G.R. No.

93849 December 20, 1991 deposits, all the said accused well knowing that his (Dick Ong y Chan's) representations and
THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,  manifestations are false and untrue and were made solely for the purpose of defrauding the
vs. said bank, and, in accordance with the conspiracy, his co-accused Lino Morfe y Gutierrez,
DICK ONG y CHAN, LINO MORFE y GUTIERREZ, RICARDO VILLARAN and LUCILA TALABIS, accused, DICK Ricardo Villara and Lucila Talabis, facilitated the opening of a savings account in the name of
ONG y CHAN, accused-appellant. accused Dick Ong y Chan and, thereafter, approved said deposits; that on the strength of such
The Solicitor General for plaintiff-appellee. deposits made and the opening of an account, the said accused were able to withdraw the
Leoncio T. Mercado for accused-appellant. total amount of P575,504.00, which once in their possession, with intent defraud, they
thereafter wilfully, unlawfully and feloniously misappropriated, misapplied and converted to
their own personal use and benefit, to the damage and prejudice of said Home Savings Bank
in the said amount of P575,504.00, Philippine Currency.
MEDIALDEA, J.:
Contrary to law.
The accused, Dick Ong y Chan, Lino Morfe y Gutierrez, Ricardo Villaran and Lucila Talabis, were charged
On October 15, 1979, the prosecution moved for the dismissal of the case, insofar as accused Lino Morfe
with the crime of estafa in Criminal Case No. 44080 before the Regional Trial Court of Manila, Branch 35.
y Gutierrez is concerned, on the ground that after a reinvestigation, it was found that the evidence
The information filed in said case reads, as follows (pp. 8-9, Rollo):
against him is not sufficient to sustain the allegations contained in the information (p. 54, Records). On
That in (sic) or about and during the period comprised between December 6, 1978 and
October 31, 1979, the trial court granted the motion (p. 6 Records).
January 31, 1979, both dates inclusive, in the City of Manila, Philippines, the said accused,
Upon being arraigned, the remaining three (3) accused entered the plea of not guilty to the crime
conspiring and confederating together and helping one another, did then and there wilfully,
charged. After trial on the merits, the trial court rendered its decision on January 11, 1990, the
unlawfully and feloniously defraud the Home Savings Bank in the following manner, to wit:
dispositive portion of which reads, as follows (p. 26, Rollo):
the said accused Dick Ong y Chan, by means of false manifestations and fraudulent
WHEREFORE, judgment is rendered: (1) pronouncing accused DICK ONG y CHAN guilty beyond
representations which he made to the management of the Home Savings Bank, Aurea Annex
reasonable doubt, as principal, of ESTAFA defined under No. 2 (d) of Article 315 of the Revised
Branch, located at 640 Rizal Avenue, Sta. Cruz, in said City, to the effect that the following
Penal Code, as amended by Republic Act 4885, and penalized under the lst paragraph of the
checks, to wit:
same Code as amended by Presidential Decree No. 818, and sentencing said accused to
RECLUSION PERPETUA; (2) ACQUITTING accused Lucila Talabis and Ricardo Villaran, their guilt
NAME OF CHECK NUMBER PAYBLE TO DATE AMOUNT of (sic) the felony charged against them not having been established beyond reasonable
doubt; (3) ordering accused Dick Ong to pay the Home Saving Bank and Trust Company the
Metropolitan Bank & Trust Co 82508 Cash 1/30/79 P49,500.00 sum of P559,381.34 as partial reparation of the damage caused to said Bank; (4) ordering
forfeited in favor of the Home Savings Bank and Trust Company the sum of P16,122.66 the
Equitable Bank 27624961 do. do. 14,569.00  positive balance remaining outstanding in Savings Account No. 6-1981 of accused Dick Ong
with, and in the possession of, said Bank to complete the reparation of the damage caused by
Dick Ong to the Bank; (5) ordering accused Dick Ong to pay one-third (1/3) of the costs; and
Phil. Bank of Comm T1907249 do. do. 59,600.00 (6) ordering two-thirds (2/3) of the costs charged de oficio.
SO ORDERED.
-do- T1907249 do. do. 67,400.00 On February 15, 1990, the accused-appellant filed a motion for reconsideration. On March 22, 1990, he
filed a supplemental memorandum in support of the motion for reconsideration. On April 3, 1990, said
China Banking Corp. QCO86174A do. 1/31/79 69,850.00 motion was denied for lack of merit (pp. 575-576, Records). Hence, the present appeal by Dick Ong y
Chan.
The facts of this case were summarized by the trial court, as follows (pp. 18-20, Rollo):
Pacific Banking Corp. PCB 238056 S do. 1/31/79 60,890.00
Accused Dick Ong was one of the depositors of the Home Savings Bank and Trust Company in
its Aurea Annex Branch at Rizal Avenue, Sta. Cruz, Manila, hereafter, to be referred to as the
Producers Bank of the Phil. C 987955 do. do. 49,090.00 Bank. He opened his savings account on December 6, 1978, under the Bank's Saving Account
No. 6-1981, with an initial deposit of P22.14 in cash and P10,000.00 in (a) check.
Equitable Banking 27624963 do. do. 14,965.00 On the same date, December 6, 1978, without his check undergoing the usual and
reglamentary (sic) clearance, which normally takes about five working days, Dick Ong was
allowed to withdraw from his savings account with the Bank the sum of P5,000.00. The
Phil. Bank of Comm. 1915852 do. do. 63,900.00
corresponding withdrawal slip was signed and approved by Lino Morfe, then the Branch
Manager, and accused Lucila Talabis, the Branch Cashier.
