); exemplary damages of
BPI 7-31- ₱500,000.00; and attorney’s fees and costs
6,715.60
204252 90 in the amount of ₱500,000.00.9
FEBTC 6-27-
83,175.54 On February 23, 1995, the RTC rendered a
251171 90
Joint Decision,10 the dispositive portion of
FEBTC 6-28- which reads:
231,936.10
251165 90
WHEREFORE, premises considered, the
FEBTC 6-30- Court hereby renders judgment dismissing
47,087.25
251251 90 plaintiff Vicente Go’s complaint against the
FEBTC 6-21- defendant Ma. Teresa Chua and Glyndah
170,600.85 Tabañag in Civil Case No. CEB-9713, as well
251163 90
as plaintiff’s complaint against the same
FEBTC 5-23- defendant Ma. Teresa Chua in Civil Case No.
16,440.00
251170 90 CEB-9866.
FEBTC 5-31- Plaintiff Vicente Go is moreover sentenced
211,592.69
251112 90 to pay ₱50,000.00 in attorney’s fees and
FEBTC 6-15- litigation expenses to the defendants Ma.
47,664.03 Teresa Chua and Glyndah Tabañag in Civil
239400 90
Case No. CEB-9713.
FEBTC 6-22-
82,697.85
251162 90 Defendant Metrobank in Civil Case No. CEB-
9866 is hereby condemned to pay unto
plaintiff Vicente Go/Hope Pharmacy the
₱1,492,595.067
amount of ₱50,000.00 as moral damages,
and attorney’s fees and litigation expenses
Petitioner claimed that the said checks in the aggregate sum of ₱25,000.00.
were crossed checks payable to Hope
Pharmacy only; and that without the The defendant Metrobank’s crossclaim
participation and connivance of respondent against its co-defendant Ma. Teresa Chua in
bank, the checks could not have been Civil Case No. CEB-9866 is dismissed for lack
of merit.
No special pronouncement as to costs in
both instances.
SO ORDERED.11
In striking down the complaint of the
petitioner against Chua and Tabañag in CEB-
9713, the RTC made the following findings:
(1) FEBTC Check No. 251111, dated
April 29, 1990, in the amount of
₱22,635.00 payable to cash, was
drawn by Loy Libron in payment of
her purchases of medicines and
other drugs which Ma. Teresa Chua
was selling side by side with the
medicines and drugs of the Hope
Pharmacy, for which she (Maritess)
was granted permission by its
owner, Mr. Vicente Chua. These
medicines and drugs from Thailand
were Maritess’ sideline, and were
segregated from the stocks of Hope
Pharmacy; x x x.
(2) RCBC Check Nos. 294519 and
330958 were checks belonging to
plaintiff Vicente Go payable to cash
x x x; these checks were
replacements of the sums earlier
advanced by Ma. Teresa Chua, but
which were deposited in the
account of Vicente Go with RCBC, as
shown by the deposit slips x x x, and
confirmed by the statement of
account of Vicente Go with RCBC.
(3) Check No. PCIB 005374 drawn by
Elizabeth Enriquez payable to Hope
Pharmacy/Cash in the amount of
₱6,798.30 dated September 6, 1990,
was admittedly encashed by the
defendant, Glyndah Tabañag. As per
instruction by Vicente Go, Glyndah
requested the drawer to insert the
word "Cash," so that she could
encash the same with PCIB, to meet
the Hope Pharmacy’s overdraft.
The listings x x x, made by Glyndah Tabañag
and Flor Ouano will show that the
corresponding amounts covered thereby
were in fact deposited to the account of Mr.
Vicente Go with RCBC; the Bank Statement
of Mr. Go x x x, confirms defendants’ claim
independently of the deposit slip[s] x x x.12
The trial court absolved Chua in CEB-9866
because of the finding that the subject
checks in CEB-9866 were payments of
petitioner for his loans or borrowings from
the parents of Ma. Teresa Chua, through
Ma. Teresa, who was given the total
discretion by petitioner to transfer money
from the offices of Hope Pharmacy to pay
the advances and other obligations of the
drugstore; she was also given the full
discretion where to source the funds to
cover the daily overdrafts, even to the
extent of borrowing money with interest
from other persons.13
While the trial court exonerated Chua in
CEB-9866, it however declared respondent
bank liable for being negligent in allowing
the deposit of crossed checks without the
proper indorsement.
Petitioner filed an appeal before the CA. On
May 27, 2005, the CA rendered a
Decision,14 the fallo of which reads:
WHEREFORE, except for the award of
attorney’s fees and litigation expenses in
favor of defendants Chua and Tabañag
which is hereby deleted, the decision of the
lower court is hereby AFFIRMED.
SO ORDERED.15
Hence, this petition.
The Issue
Petitioner presented this sole issue for
resolution:
The Court of Appeals Erred In Not Holding
Metrobank Liable For Allowing The Deposit,
Of Crossed Checks Which Were Issued In
Favor Of And Payable To Petitioner And
Without Being Indorsed By The Petitioner,
To The Account Of Maria Teresa Chua.16
The Ruling of the Court
A check is a bill of exchange drawn on a
bank payable on demand.17 There are
different kinds of checks. In this case,
crossed checks are the subject of the
controversy. A crossed check is one where
two parallel lines are drawn across its face
or across the corner thereof. It may be
crossed generally or specially.18
A check is crossed specially when the name
of a particular banker or a company is
written between the parallel lines drawn. It
is crossed generally when only the words
"and company" are written or nothing is
written at all between the parallel lines, as
in this case. It may be issued so that
presentment can be made only by a bank.19
In order to preserve the credit worthiness
of checks, jurisprudence has pronounced
that crossing of a check has the following
effects: (a) the check may not be encashed
but only deposited in the bank; (b) the
check may be
negotiated only once — to one who has an
account with a bank; and (c) the act of
crossing the check serves as warning to the
holder that the check has been issued for a
definite purpose so that he must inquire if
he has received the check pursuant to that
purpose, otherwise, he is not a holder in
due course.20
The Court has taken judicial cognizance of
the practice that a check with two parallel
lines in the upper left hand corner means
that it could only be deposited and not
converted into cash. The effect of crossing a
check,
thus, relates to the mode of payment,
meaning that the drawer had intended the
check for deposit only by the rightful
person, i.e., the payee named therein.21 The
crossing of a check is a warning that the
check should be deposited only in the
account of the payee. Thus, it is the duty of
the collecting bank to ascertain that the
check be deposited to the payee’s account
only.22
In the instant case, there is no dispute that
the subject 32 checks with the total amount
of ₱1,492,595.06 were crossed checks with
petitioner as the named payee. It is the
submission of petitioner that respondent
bank should be held accountable for the
entire amount of the checks because it
accepted the checks for deposit under
Chua’s account despite the fact that the
checks were crossed and that the payee
named therein was not Chua.
In its defense, respondent bank countered
that petitioner is not entitled to
reimbursement of the total sum of
₱1,492,595.06 from either Maria Teresa
Chua or respondent bank because
petitioner was not damaged thereby.23
Respondent bank’s contention is
meritorious. Respondent bank should not
be held liable for the entire amount of the
checks considering that, as found by the
RTC and affirmed by the CA, the checks
were actually given to Chua as payments by
petitioner for loans obtained from the
parents of Chua. Furthermore, petitioner’s
non-inclusion of Chua and Tabañag in the
petition before this Court is, in effect, an
admission by the petitioner that Chua, in
representation of her parents, had rightful
claim to the proceeds of the checks, as
payments by petitioner for money he
borrowed from the parents of Chua.
Therefore, petitioner suffered no pecuniary
loss in the deposit of the checks to the
account of Chua.ten.lihpwal
However, we affirm the finding of the RTC
that respondent bank was negligent in
permitting the deposit and encashment of
the crossed checks without the proper
indorsement. An indorsement is necessary
for the proper negotiation of checks
specially if the payee named therein or
holder thereof is not the one depositing or
encashing it. Knowing fully well that the
subject checks were crossed, that the payee
was not the holder and that the checks
contained no indorsement, respondent
bank should have taken reasonable steps in
order to determine the validity of the
representations made by Chua. Respondent
bank was amiss in its duty as an agent of
the payee. Prudence dictates that
respondent bank should not have merely
relied on the assurances given by
Chua.1avvphi1
Respondent presented Jonathan Davis as its
witness in the trial before the RTC. He was
the officer-in-charge and ranked second to
the assistant vice president of the bank at
the time material to this case. Davis’
testimony was summarized by the RTC as
follows:
Davis also testified that he allowed Ma.
Teresa Chua to deposit the checks subject
of this litigation which were payable to
Hope Pharmacy. According to him, it was a
privilege given to valued customers on a
highly selective case to case basis, for
marketing purposes, based on trust and
confidence, because Ma. Teresa [Chua] told
him that those checks belonged to her as
payment for the advances she extended to
Mr. Go/Hope Pharmacy. x x x
Davis stressed that Metrobank granted the
privilege to Ma. Teresa Chua that for every
check she deposited with Metrobank, the
same would be credited outright to her
account, meaning that she could
immediately make use of the amount
credited; this arrangement went on for
about three years, without any complaint
from Mr. Go/Hope Pharmacy, and Ma.
Teresa Chua made warranty that she would
reimburse Metrobank if Mr. Go
complained. He did not however call or
inform Mr. Go about this arrangement,
because their bank being a Chinese bank,
transactions are based on trust and
confidence, and for him to inform Mr.
Vicente Go about it, was tantamount to
questioning the integrity of their client, Ma.
Teresa Chua. Besides, this special privilege
or arrangement would not bring any
monetary gain to the bank.24
Negligence was committed by respondent
bank in accepting for deposit the crossed
checks without indorsement and in not
verifying the authenticity of the negotiation
of the checks. The law imposes a duty of
extraordinary diligence on the collecting
bank to scrutinize checks deposited with it,
for the purpose of determining their
genuineness and regularity.25 As a business
affected with public interest and because of
the nature of its functions, the banks are
under obligation to treat the accounts of its
depositors with meticulous care, always
having in mind the fiduciary nature of the
relationship.26 The fact that this
arrangement had been practiced for three
years without Mr. Go/Hope Pharmacy
raising any objection does not detract from
the duty of the bank to exercise
extraordinary diligence. Thus, the Decision
of the RTC, as affirmed by the CA, holding
respondent bank liable for moral damages
is sufficient to remind it of its responsibility
to exercise extraordinary diligence in the
course of its business which is imbued with
public interest.
WHEREFORE, the Decision dated May 27,
2005 and the Resolution dated August 31,
2005 of the Court of Appeals in CA-G.R. CV
No. 63469 are hereby AFFIRMED.
SO ORDERED.
----------------------------------
G.R. No. 121413 January 29, 2001
PHILIPPINE COMMERCIAL INTERNATIONAL
BANK (formerly INSULAR BANK OF ASIA
AND AMERICA), petitioner,
vs.
COURT OF APPEALS and FORD
PHILIPPINES, INC. and CITIBANK,
N.A., respondents.
G.R. No. 121479 January 29, 2001
FORD PHILIPPINES, INC., petitioner-
plaintiff,
vs.
COURT OF APPEALS and CITIBANK, N.A.
and PHILIPPINE COMMERCIAL
INTERNATIONAL BANK, respondents.
G.R. No. 128604 January 29, 2001
FORD PHILIPPINES, INC., petitioner,
vs.
CITIBANK, N.A., PHILIPPINE COMMERCIAL
INTERNATIONAL BANK and COURT OF
APPEALS, respondents.
QUISUMBING, J.:
These consolidated petitions involve several
fraudulently negotiated checks.
The original actions a quo were instituted
by Ford Philippines to recover from the
drawee bank, CITIBANK, N.A. (Citibank) and
collecting bank, Philippine Commercial
International Bank (PCIBank) [formerly
Insular Bank of Asia and America], the value
of several checks payable to the
Commissioner of Internal Revenue, which
were embezzled allegedly by an organized
syndicate.1âwphi1.nêt
G.R. Nos. 121413 and 121479 are twin
petitions for review of the March 27, 1995
Decision1 of the Court of Appeals in CA-G.R.
CV No. 25017, entitled "Ford Philippines,
Inc. vs. Citibank, N.A. and Insular Bank of
Asia and America (now Philipppine
Commercial International Bank), and the
August 8, 1995 Resolution,2 ordering the
collecting bank, Philippine Commercial
International Bank, to pay the amount of
Citibank Check No. SN-04867.
In G.R. No. 128604, petitioner Ford
Philippines assails the October 15, 1996
Decision3 of the Court of Appeals and its
March 5, 1997 Resolution4 in CA-G.R. No.
28430 entitled "Ford Philippines, Inc. vs.
Citibank, N.A. and Philippine Commercial
International Bank," affirming in toto the
judgment of the trial court holding the
defendant drawee bank, Citibank, N.A.,
solely liable to pay the amount of
P12,163,298.10 as damages for the
misapplied proceeds of the plaintiff's
Citibanl Check Numbers SN-10597 and
16508.
I. G.R. Nos. 121413 and 121479
The stipulated facts submitted by the
parties as accepted by the Court of Appeals
are as follows:
"On October 19, 1977, the plaintiff
Ford drew and issued its Citibank
Check No. SN-04867 in the amount
of P4,746,114.41, in favor of the
Commissioner of Internal Revenue
as payment of plaintiff;s percentage
or manufacturer's sales taxes for the
third quarter of 1977.
The aforesaid check was deposited
with the degendant IBAA (now
PCIBank) and was subsequently
cleared at the Central Bank. Upon
presentment with the defendant
Citibank, the proceeds of the check
was paid to IBAA as collecting or
depository bank.
The proceeds of the same Citibank
check of the plaintiff was never paid
to or received by the payee thereof,
the Commissioner of Internal
Revenue.
As a consequence, upon demand of
the Bureau and/or Commissioner of
Internal Revenue, the plaintiff was
compelled to make a second
payment to the Bureau of Internal
Revenue of its
percentage/manufacturers' sales
taxes for the third quarter of 1977
and that said second payment of
plaintiff in the amount of
P4,746,114.41 was duly received by
the Bureau of Internal Revenue.
It is further admitted by defendant
Citibank that during the time of the
transactions in question, plaintiff
had been maintaining a checking
account with defendant Citibank;
that Citibank Check No. SN-04867
which was drawn and issued by the
plaintiff in favor of the
Commissioner of Internal Revenue
was a crossed check in that, on its
face were two parallel lines and
written in between said lines was
the phrase "Payee's Account Only";
and that defendant Citibank paid the
full face value of the check in the
amount of P4,746,114.41 to the
defendant IBAA.
It has been duly established that for
the payment of plaintiff's
percentage tax for the last quarter
of 1977, the Bureau of Internal
Revenue issued Revenue Tax Receipt
No. 18747002, dated October 20,
1977, designating therein in
Muntinlupa, Metro Manila, as the
authorized agent bank of Metrobanl,
Alabang branch to receive the tax
payment of the plaintiff.
On December 19, 1977, plaintiff's
Citibank Check No. SN-04867,
together with the Revenue Tax
Receipt No. 18747002, was
deposited with defendant IBAA,
through its Ermita Branch. The latter
accepted the check and sent it to
the Central Clearing House for
clearing on the samd day, with the
indorsement at the back "all prior
indorsements and/or lack of
indorsements guaranteed."
Thereafter, defendant IBAA
presented the check for payment to
defendant Citibank on same date,
December 19, 1977, and the latter
paid the face value of the check in
the amount of P4,746,114.41.
Consequently, the amount of
P4,746,114.41 was debited in
plaintiff's account with the
defendant Citibank and the check
was returned to the plaintiff.
Upon verification, plaintiff
discovered that its Citibank Check
No. SN-04867 in the amount of
P4,746,114.41 was not paid to the
Commissioner of Internal Revenue.
Hence, in separate letters dated
October 26, 1979, addressed to the
defendants, the plaintiff notified the
latter that in case it will be re-
assessed by the BIR for the payment
of the taxes covered by the said
checks, then plaintiff shall hold the
defendants liable for reimbursement
of the face value of the same. Both
defendants denied liability and
refused to pay.
In a letter dated February 28, 1980
by the Acting Commissioner of
Internal Revenue addressed to the
plaintiff - supposed to be Exhibit
"D", the latter was officially
informed, among others, that its
check in the amount of P4,
746,114.41 was not paid to the
government or its authorized agent
and instead encashed by
unauthorized persons, hence,
plaintiff has to pay the said amount
within fifteen days from receipt of
the letter. Upon advice of the
plaintiff's lawyers, plaintiff on March
11, 1982, paid to the Bureau of
Internal Revenue, the amount of
P4,746,114.41, representing
payment of plaintiff's percentage tax
for the third quarter of 1977.
As a consequence of defendant's
refusal to reimburse plaintiff of the
payment it had made for the second
time to the BIR of its percentage
taxes, plaintiff filed on January 20,
1983 its original complaint before
this Court.
On December 24, 1985, defendant
IBAA was merged with the
Philippine Commercial International
Bank (PCI Bank) with the latter as
the surviving entity.
Defendant Citibank maintains that;
the payment it made of plaintiff's
Citibank Check No. SN-04867 in the
amount of P4,746,114.41 "was in
due course"; it merely relied on the
clearing stamp of the
 depository/collecting bank, the
defendant IBAA that "all prior
indorsements and/or lack of
indorsements guaranteed"; and the
proximate cause of plaintiff's injury
is the gross negligence of defendant
IBAA in indorsing the plaintiff's
Citibank check in question.
It is admitted that on December 19,
1977 when the proceeds of
plaintiff's Citibank Check No. SN-
048867 was paid to defendant IBAA
as collecting bank, plaintiff was
maintaining a checking account with
defendant Citibank."5
Although it was not among the stipulated
facts, an investigation by the National
Bureau of Investigation (NBI) revealed that
Citibank Check No. SN-04867 was recalled
by Godofredo Rivera, the General Ledger
Accountant of Ford. He purportedly needed
to hold back the check because there was
an error in the computation of the tax due
to the Bureau of Internal Revenue (BIR).
With Rivera's instruction, PCIBank replaced
the check with two of its own Manager's
Checks (MCs). Alleged members of a
syndicate later deposited the two MCs with
the Pacific Banking Corporation.
Ford, with leave of court, filed a third-party
complaint before the trial court impleading
Pacific Banking Corporation (PBC) and
Godofredo Rivera, as third party
defendants. But the court dismissed the
complaint against PBC for lack of cause of
action. The course likewise dismissed the
third-party complaint against Godofredo
Rivera because he could not be served with
summons as the NBI declared him as a
"fugitive from justice".
On June 15, 1989, the trial court rendered
its decision, as follows:
"Premises considered, judgment is
hereby rendered as follows:
"1. Ordering the defendants
Citibank and IBAA (now PCI
Bank), jointly and severally,
to pay the plaintiff the
amount of P4,746,114.41
representing the face value
of plaintiff's Citibank Check
No. SN-04867, with interest
thereon at the legal rate
starting January 20, 1983,
the date when the original
complaint was filed until the
amount is fully paid, plus
costs;
"2. On defendant Citibank's
cross-claim: ordering the
cross-defendant IBAA (now
PCI Bank) to reimburse
defendant Citibank for
whatever amount the latter
has paid or may pay to the
plaintiff in accordance with
next preceding paragraph;
"3. The counterclaims
asserted by the defendants
against the plaintiff, as well
as that asserted by the cross-
defendant against the cross-
claimant are dismissed, for
lack of merits; and
"4. With costs against the
defendants.
SO ORDERED."6
Not satisfied with the said decision, both
defendants, Citibank and PCIBank, elevated
their respective petitions for review on
certiorari to the Courts of Appeals. On
March 27, 1995, the appellate court issued
its judgment as follows:
"WHEREFORE, in view of the
foregoing, the court AFFIRMS the
appealed decision with
modifications.
The court hereby renderes
judgment:
1. Dismissing the complaint
in Civil Case No. 49287
insofar as defendant Citibank
N.A. is concerned;
2. Ordering the defendant
IBAA now PCI Bank to pay
the plaintiff the amount of
P4,746,114.41 representing
the face value of plaintiff's
Citibank Check No. SN-
04867, with interest thereon
at the legal rate starting
January 20, 1983, the date
when the original complaint
was filed until the amount is
fully paid;
3. Dismissing the
counterclaims asserted by
the defendants against the
plaintiff as well as that
asserted by the cross-
defendant against the cross-
claimant, for lack of merits.
Costs against the defendant
IBAA (now PCI Bank).
IT IS SO ORDERED."7
PCI Bank moved to reconsider the above-
quoted decision of the Court of Appeals,
while Ford filed a "Motion for Partial
Reconsideration." Both motions were
denied for lack of merit.
Separately, PCIBank and Ford filed before
this Court, petitions for review by certiorari
under Rule 45.
In G.R. No. 121413, PCIBank seeks the
reversal of the decision and resolution of
the Twelfth Division of the Court of Appeals
contending that it merely acted on the
instruction of Ford and such casue of action
had already prescribed.
PCIBank sets forth the following issues for
consideration:
I. Did the respondent court err
when, after finding that the
petitioner acted on the check drawn
by respondent Ford on the said
respondent's instructions, it
nevertheless found the petitioner
liable to the said respondent for the
full amount of the said check.
II. Did the respondent court err
when it did not find prescription in
favor of the petitioner.8
In a counter move, Ford filed its petition
docketed as G.R. No. 121479, questioning
the same decision and resolution of the
Court of Appeals, and praying for the
reinstatement in toto of the decision of the
trial court which found both PCIBank and
Citibank jointly and severally liable for the
loss.
In G.R. No. 121479, appellant Ford presents
the following propositions for
consideration:
I. Respondent Citibank is liable to
petitioner Ford considering that:
1. As drawee bank,
respondent Citibank owes to
petitioner Ford, as the
drawer of the subject check
and a depositor of
respondent Citibank, an
absolute and contractual
duty to pay the proceeds of
the subject check only to the
payee thereof, the
Commissioner of Internal
Revenue.
2. Respondent Citibank failed
to observe its duty as banker
with respect to the subject
check, which was crossed
and payable to "Payee's
Account Only."
3. Respondent Citibank raises
an issue for the first time on
appeal; thus the same should
not be considered by the
Honorable Court.
4. As correctly held by the
trial court, there is no
evidence of gross negligence
on the part of petitioner
Ford.9
II. PCI Bank is liable to petitioner
Ford considering that:
1. There were no instructions
from petitioner Ford to
deliver the proceeds of the
subject check to a person
other than the payee named
therein, the Commissioner of
the Bureau of Internal
Revenue; thus, PCIBank's
only obligation is to deliver
the proceeds to the
Commissioner of the Bureau
of Internal Revenue.10
2. PCIBank which affixed its
indorsement on the subject
check ("All prior indorsement
and/or lack of indorsement
guaranteed"), is liable as
collecting bank.11
3. PCIBank is barred from
raising issues of fact in the
instant proceedings.12
4. Petitioner Ford's cause of
action had not prescribed.13
II. G.R. No. 128604
The same sysndicate apparently embezzled
the proceeds of checks intended, this time,
to settle Ford's percentage taxes
appertaining to the second quarter of 1978
and the first quarter of 1979.
The facts as narrated by the Court of
Appeals are as follows:
Ford drew Citibank Check No. SN-10597 on
July 19, 1978 in the amount of
P5,851,706.37 representing the percentage
tax due for the second quarter of 1978
payable to the Commissioner of Internal
Revenue. A BIR Revenue Tax Receipt No.
28645385 was issued for the said purpose.
On April 20, 1979, Ford drew another
Citibank Check No. SN-16508 in the amount
of P6,311,591.73, representing the payment
of percentage tax for the first quarter of
1979 and payable to the Commissioner of
Internal Revenue. Again a BIR Revenue Tax
Receipt No. A-1697160 was issued for the
said purpose.
Both checks were "crossed checks" and
contain two diagonal lines on its upper
corner between, which were written the
words "payable to the payee's account
only."
The checks never reached the payee, CIR.
Thus, in a letter dated February 28, 1980,
the BIR, Region 4-B, demanded for the said
tax payments the corresponding periods
above-mentioned.
As far as the BIR is concernced, the said two
BIR Revenue Tax Receipts were considered
"fake and spurious". This anomaly was
confirmed by the NBI upon the initiative of
the BIR. The findings forced Ford to pay the
BIR a new, while an action was filed against
Citibank and PCIBank for the recovery of
the amount of Citibank Check Numbers SN-
10597 and 16508.
The Regional Trial Court of Makati, Branch
57, which tried the case, made its findings
on the modus operandi of the syndicate, as
follows:
"A certain Mr. Godofredo Rivera was
employed by the plaintiff FORD as
its General Ledger Accountant. As
such, he prepared the plaintiff's
check marked Ex. 'A' [Citibank Check
No. Sn-10597] for payment to the
BIR. Instead, however, fo delivering
the same of the payee, he passed on
the check to a co-conspirator named
Remberto Castro who was a pro-
manager of the San Andres Branch
of PCIB.* In connivance with one
Winston Dulay, Castro himself
subsequently opened a Checking
Account in the name of a fictitious
person denominated as 'Reynaldo
reyes' in the Meralco Branch of
PCIBank where Dulay works as
Assistant Manager.
After an initial deposit of P100.00 to
validate the account, Castro
deposited a worthless Bank of
America Check in exactly the same
amount as the first FORD check (Exh.
"A", P5,851,706.37) while this
worthless check was coursed
through PCIB's main office enroute
to the Central Bank for clearing,
replaced this worthless check with
FORD's Exhibit 'A' and accordingly
tampered the accompanying
documents to cover the
replacement. As a result, Exhibit 'A'
was cleared by defendant CITIBANK,
and the fictitious deposit account of
'Reynaldo Reyes' was credited at the
PCIB Meralco Branch with the total
amount of the FORD check Exhibit
'A'. The same method was again
utilized by the syndicate in profiting
from Exh. 'B' [Citibank Check No. SN-
16508] which was subsequently
pilfered by Alexis Marindo, Rivera's
Assistant at FORD.
From this 'Reynaldo Reyes' account,
Castro drew various checks
distributing the sahres of the other
participating conspirators namely (1)
CRISANTO BERNABE, the
mastermind who formulated the
method for the embezzlement; (2)
RODOLFO R. DE LEON a customs
broker who negotiated the initial
contact between Bernabe, FORD's
Godofredo Rivera and PCIB's
Remberto Castro; (3) JUAN
VASTILLO who assisted de Leon in
the initial arrangements; (4)
GODOFREDO RIVERA, FORD's
accountant who passed on the first
check (Exhibit "A") to Castro; (5)
REMERTO CASTRO, PCIB's pro-
manager at San Andres who
performed the switching of checks
in the clearing process and opened
the fictitious Reynaldo Reyes
account at the PCIB Meralco Branch;
(6) WINSTON DULAY, PCIB's
Assistant Manager at its Meralco
Branch, who assisted Castro in
switching the checks in the clearing
process and facilitated the opening
of the fictitious Reynaldo Reyes'
bank account; (7) ALEXIS MARINDO,
Rivera's Assistant at FORD, who gave
the second check (Exh. "B") to
Castro; (8) ELEUTERIO JIMENEZ, BIR
Collection Agent who provided the
fake and spurious revenue tax
receipts to make it appear that the
BIR had received FORD's tax
payments.
