Gullas v.

Philippine National Bank - There should have been notice of dishonor to Gullas and
they should have waited for action by Gullas on the debt
1. Date: November 13, 1935
o Depositors who have funds sufficient to meet the
2. Petitioner: Paulino Gullas
check payment have a right of action against a
3. Respondent: PNB
banks for its refusal to pay such a check in the
4. Ponente: Malcolm
absence of notice to him that the bank has applied
5. Facts:
the funds so deposited in extinguishment of past
 P has a current account with PNB
due claims held against them
 P and Pedro Lopez indorsed a treasury warrant issued by the US
8. Dispositive:
Veterans Bureau payable to Francisco Bacos worth $361 or
 CFI AFFIRM
P722
- When PNB cashed the warrant, it was DISHONORED
 PNB then applied P’s outstanding balance of P509 to the
unpaid warrant
 Upon learning this, P paid the value of the warrant and
requested the return of the P509 in his account
 CFI – PNB liable for damages
6. Issue:
 W/N PNB has the right to apply a deposit to the dept of a
depositor? (YES, but exercised wrongly)
7. Ratio:
 Compensation takes place when 2 persons are reciprocally
creditor and debtor of each other
- In Fulton Works, it has been held that the relation existing
between a depositor and a bank is that of creditor and
debtor
 As a general rule, a bank has the right of set off of the deposits
in its hands for the payment of any debt to it on the part of a
depositor
- EXCEPTION – in Louisiana, it has been held that a bank has
no right, without an order from or special assent of the
depositor to retain out of his deposit an amount sufficient
to meet his indebtedness. The basis of the Louisiana
doctrine is the theory of confidential contracts arising from
irregular deposits
- The Philippines adopts the general rule
 HOWEVER, PNB did not exercise the right of set-off properly
Fulton Iron Works Co. v. China Banking Corp. - NOTE: CBC is only being sued for P22,144.39 (i.e. the
overdrawn amount in “No. 2 Account” it set-off)
1. Date: November 6, 1930
 CFI – CBC is LIABLE to P for P22,144.39 (i.e. the overdrawn
2. Petitioner: Fulton Iron Works Co. (P)
amount in “No. 2 Account” it set-off)
3. Respondent: China Banking Corporation (CBC)
6. Issue:
4. Ponente: Street
 W/N CBC is liable to P for the P22,144.39 which was set-off in
5. Facts:
order to pay for Schwarzkopf’s overdraft in “No. 2 Account?”
 P deposited P176,197.10 in CBC through S.C. Schwarzkopf
(YES)
- Schwarzkopf was the agent/collector of P of the loans it
7. Ratio:
extended to Binalbagan Estate, Inc.
 The very form in which the “S. C. Schwarzkopf, Attorney-in-
o As commission, it was agreed that he was to be
fact, Fulton Iron Works Co.” account is set up is sufficient to
paid P10,000 from the installment payments
notify the bank that the account belongs to P and NOT
 In order to receive installment payments which were to be
Schwarzkopf
remitted to P, Schwarzkopf set up a personal account called
 It is true that the general rule is that money has no earmarks
“No. 2 Account” in CBC
- HOWEVER, Bank Accounts and Commercial Papers can
- The 1st installment of P10k, paid in CHECK which was
have earmarks, and these earmarks consist of words which
payable to Schwarzkopf was received and deposited in such
convey or notify that the money therein BELONGS to some
account
other person than the one having control thereof
o NOTE: This was deposited in Schwarzkopf’s
o Tl;dr – if the name suggests that the funds belong to
personal account since this was his commission
someone other than the person handling the
 Schwarzkopf set up another account called “S. C. Schwarzkopf,
account, then the bank should know
Attorney-in-fact, Fulton Iron Works Co.” in order to receive the
- Thus, a bank cannot allow a depositor to apply a special
2nd installment worth P61,237.50 (the proceeds in this account
fund or trust fund to his own debts
were to be payable to P)
 IN THIS CASE, it is obvious from the name of the “S. C.
- During this time, the “no. 2 account” became overdrawn to
Schwarzkopf, Attorney-in-fact, Fulton Iron Works Co.” account
the extent of P22,144.39
that the funds therein belong to P.
o In order to remedy the overdraft, Schwarzkopf
- Therefore, Schwarzkopf had NO RIGHT to transfer the funds
TRANSFERRED the Balance in the “S. C.
therein to his PERSONAL “No. 2 Account”
Schwarzkopf, Attorney-in-fact, Fulton Iron Works
- The bank, in allowing this, is also liable to the extent of the
Co.” account to his PERSONAL “No. 2 Account” (i.e.
set-off amount i.e. PP22,144.39
the 2 accounts were set-off)
 As regards the other P104,959 proceeds which were missing,
 “No. 2 Account” now had a balance of
the bank CANNOT be held liable since there is NO PROOF of
around P40,000
knowledge of misappropriation of this money
 Schwarzkopf remitted only P30,375.02 to P, leaving an unpaid
- “A bank is not a guardian of trust funds deposited with it in
balance from the loans of around P131,197.10
the same that it must see to their proper application”
 P sues CBC and Schwarzkopf for recovery of P131,197.10 (the
loan repayment proceeds)
 - The first few checks which were deposited to “No. 2
account” would not have lead a discerning person to
conclude that there was misappropriation
o Even if it aroused suspicion, there is NO DUTY on a
bank to intervene
 EXCEPT when the bank itself benefits from
or assists in the misappropriation
 The liability of CBC proceeds from the fundamental idea that a
creditor CANNOT apply to the obligation of his debtor money
which, as he knows, belongs to another, WITHOUT the consent
of the latter
8. Dispositive:
 CFI AFFIRM
CONSOLIDATED BANK AND TRUST CORPORATION v CA | Celine
September 11, 2003
THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs.