-do- 1915855 do. do. 59,800.00 That initial transaction was followed by other similar transactions where Dick Ong, upon
depositing checks in his savings account with the Bank, was allowed to withdraw against
-do- 1915856 do. do. 65,880.00 those uncleared checks and uncollected deposits. The withdrawals were authorized and
approved by accused Ricardo Villaran and Lucila Talabis, sometimes jointly, sometimes by
or all in the total amount of P575,504.00, are good and covered with sufficient funds in the aither (aic) of them alone, and at other times by one of them together with another official of
banks, and by means of other similar deceits with the conspiracy of his co-accused Lino Morfe the Bank. But all of those uncleared checks deposited by Dick Ong prior to January 3, 1979
y Gutierrez, Ricardo Villaran and Lucila Talabis, in their capacities as officer-in-charge, branch and against which he was allowed to withdraw were subsequently honored and paid by the
accountant and bank branch cashier, respectively, of said bank (Home Savings Bank), induced drawee banks. (TSN, Mar. 9, 1981, pp. 101-104; TSN, Mar. 18, 1981, pp. 144 -146.)
and succeeded in inducing the management of the said bank to accept said checks as

1
 On January 30, 1979, Dick Ong issued and deposited in his savings account with the Bank the 1. Exhibit 1 — Ong. — The letter dated June 27, 1980 of the Central Bank Governor to all
following checks: banks authorized to accept demand deposits, enjoining strict compliance with Monetary
Board Resolution No. 2202 dated December 21, 1979, prohibiting, as a matter of policy,
drawing against uncollected deposits effective July 1, 1980.
Drawee Bank Check No. Payee Amount
2. Exhibit 2 — Ong. — The Memorandum of the Central Bank Governor dated July 9, 1980, to
all banks for their guidance, that Monetary Board Resolution No. 2202 dated December 21,
1. Metropolitan Bank & Trust Co. 82508 Cash P49,500.00 1979, prohibiting, as a matter of policy, drawing against uncollected deposits effective July 1,
1980, covers drawing against demand deposits as well as withdrawals from savings deposits.
2. Equitable Bank 27624961 Cash 14,569.00 3. Exhibits 3 — Ong. — and 3-a. — Clippings from the Bulletin Today issue on July 25, 1980
regarding on (sic) ban on DAUD (drawn against uncollected deposits) effective July 1, 1980,
and the one-day loan which replaced the DAUD arrangement.
3. Phil. Bank of Comm. T-1907265 Cash 59,600.00 4. Exhibit 4 — Ong. — The sworn statement of Lino Morfe before the METROCOM taken on
February 11, 1979.
4. Phil. Bank of Comm. T-1907249 Cash 67,400.00 5. Exhibit 5 — Ong. — The letter dated July 6, 1979, of Lino Morfe to the Assistant Fiscal of
Manila, transmitting his (Morfe's) affidavit.
6. Exhibits 5-a — Ong to 5-a-3-Ong. — Affidavit of Lino Morfe sworn on June 28, 1979.
  TOTAL   P191,069-00 7. Exhibit 5-b — Ong. — The Bank's Memorandum dated January 31, 1979, to all Branch
Afterwards but before these checks could be cleared and the Bank could collect their amounts Manager/Extension Office O.I.C. (sic) requiring them to furnish the Head Office of the Bank
from the drawee banks, Lucila Talabis allowed and approved the withdrawal of Dick Ong every Monday and Thursday with a list of all "drawn against" and "encashment"
against the amounts of said checks. (TSN, Mar. 18, 1981, pp. 47-48.) acommodations (sic) of P1,000.00 and above granted by the Branch during the week.
On the following day, January 31, 1979, Dick Ong also issued and deposited in his savings 8. Exhibit 6 — Ong. — The sworn statement of accused Dick Ong.
account with the Bank the following check; On the other hand, accused Lucila Talabis admitted that she approved the withdrawals of the accused-
appellant against uncleared checks. However, she explained that her approval thereof was in accordance
Drawee Bank Check No. Payee Amount with the instruction of then bank manager Lino Morfe; that this accommodation given or extended to
the accused-appellant had been going on even before she started giving the same accommodation; that
this was common practice in the bank; that she approved those withdrawals together with one other
1. China Banking Corporation QC08617A Cash P69,850.00 bank official, namely, either the bank manager, the bank accountant, the other bank cashier, or the bank
assistant cashier; and that they reported those withdrawals against, and the dishonor of, the subject
2. Pacific Banking Corporation PCB238056 S Cash 60,890.00 checks always sending copies of their reports to the head office.
Accused Ricardo Villaran testified on his behalf that the accused-appellant was able to withdraw against
his uncleared checks because of the accommodations extended to him by bank officials Lino Morfe, co-
3. Producers Bank of the Phil. C987955 Cash 49,090.00 accused Lucila Talabis, Grace Silao, Precy Salamat, and Cora Gascon; that this practice of drawing against
uncollected deposits was a common practice in branches of the Bank; that on December 14, 1978, the
4. Equitable Banking 27624963 Cash 14,965.00 accused-appellant withdrew the sum of P75,000.00 against his uncleared checks; that on December 21,
1978, the accused-appellant deposited several checks in the total amount of P197,000.00 and withdrew
on the same date the sum of P120,000.00; that on January 23, 1979, the accused-appellant again
5. Phil. Bank of Communications 1915852 Cash 639,000.01 deposited several checks in the aggregate sum of P260,000.00 and withdrew also on the same date, the
amount of P28,000.00; and that he (Villaran) approved these three withdrawals of the accused-appellant