Several other persons and entities
were utilized by the syndicate as
conduits in the disbursements of the
proceeds of the two checks, but like
the aforementioned participants in
the conspiracy, have not been
impleaded in the present case. The
manner by which the said funds
were distributed among them are
traceable from the record of checks
drawn against the original "Reynaldo
Reyes" account and indubitably
identify the parties who illegally
benefited therefrom and readily
indicate in what amounts they did
so."14
On December 9, 1988, Regional Trial Court
of Makati, Branch 57, held drawee-bank,
Citibank, liable for the value of the two
checks while adsolving PCIBank from any
liability, disposing as follows:
"WHEREFORE, judgment is hereby
rendered sentencing defendant
CITIBANK to reimburse plaintiff
FORD the total amount of
P12,163,298.10 prayed for in its
complaint, with 6% interest thereon
from date of first written demand
until full payment, plus P300,000.00
attorney's fees and expenses
litigation, and to pay the defendant,
PCIB (on its counterclaim to
crossclaim) the sum of P300,000.00
as attorney's fees and costs of
litigation, and pay the costs.
SO ORDERED."15
Both Ford and Citibank appealed to the
Court of Appeals which affirmed, in toto,
the decision of the trial court. Hence, this
petition.
Petitioner Ford prays that judgment be
rendered setting aside the portion of the
Court of Appeals decision and its resolution
dated March 5, 1997, with respect to the
dismissal of the complaint against PCIBank
and holding Citibank solely responsible for
the proceeds of Citibank Check Numbers
SN-10597 and 16508 for P5,851,706.73 and
P6,311,591.73 respectively.
Ford avers that the Court of Appeals erred
in dismissing the complaint against
defendant PCIBank considering that:
I. Defendant PCIBank was clearly
negligent when it failed to exercise
the diligence required to be
exercised by it as a banking
insitution.
II. Defendant PCIBank clearly failed
to observe the diligence required in
the selection and supervision of its
officers and employees.
III. Defendant PCIBank was, due to
its negligence, clearly liable for the
loss or damage resulting to the
plaintiff Ford as a consequence of
the substitution of the check
consistent with Section 5 of Central
Bank Circular No. 580 series of 1977.
IV. Assuming arguedo that defedant
PCIBank did not accept, endorse or
negotiate in due course the subject
checks, it is liable, under Article
2154 of the Civil Code, to return the
money which it admits having
received, and which was credited to
it its Central bank account.16
The main issue presented for our
consideration by these petitions could be
simplified as follows: Has petitioner Ford
the right to recover from the collecting
bank (PCIBank) and the drawee bank
(Citibank) the value of the checks intended
as payment to the Commissioner of Internal
Revenue? Or has Ford's cause of action
already prescribed?
Note that in these cases, the checks were
drawn against the drawee bank, but the
title of the person negotiating the same was
allegedly defective because the instrument
was obtained by fraud and unlawful means,
and the proceeds of the checks were not
remitted to the payee. It was established
that instead of paying the checks to the CIR,
for the settlement of the approprite
quarterly percentage taxes of Ford, the
checks were diverted and encashed for the
eventual distribution among the mmbers of
the syndicate. As to the unlawful
negotiation of the check the applicable law
is Section 55 of the Negotiable Instruments
Law (NIL), which provides:
"When title defective -- The title of a
person who negotiates an
instrument is defective within the
meaning of this Act when he
obtained the instrument, or any
signature thereto, by fraud, duress,
or fore and fear, or other unlawful
means, or for an illegal
consideration, or when he
negotiates it in breach of faith or
under such circumstances as
amount to a fraud."
Pursuant to this provision, it is vital to show
that the negotiation is made by the
perpetator in breach of faith amounting to
fraud. The person negotiating the checks
must have gone beyond the authority given
by his principal. If the principal could prove
that there was no negligence in the
performance of his duties, he may set up
the personal defense to escape liability and
recover from other parties who. Though
their own negligence, alowed the
commission of the crime.
In this case, we note that the direct
perpetrators of the offense, namely the
embezzlers belonging to a syndicate, are
now fugitives from justice. They have, even
if temporarily, escaped liability for the
embezzlement of millions of pesos. We are
thus left only with the task of determining
who of the present parties before us must
bear the burden of loss of these millions. It
all boils down to thequestion of liability
based on the degree of negligence among
the parties concerned.
Foremost, we must resolve whether the
injured party, Ford, is guilty of the "imputed
contributory negligence" that would defeat
its claim for reimbursement, bearing ing
mind that its employees, Godofredo Rivera
and Alexis Marindo, were among the
members of the syndicate.
Citibank points out that Ford allowed its
very own employee, Godofredo Rivera, to
negotiate the checks to his co-conspirators,
instead of delivering them to the
designated authorized collecting bank
(Metrobank-Alabang) of the payee, CIR.
Citibank bewails the fact that Ford was
remiss in the supervision and control of its
own employees, inasmuch as it only
discovered the syndicate's activities
through the information given by the payee
of the checks after an unreasonable period
of time.
PCIBank also blames Ford of negligence
when it allegedly authorized Godofredo
Rivera to divert the proceeds of Citibank
Check No. SN-04867, instead of using it to
pay the BIR. As to the subsequent run-
around of unds of Citibank Check Nos. SN-
10597 and 16508, PCIBank claims that the
proximate cause of the damge to Ford lies
in its own officers and employees who
carried out the fradulent schemes and the
transactions. These circumstances were not
checked by other officers of the company
including its comptroller or internal auditor.
PCIBank contends that the inaction of Ford
despite the enormity of the amount
involved was a sheer negligence and stated
that, as between two innocent persons, one
of whom must suffer the consequences of a
breach of trust, the one who made it
possible, by his act of negligence, must bear
the loss.
For its part, Ford denies any negligence in
the performance of its duties. It avers that
there was no evidence presented before
the trial court showing lack of diligence on
the part of Ford. And, citing the case
of Gempesaw vs. Court of Appeals,17 Ford
argues that even if there was a finding
therein that the drawer was negligent, the
drawee bank was still ordered to pay
damages.
Furthermore, Ford contends the Godofredo
rivera was not authorized to make any
representation in its behalf, specifically, to
divert the proceeds of the checks. It adds
that Citibank raised the issue of imputed
negligence against Ford for the first time on
appeal. Thus, it should not be considered by
this Court.
On this point, jurisprudence regarding the
imputed negligence of employer in a
master-servant relationship is instructive.
Since a master may be held for his servant's
wrongful act, the law imputes to the master
the act of the servant, and if that act is
negligent or wrongful and proximately
results in injury to a third person, the
negligence or wrongful conduct is the
negligence or wrongful conduct of the
master, for which he is liable.18 The general
rule is that if the master is injured by the
negligence of a third person and by the
concuring contributory negligence of his
own servant or agent, the latter's
negligence is imputed to his superior and
will defeat the superior's action against the
third person, asuming, of course that the
contributory negligence was the proximate
cause of the injury of which complaint is
made.19
Accordingly, we need to determine whether
or not the action of Godofredo Rivera,
Ford's General Ledger Accountant, and/or
Alexis Marindo, his assistant, was the
proximate cause of the loss or damage. AS
defined, proximate cause is that which, in
the natural and continuous sequence,
unbroken by any efficient, intervening
cause produces the injury and without the
result would not have occurred.20
It appears that although the employees of
Ford initiated the transactions attributable
to an organized syndicate, in our view, their
actions were not the proximate cause of
encashing the checks payable to the CIR.
The degree of Ford's negligence, if any,
could not be characterized as the proximate
cause of the injury to the parties.
The Board of Directors of Ford, we note, did
not confirm the request of Godofredo
Rivera to recall Citibank Check No. SN-
04867. Rivera's instruction to replace the
said check with PCIBank's Manager's Check
was not in theordinary course of business
which could have prompted PCIBank to
validate the same.
As to the preparation of Citibank Checks
Nos. SN-10597 and 16508, it was
established that these checks were made
payable to the CIR. Both were crossed
checks. These checks were apparently
turned around by Ford's emploees, who
were acting on their own personal capacity.
Given these circumstances, the mere fact
that the forgery was committed by a
drawer-payor's confidential employee or
agent, who by virtue of his position had
unusual facilities for perpertrating the fraud
and imposing the forged paper upon the
bank, does notentitle the bank toshift the
loss to the drawer-payor, in the absence of
some circumstance raising estoppel against
the drawer.21 This rule likewise applies to
the checks fraudulently negotiated or
diverted by the confidential employees who
hold them in their possession.
With respect to the negligence of PCIBank
in the payment of the three checks
involved, separately, the trial courts found
variations between the negotiation of
Citibank Check No. SN-04867 and the
misapplication of total proceeds of Checks
SN-10597 and 16508. Therefore, we have to
scrutinize, separately, PCIBank's share of
negligence when the syndicate achieved its
ultimate agenda of stealing the proceeds of
these checks.
G.R. Nos. 121413 and 121479
Citibank Check No. SN-04867 was deposited
at PCIBank through its Ermita Branch. It was
coursed through the ordinary banking
transaction, sent to Central Clearing with
the indorsement at the back "all prior
indorsements and/or lack of indorsements
guaranteed," and was presented to Citibank
for payment. Thereafter PCIBank, instead of
remitting the proceeds to the CIR, prepared
two of its Manager's checks and enabled
the syndicate to encash the same.
On record, PCIBank failed to verify the
authority of Mr. Rivera to negotiate the
checks. The neglect of PCIBank employees
to verify whether his letter requesting for
the replacement of the Citibank Check No.
SN-04867 was duly authorized, showed lack
of care and prudence required in the
circumstances.
Furthermore, it was admitted that PCIBank
is authorized to collect the payment of
taxpayers in behalf of the BIR. As an agent
of BIR, PCIBank is duty bound to consult its
principal regarding the unwarranted
instructions given by the payor or its agent.
As aptly stated by the trial court, to wit:
"xxx. Since the questioned crossed
check was deposited with IBAA [now
PCIBank], which claimed to be a
depository/collecting bank of BIR, it
has the responsibility to make sure
that the check in question is
deposited in Payee's account only.
xxx xxx xxx
As agent of the BIR (the payee of the
check), defendant IBAA should
receive instructions only from its
principal BIR and not from any other
person especially so when that
person is not known to the
defendant. It is very imprudent on
the part of the defendant IBAA to
just rely on the alleged telephone
call of the one Godofredo Rivera and
in his signature considering that the
plaintiff is not a client of the
defendant IBAA."
It is a well-settled rule that the relationship
between the payee or holder of commercial
paper and the bank to which it is sent for
collection is, in the absence of an
argreement to the contrary, that of
principal and agent.22 A bank which receives
such paper for collection is the agent of the
payee or holder.23
Even considering arguendo, that the
diversion of the amount of a check payable
to the collecting bank in behalf of the
designated payee may be allowed, still such
diversion must be properly authorized by
the payor. Otherwise stated, the diversion
can be justified only by proof of authority
from the drawer, or that the drawer has
clothed his agent with apparent authority
to receive the proceeds of such check.
Citibank further argues that PCI Bank's
clearing stamp appearing at the back of the
questioned checks stating that ALL PRIOR
INDORSEMENTS AND/OR LACK OF
INDORSEMENTS GURANTEED should render
PCIBank liable because it made it pass
through the clearing house and therefore
Citibank had no other option but to pay it.
Thus, Citibank had no other option but to
pay it. Thus, Citibank assets that the
proximate cause of Ford's injury is the gross
negligence of PCIBank. Since the questione
dcrossed check was deposited with
PCIBank, which claimed to be a
depository/collecting bank of the BIR, it had
the responsibility to make sure that the
check in questions is deposited in Payee's
account only.
Indeed, the crossing of the check with the
phrase "Payee's Account Only," is a warning
that the check should be deposited only in
the account of the CIR. Thus, it is the duty
of the collecting bank PCIBank to ascertain
that the check be deposited in payee's
account only. Therefore, it is the collecting
bank (PCIBank) which is bound to scruninize
the check and to know its depositors before
it could make the clearing indorsement "all
prior indorsements and/or lack of
indorsement guaranteed".
In Banco de Oro Savings and Mortgage
Bank vs. Equitable Banking
Corporation,24 we ruled:
"Anent petitioner's liability on said
instruments, this court is in full
accord with the ruling of the PCHC's
Board of Directors that:
'In presenting the checks for clearing
and for payment, the defendant
made an express guarantee on the
validity of "all prior endorsements."
Thus, stamped at the back of the
checks are the defedant's clear
warranty: ALL PRIOR
ENDORSEMENTS AND/OR LACK OF
ENDORSEMENTS GUARANTEED.
Without such warranty, plaintiff
would not have paid on the checks.'
No amount of legal jargon can
reverse the clear meaning of
defendant's warranty. As the
warranty has proven to be false and
inaccurate, the defendant is liable
for any damage arising out of the
falsity of its representation."25
Lastly, banking business requires that the
one who first cashes and negotiates the
check must take some percautions to learn
whether or not it is genuine. And if the one
cashing the check through indifference or
othe circumstance assists the forger in
committing the fraud, he should not be
permitted to retain the proceeds of the
check from the drawee whose sole fault
was that it did not discover the forgery or
the defect in the title of the person
negotiating the instrument before paying
the check. For this reason, a bank which
cashes a check drawn upon another bank,
without requiring proof as to the identity of
persons presenting it, or making inquiries
with regard to them, cannot hold the
proceeds against the drawee when the
proceeds of the checks were afterwards
diverted to the hands of a third party. In
such cases the drawee bank has a right to
believe that the cashing bank (or the
collecting bank) had, by the usual proper
investigation, satisfied itself of the
authenticity of the negotiation of the
checks. Thus, one who encashed a check
which had been forged or diverted and in
turn received payment thereon from the
drawee, is guilty of negligence which
proximately contributed to the success of
the fraud practiced on the drawee bank.
The latter may recover from the holder the
money paid on the check.26
Having established that the collecting
bank's negligence is the proximate cause of
the loss, we conclude that PCIBank is liable
in the amount corresponding to the
proceeds of Citibank Check No. SN-04867.
G.R. No. 128604
The trial court and the Court of Appeals
found that PCIBank had no official act in the
ordinary course of business that would
attribute to it the case of the embezzlement
of Citibank Check Numbers SN-10597 and
16508, because PCIBank did not actually
receive nor hold the two Ford checks at all.
The trial court held, thus:
"Neither is there any proof that
defendant PCIBank contributed any
official or conscious participation in
the process of the embezzlement.
This Court is convinced that the
 switching operation (involving the
checks while in transit for "clearing")
were the clandestine or hidden
actuations performed by the
members of the syndicate in their
own personl, covert and private
capacity and done without the
knowledge of the defendant
PCIBank…"27
In this case, there was no evidence
presented confirming the conscious
particiapation of PCIBank in the
embezzlement. As a general rule, however,
a banking corporation is liable for the
wrongful or tortuous acts and declarations
of its officers or agents within the course
and scope of their employment.28 A bank
will be held liable for the negligence of its
officers or agents when acting within the
course and scope of their employment. It
may be liable for the tortuous acts of its
officers even as regards that species of tort
of which malice is an essential element. In
this case, we find a situation where the
PCIBank appears also to be the victim of the
scheme hatched by a syndicate in which its
own management employees had
particiapted.
The pro-manager of San Andres Branch of
PCIBank, Remberto Castro, received
Citibank Check Numbers SN-10597 and
16508. He passed the checks to a co-
conspirator, an Assistant Manager of
PCIBank's Meralco Branch, who helped
Castro open a Checking account of a
fictitious person named "Reynaldo Reyes."
Castro deposited a worthless Bank of
America Check in exactly the same amount
of Ford checks. The syndicate tampered
with the checks and succeeded in replacing
the worthless checks and the eventual
encashment of Citibank Check Nos. SN
10597 and 16508. The PCIBank Ptro-
manager, Castro, and his co-conspirator
Assistant Manager apparently performed
their activities using facilities in their official
capacity or authority but for their personal
and private gain or benefit.
A bank holding out its officers and agents as
worthy of confidence will not be permitted
to profit by the frauds these officers or
agents were enabled to perpetrate in the
apparent course of their employment; nor
will t be permitted to shirk its responsibility
for such frauds, even though no benefit
may accrue to the bank therefrom. For the
general rule is that a bank is liable for the
fraudulent acts or representations of an
officer or agent acting within the course
and apparent scope of his employment or
authority.29 And if an officer or employee of
a bank, in his official capacity, receives
money to satisfy an evidence of
indebetedness lodged with his bank for
collection, the bank is liable for his
misappropriation of such sum.30
Moreover, as correctly pointed out by Ford,
Section 531 of Central Bank Circular No. 580,
Series of 1977 provides that any theft
affecting items in transit for clearing, shall
be for the account of sending bank, which
in this case is PCIBank.
But in this case, responsibility for
negligence does not lie on PCIBank's
shoulders alone.
The evidence on record shows that Citibank
as drawee bank was likewise negligent in
the performance of its duties. Citibank
failed to establish that its payment of Ford's
checjs were made in due course and legally
in order. In its defense, Citibank claims the
genuineness and due execution of said
checks, considering that Citibank (1) has no
knowledge of any informity in the issuance
of the checks in question (2) coupled by the
fact that said checks were sufficiently
funded and (3) the endorsement of the
Payee or lack thereof was guaranteed by
PCI Bank (formerly IBAA), thus, it has the
obligation to honor and pay the same.
For its part, Ford contends that Citibank as
the drawee bank owes to Ford an absolute
and contractual duty to pay the proceeds of
the subject check only to the payee thereof,
the CIR. Citing Section 6232 of the
Negotiable Instruments Law, Ford argues
that by accepting the instrument, the
acceptro which is Citibank engages that it
will pay according to the tenor of its
acceptance, and that it will pay only to the
payee, (the CIR), considering the fact that
here the check was crossed with annotation
"Payees Account Only."
As ruled by the Court of Appeals, Citibank
must likewise answer for the damages
incurred by Ford on Citibank Checks
Numbers SN 10597 and 16508, because of
the contractual relationship existing
between the two. Citibank, as the drawee
bank breached its contractual obligation
with Ford and such degree of culpability
contributed to the damage caused to the
latter. On this score, we agree with the
respondent court's ruling.
Citibank should have scrutinized Citibank
Check Numbers SN 10597 and 16508 before
paying the amount of the proceeds thereof
to the collecting bank of the BIR. One thing
is clear from the record: the clearing stamps
at the back of Citibank Check Nos. SN 10597
and 16508 do not bear any initials. Citibank
failed to notice and verify the absence of
the clearing stamps. Had this been duly
examined, the switching of the worthless
checks to Citibank Check Nos. 10597 and
16508 would have been discovered in time.
For this reason, Citibank had indeed failed
to perform what was incumbent upon it,
which is to ensure that the amount of the
checks should be paid only to its designated
payee. The fact that the drawee bank did
not discover the irregularity seasonably, in
our view, consitutes negligence in carrying
out the bank's duty to its depositors. The
point is that as a business affected with
public interest and because of the nature of
its functions, the bank is under obligation to
treat the accounts of its depositors with
meticulous care, always having in mind the
fiduciary nature of their relationship.33
Thus, invoking the doctrine of comparative
negligence, we are of the view that both
PCIBank and Citibank failed in their
respective obligations and both were
negligent in the selection and supervision of
their employees resulting in the
encashment of Citibank Check Nos. SN
10597 AND 16508. Thus, we are
constrained to hold them equally liable for
the loss of the proceeds of said checks
issued by Ford in favor of the CIR.
Time and again, we have stressed that
banking business is so impressed with
public interest where the trust and
confidence of the public in general is of
paramount umportance such that the
appropriate standard of diligence must be
very high, if not the highest, degree of
diligence.34 A bank's liability as obligor is not
merely vicarious but primary, wherein the
defense of exercise of due diligence in the
selection and supervision of its employees
is of no moment.35
Banks handle daily transactions involving
millions of pesos.36 By the very nature of
their work the degree of responsibility, care
and trustworthiness expected of their
employees and officials is far greater than
those of ordinary clerks and
employees.37 Banks are expected to
exercise the highest degree of diligence in
the selection and supervision of their
employees.38
On the issue of prescription, PCIBank claims
that the action of Ford had prescribed
because of its inability to seek judicial relief
seasonably, considering that the alleged
negligent act took place prior to December
19, 1977 but the relief was sought only in
1983, or seven years thereafter.
The statute of limitations begins to run
when the bank gives the depositor notice of
the payment, which is ordinarily when the
check is returned to the alleged drawer as a
voucher with a statement of his
account,39 and an action upon a check is
ordinarily governed by the statutory period
applicable to instruments in writing.40
Our laws on the matter provide that the
action upon a written contract must be
brought within ten year from the time the
right of action accrues.41 hence, the
reckoning time for the prescriptive period
begins when the instrument was issued and
the corresponding check was returned by
the bank to its depositor (normally a month
thereafter). Applying the same rule, the
cause of action for the recovery of the
proceeds of Citibank Check No. SN 04867
would normally be a month after December
19, 1977, when Citibank paid the face value
of the check in the amount of
P4,746,114.41. Since the original complaint
for the cause of action was filed on January
20, 1984, barely six years had lapsed. Thus,
we conclude that Ford's cause of action to
recover the amount of Citibank Check No.
SN 04867 was seasonably filed within the
period provided by law.
Finally, we also find thet Ford is not
completely blameless in its failure to detect
the fraud. Failure on the part of the
depositor to examine its passbook,
statements of account, and cancelled
checks and to give notice within a
reasonable time (or as required by statute)
of any discrepancy which it may in the
exercise of due care and diligence find
therein, serves to mitigate the banks'
liability by reducing the award of interest
from twelve percent (12%) to six percent
(6%) per annum. As provided in Article 1172
of the Civil Code of the Philippines,
respondibility arising from negligence in the
performance of every kind of obligation is
also demandable, but such liability may be
regulated by the courts, according to the
circumstances. In quasi-delicts, the
contributory negligence of the plaintiff shall
reduce the damages that he may recover.42
WHEREFORE, the assailed Decision and
Resolution of the Court of Appeals in CA-
G.R. CV No. 25017 are AFFIRMED. PCIBank,
know formerly as Insular Bank of Asia and
America, id declared solely responsible for
the loss of the proceeds of Citibank Check
No SN 04867 in the amount P4,746,114.41,
which shall be paid together with six
percent (6%) interest thereon to Ford
Philippines Inc. from the date when the
original complaint was filed until said
amount is fully paid.
However, the Decision and Resolution of
the Court of Appeals in CA-G.R. No. 28430
are MODIFIED as follows: PCIBank and
Citibank are adjudged liable for and must
share the loss, (concerning the proceeds of
Citibank Check Numbers SN 10597 and
16508 totalling P12,163,298.10) on a fifty-
fifty ratio, and each bank is ORDERED to
pay Ford Philippines Inc. P6,081,649.05,
with six percent (6%) interest thereon, from
the date the complaint was filed until full
payment of said amount.1âwphi1.nêt
Costs against Philippine Commercial
International Bank and Citibank N.A.
SO ORDERED.
-----------------------------------
G.R. No. 113236 March 5, 2001
FIRESTONE TIRE & RUBBER COMPANY OF
THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and LUZON
DEVELOPMENT BANK, respondents.
QUISUMBING, J.:
This petition assails the decision 1 dated
December 29, 1993 of the Court of Appeals
in CA-G.R. CV No. 29546, which affirmed
the judgment 2 of the Regional Trial Court
of Pasay City, Branch 113 in Civil Case No.
PQ-7854-P, dismissing Firestone's complaint
for damages.
The facts of this case, adopted by the CA
and based on findings by the trial court, are
as follows:
. . . [D]efendant is a banking
corporation. It operates under a
certificate of authority issued by the
Central Bank of the Philippines, and
among its activities, accepts savings
and time deposits. Said defendant
had as one of its client-depositors
the Fojas-Arca Enterprises Company
("Fojas-Arca" for brevity). Fojas-Arca
maintaining a special savings
account with the defendant, the
latter authorized and allowed
withdrawals of funds therefrom
through the medium of special
withdrawal slips. These are supplied
by the defendant to Fojas-Arca.
In January 1978, plaintiff and Fojas-
Arca entered into a "Franchised
Dealership Agreement" (Exh. B)
whereby Fojas-Arca has the privilege
to purchase on credit and sell
plaintiff's products.
On January 14, 1978 up to May 15,
1978. Pursuant to the aforesaid
Agreement, Fojas-Arca purchased
on credit Firestone products from
plaintiff with a total amount of
P4,896,000.00. In payment of these
purchases, Fojas-Arca delivered to
plaintiff six (6) special withdrawal
slips drawn upon the defendant. In
turn, these were deposited by the
plaintiff with its current account
with the Citibank. All of them were
honored and paid by the defendant.
This singular circumstance made
plaintiff believe [sic] and relied [sic]
on the fact that the succeeding
special withdrawal slips drawn upon
the defendant would be equally
sufficiently funded. Relying on such
confidence and belief and as a direct
consequence thereof, plaintiff
extended to Fojas-Arca other
purchases on credit of its products.
On the following dates Fojas-Arca
purchased Firestone products on
credit (Exh. M, I, J, K) and delivered
to plaintiff the corresponding special
withdrawal slips in payment thereof
drawn upon the defendant, to wit:
WITHDRAWAL
DATE
SLIP NO.
June 15, 1978 42127
July 15, 1978 42128
Aug. 15, 1978 42129
Sep. 15, 1978 42130
These were likewise deposited by
plaintiff in its current account with
Citibank and in turn the Citibank
forwarded it [sic] to the defendant
for payment and collection, as it had
done in respect of the previous
special withdrawal slips. Out of
these four (4) withdrawal slips only
withdrawal slip No. 42130 in the
amount of P981,500.00 was
honored and paid by the defendant
in October 1978. Because of the
absence for a long period coupled
with the fact that defendant
honored and paid withdrawal slips
No. 42128 dated July 15, 1978, in
the amount of P981,500.00
plaintiff's belief was all the more
strengthened that the other
withdrawal slips were likewise
sufficiently funded, and that it had
received full value and payment of
Fojas-Arca's credit purchased then
outstanding at the time. On this
basis, plaintiff was induced to
continue extending to Fojas-Arca
further purchase on credit of its
products as per agreement (Exh.
"B").
However, on December 14, 1978,
plaintiff was informed by Citibank
that special withdrawal slips No.
42127 dated June 15, 1978 for
P1,198,092.80 and No. 42129 dated
AMOUNT
August 15, 1978 for P880,000.00
were dishonored and not paid for
P1,198,092.80
the reason 'NO ARRANGEMENT.' As
940,190.00
a consequence, the Citibank debited
plaintiff's account for the total sum
880,000.00
of P2,078,092.80 representing the
981,500.00
aggregate amount of the above-two
special withdrawal slips. Under such
situation, plaintiff averred that the
pecuniary losses it suffered is caused
by and directly attributable to
defendant's gross negligence.