COURT OF APPEALS and L.C. DIAZ and COMPANY, CPAs, respondents.
Carpio, J.
Nature: Petition for Review of decision of CA
Summary: Solidbank is trying to reverse an adverse decision of the CA
adjudging them liable for a Php 300,000 unauthorized withdrawal from LC
Diaz’s savings account in the same bank. LC Diaz sent a messenger to
transact in the bank, but the messenger left the passbook with the teller to
attend to another transaction in a different bank. When the messenger
returned to get the passbook, the Teller informed him that it was already
released to another person. Days after, an unauthorized withdrawal of Php
300,000 was made, and the bank honored the same, since it was
accompanied by the passbook and by authorized signatures. LC Diaz is trying
to recover the amount from Solidbank. The RTC dismissed their case, while
the CA reversed. The SC held in this case that Solidbank was remiss in their
duty to uphold higher standards of diligence which are accorded to banks.
The SC held that since the passbook was in the possession of the teller,
Solidbank’s teller was obligated NOT to give it to other persons who are
unauthorized. Held that the proximate cause of the loss was SOlidbank’s
negligence.
Doctrine: Section 2 of Republic Act No. 8791 (RA 8791), which took effect on
13 June 2000, declares that the State recognizes the fiduciary nature of
banking that requires high standards of integrity and performance. For
failing to return the passbook to Calapre, the authorized representative of
L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such
high degree of diligence in safeguarding the passbook, and in insuring its
return to the party authorized to receive the same.
 LC Diaz is a professional partnership engaged in accounting.
o LC Diaz opened an account with Solidbank (Savings Account No.
S/A 200-16872-6)
 On Aug. 14 1991, LC Diaz, through cashier Mercedes Macaraya, filled up
a cash deposit slip for Php 990 and a check deposit slip for Php 50.
o She instructed Ismael Calapre, the messenger of LC Diaz, to
deposit the money with Solidbank.
o She also gave Calapre the passbook.
 When Calapre presented the slips and passbook to Solidbank, it was
received by the teller.
o But he went away to make another deposit for LC Diaz with
Allied Bank. He left the passbook.
o When Calapre returned to Solidbank, he was informed that
someone else got the passbook.
 When informed of the incident, the CEO of LC Diaz, Luis C. Diaz, called
up Solidbank to prevent any transaction using the same passbook until
LC Diaz could open a new account.
o On the same day, LC Diaz learned of the unauthorized
withdrawal of Php 300,000 the day before.
o It bore the signatures of the authorized signatories for LC Diaz,
although the signatories denied signing a withdrawal slip.
 A certain Noel Tamayo received the Php 300,000.
 In an Information dated 5 September 1991, L.C. Diaz charged its
messenger, Emerano Ilagan (Ilagan) and one Roscon Verdazola with
Estafa through Falsification of Commercial Document.
o Dismissed.
 On 24 August 1992, L.C. Diaz through its counsel demanded from
Solidbank the return of its money.
o Solidbank refused.
 On 25 August 1992, L.C. Diaz filed a Complaint for Recovery of a Sum
of Money against Solidbank with the Regional Trial Court of Manila,
Branch 8.
o Dismissed.
o The RTC applied the rules on savings account written on the
passbook.
 The rules state that possession of this book shall raise
the presumption of ownership and any payment or
 payments made by the bank upon the production of the
said book and entry therein of the withdrawal shall have
the same effect as if made to the depositor personally.
 At the time he made the withdrawal, Tamayo
had the passbook and the withdrawal slip with
the needed signatures.
 Solidbank did not have any participation in the
custody and care of the passbook. The trial
court believed that Solidbank’s act of allowing
the withdrawal of P300,000 was not the direct
and proximate cause of the loss.
 The trial court held that L.C. Diazs negligence caused the
unauthorized withdrawal.
 Three facts establish L.C. Diazs negligence: (1)
the possession of the passbook by a person
other than the depositor L.C. Diaz; (2) the
presentation of a signed withdrawal receipt by
an unauthorized person; and (3) the possession
by an unauthorized person of a PBC check long
closed by L.C. Diaz, which check was deposited
on the day of the fraudulent withdrawal.
 LC Diaz appealed to the CA, and the CA reversed the decision of the
trial court.
o MR of Solidbank denied.
o Applied Article 2176 of the CC.1
o The Court of Appeals pointed out that the teller of Solidbank
who received the withdrawal slip for P300,000 allowed the
withdrawal without making the necessary inquiry.
 Had the teller called up L.C. Diaz, Solidbank would have
known that the withdrawal was unauthorized. The teller
did not even verify the identity of the impostor who
made the withdrawal.
o Solidbank could not escape liability because of the doctrine of
last clear chance. Solidbank could have averted the injury
1
Article 2176. Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault or negligence,
if there is no pre-existing contractual relation between the parties, is called a quasi-
delict and is governed by the provisions of this chapter.
suffered by L.C. Diaz had it called up L.C. Diaz to verify the
withdrawal.
o Applied higher standards of diligence to Solidbank, as the
business and functions of banks are affected with public
interest. Banks are obligated to treat the accounts of their
depositors with meticulous care.
 Thus, Solidbank seeks to review the decision and resolution of the CA.
Issue #1: Is Solidbank liable for breach of contract due to negligence? YES.
Ratio #1:
 The contract between the bank and its depositor is governed by the
provisions of the Civil Code on simple loan
o Article 1980 of the Civil Code: x x x savings x x x deposits of
money in banks and similar institutions shall be governed by the
provisions concerning simple loan.
o There is a debtor-creditor relationship between the bank and its
depositor.