6. Phil. Bank of Communications 1915855 Cash 59,860.00 against his uncollected deposits.
In this appeal, the accused-appellant assigns the following errors committed by the trial court:
1) it concluded that the withdrawals against the amounts of the subject checks before clearance and
7. Phil. Bank of Communications 1915856 Cash 65,880.00
collection of the corresponding amounts thereof by the depository bank from the drawee banks is deceit
or fraud constituting estafa under Article 315, paragraph 2(d) of the Revised Penal Code, in the total
    TOTAL P384,435.00 absence of evidence showing criminal intent to defraud the depository bank; and not a case which is civil
in nature governed solely by the Negotiable Instruments Law;
Subsequently, but before said seven checks were cleared and the Bank had collected their 2) it stated that he issued and deposited the subject checks when he is not the issuer, maker, nor drawer
amounts, Lucila Talabis and then officer in charge of the Bank Grace Silao allowed and thereof but merely an indorser; hence, his liability, if any, is that of a general indorser under the
approved the withdrawals of Dick Ong against the amounts of these seven checks. Negotiable Instruments Law;
(TSN, lbid., pp. 47-48.) 3) it convicted him on mere presumption, without any evidence that he had prior knowledge of the lack
However, when the Bank presented those eleven checks issued and deposited by Dick Ong on or insufficiency of funds in the drawee banks to cover the amounts of the subject checks; and
January 30, 1979 and January 3l, 1979 and against which he made withdrawals against (sic) 4) it failed to consider that a general indorser under the Negotiable Instruments Law warrants payment
their amounts, to their respective drawee banks for payment, they were all dishonored for of the value of the checks indorsed by him; no damage could have been suffered by the depository bank
lack or insufficiency of funds. (TSN, Jan. 7, 1981, pp. 90-101; TSN, May 8, 1981, pp. 74-75.) because he had offered payment thereof.
The accused-appellant neither took the witness stand to testify in his behalf, nor presented any witness To support the aforementioned assignment of errors, the accused-appellant alleges that based on the
to testify in his favor. Instead, he offered the following documents (p. 20, Rollo): testimonies of co-accused Lucila Talabis and Ricardo Villaran, he did not employ any deceit or fraud on

2
the Bank because the practice of deposit and withdrawal against uncleared checks and uncollected
deposits was tolerated by it. As soon as he learned of the dishonor of the subject checks, he offered to
pay the amounts thereof (see pp. 48-49, tsn of Felix Hocson, May 8, 1981) and put up as security his
property. The subject checks were not in payment of an obligation but were deposited in his savings
account. He was merely a general indorser of the subject checks and this being the case, his obligations
as such, if any, should be governed by Section 66 of the Negotiable Instruments Law. * The subject checks
were issued or drawn by his customers and paid to him. He could not have had any knowledge as to the
sufficiency of their funds in the drawee banks.
The Office of the Solicitor General disputes the allegations of the accused-appellant. According to it, by
reason of the accused-appellant's antecedent acts of issuing and depositing check and withdrawing the
amounts thereof before clearing by the drawee banks, which checks were later honored and paid by
drawee banks, he was able to gain the trust and confidence the Bank, such that the practice, albeit
contrary to sound banking policy, was tolerated by the Bank. After thus having gained the trust and
confidence of the Bank, the accused-appellant issued and deposited the subject checks, the amounts of
which he later withdrew, fully aware that he had no sufficient funds to cover the amounts of said checks
in the drawee banks. Contrary to the accused-appellant's allegation, the trial court found that he issued
and deposited the subject checks in his savings account. As drawer of the subject checks, the accused-
appellant had the obligation to maintain funds in his current account in the drawee banks sufficient to
cover the amounts thereof or, in case of dishonor, to deposit within three (3) days from receipt notice of
dishonor, the amounts necessary to cover the check. The testimony of Felix Hocson, Senior Vice
President and Treasurer of the Bank, apart from being hearsay, does not prove that the accused-
appellant made an offer to pay the amounts covered by the subject checks. Even
assuming arguendo that accused-appellant made an offer to pay the amounts covered by the subject
checks, said offer is not sufficient to rebut the prima facie evidence of deceit. There is no showing that
the accused-appellant deposited the amounts necessary to cover the subject checks within three (3) days
from receipt of notice from Bank and/or the payee or holder that said checks have been dishonored. The
damage suffered by the Bank consists in its inability to make use of the P575,504.00 it had delivered to
the accused-appellant.
We are convinced that the accused-appellant is innocent of the crime charged against him.
Article 315, paragraph 2(d) of the Revised Penal Code, as amended by Republic Act No. 4885, provides:
Art. 315. Swindling (estafa) — Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by:
..., provided that in the four cases mentioned, the fraud be committed by any of
the following means:
x x x           x x x          x x x
2. By means of any of the following false pretenses or fraudulent acts executed
prior to or simultaneously with the commission of the fraud:
x x x           x x x          x x x
(d) By post-dating a check, or issuing a check in payment of an obligation when the
offender had no funds in the bank, or his funds deposited therein were not
sufficient to cover the amount of the check. The failure of the drawer of the check
to deposit the amount necessary to cover his check within three (3) days from
receipt of notice from the bank and/or the payee or holder that said check has
been dishonored for lack or insufficiency of funds shall be prima facie evidence of
deceit constituting false pretense or fraudulent act.