On September 25, 1979, counsel of
plaintiff served a written demand
upon the defendant for the
satisfaction of the damages suffered
by it. And due to defendant's refusal
to pay plaintiff's claim, plaintiff has
been constrained to file this
complaint, thereby compelling
plaintiff to incur litigation expenses
and attorney's fees which amount
are recoverable from the defendant.
Controverting the foregoing
asseverations of plaintiff, defendant
asserted, inter alia that the
transactions mentioned by plaintiff
are that of plaintiff and Fojas-Arca
only, [in] which defendant is not
involved; Vehemently, it was denied
by defendant that the special
withdrawal slips were honored and
treated as if it were checks, the
truth being that when the special
 withdrawal slips were received by
defendant, it only verified whether
or not the signatures therein were
authentic, and whether or not the
deposit level in the passbook
concurred with the savings ledger,
and whether or not the deposit is
sufficient to cover the withdrawal; if
plaintiff treated the special
withdrawal slips paid by Fojas-Arca
as checks then plaintiff has to blame
itself for being grossly negligent in
treating the withdrawal slips as
check when it is clearly stated
therein that the withdrawal slips are
non-negotiable; that defendant is
not a privy to any of the transactions
between Fojas-Arca and plaintiff for
which reason defendant is not duty
bound to notify nor give notice of
anything to plaintiff. If at first
defendant had given notice to
plaintiff it is merely an extension of
usual bank courtesy to a prospective
client; that defendant is only dealing
with its depositor Fojas-Arca and not
the plaintiff. In summation,
defendant categorically stated that
plaintiff has no cause of action
against it (pp. 1-3, Dec.; pp. 368-
370, id).3
Petitioner's complaint4 for a sum of money
and damages with the Regional Trial Court
of Pasay City, Branch 113, docketed as Civil
Case No. 29546, was dismissed together
with the counterclaim of defendant.
Petitioner appealed the decision to the
Court of Appeals. It averred that
respondent Luzon Development Bank was
liable for damages under Article 21765 in
relation to Articles 196 and 207 of the Civil
Code. As noted by the CA, petitioner alleged
the following tortious acts on the part of
private respondent: 1) the acceptance and
payment of the special withdrawal slips
without the presentation of the depositor's
passbook thereby giving the impression
that the withdrawal slips are instruments
payable upon presentment; 2) giving the
special withdrawal slips the general
appearance of checks; and 3) the failure of
respondent bank to seasonably warn
petitioner that it would not honor two of
the four special withdrawal slips.
On December 29, 1993, the Court of
Appeals promulgated its assailed decision. It
denied the appeal and affirmed the
judgment of the trial court. According to the
appellate court, respondent bank notified
the depositor to present the passbook
whenever it received a collection note from
another bank, belying petitioner's claim
that respondent bank was negligent in not
requiring a passbook under the subject
transaction. The appellate court also found
that the special withdrawal slips in question
were not purposely given the appearance of
checks, contrary to petitioner's assertions,
and thus should not have been mistaken for
checks. Lastly, the appellate court ruled that
the respondent bank was under no
obligation to inform petitioner of the
dishonor of the special withdrawal slips, for
to do so would have been a violation of the
law on the secrecy of bank deposits.
Hence, the instant petition, alleging the
following assignment of error:
25. The CA grievously erred in
holding that the [Luzon
Development] Bank was free from
any fault or negligence regarding the
dishonor, or in failing to give fair and
timely advice of the dishonor, of the
 two intermediate LDB Slips and in
failing to award damages to
Firestone pursuant to Article 2176 of
the New Civil Code.8
The issue for our consideration is whether
or not respondent bank should be held
liable for damages suffered by petitioner,
due to its allegedly belated notice of non-
payment of the subject withdrawal slips.
The initial transaction in this case was
between petitioner and Fojas-Arca,
whereby the latter purchased tires from the
former with special withdrawal slips drawn
upon Fojas-Arca's special savings account
with respondent bank. Petitioner in turn
deposited these withdrawal slips with
Citibank. The latter credited the same to
petitioner's current account, then
presented the slips for payment to
respondent bank. It was at this point that
the bone of contention arose.
On December 14, 1978, Citibank informed
petitioner that special withdrawal slips Nos.
42127 and 42129 dated June 15, 1978 and
August 15, 1978, respectively, were refused
payment by respondent bank due to
insufficiency of Fojas-Arca's funds on
deposit. That information came about six
months from the time Fojas-Arca purchased
tires from petitioner using the subject
withdrawal slips. Citibank then debited the
amount of these withdrawal slips from
petitioner's account, causing the alleged
pecuniary damage subject of petitioner's
cause of action.
At the outset, we note that petitioner
admits that the withdrawal slips in question
were non-negotiable.9 Hence, the rules
governing the giving of immediate notice of
dishonor of negotiable instruments do not
apply in this case.10 Petitioner itself
concedes this point.11 Thus, respondent
bank was under no obligation to give
immediate notice that it would not make
payment on the subject withdrawal slips.
Citibank should have known that
withdrawal slips were not negotiable
instruments. It could not expect these slips
to be treated as checks by other entities.
Payment or notice of dishonor from
respondent bank could not be expected
immediately, in contrast to the situation
involving checks.
In the case at bar, it appears that Citibank,
with the knowledge that respondent Luzon
Development Bank, had honored and paid
the previous withdrawal slips, automatically
credited petitioner's current account with
the amount of the subject withdrawal slips,
then merely waited for the same to be
honored and paid by respondent bank. It
presumed that the withdrawal slips were
"good."
It bears stressing that Citibank could not
have missed the non-negotiable nature of
the withdrawal slips. The essence of
negotiability which characterizes a
negotiable paper as a credit instrument lies
in its freedom to circulate freely as a
substitute for money.12 The withdrawal slips
in question lacked this character.
A bank is under obligation to treat the
accounts of its depositors with meticulous
care, whether such account consists only of
a few hundred pesos or of millions of
pesos.13 The fact that the other withdrawal
slips were honored and paid by respondent
bank was no license for Citibank to presume
that subsequent slips would be honored
and paid immediately. By doing so, it failed
in its fiduciary duty to treat the accounts of
its clients with the highest degree of care. 14
In the ordinary and usual course of banking
operations, current account deposits are
accepted by the bank on the basis of
deposit slips prepared and signed by the
depositor, or the latter's agent or
representative, who indicates therein the
current account number to which the
deposit is to be credited, the name of the
depositor or current account holder, the
date of the deposit, and the amount of the
deposit either in cash or in check.15
The withdrawal slips deposited with
petitioner's current account with Citibank
were not checks, as petitioner admits.
Citibank was not bound to accept the
withdrawal slips as a valid mode of deposit.
But having erroneously accepted them as
such, Citibank — and petitioner as account-
holder — must bear the risks attendant to
the acceptance of these instruments.
Petitioner and Citibank could not now shift
the risk and hold private respondent liable
for their admitted mistake.
WHEREFORE, the petition is DENIED and the
decision of the Court of Appeals in CA-G.R.
CV No. 29546 is AFFIRMED. Costs against
petitioner.
SO ORDERED.
Bellosillo, Mendoza, Buena and De Leon, Jr.,
JJ ., concur.
---------------------------------
G.R. No. 173134
BANK OF THE PHILIPPINE
ISLANDS, Petitioner
vs.
TARCILA FERNANDEZ, Respondent
DALMIRO SIAN, Third Party Respondent
DECISION
BRION, J.:
We resolve the Petition for Review
on Certiorari filed by the petitioner Bank of
the Philippine Islands (BPI) under Rule 45 of
the Rules of Court, assailing the Court of
Appeals (CA) July 14, 2005 Decisio1 and the
June 14, 2006 Resolution2 in CA-G.R. CV No.
61764.
The Factual Antecedents
The present case arose from respondent
Tarcila "Baby" Fernandez's (Tarcila) claim to
her proportionate share in the proceeds of
four joint AND/OR accounts that the
petitioner BPI released to her estranged
husband Manuel G. Fernandez (Manuel)
without the presentation of the requisite
certificates of deposit. The facts leading to
this dispute are outlined below.
In 1991, Tarcila together with her husband,
Manuel and their children Monique
Fernandez and Marco Fernandez, opened
the following AND/OR deposit accounts
with the petitioner BPI, Shaw Blvd. Branch:
1) Peso Time Certificate of Deposit No.
2425545 issued on June 27, 1991 in the
name(s) of Manuel G. Fernandez Sr. or
Baby Fernandez or Monique Fernandez in
the amount of ₱1,684,661.40, with a term
of 90 days and a corresponding interest at
17.5% per annum;3
2) Peso Time Certificate of Deposit No.
2425556 issued on July 1, 1991 in the
name(s) of Manuel G. Fernandez Sr. or
Marco Fernandez or Tarcila Fernandez, in
the amount of ₱1,534,335.10, with a term
of 92 days and interest at 17.5% per
annum;4
3) FCDU Time Certificate of Deposit No.
449059 issued on August 27, 1991 in the
name(s) of Manuel or Tarcila Fernandez in
the amount of US$36,219.53, with a term of
30 days and interest at 5.3125% per annum;
4) Deposit under SA No. 3301-0145-61
issued on September 10, 1991 in the
name(s) of Manuel Fernandez or Baby
Fernandez or Monique Fernandez in the
amount of ₱11,369,800.78 with interest at
5% per annum.5
The deposits were subject to the following
conditions:
"x x x
2. Pre-termination of deposits prior to
maturity shall be subject to discretion of
[BPI] and if pre-termination is allowed, it is
subject to an interest penalty to be
determined on the date of pre-termination;
3. Endorsement and presentation of the
Certificate of Deposit is necessary for the
renewal or termination of the deposit"
On September 24, 1991, Tarcila went to the
BPI Shaw Blvd. Branch to pre-terminate
these joint AND/OR accounts. She brought
with her the certificates of time deposit and
the passbook, and presented them to the
bank. BPI, however, refused the requested
pre-termination despite Tarcila's
presentation of the covering certificates.
Instead, BPI, through its branch
manager, Mrs. Elma San Pedro Capistrano
(Capistrano), insisted on contacting
Manuel, alleging in this regard that this is
an integral part of its standard operating
procedure.6
Shortly after Tarcila left the branch, Manuel
arrived and likewise requested the pre-
termination of the joint AND/OR
accounts.7 Manuel claimed that he had lost
the same certificates of deposit that Tarcila
had earlier brought with her.8 BPI, through
Capistrano, this time acceded to the pre-
termination requests, blindly believed
Manuel's claim,9 and requested him to
accomplish BPI's pro-forma affidavit of
loss.10
Two days after, Manuel returned to BPI,
Shaw Blvd. Branch to pre-terminate the
joint AND/OR accounts. He was
accompanied by Atty. Hector Rodriguez, the
respondent Dalmiro Sian (Sian), and two (2)
alleged National Bureau of Investigation
(NBI) agents.
In place of the actual certificates of deposit,
Manuel submitted BPI's pro-forma affidavit
of loss that he previously accomplished and
an Indemnity Agreement that he and Sian
executed on the same day. The Indemnity
Agreement discharged BPI from any liability
in connection with the pre-
termination.11 Notably, none of the co-
depositors were contacted in carrying out
these transactions.
On the same day, the proceeds released to
Manuel were funneled to Sian's newly
opened account with BPI. Immediately
thereafter, Capistrano requested Sian to
sign blank withdrawal slips, which Manuel
used to withdraw the funds from Sian's
newly opened account.12 Sian's account,
after its use, was closed on the same day.13
A few days after these transactions, Tarcila
filed a petition for "Declaration of Nullity of
Marriage, etc." against Manuel, with the
Regional Trial Court (RTC) of Pasig,
docketed as JRDC No. 2098.14 Based on the
records, this civil case has been archived.15
Tarcila never received her proportionate
share of the pre-terminated
deposits,16 prompting her to demand from
BPI the amounts due her as a co-depositor
in the joint AND/OR accounts. When her
demands remained unheeded, Tarcila
initiated a complaint for damages with the
Regional Trial Court (RTQ of Makati City,
Branch 59, docketed as Civil Case No. 95-
671.
In her complaint, Tarcila alleged that BPI's
payments to Manuel of the pre-terminated
deposits were invalid with respect to her
share.17 She argued that BPI was in bad
faith for allowing the pre-termination of the
time deposits based on Manuel's affidavit
of loss when the bank had actual
knowledge that the certificates of deposit
were in her possession.18
In its answer, BPI alleged that the accounts
contained conjugal funds that Manuel
exclusively funded.19 BPI further argued
that Tarcila could not ask for her share of
the pre-terminated deposits because her
share in the conjugal property is considered
inchoate until its dissolution.20 BPI further
denied refusing Tarcila's request for pre-
termination as it processed her request but
she left the branch before BPI could even
contact Manuel.
BPI likewise filed a third-party complaint
against Sian and Manuel on the basis of the
Indemnity Agreement they had previously
executed. As summons against Manuel
remained unserved,21 only BPI's complaint
against Sian proceeded to trial.
During the pre-trial, the parties admitted,
among others, the conjugal nature of the
funds deposited with BPI.
After trial on the merits, the RTC of Makati,
Branch 59, ruled in favor of Tarcila and
awarded her the following amounts: 1.) 1/2
of US$36,379.87; 2.) 1/3 of
P11,3369,800.78; 3.) 1/3 of
Php1,684,661.40; and 1/3 of P1,534,335.10.
The RTC likewise ordered BPI to pay Tarcila
the amount of ₱50,000.00 representing
exemplary damages and ₱500,000.00 as
attorney's fees.
In its decision,22 the RTC opined that the
AND/OR nature of the accounts indicate an
active solidarity that thus entitled any of
the account holders to demand from BPI
payment of their proceeds. Since Tarcila
made the first demand upon BPI, payments
should have been made to her23 under
Article 1214 of the Civil Code, which
provides:
"Art. 1214. The debtor may pay any one of
the solidary creditors; but if any demand,
judicial or extrajudicial, has been made by
one of them, payment should be made to
him."
The RTC did not find merit either in BPI's
third-party complaint against Sian on the
ground that he was merely coerced into
signing the Indemnity Agreement.24 BPI
appealed the RTC ruling with the CA.
CA Ruling
On July 14, 2005, the CA denied BPFs appeal
through the decision25 that BPI now
challenges before this Court. The CA ruled
that as a co-depositor and a solidary
creditor of joint "AND/OR" accounts, BPI did
not enjoy the prerogative to determine the
source of the deposited funds and to refuse
payment to Tarcila on this basis.
The CA also found that BPI had acted in bad
faith in allowing Manuel to pre-terminate
the certificates of deposits and in
facilitating the swift funneling of the funds
to Sian's account, which allowed Manuel to
withdraw them.26 The CA noted that the
transactions were accomplished in one
sitting for the purpose of misleading anyone
who would try to trace Manuel's deposit
accounts.27
The CA likewise upheld the RTC's dismissal
of BPFs third-party complaint against Sian.
It affirmed the factual finding that
intimidation and undue influence vitiated
Sian's consent in signing the Indemnity
Agreement.28
BPI moved for the reconsideration of the CA
ruling, but the appellate court denied its
motion in its June 14, 2006 Resolution.29 BPI
then filed the present petition for review
on certiorari under Rule 45 with this Court.
The Petition and Comment
BPI insists in its present petition30 that the
CA and the court a quo erred in applying
the provisions of Article 1214 of the Civil
Code to the present case. It believes that
the CA should have relied on the conjugal
partnership of gains provision in view of the
existing marriage between the spouses.
Accordingly, BPI argues that Tarcila could
not have suffered any damage from
its payment of the proceeds to Manuel
inasmuch as the proceeds of the pre-
terminated accounts formed part of the
conjugal partnership of gains.
BPI likewise claims that it did not breach its
obligations under the certificates of
deposit; it processed Tarciia's pre-
termination request but she left the branch
before her request could be completed.
Moreover, assuming without conceding
that BPI indeed declined Tarciia's request, it
posits that it possessed the discretion to do
so since the request for pre-termination
was done prior to their maturity dates.
Thus, BPI firmly believes that it could not be
accused of wanton, fraudulent, reckless, or
malevolent conduct as it was merely
exercising its rights.
Finally, BPI insists that Sian's consent was
not vitiated when he signed the Indemnity
Agreement. According to BPI, the records
are bereft of any proof that Sian was
actually threatened to sign the Indemnity
Agreement. Thus, BPI maintains that it may
validly invoke the Agreement to release
itself from any liability.
In her Comment,31 Tarcila points out that
the petition raised questions of fact that are
not proper issues in a petition for review
on certiorari.32 She also argues that BPI's
acts were not mere precautionary steps but
were indicia of bias and bad faith. Finally,
Tarcila adds that the issue of who has
management, control, and custody of
conjugal property cannot be set up to
justify BPI's patent bad faith.
Sian failed to file his Comment on the
petition. Nevertheless, he filed a
Memorandum33 in compliance with the
Court's September 22, 2008
Resolution.34 He alleged that Manuel forced
and intimidated him to sign the Indemnity
Agreement.
THE COURT'S RULING
We deny the petition for lack of merit.
BPI breached its obligation under the
certificates of deposit.
A certificate of deposit is defined as a
written acknowledgment by a bank or
banker of the receipt of a sum of money on
deposit which the bank or banker promises
to pay to the depositor, to the order of the
depositor, or to some other person or his
order, whereby the relation of debtor and
creditor between the bank and the
depositor is created.35 In particular,
the certificates of deposit contain
provisions on the amount of interest,
period of maturity, and manner of
termination. Specifically, they stressed that
endorsement and presentation of the
certificate of deposit is indispensable to
their termination. In other words, the
accounts may only be terminated upon
endorsement and presentation of the
certificates of deposit. Without the
requisite presentation of the certificates of
deposit, BPI may not terminate them.
BPI thus may only terminate the certificates
of deposit after it has diligently
completed two steps. First, it must ensure
the identity of the account holder. Second,
BPI must demand the surrender of the
certificates of deposit.
This is the essence of the contract entered
into by the parties which serves as an
accountability measure to other co-
depositors. By requiring the presentation
of the certificates prior to termination, the
other depositors may rely on the fact that
their investments in the interest-yielding
accounts may not be indiscriminately
withdrawn by any of their co-depositors.
This protective mechanism likewise
benefits the bank, which shields it from
liability upon showing that it released the
funds in good faith to an account holder
who possesses the certificates. Without the
presentation of the certificates of deposit,
BPI may not validly terminate the
certificates of deposit.
With these considerations in mind, we find
that BPI substantially breached its
obligations to the prejudice of Tarcila. BPI
allowed the termination of the accounts
without demanding the surrender of the
certificates of deposits, in the ordinary
course of business. Worse, BPI even
had actual knowledge that the certificates
of deposit were in Tarcila's possession and
yet it chose to release the proceeds to
Manuel on the basis of a falsified affidavit
of loss, in gross violation of the terms of
the deposit agreements.
As we have stressed in the case of FEBTC v.
Querimit:36
"x x x A bank acts at its peril when it pays
deposits evidenced by a certificate of
deposit, without its production and
surrender after proper indorsement. As a
rule, one who pleads payment has the
burden of proving it. Even where the
plaintiff must allege non-payment, the
general rule is that the burden rests on the
defendant to prove payment, rather than
on the plaintiff to prove payment. The
debtor has the burden of showing with
legal certainty that the obligation has been
discharged by payment, x x x Petitioner
should not have paid respondent's
husband or any third party without
requiring the surrender of the certificates
of deposit."37
BPI tried to muddle the issue by claiming
that the funds subject of the deposits were
conjugal in character. This contention,
however, is misleading. The principal issue
involved in the present case is BPFs breach
of its obligations under the express terms of
the certificates of deposit and the
consequent damage that Tarcila suffered as
a co-depositor because of BPI's acts.
Notably, BPI effectively deprived Tarcila and
the other co-depositors of their share in the
proceeds of the certificates of deposits. As
the CA noted in the assailed Decision, the
series of transactions were accomplished
in one sitting for the purpose of misleading
anyone who would try to trace the
proceeds of [Manuel]'s deposit
accounts.38 As the court a quo likewise
observed:
"Aside from the affidavit of loss, the bank
required [Manuel] to execute an Indemnity
Agreement.1âшphi1 Hence, on September
26, 1991, [Manuel] returned to the bank.
This time, Dalmiro Sian, his son-in-law, Atty.
Hector Rodriguez, his lawyer, and two NBI
agents were with him. There, the bank
required him and Sian to sign an Indemnity
Agreement whereby they undertook "to
hold the bank free and harmless from all
liabilities arising from said [pre-
termination]." The agreement was prepared
by one of the officers of the bank. At the
same time, Sian was told to open a new
account under his name. The opening of a
new account N. 3305-0539-44 in the name
of Sian was facilitated. The proceeds of the
four deposit accounts were then
transferred or deposited to this new
account in the name of Sian. x x x Sian also
signed two blank withdrawal slips. With the
use of these withdrawal slips, [Manuel]
Fernandez withdrew all the proceeds
deposited under the name of Sian. Shortly
thereafter, account no. 3305-0539-44 was
closed."39
It appears that BPI connived with Manuel to
allow him to divest his co-depositors of
their share in proceeds. Worse, it
cooperated with Manuel in trying to
conceal this fraudulent conduct by making
it appear that the funds were withdrawn
from another account.
The CA correctly ruled that BPI is guilty of
bad faith.
We affirm the CA and the trial court's
findings that BPI was guilty of bad faith in
these transactions. Bad faith imports a
dishonest purpose and conscious
wrongdoing.40 It means a breach of a known
duty through some motive or interest or ill
will.41
A review of the records of the case show
ample evidence supporting BPI's bad faith,
as shown by the clear bias it had against
Tarcila. As the CA observed:
"The bias and bad faith on the part of
[BPI]'s officers become readily apparent in
the face of the fact that [BPI]'s officers did
not require the presentation of the
certificates of deposit from [Manuel] but
even assisted and facilitated the pre-
termination transaction by the latter on
the basis of a mere pro-forma and
defective affidavit of loss, which the bank
itself supplied, despite the fact that [BPI]'s
officers were fully aware that the
certificates were not lost but in the
possession of [Tarcila]. Moreover, given the
fact that said affidavit of loss was executed
by [Manuel] just a few minutes after
[Tarcila] had presented the certificates of
deposit to [BPI], it taxes one's credulity to
say that [BPI] believed in good faith that the
certificates were indeed lost."42
Similarly, the trial court observed:
"It is quite alarming to note the eagerness
and haste by which the defendant bank
accommodated [Manuel]'s request for the
pre-termination of the questioned account
deposits and the subsequent release to him
of the full proceeds thereof, to the
exclusion of the [Tarcila]. The prejudice of
the officers of [BPI] against the [Tarcila] is
very apparent. Elma Capistrano, branch
manager, categorically testified that
[Tarcila] is a client of the bank only in name;
and that she does not consider [Tarcila] as a
primary depositor to the account because
the source of the money being deposited
and being transacted was [Manuel]."43
BPI argues that it merely took precautionary
steps when it insisted on contacting Manuel
as a form of standard operating procedure.
This assertion, however, is belied by BPI's
own witness. During her testimony,
Capistrano narrated:
"x x x
Q: Can you tell us why it was necessary for
the branch to get in touch with Mr. Manuel
Fernandez?
A: Because he is the one that handles and
is in control of all the money deposited in
the branch44
xxx
Q: I heard you mentioned the word
"primary depositor" does that mean that
Mrs. Tarcila Fernandez is not a primary
depositor?
A: Personally, I do not really consider her
as the primary depositor to the
account because the source of the money
being deposited and being transacted was
Mr. Manuel Fernandez.45
xxx
Q: Were you the one who recommended
that Mr. Manuel Fernandez prepare this
affidavit of loss?
A: That is the usual things that we tell our
clients if the original of the certificates of
deposits (sic) or passbook or checkbooks
are missing.
Q: But is it not a fact that earlier a few
minutes before Mr. Fernandez came, you
were aware that the certificates were not
actually missing but were in the possession
of Mrs. [Tarcila] Fernandez, is it not?
A: Yes Sir.
Q: And yet when this affidavit of loss was
later prepared and presented to you, did
you give due course to this affidavit of
loss? Did you accept the truth of the
contents of this affidavit of loss?
A: Because it is Mr. [Manuel] Fernandez
who is in possession of all the certificates,
and if he is missing it, I believed that it is
really missing."46
The records thus abound with evidence that
BPI clearly favored Manuel. BPI considered
Manuel as the primary depositor despite
the clear import of the nature of their
AND/OR account, which permits either or
any of the co-depositors to transact with
BPI, upon the surrender of the certificates
of deposit. Worse, BPI facilitated the
scheme in order to allow Manuel to obtain
the proceeds and conceal any evidence of
wrongdoing.
BPI did not only fail to exercise that degree
of diligence required by the nature of its
business, it also exercised its functions
with bad faith and manifest partiality
against Tarcila. The bank even recognized
an affidavit of loss whose allegations, the
bank knew, were false. This aspect of the
transactions opens up other issues that we
do not here decide because they are
outside the scope of the case before us.
One aspect is criminal in nature because
Manuel swore to a falsity and the act was
with the knowing participation of bank
officers. The other issue is administrative
in character as these bank officers
betrayed the trust reposed in them by the
bank. We mention all these because these
are disturbing acts to observe in a banking
institution as large as the BPI.
BPI is sternly reminded that the business of
banks is impressed with public interest. The
fiduciary nature of their relationship with
their depositors requires it to treat the
accounts of its clients with the highest
degree of integrity, care and respect. In the
present case, the manner by which BPI
treated Tarcila also transgresses the general
banking law47 and Article 19 of the Civil
Code, which directs every person, in the
exercise of his rights, "to give everyone his
due, and observe honesty and good faith."
BPI could not invoke the Indemnity
Agreement.
BPI assails the CA's declaration voiding the
Indemnity Agreement that would allow it to
hold Sian liable for the withdrawn
deposits.48 It argues that Sian's allegation of
vitiation of consent should not be
recognized as it is based solely on the
presence of Manuel's lawyer and two (2)
alleged NBI Agents.49 BPI thus claims that
"mere presence" of law enforcement
officers cannot be reasonably equated as
imminent threat.50
This particular issue involves a factual
determination of vitiated consent, which is
a question of fact and one which is not
generally appropriate in a petition for
review on certiorari under Rule 45. We,
however, are not precluded from again
examining the evidence introduced and
considered with respect to this factual issue
where the CA's finding of vitiated consent is
both speculative and mistaken.51
We agree with BPFs observation on this
point that there is nothing in the records
that even remotely resembles vitiation of
consent. In order that intimidation may
vitiate consent, it is essential that the
intimidation was the moving cause for
giving consent.[52] Moreover, the
threatened act must be unjust or
unlawful.53 In addition, the threat must be
real or serious, and must produce well-
grounded fear from the fact that the person
making the threat has the necessary means
or ability to inflict the threat.54
Nothing in the records supports this
conclusion. In fact, we find it difficult to
believe that the presence of Manuel, his
lawyer, and two (2) NBI agents could
amount to intimidation in the absence of
any act or threatened injury on Sian. If he
did sign the Indemnity Agreement with
reluctance, vitiation of consent is still
negated, as we held in Vales v. Villa:55
"There must, then, be a distinction to be
made between a case where a person gives
his consent reluctantly and even against his
good sense: and judgment, and where he,
in reality, gives no consent at all, as where
he executes a contract or performs an act
against his will under a pressure which he
cannot resist. It is clear that one acts as
voluntarily and independently in the eye of
the law when he acts reluctantly and with
hesitation as when he acts spontaneously
and joyously. Legally speaking he acts as
voluntarily and freely when he acts wholly
against his better sense and judgment as
when he acts in conformity with them.