 The law imposes on banks high standards in view of the fiduciary nature
of banking.
o Section 2 of Republic Act No. 8791 (RA 8791), which took effect
on 13 June 2000, declares that the State recognizes the fiduciary
nature of banking that requires high standards of integrity and
performance
 Affirmed by Simex International v CA: 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
o The fiduciary nature of banking requires banks to assume a
degree of diligence higher than that of a good father of a family.
 Article 1172 of the Civil Code states that the degree of
diligence required of an obligor is that prescribed by law
or contract, and absent such stipulation then the
diligence of a good father of a family.
 Section 2 of RA 8791 prescribes the statutory diligence
required from banks that banks must observe high
standards of integrity and performance in servicing their
depositors.
  Although RA 8791 took effect almost nine years after
the unauthorized withdrawal of the P300,000 from L.C.
Diazs savings account, jurisprudence at the time of the
withdrawal already imposed on banks the same high
standard of diligence required under RA No. 8791.
[Jurisprudence footnote referred to Simex v CA case.]
o Note: Decision clarifies that the relationship between bank and
depositor is not a TRUST agreement, but a failure to pay a
simple loan. It’s just that there is a higher standard of integrity
and performance.
 Article 1172 of the Civil Code provides that responsibility arising from
negligence in the performance of every kind of obligation is
demandable.
o When Calapre left the passbook in Solidbank’s hands while he
went to deposit in Allied bank, the law imposes on Solidbank
and its tellers an even higher degree of diligence in safeguarding
the passbook.
o Likewise, Solidbanks tellers must exercise a high degree of
diligence in insuring that they return the passbook only to the
depositor or his authorized representative.
 For failing to return the passbook to Calapre, the
authorized representative of L.C. Diaz, Solidbank and
Teller No. 6 presumptively failed to observe such high
degree of diligence in safeguarding the passbook, and in
insuring its return to the party authorized to receive the
same.
 The record does not indicate that Teller No. 6 verified
the identity of the person who retrieved the passbook.
Solidbank also failed to adduce in evidence its standard
procedure in verifying the identity of the person
retrieving the passbook, if there is such a procedure,
and that Teller No. 6 implemented this procedure in the
present case.
 In culpa contractual, once the plaintiff proves a breach of contract,
there is a presumption that the defendant was at fault or negligent. The
burden is on the defendant to prove that he was not at fault or
negligent.
o In the present case, L.C. Diaz has established that Solidbank
breached its contractual obligation to return the passbook only
to the authorized representative of L.C. Diaz. There is thus a
presumption that Solidbank was at fault and its teller was
negligent in not returning the passbook to Calapre.
o The burden was on Solidbank to prove that there was no
negligence on its part or its employees. Solidbank failed to
discharge its burden by failing to prove that it exercised high
standards of integrity and performance.
Issue # 2: What was the proximate cause of the unauthorized withdrawal?
Negligence of Solidbank teller in releasing passbook NOT to Calapre.
Ratio #2:
 Proximate cause is that cause which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces the
injury and without which the result would not have occurred.
 It was the negligent act of Solidbanks Teller No. 6 that gave the
impostor presumptive ownership of the passbook.
o Had the passbook not fallen into the hands of the impostor, the
loss of P300,000 would not have happened.
o Thus, the proximate cause of the unauthorized withdrawal was
Solidbanks negligence in not returning the passbook to Calapre.
 We do not subscribe to the appellate courts theory that the proximate
cause of the unauthorized withdrawal was the tellers failure to call up
L.C. Diaz to verify the withdrawal.
o Solidbank did not have the duty to call up L.C. Diaz to confirm
the withdrawal.
o Teller No. 5 who processed the withdrawal could not have been
put on guard to verify the withdrawal.
o The appellate court thus erred when it imposed on Solidbank
the duty to call up L.C. Diaz to confirm the withdrawal when no
law requires this from banks and when the teller had no reason
to be suspicious of the transaction.
Issue # 3: Is the Doctrine of Last Clear Chance applicable to this case? NO.
Ratio #3:

 The doctrine of last clear chance states that where both parties are
negligent but the negligent act of one is appreciably later than that of
the other, or where it is impossible to determine whose fault or
negligence caused the loss, the one who had the last clear opportunity
to avoid the loss but failed to do so, is chargeable with the loss.
 We do not apply the doctrine of last clear chance to the present case.
o Solidbank is liable for breach of contract due to negligence in
the performance of its contractual obligation to L.C. Diaz.
o This is a case of culpa contractual, where neither the
contributory negligence of the plaintiff nor his last clear chance
to avoid the loss, would exonerate the defendant from liability.

DISPOSITION

 Damages allocated between the depositor and the bank 40-60.

Applying PBC v CA to this case, we hold that L.C. Diaz must shoulder
40% of the actual damages awarded by the appellate court.
Solidbank must pay the other 60% of the actual damages.
 CA decision set aside. Affirmed TC judgment.

Simex International (Manila), Inc. v CA

183 SCRA 360 (1990)
Doctrine: A bank may be held liable for damages by reason of its unjustified
dishonor of a check, which caused damage to its client’s credit standing. The
bank must record every single transaction accurately, down to the last
centavo, and as promptly as possible. This has to be done if the account is to
reflect at any given time the amount of money the depositor can dispose of
as he sees fit, confident that the bank will deliver it as and to whomever he
directs. The bank is a fiduciary of the depositor’s money.
Facts:
 Simex International is a private corporation engaged in the
exportation of food products. It buys these products from various
local suppliers and then sells them abroad to the Middle East and
the United States.
 Most of its exports are purchased by the petitioner on credit. Simex
was a depositor of the Far East Savings Bank and maintained a
checking account in its branch in Cubao, Quezon City which issued
several checks against its deposit but was surprised to learn later
that they had been dishonored for insufficient funds.