The following are the elements of this kind of estafa: (1) postdating or issuance of a check in
payment of an obligation contracted at the time the check was issued; (2) lack or insufficiency
of funds to cover the check; and (3) damage to the payee thereof (People v. Tugbang, et al;,
G.R. No. 76212, April 26, 1991; Sales v. Court of Appeals, et al., G.R. No. L-47817, August 29,
1988, 164 SCRA 717; People v. Sabio, Sr., etc., et al., G.R. No. L-45490, November 20, 1978, 86
SCRA 568). Based thereon, the trial court concluded that the guilt of the accused-appellant
has "been duly established by the required quantum of evidence adduced by the People
against (him)" (p. 22, Rollo). We shall confine Our discussion only on the first element because
there is no argument that the second and third elements are present in this case. For an
orderly discussion of this element, We will divide it into two (2) parts: first, "postdating or
issuance of a check," and second, "in payment of an obligation contracted at the time the
check was issued."
Inasmuch as the first part of the first element of Article 315 paragraph 2(d) of the Revised
Penal Code is concerned with the act of "postdating or issuance of a check," the accused-
appellant raises the defense that he was neither the issuer nor drawer of the subject checks,
but only an indorser thereof. Thus, his liability, if any, should be governed by the provision of
the Negotiable Instruments Law, particularly Section 66 thereof, supra. Also, he could not
have had any knowledge as to the sufficiency of the drawers' funds in their respective banks.
The Office of the Solicitor General contend's that the trial court found as a fact that the
accused-appellant issued the subject checks.
The contention of the Office of the Solicitor General is accurate only in part. In the trial court's
disquisition on the liability of the accused-appellant, it said (p. 22, Rollo):
There is no question that on January 30, 1979, accused Dick Ong issued or used
and indorsed, and deposited in his Savings Account No. 6-1981 with the Bank the
four checks ... .
There is likewise no dispute that on the following date, January 31, 1979, Dick
Ong issued or used and indorsed, and deposited in his savings account with the
Bank seven checks ... . (emphasis supplied)
On this subject matter, Fernando Esguerra, Intemal Auditor of the Bank and a witness for the
prosecution, testified that (pp. 101-103, tsn, January 7, 1981):
Court —
Q: You mentioned these checks, Mr. Witness. Did you or anybody for
that matter ever verify the actual depositors of these checks whether it
is Mr. Dick Ong himself.?
A: Yes, Your Honor. Our Vice-President for Bank Operations verified said
checks and found out that one of or rather, two of those checks are in
the account of Mr. Dick Ong but the other checks are not in his account.
Court —
Q: In other words, there are checks where the depositor himself was
also Mr. Dick Ong?
A: Could I go over the checks, Your Honor.
Q: Is it indicated there?
A: Yes, Your Honor, it.is.
Q: All right, go over the checks.
A: There is one check, Your Honor. It is a China Banking Corporation
check in the amount of P69,850.00 (Witness referring to Exhibit "Z").
Q: Now, why do you say that the current checking account or current
account was opened by Mr. Dick Ong himself.
A: Because he is the drawer of the check, Your Honor.(emphasis
supplied)
Thus, the fact established by the prosecution and adopted by the trial court is that
the subject checks were either issued or indorsed by the accused-appellant.
In the case of People v. Isleta, et al., 61 Phil. 332, which was recently reiterated in
the case of Zagado v. Court of Appeals, G.R. No. 76612, September 29, 1989, 178
SCRA 146, We declared the accused-appellant, who only negotiated the check
drawn by another, guilty of estafa. This case of People v. Isleta, et al. was relied
upon by the trial court in its order dated April 3, 1990, which denied the accused-
appellant's motion for reconsideration based on the same defense. The trial court
erred in doing so. It must have overlooked the ratio decidendi of the
aforementioned case. We held the accused-appellant therein guilty of estafa
because he "had guilty knowledge of the fact that (the drawer) had no funds in the
bank when he negotiated the (subject) check" (at p. 334). In the present case, the
prosecution failed to prove that the accused-appellant had such knowledge with
respect to the subject checks that he indorsed. In applying Our decisions, it is not
enough that courts take into account only the facts and the dispositive portions
3
thereof. It is imperative that the rationale of these decisions be read and damage in the amount of P575,504.00 but the accused-appellant's liability thereon
comprehended thoroughly. is only civil.
It goes without saying that with respect to the subject checks wherein the accused- One additional statement made by the trial court in its decision requires
appellant was the issuer/drawer, the first part of the first element of Article 315, correction. It said that "[t]he circumstances that the drawer of a check had
paragraph 2(d) of the Revised Penal Code is applicable. However, this statement insufficient or no funds in the drawee bank to cover the amount of his check at the
will lose its significance in Our next discussion. time of its issuance and he did not inform the payee or holder of such fact, are
Regarding the second part of the first element of Article 315, paragraph 2(d) of the sufficient to make him liable for estafa" (p. 23, Rollo). This statement is no longer
Revised Penal Code, the accused-appellant alleges that when he deposited the controlling. We have clarified in the case of People v. Sabio, Sr., etc., et al., supra,
subject checks in his savings account, it was clearly not in payment of an obligation that Republic Act No. 4885 has eliminated the requirement under the old provision
to the Bank. The Office of the Solicitor General misses this point of the accused- for the drawer to inform the payee that he had no funds in the bank or the funds
appenant. deposited by him were not sufficient to cover the amount of the check.