Between the two acts there is no difference
in law. But when his sense, judgment, and
his will rebel and he refuses absolutely to
act as requested, but is nevertheless
overcome by force or intimidation to such
an extent that he becomes a mere
automation and acts mechanically only, a
new element enters, namely, a
disappearance of the personality of the
actor. He ceases to exist as an independent
entity with faculties and judgment, and in
his place is substituted another — the one
exercising the force or making use of
intimidation. While his hand signs, the will
which moves it is another's. While a
contract is made, it has, in reality and in
law, only one party to it; and, there being
only one party, the one using the force or
the intimidation, it is unenforceable for lack
of a second party.
From these considerations it is clear that
every case of alleged intimidation must be
examined to determine within which class it
falls. If it is within the first class it is not
duress in law, if it falls in the second, it is."
This notwithstanding, we hold that BPI may
still not invoke the provisions of the
Indemnity Agreement on the basis of in pari
delicto - it was equally at fault. In pari
delicto is a legal doctrine resting on the
theory that courts will not aid parties who
base their cause of action on their own
immoral or illegal acts.56 When two parties,
acting together, commit an illegal
or wrongful act, the party held responsible
for the act cannot recover from the other,
because both have been equally culpable
and the damage resulted from their joint
offense.57
In the present case, equity dictates that BPI
should not be allowed to claim from Sian on
the basis of the Indemnity
Agreement.1âшphi1 The facts unmistakably
show that both BPI and Sian participated in
the deceptive scheme to allow Manuel to
withdraw the funds. As succinctly admitted
by Capistrano during her testimony:
xxx
Q: I see, in other words, the same
certificates of deposit earlier presented by
Mrs. Tarcila were recognized by the bank
as having been lost and thereafter
transactions were made in favor of Mr.
Manuel Fernandez, that was what
happened?
A: Yes Sir, because of the representation of
Mr. Manuel Fernandez that he lost it.
Q: You accepted, the bank immediately
accepted in face value that representation?
A: Yes Sir.58
BPI knew very well the irregularity in
Manuel's transaction for it had actual
knowledge that the certificates of deposit
were in Tarcila's possession. Because of
this knowledge, it entertained the
possibility of reprisal from the co-
depositors. Thus, it took shrewdly
calculated steps and required Manuel and
Sian to execute an Indemnity Agreement,
hoping that this instrument would absolve
it from liability.
BPI and Sian are in pari delicto, thus, no
affirmative relief should be given to one
against the other. BPI came to court with
unclean hands; for which reason, it cannot
obtain relief and thereby gain from its
indispensable participation in the irregular
transaction. One who seeks equity and
justice must come to court with clean
hands.59
Award of exemplary damages proper
Exemplary or corrective damages are
imposed by way of example or correction
for the public good, in addition to moral,
temperate, liquidated, or compensatory
damages.60 In quasi-delicts, exemplary
damages may be granted if the defendant
acted with gross negligence.61
In the present case, BPI's bias and bad faith
unquestionably caused prejudice to Tarcila.
The law allows the grant of exemplary
damages in cases such as this to serve as a
warning to the public and as a deterrent
against the repetition of this kind of
deleterious actions.[62] From this
perspective, we find that the CA did not err
in affirming the RTC's award of P50,000.00
by way of exemplary damages.
Attorney's fees in order
In view of the award of exemplary damages,
we find that that the CA did not err in
confirming the RTC's award of attorney's
fees, in accordance with Article 2208 (1) of
the Civil Code. We find the award of
attorney's fees, equivalent to ₱500,000.00,
to be just and reasonable under the
circumstances.
WHEREFORE, premises considered, the
petition is hereby DENIED.
Costs against the petitioner.
----------------------------------------------------------
---
G.R. No. 108957 June 14, 1993
PRUDENTIAL BANK, petitioner,
vs.
THE COURT OF APPEALS, AURORA
CRUZ, respondents.
Monique Q. Ignacio for petitioner.
Eduardo C. Tutaan for private respondent.
CRUZ, J.:
We deal here with another controversy
involving the integrity of a bank.
The complaint in this case arose when
private respondent Aurora F.
Cruz, * with her sister as co-depositor,
invested P200,000.00 in Central Bank bills
with the Prudential Bank at its branch in
Quezon Avenue, Quezon City, on June 23,
1986. The placement was for 63 days at
13.75% annual interest. For this purpose,
the amount of P196,122.88 was withdrawn
from the depositors' Savings Account No.
2546 and applied to the investment. The
difference of P3,877.07 represented the
pre-paid interest.
The transaction was evidenced by a
Confirmation of Sale1 delivered to Cruz two
days later, together with a Debit Memo2 in
the amount withdrawn and applied to the
confirmed sale. These documents were
issued by Susan Quimbo, the employee of
the bank to whom Cruz was referred and
who was apparently in charge of such
transactions.3
Upon maturity of the placement on August
25, 1986, Cruz returned to the bank to "roll-
over" or renew her investment. Quimbo,
who again attended to her, prepared a
Credit Memo4 crediting the amount of
P200,000.00 in Cruz's savings account
passbook. She also prepared a Debit Memo
for the amount of P196,122.88 to cover the
re-investment of P200,000.00 minus the
prepaid interest of P3,877.02.5
This time, Cruz was asked to sign a
Withdrawal Slip6 for P196,122.98,
representing the amount to be re-invested
after deduction of the prepaid interest.
Quimbo explained this was a new
requirement of the bank. Several days later,
Cruz received another Confirmation of
Sale7 and a copy of the Debit Memo.8
On October 27, 1986, Cruz returned to the
bank and sought to withdraw her
P200,000.00. After verification of her
records, however, she was informed that
the investment appeared to have been
already withdrawn by her on August 25,
1986. There was no copy on file of the
Confirmation of Sale and the Debit Memo
allegedly issued to her by Quimbo. Quimbo
herself was not available for questioning as
she had not been reporting for the past
week. Shocked by this information, Cruz
became hysterical and burst into tears. The
branch manager, Roman Santos, assured
her that he would look into the matter.9
Every day thereafter, Cruz went to the bank
to inquire about her request to withdraw
her investment. She received no definite
answer, not even to the letter she wrote
the bank which was received by Santos
himself. 10 Finally, Cruz sent the bank a
demand letter dated November 12, 1986
for the amount of P200,000.00 plus
interest. 11 In a reply dated November 20,
1986, the bank's Vice President Lauro J.
Jocson said that there appeared to be an
anomaly
and requested Cruz to defer court action as
they hoped to settle the matter
amicably. 12 Increasingly worried, Cruz sent
another letter reiterating her
demand. 13 This time the reply of the bank
was unequivocal and negative. She was told
that her request had to be denied because
she had already withdrawn the amount she
was claiming. 14
Cruz's reaction was to file a complaint for
breach of contract against Prudential Bank
in the Regional Trial Court of Quezon City.
She demanded the return of her money
with interest, plus damages and attorney's
fees. In its answer, the bank denied liability,
insisting that Cruz had withdrawn her
investment. The bank also instituted a third-
party complaint against Quimbo, who did
not file an answer and was declared in
default. 15 The bank, however, did not
present any evidence against her.
After trial, Judge Rodolfo A. Ortiz rendered
judgment in favor of the plaintiffs and
disposed as follows:
ACCORDINGLY, judgment is
hereby rendered ordering
the defendant/third-party
plaintiff to pay to the
plaintiffs the following
amounts:
1. P200,000.00, plus interest
thereon at the rate of
13.75% per annum from
October 27, 1986, until fully
paid;
2. P30,000.00, as moral
damages;
3. P20,000.00, as exemplary
damages; and
4. P25,000.00, as reasonable
attorney's fees.
The counterclaim and the
third-party complaint of the
defendant/third-party
plaintiff are dismissed.
With costs against the
defendant/third-party
plaintiff.
The decision was affirmed in toto on appeal
to the respondent court.
The judgment of the Court of Appeals 16 is
now faulted in this petition, mainly on the
ground that the bank should not have been
found liable for a quasi-delict when it was
sued for breach of contract.
The petition shall fail. The petitioner is
quibbling. It appears to be merely
temporizing to delay enforcement of the
liability clearly established against it.
The basic issues are factual. The private
respondent claims she has not yet collected
her investment of P200,000.00 and has
submitted in proof of their contention the
Confirmation of Sale and the Debit Memo
issued to her by Quimbo on the official
forms of the bank. The petitioner denies her
claim and points to the Withdrawal Slip,
which it says Cruz has not denied having
signed. It also contends that the
Confirmation of Sale and the Debit Memo
are fake and should not have been given
credence by the lower courts.
The findings of the trial court on these
issues have been affirmed by the
respondent court and we see no reason to
disturb them. The petitioner has not shown
that they have been reached arbitrarily or in
disregard of the evidence of record. On the
contrary, we find substantial basis for the
conclusion that the private respondents
signed the Withdrawal Slip only as part of
the bank's new procedure of re-investment.
She did not actually receive the amount
indicated therein, which she was made to
understand was being re-invested in her
name. The bank itself so assured her in the
Confirmation of Sale and the Debit Memo
later issued to her by Quimbo.
Especially persuasive are the following
observations of the trial court: 17
What is more, it could not be
that plaintiff Aurora F. Cruz
withdrew only the amount of
P196,122.98 from their
savings account, if her only
 intention was to make such a
withdrawal. For, if, indeed, it
was the desire of the
plaintiffs to withdraw their
money from the
defendant/third-party
plaintiff, they could have
withdrawn an amount in
round figures. Certainly, it is
unbelievable that their
withdrawal was in the
irregular amount of
P196,122.98 if they really
received it. On the contrary,
this amount, which is the
price of the Central Bank bills
rolled over, indicates that, as
claimed by plaintiff Aurora F.
Cruz, she did not receive this
money, but it was left by her
with the defendant/third-
party plaintiff in order to buy
Central Bank bills placement
for another sixty-three (63)
days, for which she signed a
withdrawal slip at the
instance of third-party
defendant Susan Quimbo
who told her that it was a
new bank requirement for
the roll-over of a matured
placement which she
trustingly believed.
Indeed, the bank has not explained the
remarkable coincidence that the amount
indicated in the withdrawal slip
is exactly the same amount Cruz was re-
investing after deducting therefrom the
pre-paid interest.
The bank has also not, succeeded in
impugning the authenticity of the
Confirmation of Sale and the Debit Memo
which were made on its official, forms.
These are admittedly not available to the
general public or even its depositors and
are handled only by its personnel. Even
assuming that they were not signed by its
authorized officials, as it claims, there was
no obligation on the part of Cruz to verify
their authority because she had the right to
presume it. The documents had been issued
in the office of the bank itself and by its
own employees with whom she had
previously dealt. Such dealings had not
been questioned before, much leas
invalidated. There was absolutely no reason
why she should not have accepted their
authority to act on behalf of their employer.
It is also worthy of note — and wonder —
that although the bank impleaded Quimbo
in a third-party complaint, it did not pursue
its suit even when she failed to answer and
was declared in default. The bank did not
introduce evidence against her although it
could have done so under the rules. No less
remarkably, it did not call on her to testify
on its behalf, considering that under the
circumstances claimed by it, she would
have been the best witness to show that
Cruz had actually withdrawn her
P200,000.00 placement. Instead, the bank
chose to rely on its other employees whose
testimony was less direct and categorical
than the testimony Quimbo could have
given.
We do not find that the Court of Appeals
held the bank liable on a quasi-delict. The
argument of the petitioner on this issue is
pallid, to say the least, consisting as it does
only of the observation that the article cited
by the respondent court on the agent's
liability falls under the heading in the Civil
Code on quasi-delicts. On the other hand,
the respondent court clearly declared that:
 The defendant/third-party
plaintiff being liable for the
return of the P200,000.00
placement of the plaintiffs,
the extent of the liability of
the defendant/third-party
plaintiff for damages
resultant thereof, which is
contractual, is for all
damages which may be
reasonably attributed to the
non-performance of the
obligation, . . .
xxx xxx xxx
Because of the bad faith of
the defendant/third-party
plaintiff in its breach of its
contract with the plaintiffs,
the latter are, therefore,
entitled to an award of moral
damages . . . (Emphasis
supplied)
There is no question that the petitioner was
made liable for its failure or refusal to
deliver to Cruz the amount she had
deposited with it and which she had a right
to withdraw upon its maturity. That
investment was acknowledged by its own
employees, who had the apparent authority
to do so and so could legally bind it by its
acts vis-a-vis Cruz. Whatever might have
happened to the investment — whether it
was lost or stolen by whoever — was not
the concern of the depositor. It was the
concern of the bank.
As far as Cruz was concerned, she had the
right to withdraw her P200,000.00
placement when it matured pursuant to the
terms of her investment as acknowledged
and reflected in the Confirmation of Sale.
The failure of the bank to deliver the
amount to her pursuant to the
Confirmation of Sale constituted its breach
of their contract, for which it should be held
liable.
The liability of the principal for the acts of
the agent is not even debatable. Law and
jurisprudence are clearly and absolutely
against the petitioner.
Such liability dates back to the Roman Law
maxim, Qui per alium facit per seipsum
facere videtur. "He who does a thing by an
agent is considered as doing it himself." This
rule is affirmed by the Civil Code thus:
Art. 1910. The principal must
comply with all the
obligations which the agent
may have contracted within
the scope of his authority.
Art. 1911. Even when the
agent has exceeded his
authority, the principal is
solidarily liable with the
agent if the former allowed
the latter to act as though he
had full powers.
Conformably, we have
declared in countless
decisions that the principal is
liable for obligations
contracted by the agent. The
agent's apparent
representation yields to the
principal's true
representation and the
contract is considered as
entered into between the
principal and the third
person. 18
 A bank is liable for wrongful
acts of its officers done in the
interests of the bank or in
the course of dealings of the
officers in their
representative capacity but
not for acts outside the
scope of their authority. (9
c.q.s. p. 417) A bank holding
out its officers and agent as
worthy of confidence will not
be permitted to profit by the
frauds they may thus be
enabled to perpetrate in the
apparent scope of their
employment; nor will it be
permitted to shirk its
responsibility for such frauds,
even though no benefit may
accrue to the bank therefrom
(10 Am Jur 2d, p. 114).
Accordingly, a banking
corporation is liable to
innocent third persons
where the representation is
made in the course of its
business by an agent acting
within the general scope of
his authority even though, in
the particular case, the agent
is secretly abusing his
authority and attempting to
perpetrate a fraud upon his
principal or some other
person, for his own ultimate
benefit (McIntosh v. Dakota
Trust Co., 52 ND 752, 204
NW 818, 40 ALR 1021.)
Application of these principles in especially
necessary because banks have a fiduciary
relationship with the public and their
stability depends on the confidence of the
people in their honesty and efficiency. Such
faith will be eroded where banks do not
exercise strict care in the selection and
supervision of its employees, resulting in
prejudice to their depositors.
It would appear from the facts established
in the case before us that the petitioner was
less than eager to present Quimbo at the
trial or even to establish her liability
although it made the initial effort — which
it did not pursue — to hold her answerable
in the third-party complaint. What ever
happened to her does not appear in the
record. Her absence from the proceedings
feeds the suspicion of her possible misdeed,
which the bank seems to have studiously
ignored by its insistence that the missing
money had been actually withdrawn by
Cruz. By such insistence, the bank is
absolving not only itself but also, in effect
and by extension, the disappeared Quimbo
who apparently has much to explain.
We agree with the lower courts that the
petitioner acted in bad faith in denying Cruz
the obligation she was claiming against it. It
was obvious that an irregularity had been
committed by the bank's personnel, but
instead of repairing the injury to Cruz by
immediately restoring her money to her, it
sought to gloss over the anomaly in its own
operations.
Cruz naturally suffered anxious moments
and mental anguish over the loss of the
investment. The amount of P200,000.00 is
not small even by present standards. By
unjustly withholding it from her on the
unproved defense that she had already
withdrawn it, the bank violated the trust
she had reposed in it and thus subjected
itself to further liability for moral and
exemplary damages.
If a person dealing with a bank does not
read the fine print in the contract, it is
because he trusts the bank and relies on its
integrity. The ordinary customer applying
for a loan or even making a deposit (and so
himself extending the loan to the bank)
does not bother with the red tape
requirements and the finicky conditions in
the documents he signs. His feeling is that
he does not have to be wary of the bank
because it will deal with him fairly and there
is no reason to suspect its motives. This is
an attitude the bank must justify.
While this is not to say that bank
regulations are meaningless or have no
binding effect, they should, however, not
be used for covering up the fault of bank
employees when they blunder or, worse,
intentionally cheat him. The misdeeds of
such employees must be readily
acknowledged and rectified without delay.
The bank must always act in good faith. The
ordinary customer does not feel the need
for a lawyer by his side every time he deals
with a bank because he is certain that it is
not a predator or a potential adversary. The
bank should show that there is really no
reason for any apprehension because it
truly deserves his faith in it.
WHEREFORE, the petition is DENIED and the
appealed decision is AFFIRMED, with costs
against the petitioner. It is so ordered.
-----------------------------------
G.R. No. 136371 November 11, 2005
PRUDENTIAL BANK, Petitioner,
vs.
CHONNEY LIM, Respondent.
DECISION
Tinga, J.:
This treats of the petition for review
on certiorari of the Decision1 of the Court of
Appeals,2 dated 31 July 1998, which
affirmed with slight modification
the Decision3 of the Regional Trial Court
(RTC),4 granting the action filed by
respondent for recovery of sum of money
and damages.
Chonney Lim (respondent), the owner of
Rikes Boutique located at Session Road,
Baguio City, maintained two (2) accounts
with Prudential Bank (the bank), namely:
Savings Account No. 11264 and Checking
Account No. 1262. He availed of the bank’s
automatic transfer system wherein the
funds from his savings account could be
transferred to his checking account in case
the balance of the latter account was
insufficient to cover the checks he issued.
On 14 March 1988, respondent deposited
the amount of ₱34,000.00 with his savings
account. According to respondent, the
following day, 15 March 1988, he deposited
an equal amount with the same savings
account. The matter is the crux of
contention between the parties, as the
bank has steadfastly denied having received
the latter deposit from respondent.
On 24 May 1988, respondent issued a check
against his current account in favor of the
Paluwagan ng Bayan Savings Bank
(Paluwagan) in the sum of ₱2,830.00 in
payment of his loan with the said bank. On
25 May 1988, respondent drew another
check against his checking account to the
order of Teodulo Crisologo in the amount of
₱10,000.00 as payment for a business
transaction with the latter.
The bank, however, dishonored both
checks, claiming that respondent did not
have sufficient funds in his account with the
bank. Upon learning that the first check
paid to Paluwagan had been dishonored,
respondent wrote a letter5 to the bank on
27 May 1988, asking it to recheck its
records. On 30 May 1988, the bank’s
manager, Tolentino Opiniano (Opiniano),
sent a reply letter,6 offering, as an excuse
for the dishonor of said check, the
inadvertent earlier posting to respondent’s
account of a postdated check.7 While
Opiniano apologized for respondent’s
inconvenience, he made no commitment to
honor this first check.8
When the second dishonored check came
to respondent’s knowledge, he immediately
wrote a letter9 to the bank, protesting the
dishonor of the check. Opiniano sent a
reply10 stating that as per records, a deposit
slip dated 15 March 1988 for ₱34,000.00
was received for deposit to Savings Account
No. 11264 on 14 March 1988.
Respondent denied having made only one
deposit, insisting that he made two deposits
of ₱34,000.00 each, one on 14 March and
the other on 15 March. As proof,
respondent presented the two separate
deposit slips covering the transactions, the
first bearing the date 14 March 1988 while
the second, the date 15 March 1988.
After the bank had conducted a thorough
investigation, on 10 June 1988, Opiniano
informed respondent that two deposits
were made on 14 March 1988, one for
₱34,000.00 and the other for ₱1,000.00;
and that two other deposits were made on
15 March 1988: ₱4,900.00 and ₱2,900.00.
He maintained that although the deposit
slip bearing the amount of ₱34,000.00 is
dated 15 March 1988, it was actually
received the day before or on 14 March
1988. Thus, the bank’s position is that only
one deposit of ₱34,000.00 was made by
respondent on 14 and 15 March 1988.11
In view of the bank’s adamant refusal to
alter its stand, respondent filed
a Complaint12 before the RTC, Baguio City
for the recovery of ₱34,000.00 representing
his actual deposit and ₱300.00 as penalty
charge, plus damages.
On 27 August 1991, the RTC rendered
its Decision holding that respondent made
two deposits of ₱34,000.00 apiece. Thus,
the RTC ordered the bank to pay the
following amounts: ₱34,000, representing
the unposted deposit, with legal interest;
₱600.00, representing the service charges
unjustifiably imposed on respondent, with
legal interest; ₱50,000.00 as moral
damages; ₱25,000.00 as exemplary
damages; and ₱10,000.00 as attorney’s
fees, plus costs of suit.
On appeal, the Court of Appeals affirmed
the decision of the trial court with
modification as to the award of moral
damages, reducing it to ₱10,000.00. The
testimony of the bank teller, coupled with
the fact that the two deposit slips listed
different denominations of money totaling
₱34,000.00 per deposit slip, led the
appellate court to conclude that there were
indeed two deposits of ₱34,000.00 each,
one made on 14 March and the other on 15
March 1988.
Before this Court, the bank argues in the
main that the award of damages by the
appellate court is groundless that
consequently, the assailed decision is not in
accord with law and jurisprudence.13
As a rule, the findings of fact of the trial
court when affirmed by the Court of
Appeals are final and conclusive on, and
cannot be reviewed on appeal by, this Court
as long as they are borne out by the record
or are based on substantial evidence. The
Court is not a trier of facts, its jurisdiction
being limited to reviewing only errors of law
that may have been committed by the
lower courts.14
Essentially, as intimated earlier, the issue in
the instant case boils down to whether
respondent made a deposit of ₱34,000.00
on 15 March 1988, apart from the deposit
of an equal amount the day before, a
factual question which was resolved in the
affirmative by the RTC, which finding was
categorically affirmed by the Court of
Appeals. The factual issue is beyond the
province of this Court to review or disturb.
It is not the function of the Court to analyze
or weigh all over again the evidence or
premises supportive of such factual
determination. The Court has consistently
held that the findings of the Court of
Appeals and other lower courts are, as a
rule, accorded great weight, if not binding
upon it, save for the most compelling and
cogent reasons.15
We find no justification to deviate from the
factual findings of the trial court and the
appellate court. The bank has utterly failed
to convince us that the assailed findings are
devoid of basis or are not supported by
substantial evidence.
As found by the RTC, respondent indeed
made two deposits of ₱34,000.00 on 14 and
15 March 1988, viz:
On the pivotal issue of whether or not the
plaintiff made only one (1) or two (2)
deposits of ₱34,000.00—the first on March
14 and the second on March 15, 1988—the
Court holds that, from the evidence extant
in the record, particularly the admissions of
teller Merlita Susan Caasi, the plaintiff has
established his claim of having made two
(2) deposits of ₱34,000.00. Thus, Caasi
admitted that she impressed her rubber
stamp, "Teller 2" and "duplicate" on both
the Exhibits "B" and "C" which are plaintiff’s
file copies of two separate and different
deposit slips for ₱34,000.00 each. Exhibit
"B" is a deposit slip, dated March 14, 1988,
for ₱34,000.00 consisting of 300 pieces of
₱100 bills and 80 pieces of ₱50.00 bills;
while Exhibit "C" is a deposit slip, dated
March 15, 1988, also for ₱34,000.00, but
consisting of 340 pieces of ₱100 bills. It is
only Exhibit "C" that appears to have been
recorded by the defendant bank (Exhibit
"3"). Since teller Caasi acknowledged to
have stamped both deposit slips, logic and
reason dictates that she should be
presumed to have received the amounts
covered by them unless she could
satisfactorily demonstrate the contrary
which she, however, miserably failed to do.
The fact that only one (1) deposit of
₱34,000.00 is recorded in the teller’s
validating machine and blotter, as well as in
the ledger, passbook, bookkeeper’s
machine tape and blotter, can not help her
any for the crux precisely of plaintiff’s
complaint is defendant’s negligence in not
recording his other deposit of ₱34,000.00.16
The appellate court similarly observed:
On the basis of the evidence adduced by
the parties, We are convinced that indeed,
appellee deposited ₱34,000.00 on March 14
and another ₱34,000.00 on March 15, 1988.
These two different transactions are
evidenced by two deposit slips marked as
Exhibits "B" and "C". The fact that appellant
received the amount represented by each
deposit slip can be inferred from the
testimony of Merlita Caasi, a bank teller:
ATTY. GAYO:
Q: And by stamping the duplicate copy of a
depositor, in the case of Mr. Lim, who is in a
practice of always preparing a duplicate
copy for his file, your mere stamping of the
duplicate would indicate that you received
the money deposited?
A: Yes, your Honor."
which must be read in conjunction with her
testimony on cross-examination, thus:
ATTY. GAYO:
Q: I am showing you Exhibit "C" and tell the
Honorable Court if that is the duplicate of
Exhibit "3" which you also stamped with the
stamp of the bank?
A: I am not sure if that is the real deposit
slip made at the same day because they
have the practice to get another duplicate if
their personal copy was lost, your Honor.
This is my stamp but I am not sure if this is
the same.
INTERPRETER:
Witness referring to Exhibit "C".
ATTY. GAYO:
Q: But you are sure that this is your stamp
as Teller No. 2 at that time?
A: It appears, it is.
Q: I am showing you now that which we
reserved the last time, the original of
Exhibit "B", a copy – an original copy of a
deposit slip dated March 14, 1988, stamped
with the stamp of the Bank Teller No. 2 and
a duplicate. Now, can you now state to the
Court that this was your stamp of the bank
stamp?
A: That is my stamp.
Q: Even this word duplicate stamped also in
this Exhibit "B", the original of Exhibit "B", is
your stamp?
A: Yes, it is my stamp."
Appellee also presented in evidence the
reverse side of the deposit slip dated March
14, 1988 he described as follows:
"Q: On the front side of Exhibit "B", the
amount of ₱34,000.00 cash appears. Is this
explained by any denomination of the same
exhibit?
A: Yes, your Honor.
Q: You are referring to what part of the
exhibit?
A: I am referring to Exhibit "B-1", Your
Honor.
Q: So that the ₱34,000.00 you deposited
consisted of 300 pieces of ₱100.00 bills in
the total amount of ₱30,000.00; 80 pieces
of ₱50.00 bills in the total amount of
₱4,000.00?
A: Yes. Your Honor."