 As a consequence, several suppliers sent a letter of demand to the
petitioner, threatening prosecution if the dishonored check issued
to it was not made good and also withheld delivery of the order
made by the petitioner.
 One supplier also cancelled the petitioner’s credit line and
demanded that future payments be made by it in cash or certified
check.
 The petitioner complained to the respondent bank. Investigation
disclosed that the sum of P100,000.00 deposited by the petitioner
on May 25, 1981, had not been credited to it. The error was
rectified only a month after, and the dishonored checks were paid
after they were re-deposited.
 SIMEX sent demand letter for reparation against TRB, which was not
met, thus a complaint was filed in CFI Rizal by SIMEX.
 The court denied the moral & exemplary damages but upheld and
ordered TRB to pay for nominal damages in the amount of
P20,000.00 plus attys fees & costs, which was then affirmed by the
CA.
o The CA found with the trial court that the private
respondent was guilty of negligence but agreed that the
petitioner was nevertheless not entitled to moral
damages. It said: The essential ingredient of moral damages
is proof of bad faith (De Aparicio vs. Parogurga, 150 SCRA
280).
 Indeed, there was the omission by the defendant-
appellee bank to credit appellant'sdeposit of
P100,000.00 on May 25, 1981. But the bank
rectified its records. It credited the said amount in
favor of plaintiff-appellant in less than a month. The
dishonored checks were eventually paid. These
circumstances negate any imputation or insinuation
of malicious, fraudulent, wanton and gross bad faith
and negligence on the part of the defendant-
appellant.
Issue: Whether or not the bank can be held liable for negligence by reason
of its unjustified dishonor of a check
HELD: YES. Award SIMEX with moral damages (P20,000) and exemplary
damages (P50,000).
The initial carelessness of the respondent bank, aggravated by the lack of
promptitude in repairing its error, justifies the grant of moral damages.
There was also prejudice suffered by SIMEX in the fact that the petitioner's
credit line was canceled and its orders were not acted upon pending receipt
of actual payment by the suppliers. Its business declined. Its reputation was
tarnished. Its standing was reduced in the business community. All this was
due to the fault of the respondent bank which was undeniably remiss in its
duty to the petitioner.
 In the case at bar, it is obvious that the respondent bank was remiss
in that duty and violated that relationship.
1. Thus, For MORAL DAMAGES
 We agree that moral damages are not awarded to penalize the
defendant but to compensate the plaintiff for the injuries he
may have suffered.
 In the case at bar, the petitioner is seeking such damages for the
prejudice sustained by it as a result of the private respondent's
fault.
 The respondent court said that the claimed losses are purely
speculative and are not supported by substantial evidence, but
it failed to consider that the amount of such losses need not be
established with exactitude precisely because of their nature.
 Moral damages are not susceptible of pecuniary estimation.
Article 2216 of the Civil Code specifically provides that "no proof
of pecuniary loss is necessary in order that moral, nominal,
temperate, liquidated or exemplary damages may be
adjudicated." That is why the determination of the amount to
be awarded (except liquidated damages) is left to the sound
discretion of the court, according to "the circumstances of each
case."
 Moreover, a corporation is not as a rule entitled to moral
damages because, not being a natural person, it cannot
experience physical suffering or such sentiments as wounded
feelings, serious anxiety, mental anguish and moral shock. The
only exception to this rule is where the corporation has a good
reputation that is debased, resulting in its social humiliation.
o We shall recognize that the petitioner did suffer injury
because of the private respondent's negligence that
caused the dishonor of the checks issued by it.
o The immediate consequence was that its prestige was
impaired because of the bouncing checks and
confidence in it as a reliable debtor was diminished.
o The private respondent makes much of the one instance
when the petitioner was sued in a collection case, but
that did not prove that it did not have a good reputation
that could not be marred, more so since that case was
ultimately settled.
o It does not appear that, as the private respondent
would portray it, the petitioner is an unsavory and
disreputable entity that has no good name to protect.
Considering all this, we feel that the award of nominal damages in the
sum of P20,000.00 was not the proper relief to which the petitioner was
entitled. Under Article 2221 of the Civil Code, "nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated
or invaded by the defendant, may be vindicated or recognized, and not
for the purpose of indemnifying the plaintiff for any loss suffered by
him." As we have found that the petitioner has indeed incurred loss
through the fault of the private respondent, the proper remedy is the
award to it of moral damages, which we impose, in our discretion, in the
same amount of P20,000.00.
2. Now for exemplary damages
The pertinent provisions of the Civil Code are the following:
Art. 2229. Exemplary or corrective damages are imposed, by way of
example or correction for the public good, in addition to the moral,
temperate, liquidated or compensatory damages.
Art. 2232. In contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.
o What is especially deplorable is that, having been informed
of its error in not crediting the deposit in question to the
petitioner, the respondent bank did not immediately correct
it but did so only one week later or twenty-three days after
the deposit was made.
o It bears repeating that the record does not contain any
satisfactory explanation of why the error was made in the
first place and why it was not corrected immediately after
its discovery.
o Such ineptness comes under the concept of the wanton
manner contemplated in the Civil Code that calls for the
imposition of exemplary damages.

Philippine Banking Corporation vs CA
Date: January 15, 2004
Petitioner: Philippine Banking Corporation
Respondents: CA and Leonilo Marcos
Ponente: Carpio
Facts
In 1982, the BANK through Florencio Pagsaligan persuaded Leonilo Marcos
to deposit money with the BANK. Marcos made a time deposit with the
BANK on two occasions. The first was on 11 March 1982 for P664,897.67.
On 12 March 1982, Marcos claimed he again made a time deposit with the
BANK for P764,897.67. The BANK did not issue an official receipt for this
time deposit but it acknowledged a deposit of this amount through a letter-
certification Pagsaligan issued.