This single argument of the accused-appellant spells tilting the scale to his We, therefore, find that the guilt of the accused-appellant for the crime of estafa
advantage. In several cases, We were categorical that bank deposits are in the under Article 315, paragraph 2(d) of the Revised Penal Code has not been proven
nature of irregular deposits. They are really loans because they earn interest. All beyond reasonable doubt. However, We find him civilly liable to the bank in the
kinds of bank deposits, whether fixed, savings, or current are to be treated loans amount of P575,504.00, less the balance remaining in his savings account with it
and are to be covered by the law on loans. Current and savings deposits are loans (p. 26, Rollo), with legal interest from the date of the filing of this case until full
to a bank because it can use the same (Serrano v. Central Bank of the Philippines, payment.
et al., G.R. No. 30511, February 14, 1980, 96 SCRA 96; Gullas v. Philippine National ACCORDINGLY, the decision and order appealed from are hereby SET ASIDE. The
Bank, 62 Phil. 519; Central Bank of the Philippines v Morfe, etc., et al., G.R. No. L- accused-appellant is ACQUITTED of the crime charged against him but ordered to
38427, March 12, 1975, 63 SC 114; Guingona, Jr., et al. v. The City Fiscal of Manila, pay the aforementioned amount. No costs.
et al. G.R. No. 60033, April 4, 1984, 128 SCRA 577). SO ORDERED.
The elements of estafa in general are: (1) that the accused defrauded another (a)
by abuse of confidence, or (b) by means of deceit; and (2) that damage or
prejudice capable of pecuniary estimation is caused to the offended party or third
person. Aside from the elements that We have discussed earlier, in the crime of
estafa by postdating or issuing a bad check, deceit and damage are essential
elements of the offense and have to be established with satisfactory proof to
warrant conviction (U.S v. Rivera, 23 Phil. 383; People, et al. v. Grospe, etc., et al.,
G.R No. 74053-54, January 20, 1988,157 SCRA 154; Buaya v. Polo etc., et al., G.R.
No. 75079, January 26, 1989, 169 SCRA 471).
In this connection, the Office of the Solicitor General advances the view that by
reason of the accused-appellant's antecedent acts of issuing and depositing
checks, and withdrawing the amounts thereof before clearing by the drawee
banks, which checks were later honored and paid by the drawee banks, he was
able to gain the trust and confidence of the Bank, such that the practice, albeit
contrary to sound banking policy, was tolerated by the Bank. After thus having
gained the trust and confidence of the Bank, he issued and deposited the subject
checks, the amounts of which he later withdrew, fully aware that he had no
sufficient funds to cover the amounts of said checks in the drawee banks.
This view is not supported by the facts of this case. Rather, the evidence for the
prosecution proved that the Bank on its own accorded him a drawn against
uncollected deposit (DAUD) privilege without need of any pretensions on his part
(pp. 7-8, supra). Moreover, this privilege was not only for the subject checks, but
for other past transactions. Fernando Esguerra and Felix Hocson even testified that
in some instances prior to July 1, 1980, especially where the depositor is an
important client, the Bank relaxed its rule and internal policy against uncleared
checks and uncollected deposits, and allowed such depositor to withdraw against
his uncleared checks and uncollected deposits. Admittedly, the accused-appellant
was one of the important depositors of the Bank (pp. 24-25, Rollo). Granting, in
gratia argumenti, that he had in fact acted fraudulently, he could not have done so
without the active cooperation of the Banks employees. Therefore, since Lucila
Talabis and Ricardo Villaran were declared innocent of the crimes charged against
them, the same should be said for the accused-appellant (see People v. Jalandoni,
G.R. No. 57555, May 30, 1983, 122 SCRA 588). True it is that the Bank suffered

4
G.R. No. L-60033 April 4, 1984
TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS, petitioners,  sum of US$15,000.00 which was a personal loan of Santos; that David's check for US$50,000.00 was
vs.
THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL FELIZARDO N. LOTA and
CLEMENT DAVID, respondents.
MAKASIAR, Actg. C.J.:ñé+.£ªwph!1
This is a petition for prohibition and injunction with a prayer for the immediate issuance of restraining
order and/or writ of preliminary injunction filed by petitioners on March 26, 1982.
On March 31, 1982, by virtue of a court resolution issued by this Court on the same date, a temporary
restraining order was duly issued ordering the respondents, their officers, agents, representatives and/or
person or persons acting upon their (respondents') orders or in their place or stead to refrain from
proceeding with the preliminary investigation in Case No. 8131938 of the Office of the City Fiscal of
Manila (pp. 47-48, rec.). On January 24, 1983, private respondent Clement David filed a motion to lift
restraining order which was denied in the resolution of this Court dated May 18, 1983.
As can be gleaned from the above, the instant petition seeks to prohibit public respondents from
proceeding with the preliminary investigation of I.S. No. 81-31938, in which petitioners were charged by
private respondent Clement David, with estafa and violation of Central Bank Circular No. 364 and related
regulations regarding foreign exchange transactions principally, on the ground of lack of jurisdiction in
that the allegations of the charged, as well as the testimony of private respondent's principal witness and
the evidence through said witness, showed that petitioners' obligation is civil in nature.
For purposes of brevity, We hereby adopt the antecedent facts narrated by the Solicitor General in its
Comment dated June 28,1982, as follows:têñ.£îhqwâ£
On December 23,1981, private respondent David filed I.S. No. 81-31938 in the
Office of the City Fiscal of Manila, which case was assigned to respondent Lota for
preliminary investigation (Petition, p. 8).