In the same manner, appellee also
presented the other side of the deposit slip
dated March 15, 1988, thus:
"Q: On March 15, 1988, do you remember
having again deposited another amount of
₱34,000.00 to your account with the
defendant bank?
A: Yes. Your Honor.
Q: Do you have a copy? Do you have
evidence to show?
A: Yes. Your Honor. I have here my deposit
slip on March 15, 1988, for the amount of
another ₱34,000.00.
Q: Is the denomination of the total deposit
of P34,000.00 you made on March 15
shown in this deposit slip?
A: Yes, Your Honor. It is shown at the back
of the deposit slip.
Q: As what?
A: At the back of the deposit slip, your
Honor. It shows that the ₱100.00 bills I
deposited is 340 pieces, amounting to
₱34,000.00.
Q: Do you have a xerox copy of that?
A: Yes, Your Honor.
Atty. Gayo:
May we show both the original and the
xerox copy. The xerox copy reflects the
front page and the reverse side of the
deposit slip dated March 15, 1988. May we
ask for an observation.
Atty. Munoz:
The xerox copy of the deposit slip dated
March 15, 1988 in the sum of ₱34,000.00,
together with the reverse side is a faithful
reproduction of the duplicate original
presented.
Atty. Gayo:
May we respectfully pray that the front
page of that deposit slip be marked as
Exhibit "C" and the reverse side as "Exhibit
C-1".17
An examination of the deposit slips dated
14 March and 15 March 1988 reveals that
while the slips each cover deposits in the
amount of ₱34,000.00, they list down
different denominations however.
Evidently, the slips were not prepared
simultaneously or concurrently. This fact
militates against the bank’s claim that one
deposit slip is simply the duplicate of the
other. To sustain the bank’s hypothesis, we
would have to conclude that respondent,
with all deliberate design, prepared two
deposit slips and purposely wrote different
denominations in them to mislead the bank
that the two deposit slips were separately
executed on different occasions. There is no
evidence to support such a bizarre
conclusion; thus, we are content to uphold
the findings of the triers of fact on this
point.
The bank insists that the court
misappreciated the import of the letter of
Opiniano dated 10 June 1988. As we have
earlier intimated, appreciation of evidence
is the domain of the lower courts. The
testimonies of the witnesses presented by
the bank deserve scant consideration in the
face of the overwhelming documentary
evidence of respondent, i.e., the duplicate
originals of the deposit slips bearing the
amount of ₱34,000.00 dated 14 and 15
March 1988, respectively. Indeed, the bank
failed to rebut the inexorable probative
impact of the deposit slips.
Article 1172 of the Civil Code ordains that
responsibility arising from negligence in the
performance of an obligation is
demandable. The failure of the bank’s
employees to credit the amount of
₱34,000.00 to respondent’s savings
account, resulting as it did in the dishonor
of respondent’s checks, constitutes
actionable negligence in law.
From another perspective, the negligence
of the bank constitutes a breach of duty to
its client. It is worthy of note that the
banking industry is impressed with public
interest. As such, it must observe a high
degree of diligence and observe lofty
standards of integrity and performance. By
the nature of its functions, a bank is under
obligation to treat the accounts of its
depositors with meticulous care and always
to have in mind the fiduciary nature of its
relationship with them.18
With the attending factual milieu, the
imposition of damages on the errant bank is
in order. Presaging this course of action is
the ruling in Simex International v. Court of
Appeals,19 where this Court rendered a
telling discourse on the fiduciary
responsibility of depository banks, thus:
The banking system is an indispensable
institution in the modern world and plays a
vital role in the economic life of every
civilized nation. Whether as mere passive
entities for the safekeeping and saving of
money or as active instruments of business
and commerce, banks have become an
ubiquitous presence among the people,
who have come to regard them with
respect and even gratitude and, most of all,
confidence. Thus, even the humble wage-
earner has not hesitated to entrust his life's
savings to the bank of his choice, knowing
that they will be safe in its custody and will
even earn some interest for him. The
ordinary person, with equal faith, usually
maintains a modest checking account for
security and convenience in the settling of
his monthly bills and the payment of
ordinary expenses. As for business entities
like the petitioner, the bank is a trusted and
active associate that can help in the running
of their affairs, not only in the form of loans
when needed but more often in the
conduct of their day-to-day transactions like
the issuance or encashment of checks.
In every case, the depositor expects the
bank to treat his account with the utmost
fidelity, whether such account consists only
of a few hundred pesos or of millions. The
bank must record every single transaction
accurately, down to the last centavo, and as
promptly as possible. This has to be done if
the account is to reflect at any given time
the amount of money the depositor can
dispose of as he sees fit, confident that the
bank will deliver it as and to whomever he
directs. A blunder on the part of the bank,
such as the dishonor of a check without
good reason, can cause the depositor not a
little embarrassment if not also financial
loss and perhaps even civil and criminal
litigation.
The action for damages hinges on the
resolution of whether respondent has
sufficient funds in his account when the
checks were dishonored. Both the trial and
appellate courts ruled that had the bank
credited the ₱34,000.00 deposit made by
respondent on 15 March 1988, the checks
would not have been dishonored. Likewise,
both courts found that moral damages were
in order.
The concept of moral damages include
physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation,
wounded feelings, moral shock, social
humiliation, and similar injury. Although
incapable of pecuniary computation, moral
damages may be recovered if they are the
proximate result of the defendant's
wrongful act or omission.20
Needless to say, the bank’s wrongful act
caused injury to respondent. Credit is very
important to businessmen, and its loss or
impairment needs to be recognized and
compensated.21 This Court in Leopoldo
Araneta v. Bank of America22 highlights the
importance of good credit in the business
community:
The financial credit of a businessman is a
prized and valuable asset, it being a
significant part of the foundation of his
business. Any adverse reflection thereon
constitutes some material loss to him. As
stated in the case Atlanta National Bank vs.
Davis, supra, citing 2 Morse Banks, Sec. 458,
"it can hardly be possible that a customer's
check can be wrongfully refused payment
without some impeachment of his credit,
which must in fact be an actual injury,
though he cannot, from the nature of the
case, furnish independent, distinct proof
thereof."
Under the circumstances of this case, we
find that the award of moral damages is
proper but the amount must be reverted
back to ₱50,000.00 as ordered by the RTC,
said court being in a better position to
assess the amount of damages to be
imposed on the negligent bank.
Furthermore, we sustain the award of
exemplary damages. Such damages are
imposed by way of example or correction
for the public good, in addition to the
moral, temperate, liquidated or
compensatory damages.23 The business of a
bank is affected with public interest; thus, it
makes a sworn profession of diligence and
meticulousness in giving irreproachable
service. For this reason, the bank should
guard against injury attributable to
negligence or bad faith on its part. The
banking sector must at all times maintain a
high level of meticulousness.24 In view of
the bank’s negligence to record the deposit,
the grant of exemplary damages is thus
justified.
The bank raises another issue, that
concerning the postdated check which it
had prematurely posted25 and which it
initially assumed, when it first wrote the
respondent on 30 May 1988, to be the
cause of the dishonor of respondent’s check
payable to Paluwagan.26 The bank argues
that the fact it prematurely honored such
postdated check did not give rise to
damages.27 This argument is irrelevant. The
act or omission of the bank that gives rise to
damages in favor of respondent is not the
premature posting of the postdated check,
but the fact that the bank did not credit
respondent’s second deposit of ₱34,000.00.
Besides, this is the first time that said issue
was presented. As a rule, no issue may be
raised on appeal unless it has been brought
before the lower tribunal for its
consideration. Higher courts are precluded
from entertaining matters neither alleged in
the pleadings nor raised during the
proceedings below, but ventilated for the
first time only in a motion for
reconsideration or on appeal.28
WHEREFORE, the petition is denied.
The Decision of the RTC dated 27 August
1991 in Civil Case No. 1467-R is AFFIRMED
IN FULL. Costs against petitioner.
SO ORDERED.
----------------------------------------------------------
---G.R. No. 173780 March 21, 2011
METROPOLITAN BANK AND TRUST
COMPANY, Petitioner,
vs.
MARINA B. CUSTODIO, Respondent.
DECISION
SERENO, J.:
This civil case is essentially a demand by a
bank for the recovery of a sum of money
from one of its tellers who allegedly failed
to account for funds entrusted to her,
amounting to six hundred thousand pesos
(PhP600,000).
Petitioner Metropolitan Bank and Trust
Company (Metrobank) is a banking
corporation. On the other hand, respondent
Marina Custodio is a bank teller employed
at the Laoag City branch of petitioner
Metrobank.1
On 13 June 1995 at 8:18 a.m.,2 respondent
Custodio reported for work in petitioner
bank’s branch in Laoag City.3 At the start of
the banking day, respondent Custodio
received loose money (picos)4 for the day’s
business and was assigned as Teller No.
3.5 In the course of performing her duties,
respondent Custodio handled several cash
transactions with the customers on behalf
of petitioner bank.6
At 12:10 p.m., a cash transfer of two
hundred thousand pesos (PhP200,000) was
made from Teller No. 1 to respondent
Custodio.7 Petitioner Metrobank explained
that, usually, a transfer of money from one
teller to another occurs if the latter "needs
money, maybe to pay for the
withdrawal."8 However, petitioner bank
pointed out that it was unnecessary for
respondent Custodio to borrow from
another teller at that time, since
respondent had sufficient cash on hand to
cover a withdrawal in the same amount as
the cash transfer.9
At 12:25 p.m., respondent Custodio was
reported to have taken her lunch break
alone and returned to work thereafter at
1:12 p.m.10
The security guard for the Laoag City branch
of petitioner Metrobank, Mr. Hannibal Jara,
testified that respondent Custodio would
ordinarily go out for lunch at noon with
another teller, Ms. Mary Paula
Castro.11 However, he explained that the
two employees did not go out for lunch
together that day, since another teller was
on leave.12 Mr. Jara also noticed that when
respondent Custodio went out for lunch,
she was carrying a shoulder bag and a paper
bag.13 He, however, did not check the
contents of the bags carried by
respondent.14
At the close of banking hours, respondent
Custodio balanced her transactions for the
day and turned over the funds to the bank’s
cash custodian, Ms. Marinel Castro, in the
amount of two million one hundred
thirteen thousand five hundred pesos
(PhP2,113,500).15 Ms. Marinel Castro
acknowledged receipt of the bundled cash
turned over and signed a Cash Transfer
Slip.16
around 5:05 p.m., after all tellers had
turned over their cash on hand,17 Ms.
Castro discovered that there was a shortage
amounting to PhP600,000.18 She notified
Mr. Adriano Lucas, the branch manager, of
the missing money.19 The latter then
instructed the cashier and the accountant
to review all cash transactions to find out
the reason for the cash
shortage.20 However, no errors were found
in the records of the transactions, and the
shortage was confirmed.21
Thereafter, Mr. Lucas instructed all bank
employees to check all desks, drawers and
even personal bags.22 The guards were
likewise instructed to search anybody going
out of the office from that time
on.23 However, the missing money was not
found.24 Thus, the amount "CASH IN
VAULT" was reported to be short of
PhP600,000.25
Respondent Custodio left work that day,
together with some of the employees, at
8:30 p.m.26
Later on, petitioner Metrobank alleged that
it was able to recover eight bill wrappers
only for bundles of five-hundred-peso bills
(without the bills thereunder) that
purportedly corresponded to the missing
four hundred thousand pesos
(PhP400,000).27 These bill wrappers bore a
rubber stamp "PEPT-3" for Teller No.
3.28 Respondent Custodio countered that
the discovery of the bill wrappers being
attributed to her care was never mentioned
at the time the cash shortage occurred, and
that these wrappers could have been
obtained subsequently by stamping
unmarked ones.29
Respondent Custodio was allowed to
continue to render services as a teller in
petitioner bank’s Laoag City branch from 14
June 1995 to 23 June 1995.30 She argued
that had she been found responsible for the
cash shortage, then she would not have
been allowed to continue working as a
teller on subsequent days.31
On 15 June 1995, investigators from the
regional office of petitioner Metrobank as
well as from its Department of Internal
Affairs, Head Office, arrived at the Laoag
City branch to investigate the cash
shortage.32 On a one-on-one basis, the
investigators confronted the employees,
including respondent Custodio.33 After
these meetings, Ms. Castro, the cash
custodian, allegedly admitted that she
received and acknowledged the cash
bundles and signed the Cash Transfer Slip
for the funds turned over by respondent
Custodio.34
On 16 June 1995, employees of the Laoag
City branch of petitioner Metrobank –
including the new accounts clerk, the
remittance clerk and all the other tellers –
were made to take polygraph tests at the
National Bureau of Investigation, except for
respondent Custodio.35 Respondent was
eight months pregnant at that time and,
thus, was not required to take the lie
detector test.36
On 22 June 1995, petitioner Metrobank
filed a Complaint for a sum of money with
ex-parte application for a writ of
preliminary attachment, praying that
respondent Custodio pay the amount of
PhP600,000, including attorney’s fees and
costs of suit.37 The trial court subsequently
granted the application for a writ of
preliminary attachment against the
properties of respondent Custodio.38
On 23 June 1995 at around 1:30 p.m., while
respondent Custodio was performing her
duties as a teller, she was served the trial
court’s summons39 and a copy of petitioner
Metrobank’s Complaint, including the
attachment writ.40
After she was served the summons,
respondent Custodio was supposedly
caught bringing out a teller’s copy of the
journal print transactions with the related
cash transfer slips for that particular
banking day (23 June 1995).41 These bank
records were confiscated from respondent
Custodio, when they were discovered in her
dress pocket during a body search done on
all employees leaving the office.42
Respondent teller later explained that she
had mistakenly brought out these records
because she was no longer allowed to go
inside the teller’s cage to file the
transaction journal, after she was served
the summons and Complaint.43 She claimed
that, at that time, she was confused by the
bank’s Complaint filed against her, so she
placed the transaction journal in her right
pocket.44 It was admitted by the bank
manager, however, that no cash shortage
occurred on that day.45
Thereafter, respondent Custodio was
relegated to a non-accountable position.46
Because of her alleged attempt to take the
journal print transactions, Mr. Lucas, the
branch manager, recommended that
respondent Custodio be preventively
suspended.47 Thereafter, respondent
received an Inter-Office Letter48 requiring
her to explain why no disciplinary action
should be meted out to her for her attempt
to "surreptiously bring out bank
records."49 After respondent teller filed her
explanation, petitioner Metrobank found it
unacceptable and suspended her from work
for seven days without pay.50
On 27 June 1995, respondent Custodio
requested from petitioner Metrobank a
copy of the Cash Transfer Slip that was
signed by the cash custodian, Ms.
Castro.51 In reply, Mr. Lucas notified
respondent that her request would be sent
to the Head Office of petitioner Metrobank
for approval.52 This request was, however,
not acted upon by petitioner.53 Despite
respondent’s motion to have the Cash
Transfer Slip produced in the trial
proceedings54 and the manifestation of
petitioner Metrobank’s counsel that it
would present the slip,55 the document was
not entered into the records.
On 06 July 1995, respondent Custodio filed
an Answer with Compulsory Counterclaim,
denying the allegations of petitioner
Metrobank that she was responsible for the
cash shortage.56 Respondent argued that
Ms. Castro, not she, was the one who
incurred the cash shortage, since the loss
was discovered only after the cash and
other accountabilities were turned over to
her, as cash custodian.57
After the case was submitted for
decision,58 the trial court rendered its
Decision granting petitioner Metrobank’s
Complaint and ordering respondent
Custodio to pay the amount of six hundred
thousand pesos (PhP600,000) plus
interest.59
On 06 August 2003, respondent teller
subsequently filed a Notice of Appeal.60
On 29 July 2004, respondent Custodio, thru
her counsel Atty. Oliver Cachapero, filed a
Brief for the Appellant.61 Meanwhile,
petitioner Metrobank submitted a Brief for
the Appellee on 15 September 2004.62
On 16 July 2006, the Court of Appeals (10th
Division)63 found respondent Custodio’s
appeal meritorious and reversed the trial
court’s Decision:
WHEREFORE, the appeal being meritorious,
the assailed decision dated July 25, 2003 of
the RTC, Branch 11, Laoag City, in Civil Case
No. 10814 is REVERSED and SET ASIDE.
Consequently, the plaintiff-appellee’s
complaint against defendant-appellant is
DISMISSED.64
On 10 August 2006, petitioner Metrobank,
through the Sediego & Associates Law
Office, in collaboration with Atty.
Cachapero, filed in this Court a Motion for
Extension of Time to File Petition for Review
on Certiorari.65 On 28 August 2006, Atty.
Cachapero informed the Court that he had
withdrawn as counsel for petitioner
Metrobank.66
Respondent Custodio averred, however,
that she received, through counsel, a
separate Petition for Review on Certiorari
filed by petitioner Metrobank’s counsel,
Atty. Cachapero, on 07 August 2006.67
Within the thirty-day extension period
granted by the Court,68 petitioner
Metrobank filed the Petition for Review
under Rule 45, through its new counsel of
record, Sediego & Associates Law
Office.69 On 30 October 2007, respondent
Custodio submitted her Comment on the
instant Petition.70 In response, petitioner
Metrobank subsequently filed a Reply on 31
January 2008.71
After the instant Petition was given due
course,72 the parties submitted their
respective memoranda.73
Before resolving the substantial legal issue,
the Court will first resolve the procedural
matters with respect to the propriety of
raising questions of fact in the instant
Petition and the receipt by respondent
Custodio of another Petition through Atty.
Cachapero.
In a petition for review on certiorari filed
under Rule 45, the issues that can be raised
are limited only to questions of
law.74 Questions of fact are not reviewable
in a Rule 45 petition.75 Nonetheless, this
rule permits of exceptions, which the Court
has long since recognized.76
Unless the party availing of the remedy
clearly demonstrates at the first
opportunity that the appeal falls under any
of the established exceptions, a Rule 45
petition that raises pure questions of fact
shall be subject to dismissal by the Court,
since it is principally not a trier of facts.
Although the emerging trend in the Court’s
rulings is to afford all party-litigants the
amplest opportunity for the proper and just
determination of their cause,77 this is not a
license for erring litigants to violate the
rules with impunity.78
Respondent Custodio reasons that the
bank’s Petition before the Court seeks a
review of factual issues, and that such kind
of review is not countenanced by the
Rules.79 Although she recognizes the
exceptions to the prohibition against raising
a question of fact in a Rule 45 petition,
respondent insists that the instant Petition
fails to measure up to any of them, which
would have permitted a review of the
factual circumstances of the
case.80 Respondent Custodio’s bare
allegation that the present
controversy81 does not fall within the
established exceptions fails to convince the
Court.
The difference in appreciation by the trial
court and the appellate court of the
evidence with respect to the circumstances
surrounding the cash shortage is prima facie
justification for the Court to review the
facts and the records of the case. While
factual issues are not within the province of
this Court, as it is not a trier of facts and is
not required to examine or contrast the oral
and documentary evidence de novo, this
Court has the authority to review and, in
proper cases, reverse the factual findings of
lower courts when the findings of fact of
the trial court are in conflict with those of
the appellate court.82
In her Comment, respondent Custodio
likewise assails the separate Petition she
received from Atty. Cachapero, the former
counsel of petitioner Metrobank.83 She
claims that the separate Petition should not
be entertained by the Court, since there is
no proof of payment of the docket fees or
proof of service. Moreover, the Petition
coming from Atty. Cachapero should
preclude the instant Petition filed by the
bank’s new counsel, Sediego & Associates.
Aside from the fact that this issue is not
raised in respondent’s Memorandum,
nothing in the record shows that the
separate Petition signed by Atty. Cachapero
was ever filed and docketed with the Court.
Courts will not entertain and act on
petitions that have yet to be properly filed,
even if a copy has been served on the other
party. Moreover, the separate Petition that
came into the hands of respondent has no
bearing on this case, since Atty. Cachapero
has already withdrawn as counsel for
petitioner Metrobank. Therefore, the Court
will only confine itself to the instant
Petition, which was duly filed by the bank’s
new counsel and submitted within the
extended reglamentary period, after docket
fees were paid and the Court had given due
course to it.84
The Court now proceeds to the substantial
merits of the case.
The resolution of the instant Petition hinges
on whether there is a preponderance of
evidence to establish that respondent
Custodio incurred a cash shortage of
PhP600,000 at the close of the banking day
on 13 June 1995 and is therefore liable to
pay petitioner Metrobank the said
amount.85
In civil cases such as in the instant action for
a sum of money, petitioner Metrobank
carries the burden of proof and must
establish its cause of action by a
preponderance of evidence.86 The concept
of preponderance of evidence refers to
evidence that is of greater weight or more
convincing, than that which is offered in
opposition to it; at bottom, it means
probability of truth.87
The Court sustains the appellate court’s
finding that petitioner Metrobank failed to
discharge its burden of proving that
respondent Custodio was responsible for
the cash shortage. Petitioner Metrobank’s
evidence on record does not sufficiently
establish that respondent Custodio took the
funds that were entrusted to her as a bank
teller.
The issue of respondent Custodio’s civil
liability for the cash shortage turns on
whether she is the proximate or direct
cause of the loss. There is nothing on record
that will show that there were any missing
bundles of one-thousand-peso and five-
hundred-peso bills when respondent
Custodio turned over the funds to the cash
custodian, Ms. Marinel Castro. As the
appellate court correctly found, the Cash
Transfer Slip was the best evidence that
respondent Custodio had properly turned
over the amounts in her care, and that the
cash custodian received them without any
shortage.88
Although the Cash Transfer Slip was not
introduced in evidence, Ms. Castro
admitted having signed it. Had there been
any cash shortage at that point, then the
cash custodian could have refused to sign
the Cash Transfer Slip, and respondent
Custodio could have been required to
account for any missing funds. However,
having acknowledged receipt of the funds
from respondent, it is reasonably presumed
that Ms. Castro found nothing out of order
in respondent’s records of cash transactions
and the amounts transferred.
Petitioner Metrobank admits the existence
of the cash transfer slip and the custodian’s
signature thereon. It reasons, though, that
it was not unusual for the custodian to sign
the slip without counting the money, since
she trusted her co-employees. Petitioner
seeks to impress upon this Court that the
custodian’s negligence was in good faith
and should not exonerate respondent
Custodio from the cash shortage.
As the Court of Appeals correctly surmised,
Ms. Castro’s procedural lapse in trusting her
co-employees by automatically signing the
cash transfer slip without ensuring its
correctness contributed significantly to the
loss of the bank’s money.89 The proper
accounting of funds through the cash
transfer slip was precisely instituted as a
safety mechanism to trace the flow of
money from one employee to another.
Specifically, the cash transfer slip was
meant to ensure that the tellers had
properly counted the money that they
turned over to the cash custodian.90 If Ms.
Castro, as cash custodian, had not been
remiss in her responsibilities, petitioner
Metrobank would have been able to
identify who among the tellers failed to
turn over the proper amount as reflected in
the Cash Transfer Slip. The cash custodian is
not to be admonished for reposing her trust
in her co-employees; nonetheless, she was
negligent, insofar as ignoring established
bank procedures meant to prevent loss,
especially when one of her co-employees
had broken that trust.
The Court of Appeals underscored the
"highest degree of diligence" from the
banking business, considering that it is
impressed with public interest and of
paramount importance.91 However, as
petitioner Metrobank pointed out,92 the
exacting standard of diligence required by
the appellate court pertains to the
relationship between a bank and a
depositor, and not between a bank and its
employees. In this case, no depositors were
affected, as the transactions during that day
were accounted for, and no error was found
in the recording thereof. The relevant
standard of diligence that we need to
examine here is that of a bank teller who
was entrusted monies by the bank and who
may have failed to account for them.93 In
this case, petitioner Metrobank was unable
to prove that respondent Custodio failed to
exercise the necessary degree of diligence
that would justify the bank’s action for
damages. Respondent Custodio was not
remiss in her duties as all her dealings with
the bank’s money were clearly reflected on
the records of the bank.
If petitioner bank had to attribute any
negligence on the part of its employees,
then it should have set its sights on the acts
and/or omissions of Ms. Marinel Castro, the
cash Custodian, and Mr. Hanibal Jara, the
security guard. If theft of the money cannot
be established, and negligence is the only
legal phenomenon that is evident on the
records, then the proximate cause of the
loss of the bank’s PhP600,000 is Ms. Castro,
who, as cash custodian, disregarded
established procedures and blindly signed
the teller’s cash transfer slips without
counting the money turned over to her.
Meanwhile, Mr. Jara failed to inspect
respondent Custodio’s belongings as she
left the bank on that day for
lunch.1ªvvph!1 Despite his own suspicions
of respondent teller’s conduct, he ignored
them and decided not to check the bags.
This omission can conceivably be
considered as a grave omission of his duties
as a security guard. The Court of Appeals
succinctly explained both matters in this
wise:
The foregoing circumstance is not sufficient
basis for the court to assume that the said
paper and should bag contained the cash
shortage (P600,000). Ordinary diligence
dictates that as a security guard, Jara should
have checked and inspected the things of all
the bank employees, especially those who
were in charge of handling money before
going out of the premises. Upon seeing a
teller going out for lunch with an
expandable shoulder bag and paper bag,
prudence dictates that the security guard
should have inspected and checked the
teller’s bags. Bu the security guard failed to
do so. It should be noted that the security
guard’s testimony reveals that the said
shoulder bag had been used by appellant
even prior to June 13, 1995, and on said
days, there were no shortages.
xxx
The signature of the cash custodian in the
transfer slip means that the amount
reflected therein corresponds to the bills
turned over to her. The cash transfer slip is
the best evidence that appellant turned
over the amount of P2,113,500.00 on June
13, 1995. The cash transfer slip signed by
the cash custodian was not presented
despite the written requires of appellant.
However, the existence of the signed
transfer slip was admitted by the cash
custodian. She even admitted that she did
not follow the bank’s standard operating
procedure to count the money delivered by
the teller to her before signing the cash
transfer slip, x x x.
xxx
In her testimony, the cash custodian,
attested that it was not only the cash
transfer slip of appellant which she signed
without counting the money submitted to
her, but also those of the other tellers.
Under the circumstance, it cannot be
determined at what point of the
transactions the shortage occurred. But the
cash custodian was negligent in not
following the standard operating procedure
of the bank. Her negligence was the root
cause why the cash shortage was not
discovered earlier because, had she
counted first the money bills delivered to
her before signing the cash transfer slip, the
shortage could have been detected. x x
x94 (Emphasis supplied)
Verily, it is highly doubtful that Ms. Castro
and Mr. Jara had performed the necessary
care and caution required of bank
employees in this instance, which directly
contributed to the loss of PhP600,000 for
petitioner Metrobank.
Considering the failure of the cash
custodian and the security guard to abide
by the procedural safeguards, petitioner
bank is now left to find other evidence to
determine the person liable for the cash
shortage. The Court, however, is not
sufficiently convinced that petitioner
Metrobank has introduced a
preponderance of circumstantial evidence
to show that respondent Custodio was
liable for the missing bundles of cash worth
PhP600,000.