In March 1983, Marcos wanted to withdraw from the BANK his time
deposits and the accumulated interests. However, the BANK convinced
Marcos to keep his time deposits intact and instead to open several
domestic letters of credit. The BANK required Marcos to give a marginal
deposit of 30% of the total amount of the letters of credit. The time
deposits of Marcos would secure 70% of the letters of credit. Marcos signed
blank printed forms of the application for the domestic letters of credit,
trust receipt agreements and promissory notes. He executed three Trust
Receipt Agreements.
Marcos believed that he and the BANK became creditors and
debtors of each other. Marcos expected the BANK to offset automatically a
portion of his time deposits and the accumulated interest with the amount
covered by the three trust receipts totalling P851,250 less the 30% marginal
deposit that he had paid. Marcos argued that if only the BANK applied his
time deposits and the accumulated interest to his remaining obligation, he
would have paid completely his debt.
Marcos accused the BANK of unjustly demanding payment for the
total amount of the trust receipt agreements without deducting the 30%
marginal deposit that he had already made. He decried the BANK’s unlawful
charging of accumulated interest because he claimed there was no
agreement as to the payment of interest. Marcos also denied that he
obtained another loan from the BANK for P500,000 with interest at 25% pa
supposedly covered by Promissory Note No. 20-979-83 dated 24 October
1983.
The BANK denied the allegations in the complaint. The BANK
believed that the suit was Marcos’ desperate attempt to avoid liability under
several trust receipt agreements that were the subject of a criminal
complaint.
The BANK pointed out that Marcos delivered to the BANK the time
deposit certificates by virtue of the Deed of Assignment dated 2 June 1989.
Marcos executed the Deed of Assignment to secure his various loan
obligations. When Marcos defaulted in the payment of Promissory Note No.
20-979-83, the BANK debited his time deposits and applied the same to the
obligation that is now considered fully paid. The BANK insisted that the
Deed of Assignment authorized it to apply the time deposits in payment of
Promissory Note No. 20-979-83. The BANK claimed that Marcos freely
entered into the trust receipt agreements. When Marcos failed to account
for the goods delivered or for the proceeds of the sale, the BANK filed a
complaint for violation of Presidential Decree No. 115 or the Trust Receipts
Law. Instead of initiating negotiations for the settlement of the account,
Marcos filed this suit.
The BANK was declared in default, but this was later set aside. The bank
filed a motion praying to cross examine Marcos who testified during the ex
parte hearing (when bank was still in default). The trial court denied the
motion.
The trial court rendered its decision in favor of Marcos. The CA
modified the decision of the trial court by reducing the amount of actual
damages and deleting the attorney’s fees awarded to Marcos.
Issue: WON there was a violation of the Bank’s right to due process when
the court denied the motion to cross examine Marcos
Held: No
Ratio: Prior to the denial of the motion, the trial court had properly
declared the BANK in default. Since the BANK was in default, Marcos was
able to present his evidence ex-parte including his own testimony. When
the trial court lifted the order of default, the BANK was restored to its
standing and rights in the action. However, as a rule, the proceedings
already taken should not be disturbed. Nevertheless, it is within the trial
court’s discretion to reopen the evidence submitted by the plaintiff and
allow the defendant to challenge the same, by cross-examining the
plaintiff’s witnesses or introducing countervailing evidence.
The records show that the BANK did not ask the trial court to
restore its right to cross-examine Marcos when it sought the lifting of the
default order on 9 January 1990. It was only on 2 March 1990 that the
BANK filed the motion to cross-examine Marcos. During the 12 March 1990
hearing, the trial court denied the bank’s oral manifestation to grant its
motion to cross-examine Marcos because there was no proof of service on
Marcos. The bank’s counsel pleaded for reconsideration but the trial court
denied the plea and ordered the bank to present its evidence. Instead of
presenting its evidence, the BANK moved for the resetting of the hearing
and when the trial court denied the same, the bank informed the trial court
that it was elevating the denial to the “upper court.”
We do not agree with the appellate court’s ruling that a motion to
cross-examine is a non-litigated motion and that the trial court gravely
abused its discretion when it denied the motion to cross-examine. A motion
to cross-examine is adversarial. The adverse party in this case had the right
to resist the motion to cross-examine because the movant had previously
forfeited its right to cross-examine the witness. The purpose of a notice of a
motion is to avoid surprises on the opposite party and to give him time to
study and meet the arguments. In a motion to cross-examine, the adverse
party has the right not only to prepare a meaningful opposition to the
motion but also to be informed that his witness is being recalled for cross-
examination. The proof of service was therefore indispensable and the trial
court was correct in denying the oral manifestation to grant the motion for
cross-examination.
While the right to cross-examine is a vital element of procedural
due process, the right does not necessarily require an actual cross-
examination, but merely an opportunity to exercise this right if desired by
the party entitled to it. Clearly, the BANK’s failure to cross-examine is
imputable to the BANK when it lost this right as it was in default and failed
thereafter to exhaust the remedies to secure the exercise of this right at the
earliest opportunity.
Issue: Failure to deny under oath actionable document – admission on the
part of Marcos? NO
Ratio: The BANK cannot claim that Marcos had admitted the due execution
of the documents attached to its answer because the BANK filed its answer
late and even failed to serve it on Marcos. The BANK’s answer, including the
actionable documents it pleaded and attached to its answer, was a mere
scrap of paper. There was nothing that Marcos could specifically deny
under oath. Marcos had already completed the presentation of his evidence
when the trial court lifted the order of default and admitted the BANK’s
answer. The provision of the Rules of Court governing admission of
actionable documents was not enacted to reward a party in default. We will
not allow a party to gain an advantage from its disregard of the rules.