In I.S. No. 81-31938, David charged petitioners (together with one Robert Marshall
and the following directors of the Nation Savings and Loan Association, Inc.,
namely Homero Gonzales, Juan Merino, Flavio Macasaet, Victor Gomez, Jr.,
Perfecto Manalac, Jaime V. Paz, Paulino B. Dionisio, and one John Doe) with estafa
and violation of Central Bank Circular No. 364 and related Central Bank regulations
on foreign exchange transactions, allegedly committed as follows (Petition, Annex
"A"):têñ.£îhqwâ£
"From March 20, 1979 to March, 1981, David invested with the Nation Savings and Loan Association,
(hereinafter called NSLA) the sum of P1,145,546.20 on nine deposits, P13,531.94 on savings account
deposits (jointly with his sister, Denise Kuhne), US$10,000.00 on time deposit, US$15,000.00 under a
receipt and guarantee of payment and US$50,000.00 under a receipt dated June 8, 1980 (au jointly with
Denise Kuhne), that David was induced into making the aforestated investments by Robert Marshall an
Australian national who was allegedly a close associate of petitioner Guingona Jr., then NSLA President,
petitioner Martin, then NSLA Executive Vice-President of NSLA and petitioner Santos, then NSLA General
Manager; that on March 21, 1981 N LA was placed under receivership by the Central Bank, so that David
filed claims therewith for his investments and those of his sister; that on July 22, 1981 David received a
report from the Central Bank that only P305,821.92 of those investments were entered in the records of
NSLA; that, therefore, the respondents in I.S. No. 81-31938 misappropriated the balance of the
investments, at the same time violating Central Bank Circular No. 364 and related Central Bank
regulations on foreign exchange transactions; that after demands, petitioner Guingona Jr. paid only
P200,000.00, thereby reducing the amounts misappropriated to P959,078.14 and US$75,000.00."
Petitioners, Martin and Santos, filed a joint counter-affidavit (Petition, Annex' B') in which they stated the
following.têñ.£îhqwâ£
"That Martin became President of NSLA in March 1978 (after the resignation of Guingona, Jr.) and served
as such until October 30, 1980, while Santos was General Manager up to November 1980; that because
NSLA was urgently in need of funds and at David's insistence, his investments were treated as special-
accounts with interest above the legal rate, an recorded in separate confidential documents only a
portion of which were to be reported because he did not want the Australian government to tax his total
earnings (nor) to know his total investments; that all transactions with David were recorded except the
cleared through Guingona, Jr.'s dollar account because NSLA did not have one, that a draft of
US$30,000.00 was placed in the name of one Paz Roces because of a pending transaction with her; that
the Philippine Deposit Insurance Corporation had already reimbursed David within the legal limits; that
majority of the stockholders of NSLA had filed Special Proceedings No. 82-1695 in the Court of First
Instance to contest its (NSLA's) closure; that after NSLA was placed under receivership, Martin executed
a promissory note in David's favor and caused the transfer to him of a nine and on behalf (9 1/2) carat
diamond ring with a net value of P510,000.00; and, that the liabilities of NSLA to David were civil in
nature."
Petitioner, Guingona, Jr., in his counter-affidavit (Petition, Annex' C') stated the following:têñ.£îhqwâ£
"That he had no hand whatsoever in the transactions between David and NSLA since he (Guingona Jr.)
had resigned as NSLA president in March 1978, or prior to those transactions; that he assumed a portion
o; the liabilities of NSLA to David because of the latter's insistence that he placed his investments with
NSLA because of his faith in Guingona, Jr.; that in a Promissory Note dated June 17, 1981 (Petition, Annex
"D") he (Guingona, Jr.) bound himself to pay David the sums of P668.307.01 and US$37,500.00 in stated
installments; that he (Guingona, Jr.) secured payment of those amounts with second mortgages over two
(2) parcels of land under a deed of Second Real Estate Mortgage (Petition, Annex "E") in which it was
provided that the mortgage over one (1) parcel shall be cancelled upon payment of one-half of the
obligation to David; that he (Guingona, Jr.) paid P200,000.00 and tendered another P300,000.00 which
David refused to accept, hence, he (Guingona, Jr.) filed Civil Case No. Q-33865 in the Court of First
Instance of Rizal at Quezon City, to effect the release of the mortgage over one (1) of the two parcels of
land conveyed to David under second mortgages."
At the inception of the preliminary investigation before respondent Lota, petitioners moved to dismiss
the charges against them for lack of jurisdiction because David's claims allegedly comprised a purely civil
obligation which was itself novated. Fiscal Lota denied the motion to dismiss (Petition, p. 8).
But, after the presentation of David's principal witness, petitioners filed the instant petition because: (a)
the production of the Promisory Notes, Banker's Acceptance, Certificates of Time Deposits and Savings
Account allegedly showed that the transactions between David and NSLA were simple loans, i.e., civil
obligations on the part of NSLA which were novated when Guingona, Jr. and Martin assumed them; and
(b) David's principal witness allegedly testified that the duplicate originals of the aforesaid instruments of
indebtedness were all on file with NSLA, contrary to David's claim that some of his investments were not
record (Petition, pp. 8-9).
Petitioners alleged that they did not exhaust available administrative remedies because to do so would
be futile (Petition, p. 9) [pp. 153-157, rec.].
As correctly pointed out by the Solicitor General, the sole issue for resolution is whether public
respondents acted without jurisdiction when they investigated the charges (estafa and violation of CB
Circular No. 364 and related regulations regarding foreign exchange transactions) subject matter of I.S.
No. 81-31938.
There is merit in the contention of the petitioners that their liability is civil in nature and therefore, public
respondents have no jurisdiction over the charge of estafa.