As regards respondent’s receipt of
PhP200,000 from another teller during the
course of the business day, it was never
demonstrated that the cash transfer was
highly irregular. Neither was it conclusively
proven that respondent took the money
that was transferred by the other teller.
During one of the hearings, Mr. Lucas, the
branch manager, explained that it was
unusual for respondent Custodio to have
requested a cash transfer, considering that
she had sufficient funds to cover the
amount.95 However, as the appellate court
explained, the trial court should not have
considered his testimony in this respect,
since the judge had ordered that particular
statement stricken out during the trial court
proceedings.96 A fact elicited from a witness
during testimony cannot be considered in
the disposition of the case if it has been
ordered stricken out, unless it is established
by any other evidence on record.97
Even if the Court were to take cognizance of
the bank manager’s statement, the unusual
cash transfer does not tend to prove that
respondent Custodio took the money.
There was no reason why respondent
Custodio would appropriate several bundles
of cash from another teller, because the
transfer would be reflected in her
transaction journals and those of the other
teller anyway. Besides, respondent would
be held to account for all the transactions
and funds at the end of the banking day. If
at all, the cash transfer, which was reflected
in the records, indicated a movement of
funds from one teller to another, but did
not establish the movement from the
bank’s coffers to respondent Custodio’s
pockets. In any case, based on the
transaction journal, no error was found in
the records, as all the entries were duly
accounted for by respondent Custodio and
the other teller.
The security guard’s testimony that
respondent Custodio left for lunch alone
with an expandable shoulder bag and a
paper bag is inadequate proof for the Court
to believe that she carted away the missing
cash. Although she ordinarily took her lunch
break at noon with another teller – Ms.
Mary Castro – the same security guard
explained that respondent deviated from
her usual practice, because one of the
tellers was on leave. Presumably,
respondent Custodio had to take her lunch
alone, rather than go with Ms. Castro.
Otherwise, the branch would have been left
under-staffed and unable to serve the
branch’s clients fully. The daily time records
submitted by petitioner Metrobank even
show that there were other instances in
which respondent did not have lunch
together with her co-teller, yet, no cash
shortage was reported.98
On the other hand, the bags carried by
respondent Custodio when she went out for
lunch were never inspected by the security
guard. The latter failed to search these
bags, which could have determined
whether respondent teller had carried away
the bank’s missing money during her break.
As it were, the security guard saw nothing
unusual or out of the ordinary, with respect
to respondent Custodio’s bags that would
have aroused his suspicion and prompt him
to inspect her belongings before she left.
Meanwhile, the eight wrappers of five-
hundred-peso bills allegedly recovered by
petitioner Metrobank are likewise of
doubtful credibility and are inconclusive in
determining liability. The bill wrappers bear
the stamp assigned to Teller No. 3, who is
respondent Custodio. Yet, as respondent
explains, these stamped wrappers can
easily be procured by stamping unmarked
bill wrappers with tools and materials that
are readily available to petitioner
Metrobank. Moreover, the wrappers
offered into evidence by petitioner bank do
not bear respondent Custodio’s initials to
prove that the bundles of money which
these wrappers correspond to were in
respondent’s care, as is the common
practice in the branch and as testified to by
the cash custodian, Ms. Castro:
Q: Madam witness, going over Exhibit G,
you claim that these bill wrappers belong to
defendant Marina Custodio because all
these bill wrappers are stamped "PEPT-3"?
A: Yes, sir.
Q: Despite the fact that Marina Custodio did
not affix her signature on these bill
wrappers, you claim that these belong to
her just by the mere stamp?
A: Yes, sir.
Q: Is it not a fact, madam witness, that the
date when these ball wrappers are turned
over to you is supposed to be reflected?
A: It is supposed to reflect the date, sir; in
fact, it is supposed to contain their
signatures.99
Moreover, the circumstances surrounding
the discovery of these bill wrappers by
petitioner Metrobank remain unclear.
Despite the bank manager’s instructions
and the bank employees’ efforts in
conducting a thorough search for the
missing cash bundles, neither the money
nor the bill wrappers were found on the day
of the cash shortage. The cash custodian
who identified these bill wrappers did not
explain how she came to discover them.100
In addition, respondent Custodio was never
confronted with these wrappers when the
cash shortage was discovered. Neither were
the wrappers presented to her when the
bank’s investigators conducted a one-on-
one meeting with the employees two days
after the incident. Not even a report by the
investigation team of petitioner Metrobank
regarding the incident was submitted to
show when the bill wrappers were
discovered, or when respondent Custodio
was suspected of taking the money.101
It appears highly unlikely that respondent
Custodio would be able to cart away several
bundles of cash without being detected at
all, only to carelessly leave the purported
wrappers of the stolen cash, wrappers
stamped with marks that might lead to her
identity. The sudden appearance of these
bill wrappers begs the question as to where
and when they were discovered by
petitioner Metrobank. If these empty bill
wrappers were allegedly found to be under
the account of respondent Custodio soon
after the cash shortage was discovered,
then there was no reason for petitioner
Metrobank to have allowed her to continue
with her duties in handling bank funds. Yet,
respondent Custodio was subsequently
permitted to report for work after the
incident until 23 June 1995.1âwphi1
Contrary to the bank’s assertions in the
Complaint,102 respondent Custodio was
never asked to account for and/or turn over
the missing money. Neither did the bank,
prior to the service of the summons and the
complaint, demand that she return the
money. Respondent Custodio was only
informed that she was accused of stealing
the missing funds when the summons was
served upon her on 23 June
1995.103 Indeed, after the discovery of the
cash shortage, every employee was held
suspect,104 and respondent was never
singled out for the loss until petitioner bank
filed the Complaint with the trial court.
Petitioner Metrobank also argues that
respondent Custodio’s prior involvement in
a cash shortage in its Cubao branch is
admissible as evidence to prove a scheme
or habit on her part.105
The general evidentiary rule is that
evidence that one did or did not do a
certain thing at one time is not admissible
to prove that one did or did not do the
same or a similar thing at another
time.106 However, evidence of similar acts
may be received to prove a specific intent
or knowledge, identity, plan system,
scheme, habit, custom or usage and the
like.107 In Citibank N.A., (Formerly First
National City Bank) v. Sabeniano, the Court
explained the rationale for this rule:
The rule is founded upon reason, public
policy, justice and judicial convenience. The
fact that a person has committed the same
or similar acts at some prior time affords, as
a general rule, no logical guaranty that he
committed the act in question. This is so
because, subjectively, a man's mind and
even his modes of life may change; and,
objectively, the conditions under which he
may find himself at a given time may
likewise change and thus induce him to act
in a different way. Besides, if evidence of
similar acts are to be invariably admitted,
they will give rise to a multiplicity of
collateral issues and will subject the
defendant to surprise as well as confuse the
court and prolong the trial.108
Evidence of similar acts may frequently
become relevant, especially to actions
based on fraud and deceit, because it sheds
light on the state of mind or knowledge of a
person; it provides insight into such
person's motive or intent; it uncovers a
scheme, design or plan, or it reveals a
mistake.109
In this case however, respondent Custodio’s
prior involvement in a cash shortage in the
bank’s Cubao branch does not conclusively
prove that she is responsible for the loss of
PhP600,000 in the Laoag City branch,
subject of the instant case.
Although the previous cash shortage in
Cubao could possibly shed light on the
intent, scheme or habit of respondent
Custodio, that previous cash shortage is not
sufficient to affirm a definitive finding of
fact that she took the funds in the Laoag
City branch. If the prior cash shortage in
Cubao showed a reasonable intent or habit
on the part of respondent, then there was
no reason for petitioner Metrobank to
continue to employ her, considering the
degree of trust and confidence required of
a bank teller. Nevertheless, respondent
Custodio continued to serve the bank even
after the case in petitioner Metrobank’s
Cubao branch. Her continued employment
was an affirmation that she was still worthy
of the bank’s trust, insofar as she was
allowed to continue to handle sums of
money in the Laoag City branch.
With respect to the taking of the journal
transaction slip by respondent Custodio, no
correlation was ever established between
this incident and the cash shortage subject
of the instant case. The same journal
transaction slip, which respondent allegedly
attempted to take away, has to do with
transactions occurring on 23 June 1995. It
does not pertain to the transactions on 13
June 1995, the day of the cash shortage. No
reasonable explanation has been offered
regarding how this incident is relevant to
the instant case or how it tends to prove
that respondent Custodio was the one
responsible for a cash shortage that
occurred ten days earlier. This incident was
distinct and separate from the cash
shortage, as shown by the fact that she was
subsequently penalized with a seven-day
preventive suspension for the incident on
23 June 1995, a penalty that is not the
subject of the instant proceedings.
In any event, respondent Custodio
sufficiently explains that the incident arose
from confusion on her part. It is
understandable that at the time she was
caught with the journal transaction slip, she
was just confronted with petitioner
Metrobank’s serious accusations that she
had taken the missing funds. When the
complaint was presented to her and she
was barred from entering the teller’s cage,
respondent must have been so confused
that she mistakenly placed the transaction
journals in her pocket. That no cash
shortage occurred at that time emphasizes
that there was no direct and causal link
between the transaction journal slip and
the cash shortage.
It is not denied that petitioner Metrobank
discovered the lost money after all the
tellers had turned over their cash for the
day, and the cash custodian had signed the
Cash Transfer Slip. Without the cash
custodian counting the money before
signing the Cash Transfer Slip, many
probabilities arise.110 The shortage may
have occurred even prior to the turnover of
the cash by respondent Custodio. The
missing cash may have also resulted from
the transfers done by the other tellers, and
not necessarily by respondent Custodio. It
may have been taken away during the
counting of the money by the cash
custodian and the other tellers themselves.
Petitioner Metrobank even argued that
respondent Custodio may have taken the
money after the cash custodian had
returned the amounts turned over to the
tellers and other employees for sorting and
counting.111 To begin with, this position is
directly contrary to petitioner Metrobank’s
theory that respondent Custodio carried
away the money in the morning of 13 June
1995. In addition, the cash custodian had
asked for assistance from the other bank
employees to speed up the counting and
sorting, which necessarily opens the
possibility that any of those involved could
have been a suspect as well.112 Respondent
Custodio even argued that the money she
had counted and sorted were funds turned
over by other tellers, and not the same
funds she herself had given to the cash
custodian.113 More disconcerting is the
failure of the cash custodian to even
remember who were the employees who
had helped her in counting the cash at that
time, since everybody was in a hurry to go
home.114 The procedural shortcuts resorted
to by petitioner bank’s employees threw
open the doors to a multitude of probable
scenarios, leading to ambiguity in
determining civil liability.1âwphi1
The secondary and incidental facts offered
by petitioner Metrobank do not prove the
primary factual issue that it wishes to
establish in demanding the instant relief
from the courts – that respondent Custodio
took the money.
Regrettably, the evidence offered by
petitioner Metrobank is insufficient to
convince to the Court that the probability of
respondent Custodio’s having taken the
money is greater than its having been taken
by another employee. Verily, weighing the
evidence on record, the Court finds that
petitioner Metrobank failed in its burden of
proving by a preponderance of evidence
that respondent Custodio took PhP600,000
from petitioner Metrobank and is liable to
return the amount to the latter.
In view of the foregoing, the Court DENIES
the instant Petition for Review filed by
Metropolitan Bank and Trust Company. The
Court of Appeals’ 14 July 2006 Decision,
which dismissed the complaint against
respondent Marina Custodio, is hereby
AFFIRMED.
SO ORDERED.
----------------------------------------------------------
---
G.R. No. 97785 March 29, 1996
PHILIPPINE COMMERCIAL INTERNATIONAL
BANK, petitioner,
vs.
COURT OF APPEALS and RORY W.
LIM, respondents.
FRANCISCO, J.:p
This is a petition for review
on certiorari seeking the reversal of the
Decision of the Court of Appeals in CA-G.R.
No. 18843 promulgated on July 30, 1990,
and the Resolution dated March 11, 1991,
affirming with modification the judgment of
the Regional Trial Court of Gingoog City
which held petitioner Philippine
Commercial International Bank (PCIB) liable
for damages resulting from its breach of
contract with private respondent Rory W.
Lim.
Disputed herein is the validity of the
stipulation embodied in the standard
application form/receipt furnished by
petitioner for the purchase of a telegraphic
transfer which relieves it of any liability
resulting from loss caused by errors or
delays in the course of the discharge of its
services.
The antecedent facts are as follows:
On March 13, 1986, private respondent
Rory Lim delivered to his cousin Lim Ong
Tian PCIB Check No. JJJ 24212467 in the
amount of P200,000.00 for the purpose of
obtaining a telegraphic transfer from
petitioner PCIB in the same amount. The
money was to be transferred to Equitable
Banking Corporation, Cagayan de Oro
Branch, and credited to private
respondent's account at the said bank.
Upon purchase of the telegraphic transfer,
petitioner issued the corresponding receipt
dated March 13, 1986 [T/T No. 284]1 which
contained the assailed provision, to wit:
AGREEMENT
xxx xxx xxx
In case of fund transfer, the
undersigned hereby agrees
that such transfer will be
made without any
responsibility on the part of
the BANK, or its
correspondents, for any loss
occasioned by errors, or
delays in the transmission of
message by telegraph or
cable companies or by the
correspondents or agencies,
necessarily employed by this
BANK in the transfer of this
money, all risks for which are
assumed by the undersigned.
Subsequent to the purchase of the
telegraphic transfer, petitioner in turn
issued and delivered eight (8) Equitable
Bank checks2 to his suppliers in different
amounts as payment for the merchandise
that he obtained from them. When the
checks were presented for payment, five of
them bounced for insufficiency of
funds,3 while the remaining three were held
overnight for lack of funds upon
presentment.4 Consequent to the dishonor
of these checks, Equitable Bank charged
and collected the total amount of P1,100.00
from private respondent. The dishonor of
the checks came to private respondent's
attention only on April 2, 1986, when
Equitable Bank notified him of the penalty
charges and after receiving letters from his
suppliers that his credit was being cut-off
due to the dishonor of the checks he issued.
Upon verification by private respondent
with the Gingoog Branch Office of
petitioner PCIB, it was confirmed that his
telegraphic transfer (T/T No. 284) for the
sum of P200,000.00 had not yet been
remitted to Equitable Bank, Cagayan de Oro
branch. In fact, petitioner PCIB made the
corresponding transfer of funds only on
April 3, 1986, twenty one (21) days after the
purchase of the telegraphic transfer on
March 13, 1986.
Aggrieved, private respondent demanded
from petitioner PCIB that he be
compensated for the resulting damage that
he suffered due to petitioner's failure to
make the timely transfer of funds which led
to the dishonor of his checks. In a letter
dated April 23, 1986, PCIB's Branch
Manager Rodolfo Villarmia acknowledged
their failure to transmit the telegraphic
transfer on time as a result of their mistake
in using the control number twice and the
petitioner bank's failure to request
confirmation and act positively on the
disposition of the said telegraphic transfer.5
Nevertheless, petitioner refused to heed
private respondent's demand prompting
the latter to file a complaint for damages
with the Regional Trial Court of Gingoog
City6 on January 16, 1987. In his complaint,
private respondent alleged that as a result
of petitioner's total disregard and gross
violation of its contractual obligation to
remit and deliver the sum of Two Hundred
Thousand Pesos (P200,000.00) covered by
T/T No. 284 to Equitable Banking
Corporation, Cagayan de Oro Branch,
private respondent's checks were
dishonored for insufficient funds thereby
causing his business and credit standing to
suffer considerably for which petitioner
should be ordered to pay damages.7
Answering the complaint, petitioner denied
any liability to private respondent and
interposed as special and affirmative
defense the lack of privity between it and
private respondent as it was not private
respondent himself who purchased the
telegraphic transfer from petitioner.
Additionally, petitioner pointed out that
private respondent is nevertheless bound
by the stipulation in the telegraphic transfer
application/form receipt8 which provides:
. . . . In case of fund transfer,
the undersigned hereby
agrees that such transfer will
be made without any
responsibility on the part of
the BANK, or its
correspondents, for any loss
occasioned by errors or
delays in the transmission of
message by telegraph or
cable companies or by
correspondents or agencies,
necessarily employed by this
BANK in the transfer of this
money, all risks for which are
assumed by the undersigned.
According to petitioner, they utilized
the services of RCPI-Gingoog City to
transmit the message regarding
private respondent's telegraphic
transfer because their telex machine
was out of order at that time. But as
it turned out, it was only on April 3,
1986 that petitioner's Cagayan de
Oro Branch had received
information about the said
telegraphic transfer.9
In its decision dated July 27, 1988 10 the
Regional Trial Court of Gingoog City held
petitioner liable for breach of contract and
struck down the aforecited provision found
in petitioner's telegraphic transfer
application form/receipt exempting it from
any liability and declared the same to be
invalid and unenforceable. As found by the
trial court, the provision amounted to a
contract of adhesion wherein the
objectionable portion was unilaterally
inserted by petitioner in all its application
forms without giving any opportunity to the
applicants to question the same and
express their conformity thereto. 11 Thus,
the trial court adjudged .petitioner liable to
private respondent for the following
amounts:
WHEREFORE, judgment is
hereby rendered in favor of
plaintiff and against the
defendant, ordering the
latter to pay the former as
follows:
 P 960,000.00 1. The sum of Four Hundred
as moral Thousand (P400,000.00)
damages; Pesos as/for moral damages;
P 50,000.00 as
exemplary 2. The sum of Forty
damages; Thousand (P40,000.00) Pesos
P 40,000.00 as as exemplary damage to
attorney's serve as an example for the
fees; and public good;
P 1,100.00 as
reimbursemen 3. The sum of Thirty
t for the Thousand (P30,000.00) Pesos
surcharges representing attorney's fees;
paid by
plaintiff to the 4. The sum of One Thousand
Equitable One Hundred (P1,100.00)
Banking Pesos as actual damage, and
Corporation,
plus costs, all 5. To pay the costs.
with legal
interest of 6% SO ORDERED.13
per annum
from the date A motion for reconsideration was filed by
of this petitioner but respondent Court of Appeals
judgment until denied the same. 14
the same shall
have been Still unconvinced, petitioner elevated the
paid in full. 12 case to this Court through the instant
petition for review on certiorari invoking
Upon appeal by petitioner to the Court of the validity of the assailed provision found
Appeals, respondent court affirmed with in the application form/receipt exempting it
modifications the judgment of the trial from any liability in case of loss resulting
court and ordered as follows: from errors or delays in the transfer of
funds.
WHEREFORE, premises
considered, judgment is Petitioner mainly argues that even
hereby rendered affirming assuming that the disputed provision is a
the appealed decision with contract of adhesion, such fact alone does
modification, as follows: not make it invalid because this type of
contract is not absolutely prohibited.
The defendant-appellant is Moreover, the terms thereof are expressed
ordered to pay to the clearly, leaving no room for doubt, and both
plaintiff-appellee the contracting parties understood and had full
following: knowledge of the same.
Private respondent however contends that
the agreement providing non-liability on
petitioner's part in case of loss caused by
errors or delays despite its recklessness and
negligence is void for being contrary to
public policy and interest. 15
A contract of adhesion is defined as one in
which one of the parties imposes a ready-
made form of contract, which the other
party may accept or reject, but which the
latter cannot modify. 16 One party prepares
the stipulation in the contract, while the
other party merely affixes his signature or
his "adhesion" thereto, 17 giving no room
for negotiation and depriving the latter of
the opportunity to bargain on equal
footing. 18 Nevertheless, these types of
contracts have been declared as binding as
ordinary contracts, the reason being that
the party who adheres to the contract is
free to reject it entirely. 19 It is equally
important to stress, though, that the Court
is not precluded from ruling out blind
adherence to their terms if the attendant
facts and circumstances show that they
should be ignored for being obviously too
one-sided. 20
On previous occasions, it has been declared
that a contract of adhesion may be struck
down as void and unenforceable, for being
subversive to public policy, only when the
weaker party is imposed upon in dealing
with the dominant bargaining party and is
reduced to the alternative of taking it or
leaving it, completely deprived of the
opportunity to bargain on equal
footing. 21 And when it has been shown that
the complainant is knowledgeable enough
to have understood the terms and
conditions of the contract, or one whose
stature is such that he is expected to be
more prudent and cautious with respect to
his transactions, such party cannot later on
be heard to complain for being ignorant or
having been forced into merely consenting
to the contract. 22
The factual backdrop of the instant case,
however, militates against applying the
aforestated pronouncements. That
petitioner failed to discharge its obligation
to transmit private respondent's telegraphic
transfer on time in accordance with their
agreement is already a settled matter as the
same is no longer disputed in this petition.
Neither is the finding of respondent Court
of Appeals that petitioner acted
fraudulently and in bad faith in the
performance of its obligation, being
contested by petitioner. Perforce, we are
bound by these factual considerations.
Having established that petitioner acted
fraudulently and in bad faith, we find it
implausible to absolve petitioner from its
wrongful acts on account of the assailed
provision exempting it from any liability.
In Geraldez vs. Court of Appeals, 23 it was
unequivocally declared that
notwithstanding the enforceability of a
contractual limitation, responsibility arising
from a fraudulent act cannot be exculpated
because the same is contrary to public
policy. Indeed, Article 21 of the Civil Code is
quite explicit in providing that "[a]ny person
who willfully causes loss or injury to
another in a manner that is contrary to
morals, good customs or public policy shall
compensate the latter for the damage".
Freedom of contract is subject to the
limitation that the agreement must not be
against public policy and any agreement or
contract made in violation of this rule is not
binding and will not be enforced. 24
The prohibition against this type of
contractual stipulation is moreover treated
by law as void which may not be ratified or
waived by a contracting party. Article 1409
of the Civil Code states:
Art. 1409. The following
contracts are inexistent and
void from the beginning:
(1) Those whose cause,
object or purpose is contrary
to law, morals, good
customs, public order or
public policy;
xxx xxx xxx
These contracts cannot be
ratified. Neither can the right
to set up the defense of
illegality be waived.
Undoubtedly, the services being
offered by a banking institution like
petitioner are imbued with public
interest. 25 The use of telegraphic
transfers have now become
commonplace among businessmen
because it facilitates commercial
transactions. Any attempt to
completely exempt one of the
contracting parties from any liability
in case of loss notwithstanding its
bad faith, fault or negligence, as in
the instant case, cannot be
sanctioned for being inimical to
public interest and therefore
contrary to public policy. Resultingly,
there being no dispute that
petitioner acted fraudulently and in
bad faith, the award of
moral 26 and exemplary damages
were proper.
But notwithstanding petitioner's
liability for the resulting loss and
damage to private respondent, we
find the amount of moral damages
adjudged by respondent court in the
sum of P400,000.00 exorbitant.
Bearing in mind that moral damages
are awarded, not to penalize the
wrongdoer, but rather to
compensate the claimant for the
injuries that he may have
suffered, 27 we believe that an
award of Two Hundred Thousand
Pesos (P200,000.00) is reasonable
under the circumstances.
WHEREFORE, subject to the
foregoing modification reducing the
amount awarded as moral damages
to the sum of Two Hundred
Thousand Pesos (P200,000.00), the
appealed decision is hereby
AFFIRMED.
SO ORDERED.
G.R. No. 148191 November 25,
2003
COMMISSIONER OF INTERNAL
REVENUE, petitioner,
vs.
SOLIDBANK CORPORATION, respondent.
DECISION
PANGANIBAN, J.:
Under the Tax Code, the earnings of banks
from "passive" income are subject to a
twenty percent final withholding tax (20%
FWT). This tax is withheld at source and is
thus not actually and physically received by
the banks, because it is paid directly to the
government by the entities from which the
banks derived the income. Apart from the
20% FWT, banks are also subject to a five
percent gross receipts tax (5% GRT) which is
imposed by the Tax Code on their gross
receipts, including the "passive" income.
Before us is a Petition for Review1 under
Rule 45 of the Rules of Court, seeking to
annul the July 18, 2000 Decision2 and the
May 8, 2001 Resolution3 of the Court of
Appeals4 (CA) in CA-GR SP No. 54599. The
decretal portion of the assailed Decision
reads as follows:
"WHEREFORE, we AFFIRM in toto the
assailed decision and resolution of the
Court of Tax Appeals."5
The challenged Resolution denied
petitioner’s Motion for Reconsideration.

Since the 20% FWT is constructively The Facts

received by the banks and forms part of
their gross receipts or earnings, it follows Quoting petitioner, the CA6 summarized the
that it is subject to the 5% GRT. After all, facts of this case as follows:
the amount withheld is paid to the
government on their behalf, in satisfaction "For the calendar year 1995, [respondent]
of their withholding taxes. That they do not seasonably filed its Quarterly Percentage
actually receive the amount does not alter Tax Returns reflecting gross receipts
the fact that it is remitted for their benefit (pertaining to 5% [Gross Receipts Tax] rate)
in satisfaction of their tax obligations. in the total amount of ₱1,474,691,693.44
with corresponding gross receipts tax
Stated otherwise, the fact is that if there payments in the sum of ₱73,734,584.60,
were no withholding tax system in place in broken down as follows:
this country, this 20 percent portion of the
"passive" income of banks would actually Period Gross
be paid to the banks and then remitted by Gross
Covere Receipts
them to the government in payment of Receipts
d Tax
their income tax. The institution of the
withholding tax system does not alter the January
₱ ₱
fact that the 20 percent portion of their to
188,406,061 9,420,303
"passive" income constitutes part of their March
.95 .10
actual earnings, except that it is paid 1994
directly to the government on their behalf
April to
in satisfaction of the 20 percent final 370,913,832 18,545,69
June
income tax due on their "passive" incomes. .70 1.63
1994
The Case July to 481,501,838 24,075,09
Septem .98 1.95
 ber
1994
Octobe
r to
433,869,959 21,693,49
Decem
.81 7.98
ber
1994
₱ ₱
Total 1,474,691,6 73,734,58
93.44 4.60
"[Respondent] alleges that the total gross
receipts in the amount of
₱1,474,691,693.44 included the sum of
₱350,807,875.15 representing gross
receipts from passive income which was
already subjected to 20% final withholding
tax.
"On January 30, 1996, [the Court of Tax
Appeals] rendered a decision in CTA Case
No. 4720 entitled Asian Bank Corporation
vs. Commissioner of Internal Revenue[,]
wherein it was held that the 20% final
withholding tax on [a] bank’s interest
income should not form part of its taxable
gross receipts for purposes of computing
the gross receipts tax.