Issue: Right to present evidence? WAIVED
Ratio: The BANK had waived this right. The BANK cannot now claim that it
was deprived of its right to conduct a re-direct examination of Pagsaligan.
The BANK postponed the hearings three times because of its inability to
secure Pagsaligan’s presence during the hearings. The BANK could have
presented another witness or its other evidence but it obstinately insisted
on the resetting of the hearing because of Pagsaligan’s absence allegedly
due to illness.
The BANK’s propensity for postponements had long delayed the
case. Its motion for postponement based on Pagsaligan’s illness was not
even supported by documentary evidence such as a medical certificate.
Documentary evidence of the illness is necessary before the trial court could
rule that there is a sufficient basis to grant the postponement.
Issue: WON the existence of the promissory note was proven
Held: No

Ratio: The bank failed to produce the best evidence — the original copies
of the loan application and promissory note. The Best Evidence Rule
provides that the court shall not receive any evidence that is merely
substitutionary in its nature, such as photocopies, as long as the original
evidence can be had. Absent a clear showing that the original writing has
been lost, destroyed or cannot be produced in court, the photocopy must
be disregarded, being unworthy of any probative value and being
inadmissible evidence.
What the BANK presented were merely the “machine copies of the
duplicate” of the loan application and promissory note. No explanation was
ever offered by the BANK for its inability to produce the original copies of
the documentary evidence. The BANK also did not comply with the orders
of the trial court to submit the originals.
The absence of the original of the documentary evidence casts
suspicion on the existence of Promissory Note No. 20-979-83 considering
the BANK’s fiduciary duty to keep efficiently a record of its transactions with
its depositors. Moreover, the circumstances enumerated by the trial court
bolster the conclusion that Promissory Note No. 20-979-83 is bogus. The
BANK has only itself to blame for the dearth of competent proof to establish
the existence of Promissory Note No. 20-979-83.
Issue: WON the bank is liable to Marcos
Held: Yes
Ratio: The BANK is liable to Marcos for offsetting his time deposits with a
fictitious promissory note. The existence of Promissory Note No. 20-979-83
could have been easily proven had the BANK presented the original copies
of the promissory note and its supporting evidence. In lieu of the original
copies, the BANK presented the “machine copies of the duplicate” of the
documents. These substitute documents have no evidentiary value. The
BANK’s failure to explain the absence of the original documents and to
maintain a record of the offsetting of this loan with the time deposits bring
to fore the BANK’s dismal failure to fulfill its fiduciary duty to Marcos.
Section 2 of Republic Act No. 8791 expressly imposes this fiduciary
duty on banks when it declares that the State recognizes the “fiduciary
nature of banking that requires high standards of integrity and
performance.” This statutory declaration merely echoes the earlier
pronouncement of the Supreme Court in Simex. v. CA requiring banks to
“treat the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship.” The Court reiterated this
fiduciary duty of banks in subsequent cases.
Although RA No. 8791 took effect only in the year 2000, at the time
that the BANK transacted with Marcos, jurisprudence had already imposed
on banks the same high standard of diligence required under RA No. 8791.
[35] This fiduciary relationship means that the bank’s obligation to observe
“high standards of integrity and performance” is deemed written into every
deposit agreement between a bank and its depositor.
The fiduciary nature of banking requires banks to assume a degree
of diligence higher than that of a good father of a family. Thus, the BANK’s
fiduciary duty imposes upon it a higher level of accountability than that
expected of Marcos, a businessman, who negligently signed blank forms and
entrusted his certificates of time deposits to Pagsaligan without retaining
copies of the certificates.
The business of banking is imbued with public interest. The stability
of banks largely depends on the confidence of the people in the honesty
and efficiency of banks.
As the BANK’s depositor, Marcos had the right to expect that the
BANK was accurately recording his transactions with it. Upon the maturity
of his time deposits, Marcos also had the right to withdraw the amount due
him after the BANK had correctly debited his outstanding obligations from
his time deposits.
By the very nature of its business, the BANK should have had in its
possession the original copies of the disputed promissory note and the
records and ledgers evidencing the offsetting of the loan with the time
deposits of Marcos. The BANK inexplicably failed to produce the original
copies of these documents. Clearly, the BANK failed to treat the account of
Marcos with meticulous care.
 The BANK claims that it is a reputable banking institution and that it
has no reason to forge Promissory Note No. 20-979-83. The trial court and
appellate court did not rule that it was the bank that forged the promissory
note. It was Pagsaligan, the BANK’s branch manager and a close friend of
Marcos, whom the trial court categorically blamed for the fictitious loan
agreements. The trial court held that Pagsaligan made up the loan
agreement to cover up his inability to account for the time deposits of
Marcos.
Whether it was the BANK’s negligence and inefficiency or
Pagsaligan’s misdeed that deprived Marcos of the amount due him will not
excuse the BANK from its obligation to return to Marcos the correct amount
of his time deposits with interest. The duty to observe “high standards of
integrity and performance” imposes on the BANK that obligation. The BANK
cannot also unjustly enrich itself by keeping Marcos’ money.
Assuming Pagsaligan was behind the spurious promissory note, the
BANK would still be accountable to Marcos. We have held that a bank is
liable for the wrongful acts of its officers done in the interest of the bank or
in their dealings as bank representatives but not for acts outside the scope
of their authority.
Issue: Total amount due to Marcos
Ratio: The BANK has always argued that Marcos’ time deposits only
totalled P764,897.67. What the BANK insists on in this petition is the trial
court’s violation of its right to procedural due process and the absence of
any obligation to pay or return anything to Marcos. Marcos, on the other
hand, merely prays for the affirmation of either the trial court or appellate
court decision. We uphold the finding of the Court of Appeals as to the
amount of the time deposits as such finding is in accord with the evidence
on record.