A casual perusal of the December 23, 1981 affidavit. complaint filed in the Office of the City Fiscal of
Manila by private respondent David against petitioners Teopisto Guingona, Jr., Antonio I. Martin and
Teresita G. Santos, together with one Robert Marshall and the other directors of the Nation Savings and
Loan Association, will show that from March 20, 1979 to March, 1981, private respondent David,
together with his sister, Denise Kuhne, invested with the Nation Savings and Loan Association the sum of
P1,145,546.20 on time deposits covered by Bankers Acceptances and Certificates of Time Deposits and
the sum of P13,531.94 on savings account deposits covered by passbook nos. 6-632 and 29-742, or a
total of P1,159,078.14 (pp. 15-16, roc.). It appears further that private respondent David, together with
his sister, made investments in the aforesaid bank in the amount of US$75,000.00 (p. 17, rec.).
Moreover, the records reveal that when the aforesaid bank was placed under receivership on March 21,
1981, petitioners Guingona and Martin, upon the request of private respondent David, assumed the
obligation of the bank to private respondent David by executing on June 17, 1981 a joint promissory note
in favor of private respondent acknowledging an indebtedness of Pl,336,614.02 and US$75,000.00 (p. 80,
rec.). This promissory note was based on the statement of account as of June 30, 1981 prepared by the
5
private respondent (p. 81, rec.). The amount of indebtedness assumed appears to be bigger than the
original claim because of the added interest and the inclusion of other deposits of private respondent's
sister in the amount of P116,613.20.
Thereafter, or on July 17, 1981, petitioners Guingona and Martin agreed to divide the said indebtedness,
and petitioner Guingona executed another promissory note antedated to June 17, 1981 whereby he
personally acknowledged an indebtedness of P668,307.01 (1/2 of P1,336,614.02) and US$37,500.00 (1/2
of US$75,000.00) in favor of private respondent (p. 25, rec.). The aforesaid promissory notes were
executed as a result of deposits made by Clement David and Denise Kuhne with the Nation Savings and
Loan Association.
Furthermore, the various pleadings and documents filed by private respondent David, before this Court
indisputably show that he has indeed invested his money on time and savings deposits with the Nation
Savings and Loan Association.
It must be pointed out that when private respondent David invested his money on nine. and savings
deposits with the aforesaid bank, the contract that was perfected was a contract of simple loan
or mutuum and not a contract of deposit. Thus, Article 1980 of the New Civil Code provides that:têñ.
£îhqwâ£
Article 1980. Fixed, savings, and current deposits of-money in banks and similar institutions shall be
governed by the provisions concerning simple loan.
In the case of Central Bank of the Philippines vs. Morfe (63 SCRA 114,119 [1975], We said:têñ.£îhqwâ£
It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are
hat true deposits. are considered simple loans and, as such, are not preferred credits (Art. 1980 Civil
Code; In re Liquidation of Mercantile Batik of China Tan Tiong Tick vs. American Apothecaries Co., 66 Phil
414; Pacific Coast Biscuit Co. vs. Chinese Grocers Association 65 Phil. 375; Fletcher American National
Bank vs. Ang Chong UM 66 PWL 385; Pacific Commercial Co. vs. American Apothecaries Co., 65 PhiL 429;
Gopoco Grocery vs. Pacific Coast Biscuit CO.,65 Phil. 443)."
This Court also declared in the recent case of Serrano vs. Central Bank of the Philippines (96 SCRA 102
[1980]) that:têñ.£îhqwâ£
Bank deposits are in the nature of irregular deposits. They are really '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 (Art. 1980 Civil Code Gullas vs. Phil. National Bank, 62 Phil. 519). Current and
saving deposits, are loans to a bank because it can use the same. The petitioner here in making time
deposits that earn interests will respondent Overseas Bank of Manila was in reality a creditor of the
respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of
the respondent Bank to honor the time deposit is failure to pay its obligation as a debtor and not a
breach of trust arising from a depositary's failure to return the subject matter of the deposit(Emphasis
supplied).
Hence, the relationship between the private respondent and the Nation Savings and Loan Association is
that of creditor and debtor; consequently, the ownership of the amount deposited was transmitted to
the Bank upon the perfection of the contract and it can make use of the amount deposited for its
banking operations, such as to pay interests on deposits and to pay withdrawals. While the Bank has the
obligation to return the amount deposited, it has, however, no obligation to return or deliver the same
money that was deposited. And, the failure of the Bank to return the amount deposited will not
constitute estafa through misappropriation punishable under Article 315, par. l(b) of the Revised Penal
Code, but it will only give rise to civil liability over which the public respondents have no- jurisdiction.
WE have already laid down the rule that:têñ.£îhqwâ£
In order that a person can be convicted under the above-quoted provision, it must be proven that he has
the obligation to deliver or return the some money, goods or personal property that he
received Petitioners had no such obligation to return the same money, i.e., the bills or coins, which they
received from private respondents. This is so because as clearly as stated in criminal complaints, the
related civil complaints and the supporting sworn statements, the sums of money that petitioners
received were loans.
The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.têñ.£îhqwâ£
"Art. 1933. — By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time- and return it, in which case the
contract is called a commodatum; or money or other consumable thing, upon the condition that the
same amount of the same kind and quality shall he paid in which case the contract is simply called a loan
or mutuum.
"Commodatum is essentially gratuitous.
"Simple loan may be gratuitous or with a stipulation to pay interest.
"In commodatum the bailor retains the ownership of the thing loaned while in simple loan, ownership
passes to the borrower.
"Art. 1953. — A person who receives a loan of money or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind and quality."