"On June 19, 1997, on the strength of the
aforementioned decision, [respondent] filed
with the Bureau of Internal Revenue [BIR] a
letter-request for the refund or issuance of
[a] tax credit certificate in the aggregate
amount of ₱3,508,078.75, representing
allegedly overpaid gross receipts tax for the
year 1995, computed as follows:
Gross Receipts
Subjected to the
Final Tax
Derived from ₱
Passive [Income] 350,807,875.15
Multiply by Final
20%
Tax rate
20% Final Tax
₱
Withheld at
70,161,575.03
Source
Multiply by
[Gross Receipts 5%
Tax] rate
Overpaid [Gross
₱ 3,508,078.75
Receipts Tax]
"Without waiting for an action from the
[petitioner], [respondent] on the same day
filed [a] petition for review [with the Court
of Tax Appeals] in order to toll the running
of the two-year prescriptive period to
judicially claim for the refund of [any]
overpaid internal revenue tax[,] pursuant to
Section 230 [now 229] of the Tax Code [also
‘National Internal Revenue Code’] x x x.
xxx xxx xxx
"After trial on the merits, the [Court of Tax
Appeals], on August 6, 1999, rendered its
decision ordering x x x petitioner to refund
in favor of x x x respondent the reduced
amount of ₱1,555,749.65 as overpaid [gross
receipts tax] for the year 1995. The legal
issue x x x was resolved by the [Court of Tax
Appeals], with Hon. Amancio Q. Saga
dissenting, on the strength of its earlier
pronouncement in x x x Asian Bank
Corporation vs. Commissioner of Internal
Revenue x x x, wherein it was held that the
20% [final withholding tax] on [a] bank’s
interest income should not form part of its
taxable gross receipts for purposes of
computing the [gross receipts tax]."7
Ruling of the CA
The CA held that the 20% FWT on a bank’s
interest income did not form part of the
taxable gross receipts in computing the 5%
GRT, because the FWT was not actually
received by the bank but was directly
remitted to the government. The appellate
court curtly said that while the Tax Code
"does not specifically state any exemption,
x x x the statute must receive a sensible
construction such as will give effect to the
legislative intention, and so as to avoid an
unjust or absurd conclusion."8
Hence, this appeal.9
Issue
Petitioner raises this lone issue for our
consideration:
"Whether or not the 20% final withholding
tax on [a] bank’s interest income forms part
of the taxable gross receipts in computing
the 5% gross receipts tax."10
The Court’s Ruling
The Petition is meritorious.
Sole Issue:
Whether the 20% FWT Forms Part
of the Taxable Gross Receipts
Petitioner claims that although the 20%
FWT on respondent’s interest income was
not actually received by respondent
because it was remitted directly to the
government, the fact that the amount
redounded to the bank’s benefit makes it
part of the taxable gross receipts in
computing the 5% GRT. Respondent, on the
other hand, maintains that the CA correctly
ruled otherwise.
We agree with petitioner. In fact, the same
issue has been raised recently in China
Banking Corporation v. CA,11 where this
Court held that the amount of interest
income withheld in payment of the 20%
FWT forms part of gross receipts in
computing for the GRT on banks.
The FWT and the GRT:
Two Different Taxes
The 5% GRT is imposed by Section 11912 of
the Tax Code,13 which provides:
"SEC. 119. Tax on banks and non-bank
financial intermediaries. – There shall be
collected a tax on gross receipts derived
from sources within the Philippines by all
banks and non-bank financial
intermediaries in accordance with the
following schedule:
"(a) On interest, commissions and discounts
from lending activities as well as income
from financial leasing, on the basis of
remaining maturities of instruments from
which such receipts are derived.
Short-term maturity not in excess of
two (2) years……………………5%
Medium-term maturity – over two
(2) years
but not exceeding four (4)
years………………………………….…...3%
Long-term maturity:
 (i) Over four (4) years but not
exceeding
seven (7)
years……………………………………………1
% Income." It is a tax on passive income,
(ii) Over seven (7)
years………………………………….….0%
"(b) On
dividends……………………………….……..0
%
"(c) On royalties, rentals of property,
real or personal, profits from
exchange and all other items treated
as gross income under Section
2814 of this
Code………..........................................
..........................5%
Provided, however, That in case the
maturity period referred to in paragraph (a)
is shortened thru pretermination, then the
maturity period shall be reckoned to end as
of the date of pretermination for purposes
of classifying the transaction as short,
medium or long term and the correct rate
of tax shall be applied accordingly.
"Nothing in this Code shall preclude the
Commissioner from imposing the same tax
herein provided on persons performing
similar banking activities."
The 5% GRT15 is included under "Title V.
Other Percentage Taxes" of the Tax Code
and is not subject to withholding. The banks
and non-bank financial intermediaries liable
therefor shall, under Section 125(a)(1),16 file
quarterly returns on the amount of gross
receipts and pay the taxes due thereon
within twenty (20)17 days after the end of
each taxable quarter.
The 20% FWT,18 on the other hand, falls
under Section 24(e)(1)19 of "Title II. Tax on
deducted and withheld at source by the
payor-corporation and/or person as
withholding agent pursuant to Section
50,20 and paid in the same manner and
subject to the same conditions as provided
for in Section 51.21
A perusal of these provisions clearly shows
that two types of taxes are involved in the
present controversy: (1) the GRT, which is a
percentage tax; and (2) the FWT, which is
an income tax. As a bank, petitioner is
covered by both taxes.
A percentage tax is a national tax measured
by a certain percentage of the gross selling
price or gross value in money of goods sold,
bartered or imported; or of the gross
receipts or earnings derived by any person
engaged in the sale of services.22 It is not
subject to withholding.
An income tax, on the other hand, is a
national tax imposed on the net or the
gross income realized in a taxable year.23 It
is subject to withholding.
In a withholding tax system, the payee is
the taxpayer, the person on whom the tax is
imposed; the payor, a separate entity, acts
as no more than an agent of the
government for the collection of the tax in
order to ensure its payment. Obviously, this
amount that is used to settle the tax liability
is deemed sourced from the proceeds
constitutive of the tax base.24 These
proceeds are either actual or constructive.
Both parties herein agree that there is no
actual receipt by the bank of the amount
withheld. What needs to be determined is if
there is constructive receipt thereof. Since
the payee -- not the payor -- is the real
taxpayer, the rule on constructive receipt
can be easily rationalized, if not made
clearly manifest.25
Constructive Receipt
Versus Actual Receipt
Applying Section 7 of Revenue Regulations
(RR) No. 17-84,26 petitioner contends that
there is constructive receipt of the interest
on deposits and yield on deposit
substitutes.27 Respondent, however, claims
that even if there is, it is Section 4(e) of RR
12-8028 that nevertheless governs the
situation.
Section 7 of RR 17-84 states:
"SEC. 7. Nature and Treatment of Interest
on Deposits and Yield on Deposit
Substitutes. –
‘(a) The interest earned on
Philippine Currency bank deposits
and yield from deposit substitutes
subjected to the withholding taxes
in accordance with these regulations
need not be included in the gross
income in computing the
depositor’s/investor’s income tax
liability in accordance with the
provision of Section 29(b),29 (c)30 and
(d) of the National Internal Revenue
Code, as amended.
‘(b) Only interest paid or accrued on
bank deposits, or yield from deposit
substitutes declared for purposes of
imposing the withholding taxes in
accordance with these regulations
shall be allowed as interest expense
deductible for purposes of
computing taxable net income of
the payor.
‘(c) If the recipient of the above-
mentioned items of income are
financial institutions, the same shall
be included as part of the tax base
upon which the gross receipt[s] tax
is imposed.’"
Section 4(e) of RR 12-80, on the other hand,
states that the tax rates to be imposed on
the gross receipts of banks, non-bank
financial intermediaries, financing
companies, and other non-bank financial
intermediaries not performing quasi-
banking activities shall be based on all items
of income actually received. This provision
reads:
"SEC. 4. x x x x x x x x x
"(e) Gross receipts tax on banks, non-bank
financial intermediaries, financing
companies, and other non-bank financial
intermediaries not performing quasi-
banking activities. – The rates of tax to be
imposed on the gross receipts of such
financial institutions shall be based on all
items of income actually received. Mere
accrual shall not be considered, but once
payment is received on such accrual or in
cases of prepayment, then the amount
actually received shall be included in the tax
base of such financial institutions, as
provided hereunder x x x."
Respondent argues that the above-quoted
provision is plain and clear: since there is no
actual receipt, the FWT is not to be included
in the tax base for computing the GRT.
There is supposedly no pecuniary benefit or
advantage accruing to the bank from the
FWT, because the income is subjected to a
tax burden immediately upon receipt
through the withholding process.
Moreover, the earlier RR 12-80 covered
matters not falling under the later RR 17-
84.31
We are not persuaded.
By analogy, we apply to the receipt of
income the rules on actual and constructive
possession provided in Articles 531 and 532
of our Civil Code.
Under Article 531:32
"Possession is acquired by the material
occupation of a thing or the exercise of a
right, or by the fact that it is subject to the
action of our will, or by the proper acts and
legal formalities established for acquiring
such right."
Article 532 states:
"Possession may be acquired by the same
person who is to enjoy it, by his legal
representative, by his agent, or by any
person without any power whatever; but in
the last case, the possession shall not be
considered as acquired until the person in
whose name the act of possession was
executed has ratified the same, without
prejudice to the juridical consequences of
negotiorum gestio in a proper case."33
The last means of acquiring possession
under Article 531 refers to juridical acts --
the acquisition of possession by sufficient
title – to which the law gives the force of
acts of possession.34 Respondent argues
that only items of income actually received
should be included in its gross receipts. It
claims that since the amount had already
been withheld at source, it did not have
actual receipt thereof.
We clarify. Article 531 of the Civil Code
clearly provides that the acquisition of the
right of possession is through the proper
acts and legal formalities established
therefor. The withholding process is one
such act. There may not be actual receipt of
the income withheld; however, as provided
for in Article 532, possession by any person
without any power whatsoever shall be
considered as acquired when ratified by the
person in whose name the act of possession
is executed.
In our withholding tax system, possession is
acquired by the payor as the withholding
agent of the government, because the
taxpayer ratifies the very act of possession
for the government. There is thus
constructive receipt. The processes of
bookkeeping and accounting for interest on
deposits and yield on deposit substitutes
that are subjected to FWT are indeed -- for
legal purposes -- tantamount to delivery,
receipt or remittance.35 Besides, respondent
itself admits that its income is subjected to
a tax burden immediately upon "receipt,"
although it claims that it derives no
pecuniary benefit or advantage through the
withholding process. There being
constructive receipt of such income -- part
of which is withheld -- RR 17-84 applies, and
that income is included as part of the tax
base upon which the GRT is imposed.
RR 12-80 Superseded by RR 17-84
We now come to the effect of the revenue
regulations on interest income
constructively received.
In general, rules and regulations issued by
administrative or executive officers
pursuant to the procedure or authority
conferred by law upon the administrative
agency have the force and effect, or partake
of the nature, of a statute.36 The reason is
that statutes express the policies, purposes,
objectives, remedies and sanctions
intended by the legislature in general
terms. The details and manner of carrying
them out are oftentimes left to the
administrative agency entrusted with their
enforcement.
In the present case, it is the finance
secretary who promulgates the revenue
regulations, upon recommendation of the
BIR commissioner. These regulations are
the consequences of a delegated power to
issue legal provisions that have the effect of
law.37
A revenue regulation is binding on the
courts as long as the procedure fixed for its
promulgation is followed. Even if the courts
may not be in agreement with its stated
policy or innate wisdom, it is nonetheless
valid, provided that its scope is within the
statutory authority or standard granted by
the legislature.38 Specifically, the regulation
must (1) be germane to the object and
purpose of the law;39 (2) not contradict, but
conform to, the standards the law
prescribes;40 and (3) be issued for the sole
purpose of carrying into effect the general
provisions of our tax laws.41
In the present case, there is no question
about the regularity in the performance of
official duty. What needs to be determined
is whether RR 12-80 has been repealed by
RR 17-84.
A repeal may be express or implied. It is
express when there is a declaration in a
regulation -- usually in its repealing clause --
that another regulation, identified by its
number or title, is repealed. All others are
implied repeals.42 An example of the latter
is a general provision that predicates the
intended repeal on a substantial conflict
between the existing and the prior
regulations.43
As stated in Section 11 of RR 17-84, all
regulations, rules, orders or portions
thereof that are inconsistent with the
provisions of the said RR are thereby
repealed. This declaration proceeds on the
premise that RR 17-84 clearly reveals such
an intention on the part of the Department
of Finance. Otherwise, later RRs are to be
construed as a continuation of, and not a
substitute for, earlier RRs; and will continue
to speak, so far as the subject matter is the
same, from the time of the first
promulgation.44
There are two well-settled categories of
implied repeals: (1) in case the provisions
are in irreconcilable conflict, the later
regulation, to the extent of the conflict,
constitutes an implied repeal of an earlier
one; and (2) if the later regulation covers
the whole subject of an earlier one and is
clearly intended as a substitute, it will
similarly operate as a repeal of the earlier
one.45 There is no implied repeal of an
earlier RR by the mere fact that its subject
matter is related to a later RR, which may
simply be a cumulation or continuation of
the earlier one.46
Where a part of an earlier regulation
embracing the same subject as a later one
may not be enforced without nullifying the
pertinent provision of the latter, the earlier
regulation is deemed impliedly amended or
modified to the extent of the
repugnancy.47 The unaffected provisions or
portions of the earlier regulation remain in
force, while its omitted portions are
deemed repealed.48 An exception therein
that is amended by its subsequent
elimination shall now cease to be so and
instead be included within the scope of the
general rule.49
Section 4(e) of the earlier RR 12-80 provides
that only items of income actually received
shall be included in the tax base for
computing the GRT, but Section 7(c) of the
later RR 17-84 makes no such distinction
and provides that all interests earned shall
be included. The exception having been
eliminated, the clear intent is that the later
RR 17-84 includes the exception within the
scope of the general rule.
Repeals by implication are not favored and
will not be indulged, unless it is manifest
that the administrative agency intended
them. As a regulation is presumed to have
been made with deliberation and full
knowledge of all existing rules on the
subject, it may reasonably be concluded
that its promulgation was not intended to
interfere with or abrogate any earlier rule
relating to the same subject, unless it is
either repugnant to or fully inclusive of the
subject matter of an earlier one, or unless
the reason for the earlier one is "beyond
peradventure removed."50 Every effort must
be exerted to make all regulations stand --
and a later rule will not operate as a repeal
of an earlier one, if by any reasonable
construction, the two can be reconciled.51
RR 12-80 imposes the GRT only on all items
of income actually received, as opposed to
their mere accrual, while RR 17-84 includes
all interest income in computing the GRT.
RR 12-80 is superseded by the later rule,
because Section 4(e) thereof is not restated
in RR 17-84. Clearly therefore, as petitioner
correctly states, this particular provision
was impliedly repealed when the later
regulations took effect.52
Reconciling the Two Regulations
Granting that the two regulations can be
reconciled, respondent’s reliance on Section
4(e) of RR 12-80 is misplaced and deceptive.
The "accrual" referred to therein should not
be equated with the determination of the
amount to be used as tax base in computing
the GRT. Such accrual merely refers to an
accounting method that recognizes income
as earned although not received, and
expenses as incurred although not yet paid.
Accrual should not be confused with the
concept of constructive possession or
receipt as earlier discussed. Petitioner
correctly points out that income that is
merely accrued -- earned, but not yet
received -- does not form part of the
taxable gross receipts; income that has
been received, albeit constructively, does.53
The word "actually," used confusingly in
Section 4(e), will be clearer if removed
entirely. Besides, if actually is that
important, accrual should have been
eliminated for being a mere surplusage. The
inclusion of accrual stresses the fact that
Section 4(e) does not distinguish between
actual and constructive receipt. It merely
focuses on the method of accounting
known as the accrual system.
Under this system, income is accrued or
earned in the year in which the taxpayer’s
right thereto becomes fixed and definite,
even though it may not be actually received
until a later year; while a deduction for a
liability is to be accrued or incurred and
taken when the liability becomes fixed and
certain, even though it may not be actually
paid until later.54
Under any system of accounting, no duty or
liability to pay an income tax upon a
transaction arises until the taxable year in
which the event constituting the condition
precedent occurs.55 The liability to pay a tax
may thus arise at a certain time and the tax
paid within another given time.56
In reconciling these two regulations, the
earlier one includes in the tax base for GRT
all income, whether actually or
constructively received, while the later one
includes specifically interest income. In
computing the income tax liability, the only
exception cited in the later regulations is
the exclusion from gross income of interest
income, which is already subjected to
withholding. This exception, however,
refers to a different tax altogether. To
extend mischievously such exception to the
GRT will certainly lead to results not
contemplated by the legislators and the
administrative body promulgating the
regulations.
Manila Jockey Club
Inapplicable
In Commissioner of Internal Revenue v.
Manila Jockey Club,57 we held that the term
"gross receipts" shall not include money
which, although delivered, has been
especially earmarked by law or regulation
for some person other than the taxpayer.58
To begin, we have to nuance the definition
of gross receipts59 to determine what it is
exactly. In this regard, we note that US
cases have persuasive effect in our
jurisdiction, because Philippine income tax
law is patterned after its US counterpart.60
"‘[G]ross receipts’ with respect to any
period means the sum of: (a) The total
amount received or accrued during such
period from the sale, exchange, or other
disposition of x x x other property of a kind
which would properly be included in the
inventory of the taxpayer if on hand at the
close of the taxable year, or property held
by the taxpayer primarily for sale to
customers in the ordinary course of its
trade or business, and (b) The gross income,
attributable to a trade or business, regularly
carried on by the taxpayer, received or
accrued during such period x x x."61
"x x x [B]y gross earnings from operations x
x x was intended all operations xxx
including incidental, subordinate, and
subsidiary operations, as well as principal
operations."62
"When we speak of the ‘gross earnings’ of a
person or corporation, we mean the entire
earnings or receipts of such person or
corporation from the business or
operations to which we refer."63
From these cases, "gross receipts"64 refer to
the total, as opposed to the net,
income.65 These are therefore the total
receipts before any deduction66 for the
expenses of management.67 Webster’s New
International Dictionary, in fact, defines
gross as "whole or entire."
Statutes taxing the gross "receipts,"
"earnings," or "income" of particular
corporations are found in many
jurisdictions.68 Tax thereon is generally held
to be within the power of a state to impose;
or constitutional, unless it interferes with
interstate commerce or violates the
requirement as to uniformity of taxation.69
Moreover, we have emphasized that the
BIR has consistently ruled that "gross
receipts" does not admit of any
deduction.70 Following the principle of
legislative approval by reenactment,71 this
interpretation has been adopted by the
legislature throughout the various
reenactments of then Section 119 of the
Tax Code.72
Given that a tax is imposed upon total
receipts and not upon net earnings,73 shall
the income withheld be included in the tax
base upon which such tax is imposed? In
other words, shall interest income
constructively received still be included in
the tax base for computing the GRT?
We rule in the affirmative.
Manila Jockey Club does not apply to this
case. Earmarking is not the same as
withholding. Amounts earmarked do not
form part of gross receipts, because,
although delivered or received, these are by
law or regulation reserved for some person
other than the taxpayer. On the contrary,
amounts withheld form part of gross
receipts, because these are in constructive
possession and not subject to any
reservation, the withholding agent being
merely a conduit in the collection process.
The Manila Jockey Club had to deliver to the
Board on Races, horse owners and jockeys
amounts that never became the property of
the race track.74 Unlike these amounts, the
interest income that had been withheld for
the government became property of the
financial institutions upon constructive
possession thereof. Possession was indeed
acquired, since it was ratified by the
financial institutions in whose name the act
of possession had been executed. The
money indeed belonged to the taxpayers;
merely holding it in trust was not enough.75
The government subsequently becomes the
owner of the money when the financial
institutions pay the FWT to extinguish their
obligation to the government. As this Court
has held before, this is the consideration for
the transfer of ownership of the FWT from
these institutions to the government.76 It is
ownership that determines whether
interest income forms part of taxable gross
receipts.77 Being originally owned by these
financial institutions as part of their interest
income, the FWT should form part of their
taxable gross receipts.
Besides, these amounts withheld are in
payment of an income tax liability, which is
different from a percentage tax liability.
Commissioner of Internal Revenue v. Tours
Specialists, Inc. aptly held thus:78
"x x x [G]ross receipts subject to tax under
the Tax Code do not include monies or
receipts entrusted to the taxpayer which do
not belong to them and do not redound to
the taxpayer’s benefit; and it is not
necessary that there must be a law or
regulation which would exempt such
monies and receipts within the meaning of
gross receipts under the Tax Code."79
In the construction and interpretation of tax
statutes and of statutes in general, the
primary consideration is to ascertain and
give effect to the intention of the
legislature.80 We ought to impute to the
lawmaking body the intent to obey the
constitutional mandate, as long as its
enactments fairly admit of such
construction.81 In fact, "x x x no tax can be
levied without express authority of law, but
the statutes are to receive a reasonable
construction with a view to carrying out
their purpose and intent."82
Looking again into Sections 24(e)(1) and 119
of the Tax Code, we find that the first
imposes an income tax; the second, a
percentage tax. The legislature clearly
intended two different taxes. The FWT is a
tax on passive income, while the GRT is on
business.83 The withholding of one is not
equivalent to the payment of the other.
Non-Exemption of FWT from GRT:
Neither Unjust nor Absurd
Taxing the people and their property is
essential to the very existence of
government. Certainly, one of the highest
attributes of sovereignty is the power of
taxation,84 which may legitimately be
exercised on the objects to which it is
applicable to the utmost extent as the
government may choose.85 Being an
incident of sovereignty, such power is
coextensive with that to which it is an
incident.86 The interest on deposits and
yield on deposit substitutes of financial
institutions, on the one hand, and their
business as such, on the other, are the two
objects over which the State has chosen to
extend its sovereign power. Those not so
chosen are, upon the soundest principles,
exempt from taxation.87
While courts will not enlarge by
construction the government’s power of
taxation,88 neither will they place upon tax
laws so loose a construction as to permit
evasions, merely on the basis of fanciful and
insubstantial distinctions.89 When the
legislature imposes a tax on income and
another on business, the imposition must
be respected. The Tax Code should be so
construed, if need be, as to avoid empty
declarations or possibilities of crafty tax
evasion schemes. We have consistently
ruled thus:
"x x x [I]t is upon taxation that the
[g]overnment chiefly relies to obtain the
means to carry on its operations, and it is of
the utmost importance that the modes
adopted to enforce the collection of the
taxes levied should be summary and
interfered with as little as possible. x x x."90
"Any delay in the proceedings of the
officers, upon whom the duty is devolved of
collecting the taxes, may derange the
operations of government, and thereby
cause serious detriment to the public."91
"No government could exist if all litigants
were permitted to delay the collection of its
taxes."92
A taxing act will be construed, and the
intent and meaning of the legislature
ascertained, from its language.93 Its clarity
and implied intent must exist to uphold the
taxes as against a taxpayer in whose favor
doubts will be resolved.94 No such doubts
exist with respect to the Tax Code, because
the income and percentage taxes we have
cited earlier have been imposed in clear and
express language for that purpose.95
This Court has steadfastly adhered to the
doctrine that its first and fundamental duty
is the application of the law according to its
express terms -- construction and
interpretation being called for only when
such literal application is impossible or
inadequate without them.96 In Quijano v.
Development Bank of the Philippines,97 we
stressed as follows:
"No process of interpretation or
construction need be resorted to where a
provision of law peremptorily calls for
application." 98
A literal application of any part of a statute
is to be rejected if it will operate unjustly,
lead to absurd results, or contradict the
evident meaning of the statute taken as a
whole.99 Unlike the CA, we find that the
literal application of the aforesaid sections
of the Tax Code and its implementing
regulations does not operate unjustly or
contradict the evident meaning of the
statute taken as a whole. Neither does it
lead to absurd results. Indeed, our courts
are not to give words meanings that would
lead to absurd or unreasonable
consequences.100 We have repeatedly held
thus:
"x x x [S]tatutes should receive a sensible
construction, such as will give effect to the
legislative intention and so as to avoid an
unjust or an absurd conclusion."101
"While it is true that the contemporaneous
construction placed upon a statute by
executive officers whose duty is to enforce
it should be given great weight by the
courts, still if such construction is so
erroneous, x x x the same must be declared
as null and void."102
It does not even matter that the CTA, like in
China Banking Corporation,103 relied
erroneously on Manila Jockey Club. Under
our tax system, the CTA acts as a highly
specialized body specifically created for the
purpose of reviewing tax cases.104 Because
of its recognized expertise, its findings of
fact will ordinarily not be reviewed, absent
any showing of gross error or abuse on its
part.105 Such findings are binding on the
Court and, absent strong reasons for us to
delve into facts, only questions of law are
open for determination.106
Respondent claims that it is entitled to a
refund on the basis of excess GRT
payments. We disagree.
Tax refunds are in the nature of tax
exemptions.107 Such exemptions are strictly
construed against the taxpayer, being highly
disfavored108 and almost said "to be odious
to the law." Hence, those who claim to be
exempt from the payment of a particular
tax must do so under clear and
unmistakable terms found in the statute.
They must be able to point to some positive
provision, not merely a vague
implication,109 of the law creating that
right.110
The right of taxation will not be
surrendered, except in words too plain to
be mistaken.1âwphi1 The reason is that the
State cannot strip itself of this highest
attribute of sovereignty -- its most essential
power of taxation -- by vague or ambiguous
language. Since tax refunds are in the
nature of tax exemptions, these are
deemed to be "in derogation of sovereign
authority and to be construed strictissimi
juris against the person or entity claiming
the exemption."111
No less than our 1987 Constitution provides
for the mechanism for granting tax
exemptions.112 They certainly cannot be
granted by implication or mere
administrative regulation. Thus, when an
exemption is claimed, it must indubitably be
shown to exist, for every presumption is
against it,113 and a well-founded doubt is
fatal to the claim.114 In the instant case,
respondent has not been able to
satisfactorily show that its FWT on interest
income is exempt from the GRT. Like China
Banking Corporation, its argument creates a
tax exemption where none exists.115
No exemptions are normally allowed when
a GRT is imposed. It is precisely designed to
maintain simplicity in the tax collection
effort of the government and to assure its
steady source of revenue even during an
economic slump.116
No Double Taxation
We have repeatedly said that the two taxes,
subject of this litigation, are different from
each other. The basis of their imposition
may be the same, but their natures are
different, thus leading us to a final point. Is
there double taxation?
The Court finds none.
Double taxation means taxing the same
property twice when it should be taxed only
once; that is, "x x x taxing the same person
twice by the same jurisdiction for the same
thing."117 It is obnoxious when the taxpayer
is taxed twice, when it should be but
once.118 Otherwise described as "direct
duplicate taxation,"119 the two taxes must
be imposed on the same subject matter, for
the same purpose, by the same taxing
authority, within the same jurisdiction,
during the same taxing period; and they
must be of the same kind or character.120
First, the taxes herein are imposed on two
different subject matters. The subject
matter of the FWT is the passive income
generated in the form of interest on
deposits and yield on deposit substitutes,
while the subject matter of the GRT is the
privilege of engaging in the business of
banking.
A tax based on receipts is a tax on business
rather than on the property; hence, it is an
excise121 rather than a property tax.122 It is
not an income tax, unlike the FWT. In fact,
we have already held that one can be taxed
for engaging in business and further taxed
differently for the income derived
therefrom.123 Akin to our ruling in Velilla v.
Posadas,124 these two taxes are entirely
distinct and are assessed under different
provisions.