Marcos claimed that the certificates of time deposit were with
Pagsaligan for safekeeping. Marcos was only able to present the receipt
dated 11 March 1982 and the letter-certification dated 12 March 1982 to
prove the total amount of his time deposits with the BANK. The foregoing
certification is clear. The total amount of time deposits of Marcos as of 12
March 1982 is P764,897.67, inclusive of the sum of P664,987.67 that Marcos
placed on time deposit on 11 March 1982. This is plainly seen from the use
of the word “aggregate.”
We are not swayed by Marcos’ testimony that the certification is
actually for the first time deposit that he placed on 11 March 1982. The
letter-certification speaks of “various Time Deposits Certificates with an
‘aggregate value’ of P764,897.67.” If the amount stated in the letter-
certification is for a single time deposit only, and did not include the 11
March 1982 time deposit, then Marcos should have demanded a new letter
of certification from Pagsaligan. Marcos is a businessman. While he already
made an error in judgment in entrusting to Pagsaligan the certificates of
time deposits, Marcos should have known the importance of making the
letter-certification reflect the true nature of the transaction. Marcos is
bound by the letter-certification since he was the one who prodded
Pagsaligan to issue it.
We modify the amount that the CA ordered the BANK to return to
Marcos. The appellate court did not offset Marcos’ outstanding debt with
the BANK covered by the three trust receipt agreements even though
Marcos admits his obligation under the three trust receipt agreements. The
total amount of the trust receipts is P851,250 less the 30% marginal deposit
of P255,375 that Marcos had already paid the BANK. This reduced Marcos’
total debt with the BANK to P595,875 under the trust receipts.
The BANK’s dismal failure to account for Marcos’ money justifies the
award of moral and exemplary damages. Certainly, the bank, as employer, is
liable for the negligence or the misdeed of its branch manager which caused
Marcos mental anguish and serious anxiety. Moral damages of P100,000 is
reasonable and is in accord with our rulings in similar cases involving banks’
negligence with regard to the accounts of their depositors. We also award
P20,000 to Marcos as exemplary damages. The law allows the grant of
exemplary damages by way of example for the public good. The public relies
on the banks’ fiduciary duty to observe the highest degree of diligence. The
banking sector is expected to maintain at all times this high level of
meticulousness.

25. SERRANO V. CENTRAL BANK
G.R. No. L-30511
February 14, 1980
FACTS:
In 1966, petitioner Manuel M. Serrano (Manuel) made a time
deposit of P150,000, for one year with 6% interest, with the respondent
Overseas Bank of Manila (Overseas Bank), while Concepcion Maneja
(Concepcion) also made a time deposit of P200,000, for one year with 6½%
interest in 1967 with the same respondent bank.
In 1968, Concepcion Maneja, married to Felixberto M. Serrano,
assigned and conveyed to petitioner Manuel M. Serrano, her time deposit of
P200,000 with Overseas Bank. Despite demands for encashment of the time
deposits, Overseas Bank did not honor the time deposits.
Since 1965, the Monetary Board prohibited the Overseas Bank from
making new loans and investments due to its deficiencies against its deposit
liabilities, and Central Bank also asked Overseas Bank to increase its
collaterals for its overdrafts and emergency loans from it. But, the Central
Bank still had no findings to declare the Overseas Bank as insolvent during
1966-1967.
Manuel filed a petition for mandamus  and prohibition, with
preliminary injunction against Overseas Bank and its stockholders and
Central Bank of the Philippines, alleging that they are jointly and solidarily
liable for: a) the alleged failure of the Overseas Bank to return the time
deposits made by petitioner and assigned to him; and b) Central Bank’s
failure to exercise strict supervision over respondent Overseas Bank in
protecting depositors and the general public.
Central Bank admits that it is charged with the duty of administering
the banking system of the Republic, but denies that it has the duty to watch
every activity of banks. Manuel also avers that the Overseas Bank acquired
such additional collaterals for its overdrafts and loans to the Central Bank
through the use of its depositors’ money, including that of Manuel and
Concepcion, therefore a constructive trust was created in favor of him and
Concepcion when their time deposits were made in 1966 and 1967 with the
Overseas Bank.
ISSUE/S:
1. Whether or not the Overseas Bank and the Central Bank are liable to
Manuel.
2. Whether or not a constructive trust was created between the Overseas
Bank and Manuel when the time deposits of Manuel were allegedly used
by the Overseas Bank to acquire its additional collaterals for their loans to
the Central Bank.
HELD:
1. NO. The claims of Manuel should be ventilated in the CFI (RTC) of proper
jurisdiction. Claims of this nature are not proper in actions for mandamus
and prohibition as there is no shown clear abuse of discretion by the Central
Bank in its exercise of supervision over the Overseas Bank. Neither is there
anything to prohibit in this case, since the questioned acts of Central Bank
(dissolution and liquidation of the Overseas Bank) had been accomplished a
long time ago.
2. NO. Bank deposits are in the nature of irregular deposits. They are loans
because they earn interest. All kinds of bank deposits, whether fixed,
savings, or current are to be treated as loans and are to be covered by the
law on loans. Current and savings deposit are loans to a bank because it
can use the same.
Manuel, in making time deposits that earn interests with Overseas
Bank, was in reality a creditor of the Overseas Bank and not a depositor, and
Overseas Bank as Manuel’s debtor. Failure of Overseas Bank to honor the
time deposit is failure to pay its obligation as a debtor and not a breach of
trust arising from depositary's failure to return the subject matter of the
deposit. Thus, no constructive trust was created in favor of Manuel and the
Overseas Bank.
Therefore, the Court dismissed the petition.
  W/N There was a Material Alteration? (YES)
 Who between P and R was negligent? (P)
 W/N P can claim reimbursement from its disbursement of the
altered checks? (NO)
7. Ratio:
 On 1st Issue – There was a MATERIAL ALTERATION i.e. amount
and date
- Discussion of Concepts
Metropolitan Bank and Trust Company v. Cabilzo o Alteration – material if it changes the EFFECT of the
1. Date: December 6, 2006 instrument
2. Petitioner: Metropolitan Bank and Trust Company (P)  It Is an unauthorized change in an
3. Respondent: Renato Cabilzo (R) instrument that modifies the obligation of
4. Ponente: Chico-Nazario a party or an unauthorized addition of
5. Facts: words or numbers or other change to an
 Nov. 12, 1994 – R issued a Metrobank Check payable to CASH incomplete instrument relating to the
for P1,000 and Postdated to Nov. 24, 1994 obligation of the party
- This was drawn against R’s current account with P and paid  In other words, it changes the requisites
to Mr. Marquez as sales commission under Sec. 1 of NIL
 Check was presented to Westmont Bank who indorsed it to P o Material Alterations under NIL Sec. 125
for clearing  Date
- P, after examining the entries, CLEARED the check  Sum payable
 R later discovered that the Metrobank Check was ALTERED to  Time or place of payment
P91,000 and dated Nov. 14, 1994  Number or relation of the parties
- Thus, R demanded from P a re-credit of the P91,000 which  Medium or currency
was refused - IN THIS CASE, the check was altered as to AMOUNT (P1000
 R filed a Complaint for Damages against P to P91,000) and DATE (Nov. 24 to Nov. 14)
 P Answer o These 2 items fall under Secs. 1 and 125 and are
- They did not find any alteration, erasure, superimposition, considered as MATERIAL Alterations
or intercalation wen they examined the check for clearing  On 2 Issue – P is negligent
nd

- Westmont Bank, as the COLLECTING BANK, should be liable - R was NOT the one who authorized the changes nor did he
as a General Indorser due to their Unqualified Indorsement assent to it. Also, there is NO PROOF that he did NOT
- R is at fault for leaving spaces in the check which could exercise reasonable diligence of a prudent man in
make insertions possible preventing the alteration
 RTC – R WINS. P pay R P91,000 o He even placed asterisks before and after the
 CA – RTC AFFIRM amount in words and numbers in order to warn the
6. Issue: holder that NOTHING FOLLOWS before and after
the amount
 o THEREFORE, P CANNOT impute any fault on R
 P is thus barred from asserting its rights
under equitable estoppel2
o R was an innocent party. He was just an ordinary
businessman
- The banking institution is remarkably significant in
commercial transactions
o For businessmen like R, the bank is a trusted and
active associate that can help in the running of his
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
o Thus, the depositor EXPECTS the bank to treat his
account with UTMOST FIDELITY
 The bank must record every single
transaction accurately, down to the last
centavo, and as promptly as possible
o 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
- On the Contrary, it was P who was REMISS in its duty as a
BANK to exercise the highest degree of diligence
o The material alterations were VISIBLE to the naked
eye3 yet P FAILED to detect them
2
when one of the two innocent persons, each guiltless of any
intentional or moral wrong, must suffer a loss, it must be borne by the
one whose erroneous conduct, either by omission or commission, was
the cause of injury.
3
The number "1" in the date is clearly imposed on a white figure in the
shape of the number "2". The appellant's employees who examined the
said check should have likewise been put on guard as to why at the end
of the amount in words, i.e., after the word "ONLY", there are 4
asterisks, while at the beginning of the line or before said phrase, there
is none, even as 4 asterisks have been placed before and after the word
 This negligence was exacerbated by the
fact that the check was examined by the
Cash Custodian whose function does NOT
include the examination of checks
 It is worth reiterating that by the
very nature of their work the
degree of responsibility, care and
trustworthiness expected of their
employees and officials is far better
than those of ordinary clerks and
employees. Banks are expected to
exercise the highest degree of
diligence in the selection and
supervision of their employees.
o P cannot hide behind Westmont Bank’s unqualified
indorsement
 As a bank itself, P is duty-bound to re-
authenticate the check, lest it violate public
policy
 On 3rd Issue
- Discussion of Concepts
o Effect of Material Alteration – The instrument is
VOID except as against the party who made,
"CASH" in the space for payee. In addition, the 4 asterisks before the
words "ONE THOUSAND PESOS ONLY" have noticeably been
erased with typing correction paper, leaving white marks, over which
the word "NINETY" was superimposed. The same can be said of the
numeral "9" in the amount "91,000", which is superimposed over a
whitish mark, obviously an erasure, in lieu of the asterisk which was
deleted to insert the said figure. The appellant's employees should have
again noticed why only 2 asterisks were placed before the amount in
figures, while 3 asterisks were placed after such amount. The word
"NINETY" is also typed differently and with a lighter ink, when
compared with the words "ONE THOUSAND PESOS ONLY." The
letters of the word "NINETY" are likewise a little bigger when
compared with the letters of the words "ONE THOUSAND PESOS
ONLY".
 authorized or assented to the alteration and
subsequent indorsers
o The Drawee Bank is under a strict liability to pay to
the ORDER of the payee in ACCORDANCE with the
drawer’s instructions as reflected on the FACE of
the check
 Therefore, payment under a MATERIALLY
ALTERED INSTRUMENT is NOT payment
done in accordance with the instructions of
the drawer
- IN THIS CASE, since P, the drawee bank, did NOT PAY in
accordance with R’s instructions (paid P91,000 instead of
P1,000 on Nov. 14 instead of Nov. 24), then it has NO RIGHT
to demand reimbursement and avoid liability
8. Dispositive:
 CA AFFIRM