Second, although both taxes are national in
scope because they are imposed by the
same taxing authority -- the national
government under the Tax Code -- and
operate within the same Philippine
jurisdiction for the same purpose of raising
revenues, the taxing periods they affect are
different. The FWT is deducted and
withheld as soon as the income is earned,
and is paid after every calendar quarter in
which it is earned. On the other hand, the
GRT is neither deducted nor withheld, but is
paid only after every taxable quarter in
which it is earned.
Third, these two taxes are of different kinds
or characters. The FWT is an income tax
subject to withholding, while the GRT is a
percentage tax not subject to withholding.
In short, there is no double taxation,
because there is no taxing twice, by the
same taxing authority, within the same
jurisdiction, for the same purpose, in
different taxing periods, some of the
property in the territory.125 Subjecting
interest income to a 20% FWT and including
it in the computation of the 5% GRT is
clearly not double taxation.
WHEREFORE, the Petition is GRANTED. The
assailed Decision and Resolution of the
Court of Appeals are hereby REVERSED and
SET ASIDE. No costs.
Among its obligations in furtherance
thereof is knowing the signatures of its
clients. Depositors are not estopped from
questioning wrongful withdrawals, even if
they have failed to question those errors in
the statements sent by the bank to them
for verification.
The Case

SO ORDERED. Before us are two Petitions for

Review1 under Rule 45 of the Rules of
---------------------------------------------------------- Court, assailing the March 23, 2001
- Decision2 and the August 17, 2001
Resolution3 of the Court of Appeals (CA) in
G.R. No. 149454 May 28, 2004 CA-GR CV No. 63561. The decretal portion
of the assailed Decision reads as follows:
BANK OF THE PHILIPPINE
ISLANDS, petitioner, "WHEREFORE, upon the premises,
vs. the decision appealed from
CASA MONTESSORI INTERNATIONALE is AFFIRMED with the modification
LEONARDO T. YABUT, respondents. that defendant bank [Bank of the
Philippine Islands (BPI)] is held liable
x ----------------------------- x only for one-half of the value of the
forged checks in the amount of
G.R. No. 149507 May 28, 2004 ₱547,115.00 after deductions
subject to REIMBURSEMENT from
CASA MONTESSORI third party defendant Yabut who is
INTERNATIONALE, petitioner, likewise ORDERED to pay the other
vs. half to plaintiff corporation [Casa
BANK OF THE PHILIPPINE Montessori Internationale (CASA)]."4
ISLANDS, respondent.
The assailed Resolution denied all the
DECISION parties’ Motions for Reconsideration.

PANGANIBAN, J.: The Facts

By the nature of its functions, a bank is The facts of the case are narrated by the CA
required to take meticulous care of the as follows:
deposits of its clients, who have the right to
expect high standards of integrity and "On November 8, 1982, plaintiff
performance from it. CASA Montessori
International5 opened Current
Account No. 0291-0081-01 with
defendant BPI[,] with CASA’s Mar.
President Ms. Ma. Carina C. Lebron 9.
2, 98,985.00
as one of its authorized signatories. 729034
1990

"In 1991, after conducting an

investigation, plaintiff discovered ₱
that nine (9) of its checks had been Total -- 782,600.006
encashed by a certain Sonny D.
Santos since 1990 in the total "It turned out that ‘Sonny D. Santos’
amount of ₱782,000.00, on the with account at BPI’s Greenbelt
following dates and amounts: Branch [was] a fictitious name used
by third party defendant Leonardo
‘Check T. Yabut who worked as external
Date Amount auditor of CASA. Third party
No.
defendant voluntarily admitted that
April he forged the signature of Ms.
1.
24, ₱ 43,400.00 Lebron and encashed the checks.
839700
1990 "The PNP Crime Laboratory
Nov. conducted an examination of the
2. nine (9) checks and concluded that
2, 110,500.00
839459 the handwritings thereon compared
1990
to the standard signature of Ms.
Oct. Lebron were not written by the
3.
17, 47,723.00 latter.
839609
1990
April "On March 4, 1991, plaintiff filed the
4. herein Complaint for Collection with
7, 90,700.00
839549 Damages against defendant bank
1990
praying that the latter be ordered to
Sept. reinstate the amount of
5.
23, 52,277.00 ₱782,500.007 in the current and
839569
1990 savings accounts of the plaintiff with
Mar. interest at 6% per annum.
6.
22, 148,000.00
729149 "On February 16, 1999, the RTC
1990
rendered the appealed decision in
Mar. favor of the plaintiff."8
7.
16, 51,015.00
729129
1990 Ruling of the Court of Appeals
Dec.
8. Modifying the Decision of the Regional Trial
1, 140,000.00
839684 Court (RTC), the CA apportioned the loss
1990
between BPI and CASA. The appellate court
took into account CASA’s contributory
negligence that resulted in the undetected
forgery. It then ordered Leonardo T. Yabut
to reimburse BPI half the total amount
claimed; and CASA, the other half. It also
disallowed attorney’s fees and moral and
exemplary damages.
Hence, these Petitions.9
Issues
In GR No. 149454, Petitioner BPI submits
the following issues for our consideration:
"I. The Honorable Court of Appeals
erred in deciding this case NOT in
accord with the applicable
decisions of this Honorable Court to
the effect that forgery cannot be
presumed; that it must be proved by
clear, positive and convincing
evidence; and that the burden of
proof lies on the party alleging the
forgery.
"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
own negligence, from asserting its
forgery claim against BPI, specially
taking into account the absence of
any negligence on the part of BPI."10
In GR 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], although
negligent, acted in bad faith x x x’
thus denying the prayer for the
award of attorney’s fees, moral
damages and exemplary damages to
[CASA]. The Honorable Court also
erred when it did not order [BPI] to
pay interest on the amounts due to
[CASA].
"2. The Honorable Court of Appeals
erred when it declared that [CASA]
was likewise negligent in the case at
bar, thus warranting its conclusion
that the loss in the amount of
₱547,115.00 be ‘apportioned
between [CASA] and [BPI] x x x.’"11
These issues can be narrowed down to
three. First, was there forgery under the
Negotiable Instruments Law
(NIL)? Second, were any of the parties
negligent and therefore precluded from
setting up forgery as a
defense? Third, should moral and
exemplary damages, attorney’s fees, and
interest be awarded?
The Court’s Ruling
The Petition in GR No. 149454 has no merit,
while that in GR No. 149507 is partly
meritorious.
First Issue:
Forged Signature Wholly Inoperative
Section 23 of the NIL provides:
"Section 23. Forged signature; effect
of. -- When a signature is forged or
made without the authority of the
person whose signature it purports
to be, it is wholly inoperative, and
no right x x 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 setting
up the forgery or want of
authority."12
Under this provision, a forged signature is a
real13 or absolute defense,14 and a person
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
The counterfeiting of any writing, consisting
in the signing of another’s name with intent
to defraud, is forgery.16
In the present case, we hold that there was
forgery of the drawer’s signature on the
check.
First, both the CA17 and the RTC18 found
that Respondent Yabut himself had
voluntarily admitted, through an Affidavit,
that he had forged the drawer’s signature
and encashed the checks.19 He never
refuted these findings.20 That he had been
coerced into admission was not
corroborated by any evidence on record.21
Second, the appellate and the trial courts
also ruled that 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.23 This conclusion was the same as
that in the Report24 that the PNP Crime
Laboratory had earlier issued to BPI -- the
drawee bank -- upon the latter’s request.
Indeed, we respect and affirm the RTC’s
factual findings, especially when affirmed
by the CA, since these are supported by
substantial evidence on record.25
Voluntary Admission Not Violative of
Constitutional Rights
The voluntary admission of Yabut did not
violate his constitutional rights (1) on
custodial investigation, and (2) against self-
incrimination.
In the first place, he was not under
custodial investigation.26 His Affidavit was
executed in private and before private
individuals.27 The mantle of protection
under Section 12 of Article III of the 1987
Constitution28 covers only the period "from
the time a person is taken into custody for
investigation of his possible participation in
the commission of a crime or from the time
he is singled out as a suspect in the
commission of a crime although not yet in
custody."29
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 authorities for the purpose of
eliciting admissions, confessions, or any
information."30 The said constitutional
provision does "not apply to spontaneous
statements made in a voluntary
manner"31 whereby an individual orally
admits to authorship of a crime.32 "What
the Constitution proscribes is the
compulsory or coercive disclosure of
incriminating facts."33
Moreover, the right against self-
incrimination34 under Section 17 of Article
III35 of the Constitution, which is ordinarily
available only in criminal prosecutions,
extends to all other government
proceedings -- including civil actions,
legislative investigations,36 and
administrative proceedings that possess a
criminal or penal aspect37 -- but not to
private investigations done by private
individuals. Even in such government
proceedings, this right may be
waived,38 provided the waiver is certain;
unequivocal; and intelligently,
understandingly and willingly made.39
If in these government proceedings waiver
is allowed, all the more is it so in 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 whom damage has been
caused. As we shall also explain later, it is
not mandatory for CASA -- the plaintiff
below -- to implead Yabut in the civil case
before the lower court.
Under these two constitutional provisions,
"[t]he Bill of Rights40 does not concern itself
with the relation between a private
individual and another individual. It governs
the relationship between the individual and
the State."41 Moreover, the Bill of Rights "is
a charter of liberties for the individual and a
limitation upon the power of the
[S]tate."42 These rights43 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."44
Yabut is not an accused here. Besides, his
mere invocation of the aforesaid rights
"does not automatically entitle him to the
constitutional protection."45 When he freely
and voluntarily executed46 his Affidavit, the
State was not even involved. Such Affidavit
may therefore be admitted without
violating his constitutional rights while
under custodial investigation and against
self-incrimination.
Clear, Positive and Convincing Examination
and Evidence
The examination by the PNP, though
inconclusive, was nevertheless clear,
positive and convincing.
Forgery "cannot be presumed."47 It must be
established by clear, positive and
convincing evidence.48 Under the best
evidence rule as applied to documentary
evidence like the checks in question, no
secondary or substitutionary evidence may
inceptively be introduced, as the original
writing itself must be produced in
court.49 But when, without bad faith on the
part of the offeror, the original checks have
already been destroyed or cannot be
produced in court, secondary evidence may
be produced.50 Without bad faith on its
part, CASA proved the loss or destruction of
the original checks through the Affidavit of
the one person who knew of that fact51 --
Yabut. He clearly admitted to discarding the
paid checks to cover up his misdeed.52 In
such a situation, secondary evidence like
microfilm copies may be introduced in
court.
The drawer’s signatures on the microfilm
copies were compared with the standard
signature. PNP Document Examiner II
Josefina de la Cruz testified on cross-
examination that two different persons had
written them.53 Although no conclusive
report could be issued in the absence of the
original checks,54 she affirmed that her
findings were 90 percent
conclusive.55 According to her, even if the
microfilm copies were the only basis of
comparison, the differences were
evident.56 Besides, the RTC explained that
although the Report was inconclusive, no
conclusive report could have been given by
the PNP, anyway, in the absence of the
original checks.57 This explanation is valid;
otherwise, no such report can ever be relied
upon in court.
Even with respect to documentary
evidence, the best evidence rule applies
only when the contents of a document --
such as the drawer’s signature on a check --
is the subject of inquiry.58 As to whether the
document has been actually executed, this
rule does not apply; and testimonial as well
as any other secondary evidence is
admissible.59 Carina Lebron herself, the
drawer’s authorized signatory, testified
many times that she had never signed those
checks. Her testimonial evidence is
admissible; the checks have not been
actually executed. The genuineness of her
handwriting is proved, not only through the
court’s comparison of the questioned
handwritings and admittedly genuine
specimens thereof,60 but above all by her.
The failure of CASA to produce the original
checks neither gives rise to the presumption
of suppression of evidence61 nor creates an
unfavorable inference against it.62 Such
failure merely authorizes the introduction
of secondary evidence63 in the form of
microfilm copies. Of no consequence is the
fact that CASA did not present the signature
card containing the signatures with which
those on the checks were
compared.64 Specimens of standard
signatures are not limited to such a card.
Considering that it was not produced in
evidence, other documents that bear the
drawer’s authentic signature may be
resorted to.65 Besides, that card was in the
possession of BPI -- the adverse party.
We have held that without the original
document containing the allegedly forged
signature, one cannot make a definitive
comparison that would establish
forgery;66 and that a comparison based on a
mere reproduction of the document under
controversy cannot produce reliable
results.67 We have also said, however, that
a judge cannot merely rely on a handwriting
expert’s testimony,68 but should also
exercise independent judgment in
evaluating the authenticity of a signature
under scrutiny.69 In the present case, both
the RTC and the CA conducted independent
examinations of the evidence presented
and arrived at reasonable and similar
conclusions. Not only did they admit
secondary evidence; they also appositely
considered testimonial and other
documentary evidence in the form of the
Affidavit.
The best evidence rule admits of exceptions
and, as we have discussed earlier, the first
of these has been met.70 The result of
examining a questioned handwriting, even
with the aid of experts and scientific
instruments, may be inconclusive;71 but it is
a non sequitur to say that such result is not
clear, positive and convincing. The
preponderance of evidence required in this
case has been satisfied.72
Second Issue:
Negligence Attributable to BPI Alone
Having established the forgery of the
drawer’s signature, BPI -- the drawee --
erred in making payments by virtue thereof.
The forged signatures are wholly
inoperative, and CASA -- the drawer whose
authorized signatures do not appear on the
negotiable instruments -- cannot be held
liable thereon. Neither is the latter
precluded from setting up forgery as a real
defense.
Clear Negligence in Allowing Payment
Under a Forged Signature
We have repeatedly emphasized that, since
the banking business is impressed with
public interest, of paramount importance
thereto is the trust and confidence of the
public in general. Consequently, the highest
degree of 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."77
BPI contends that it has a signature
verification procedure, in which checks are
honored only when the signatures therein
are verified to be the same with or similar
to the specimen signatures on the signature
cards. Nonetheless, it still failed to detect
the eight instances of forgery. Its negligence
consisted in the omission of that degree of
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."79 In
fact, BPI was the same bank involved when
we issued this ruling seventy years ago.
Neither Waiver nor Estoppel Results from
Failure to Report Error in Bank Statement
The monthly statements issued by BPI to its
clients contain a notice worded as follows:
"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.
This notice is a simple confirmation81 or
"circularization" -- in accounting parlance --
that requests client-depositors to affirm the
accuracy of items recorded by the
banks.82 Its purpose is to obtain from the
depositors a direct corroboration of the
correctness of their account balances with
their respective banks.83 Internal or external
auditors of a bank use it as a basic audit
procedure84 -- the results of which its client-
depositors are neither interested in nor
privy to -- to test the details of transactions
and balances in the bank’s
records.85 Evidential matter obtained from
independent sources outside a bank only
serves to provide greater assurance of
reliability86 than that obtained solely within
it for purposes of an audit of its own
financial statements, not those of its client-
depositors.
Furthermore, there is always the audit risk
that errors would not be detected87 for
various reasons. One, materiality is a
consideration in audit
planning;88 and two, the information
obtained from such a substantive test is
merely presumptive and cannot be the
basis of a valid waiver.89 BPI has no right to
impose a condition unilaterally and
thereafter consider failure to meet such
condition a waiver. Neither may CASA
renounce a right90 it has never possessed.91
Every right has subjects -- active and
passive. While the active subject is entitled
to demand its enforcement, the passive one
is duty-bound to suffer such enforcement.92
On the one hand, BPI could not have been
an active subject, because it could not have
demanded from CASA a response to its
notice. Besides, the notice was a measly
request worded as follows: "Please examine
x x x and report x x x."93 CASA, on the other
hand, could not have been a passive
subject, either, because it had no obligation
to respond. It could -- as it did -- choose not
to respond.
Estoppel precludes individuals from denying
or asserting, by their own deed or
representation, anything contrary to that
established as the truth, in legal
contemplation.94 Our rules on evidence
even make a juris et de
jure presumption95 that whenever one has,
by one’s own act or omission, intentionally
and deliberately led another to believe a
particular thing to be true and to act upon
that belief, one cannot -- in any litigation
arising from such act or omission -- be
permitted to falsify that supposed truth.96
In the instant case, CASA never made any
deed or representation that misled BPI. The
former’s omission, if any, may only be
deemed an innocent mistake oblivious to
the procedures and consequences of
periodic audits. Since its conduct was due to
such ignorance founded upon an innocent
mistake, estoppel will not arise.97 A person
who has no knowledge of or consent to a
transaction may not be estopped by
it.98 "Estoppel cannot be sustained by mere
argument or doubtful inference x x
x."99 CASA is not barred from questioning
BPI’s error even after the lapse of the
period given in the notice.
Loss Borne by Proximate Source of
Negligence
For allowing payment100 on the checks to a
wrongful and fictitious payee, BPI -- the
drawee bank -- becomes liable to its
depositor-drawer. Since the encashing bank
is one of its branches,101 BPI can easily go
after it and hold it liable for
reimbursement.102 It "may not debit the
drawer’s account103 and is not entitled to
indemnification from the drawer."104 In
both law and equity, when one of two
innocent persons "must suffer by the
wrongful act of a third person, the loss must
be borne by the one whose negligence was
the proximate cause of the loss or who put
it into the power of the third person to
perpetrate the wrong."105
Proximate cause is determined by the facts
of the case.106 "It is that cause which, in
natural and continuous sequence, unbroken
by any efficient intervening cause, produces
the injury, and without which the result
would not have occurred."107
Pursuant to its prime duty to ascertain well
the genuineness of the signatures of its
client-depositors on checks being encashed,
BPI is "expected to use reasonable business
prudence."108 In the performance of that
obligation, it is bound by its internal
banking rules and regulations that form part
of the contract it enters into with its
depositors.109
Unfortunately, it failed in that
regard. 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.
CASA Not Negligent in Its Financial Affairs
In this jurisdiction, the negligence of the
party invoking forgery is recognized as an
exception114 to the general rule that a
forged signature is wholly
inoperative.115 Contrary to BPI’s claim,
however, we do not find CASA negligent in
handling its financial affairs. CASA, we
stress, is not precluded from setting up
forgery as a real defense.
Role of Independent Auditor
The major purpose of an independent audit
is to investigate and determine objectively
if the financial statements submitted for
audit by a corporation have been prepared
in accordance with the appropriate financial
reporting practices116 of private entities.
The relationship that arises therefrom is
both legal and moral.117 It begins with the
execution of the engagement letter118 that
embodies the terms and conditions of the
audit and ends with the fulfilled expectation
of the auditor’s ethical119 and competent
performance in all aspects of the audit.120
The financial statements are
representations of the client; but it is the
auditor who has the responsibility for the
accuracy in the recording of data that
underlies their preparation, their form of
presentation, and the opinion121 expressed
therein.122 The auditor does not assume the
role of employee or of management in the
client’s conduct of operations123 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 Yet he did not meet these
expectations. Nothing could be more
horrible to a client than to discover later on
that the person tasked to detect fraud was
the same one who perpetrated it.
Cash Balances Open to Manipulation
It is a non sequitur to say that the person
who receives the monthly bank statements,
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 equipollent with
discernment.
Besides, in the internal accounting control
system prudently installed by CASA,130 it
was Yabut who should examine those
documents in order to prepare the bank
reconciliations.131 He owned his working
papers,132 and his output consisted of his
opinion as well as the client’s financial
statements and accompanying notes
thereto. CASA had every right to rely solely
upon his output -- based on the terms of
the audit engagement -- and could thus be
unwittingly duped into believing that
everything was in order. Besides, "[g]ood
faith is always presumed and it is the
burden of the party claiming otherwise to
adduce clear and convincing evidence to
the contrary."133
Moreover, there was a time gap between
the period covered by the bank statement
and the date of its actual receipt. Lebron
personally received the December 1990
bank statement only in January 1991134 --
when she was also informed of the forgery
for the first time, after which she
immediately requested a "stop payment
order." She cannot be faulted for the late
detection of the forged December check.
After all, the bank account with BPI was not
personal but corporate, and she could not
be expected to monitor closely all its
finances. A preschool teacher charged with
molding the minds of the youth cannot be
burdened with the intricacies or
complexities of corporate existence.
There is also a cutoff period such that
checks issued during a given month, but not
presented for payment within that period,
will not be reflected therein.135 An
experienced auditor with intent to defraud
can easily conceal any devious scheme from
a client unwary of the accounting processes
involved by manipulating the cash balances
on record -- especially when bank
transactions are numerous, large and
frequent. CASA could only be blamed, if at
all, for its unintelligent choice in the
selection and appointment of an auditor -- a
fault that is not tantamount to negligence.
Negligence is not presumed, but proven by
whoever alleges it.136 Its mere existence "is
not sufficient without proof that it, and no
other cause,"137 has given rise to
damages.138 In addition, this fault is
common to, if not prevalent among, small
and medium-sized business entities, thus
leading the Professional Regulation
Commission (PRC), through the Board of
Accountancy (BOA), to require today not
only accreditation for the practice of public
accountancy,139 but also the registration of
firms in the practice thereof. In fact, among
the attachments now required upon
registration are the code of good
governance140 and a sworn statement on
adequate and effective training.141
The missing checks were certainly reported
by the bookkeeper142 to the accountant143 --
her immediate supervisor -- and by the
latter to the auditor. However, both the
accountant and the auditor, for reasons
known only to them, assured the
bookkeeper that there were no
irregularities.
The bookkeeper144 who had exclusive
custody of the checkbooks145 did not have
to go directly to CASA’s president or to BPI.
Although she rightfully reported the matter,
neither an investigation was conducted nor
a resolution of it was arrived at, precisely
because the person at the top of the helm
was the culprit. The vouchers, invoices and
check stubs in support of all check
disbursements could be concealed or
fabricated -- even in collusion -- and
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 CASA.
If auditors may be held liable for breach of
contract and negligence,146 with all the
more reason may they be charged with the
perpetration of fraud upon an unsuspecting
client. CASA had the discretion to pursue
BPI alone under the NIL, by reason of
expediency or munificence or both. Money
paid under a mistake may rightfully be
recovered,147 and under such terms as the
injured party may choose.
Third Issue:
Award of Monetary Claims
Moral Damages Denied
We deny CASA’s claim for moral damages.
In the absence of a wrongful act or
omission,148 or of fraud or bad
faith,149 moral damages cannot be
awarded.150 The adverse result of an action
does not per se make the action wrongful,
or the party liable for it. One may err, but
error alone is not a ground for granting such
damages.151 While no proof of pecuniary
loss is necessary therefor -- with the
amount to be awarded left to the court’s
discretion152 -- the claimant must
nonetheless satisfactorily prove the
existence of its factual basis153 and causal
relation154 to the claimant’s act or
omission.155
Regrettably, in this case CASA was unable to
identify the particular instance --
enumerated in the Civil Code -- upon which
its claim for moral damages is
predicated.156 Neither bad faith nor
negligence so gross that it amounts to
malice157 can be imputed to BPI. Bad faith,
under the law, "does not simply connote
bad judgment or negligence;158 it imports a
dishonest purpose or some moral obliquity
and conscious doing of a wrong, a breach of
a known duty through some motive or
interest or ill will that partakes of the
nature of fraud."159
As a general rule, a corporation -- being an
artificial person without feelings, emotions
and senses, and having existence only in
legal contemplation -- is not entitled to
moral damages,160 because it cannot
experience physical suffering and mental
anguish.161 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.162 CASA was unable to prove
that BPI had debased the good reputation
of,163 and consequently caused incalculable
embarrassment to, the former. CASA’s
mere allegation or supposition thereof,
without any sufficient evidence on
record,164 is not enough.
Exemplary Damages Also Denied
We also deny CASA’s claim for exemplary
damages.
Imposed by way of correction165 for the
public good,166 exemplary damages cannot
be recovered as a matter of right.167 As we
have said earlier, there is no bad faith on
the part of BPI for paying the checks of
CASA upon forged signatures. Therefore,
the former cannot be said to have acted in a
wanton, fraudulent, reckless, oppressive or
malevolent manner.168 The latter, having no
right to moral damages, cannot demand
exemplary damages.169
Attorney’s Fees Granted
Although it is a sound policy not to set a
premium on the right to litigate,170 we find
that CASA is entitled to reasonable
attorney’s fees based on "factual, legal, and
equitable justification."171
When the act or omission of the defendant
has compelled the plaintiff to incur
expenses to protect the latter’s
interest,172 or where the court deems it just
and equitable,173 attorney’s fees may be
recovered. In the present case, BPI
persistently denied the claim of CASA under
the NIL to recredit the latter’s account for
the value of the forged checks. This denial
constrained CASA to incur expenses and
exert effort for more than ten years in order
to protect its corporate interest in its bank
account. Besides, we have already
cautioned BPI on a similar act of negligence
it had committed seventy years ago, but it
has remained unrelenting. Therefore, the
Court deems it just and equitable to grant
ten percent (10%)174 of the total value
adjudged to CASA as attorney’s fees.
Interest Allowed
For the failure of BPI to pay CASA upon
demand and for compelling the latter to
resort to the courts to obtain payment,
legal interest may be adjudicated at the
discretion of the Court, the same to run
from the filing175 of the Complaint.176 Since
a court judgment is not a loan or a
forbearance of recovery, the legal interest
shall be at six percent (6%) per annum.177 "If
the obligation consists in the payment of a
sum of money, and the debtor incurs in
delay, the indemnity for damages, there
being no stipulation to the contrary, shall
be the payment of x x x legal interest, which
is six percent per annum."178 The actual
base for its computation shall be "on the
amount finally
adjudged,"179 compounded180 annually to
make up for the cost of money181 already
lost to CASA.
Moreover, the failure of the CA to award
interest does not prevent us from granting
it upon damages awarded for breach of
contract.182 Because BPI evidently breached
its contract of deposit with CASA, we award
interest in addition to the total amount
adjudged. Under Section 196 of the NIL, any
case not provided for shall be "governed by
the provisions of existing legislation or, in
default thereof, by the rules of the law
merchant."183 Damages are not provided for
in the NIL. Thus, we resort to the Code of
Commerce and the Civil Code. Under Article
2 of the Code of Commerce, acts of
commerce shall be governed by its
provisions and, "in their absence, by the
usages of commerce generally observed in
each place; and in the absence of both
rules, by those of the civil law."184 This law
being silent, we look at Article 18 of the
Civil Code, which states: "In matters which
are governed by the Code of Commerce and
special laws, their deficiency shall be
supplied" by its provisions. A perusal of
these three statutes unmistakably shows
that the award of interest under our civil
law is justified.
WHEREFORE, the Petition in GR No. 149454
is hereby DENIED, and that in GR No.
149507 PARTLY GRANTED. The assailed
Decision of the Court of Appeals
is AFFIRMED with modification: BPI is held
liable for ₱547,115, the total value of the
forged checks less the amount already
recovered by CASA from Leonardo T. Yabut,
plus interest at the legal rate of six percent
(6%) per annum -- compounded annually,
from the filing of the complaint until paid in
full; and attorney’s fees of ten percent
(10%) thereof, subject to reimbursement
from Respondent Yabut for the entire
amount, excepting attorney’s fees. Let a
copy of this Decision be furnished the Board
of Accountancy of the Professional
Regulation Commission for such action as it
may deem appropriate against Respondent
Yabut. No costs.

SO ORDERED.