It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as contrasted to
commodatum the borrower acquires ownership of the money, goods or personal property borrowed
Being the owner, the borrower can dispose of the thing borrowed (Article 248, Civil Code) and his act will
not be considered misappropriation thereof' (Yam vs. Malik, 94 SCRA 30, 34 [1979]; Emphasis supplied).
But even granting that the failure of the bank to pay the time and savings deposits of private respondent
David would constitute a violation of paragraph 1(b) of Article 315 of the Revised Penal Code,
nevertheless any incipient criminal liability was deemed avoided, because when the aforesaid bank was
placed under receivership by the Central Bank, petitioners Guingona and Martin assumed the obligation
of the bank to private respondent David, thereby resulting in the novation of the original contractual
obligation arising from deposit into a contract of loan and converting the original trust relation between
the bank and private respondent David into an ordinary debtor-creditor relation between the petitioners
and private respondent. Consequently, the failure of the bank or petitioners Guingona and Martin to pay
the deposits of private respondent would not constitute a breach of trust but would merely be a failure
to pay the obligation as a debtor.
Moreover, while it is true that novation does not extinguish criminal liability, it may however, prevent
the rise of criminal liability as long as it occurs prior to the filing of the criminal information in court.
Thus, in Gonzales vs. Serrano ( 25 SCRA 64, 69 [1968]) We held that:têñ.£îhqwâ£
As pointed out in People vs. Nery, novation prior to the filing of the criminal information — as in the case
at bar — may convert the relation between the parties into an ordinary creditor-debtor relation, and
place the complainant in estoppel to insist on the original transaction or "cast doubt on the true nature"
thereof.
Again, in the latest case of Ong vs. Court of Appeals (L-58476, 124 SCRA 578, 580-581 [1983] ), this Court
reiterated the ruling in People vs. Nery ( 10 SCRA 244 [1964] ), declaring that:têñ.£îhqwâ£
The novation theory may perhaps apply prior to the filling of the criminal information in court by the
state prosecutors because up to that time the original trust relation may be converted by the parties into
an ordinary creditor-debtor situation, thereby placing the complainant in estoppel to insist on the
original trust. But after the justice authorities have taken cognizance of the crime and instituted action in
court, the offended party may no longer divest the prosecution of its power to exact the criminal liability,
as distinguished from the civil. The crime being an offense against the state, only the latter can renounce
it (People vs. Gervacio, 54 Off. Gaz. 2898; People vs. Velasco, 42 Phil. 76; U.S. vs. Montanes, 8 Phil. 620).
It may be observed in this regard that novation is not one of the means recognized by the Penal Code
whereby criminal liability can be extinguished; hence, the role of novation may only be to either prevent
the rise of criminal habihty or to cast doubt on the true nature of the original basic transaction, whether
or not it was such that its breach would not give rise to penal responsibility, as when money loaned is
made to appear as a deposit, or other similar disguise is resorted to (cf. Abeto vs. People, 90 Phil. 581;
U.S. vs. Villareal, 27 Phil. 481).
In the case at bar, there is no dispute that petitioners Guingona and Martin executed a promissory note
on June 17, 1981 assuming the obligation of the bank to private respondent David; while the criminal
complaint for estafa was filed on December 23, 1981 with the Office of the City Fiscal. Hence, it is clear
that novation occurred long before the filing of the criminal complaint with the Office of the City Fiscal.
Consequently, as aforestated, any incipient criminal liability would be avoided but there will still be a civil
liability on the part of petitioners Guingona and Martin to pay the assumed obligation.
Petitioners herein were likewise charged with violation of Section 3 of Central Bank Circular No. 364 and
other related regulations regarding foreign exchange transactions by accepting foreign currency deposit
in the amount of US$75,000.00 without authority from the Central Bank. They contend however, that
the US dollars intended by respondent David for deposit were all converted into Philippine currency
before acceptance and deposit into Nation Savings and Loan Association.
6
Petitioners' contention is worthy of behelf for the following reasons: SO ORDERED.1äwphï1.ñët
1. It appears from the records that when respondent David was about to make a deposit of bank draft
issued in his name in the amount of US$50,000.00 with the Nation Savings and Loan Association, the
same had to be cleared first and converted into Philippine currency. Accordingly, the bank draft was
endorsed by respondent David to petitioner Guingona, who in turn deposited it to his dollar account with
the Security Bank and Trust Company. Petitioner Guingona merely accommodated the request of the
Nation Savings and loan Association in order to clear the bank draft through his dollar account because
the bank did not have a dollar account. Immediately after the bank draft was cleared, petitioner
Guingona authorized Nation Savings and Loan Association to withdraw the same in order to be utilized
by the bank for its operations.
2. It is safe to assume that the U.S. dollars were converted first into Philippine pesos before they were
accepted and deposited in Nation Savings and Loan Association, because the bank is presumed to have
followed the ordinary course of the business which is to accept deposits in Philippine currency only, and
that the transaction was regular and fair, in the absence of a clear and convincing evidence to the
contrary (see paragraphs p and q, Sec. 5, Rule 131, Rules of Court).
3. Respondent David has not denied the aforesaid contention of herein petitioners despite the fact that it
was raised. in petitioners' reply filed on May 7, 1982 to private respondent's comment and in the July 27,
1982 reply to public respondents' comment and reiterated in petitioners' memorandum filed on October
30, 1982, thereby adding more support to the conclusion that the US$75,000.00 were really converted
into Philippine currency before they were accepted and deposited into Nation Savings and Loan
Association. Considering that this might adversely affect his case, respondent David should have
promptly denied petitioners' allegation.
In conclusion, considering that the liability of the petitioners is purely civil in nature and that there is no
clear showing that they engaged in foreign exchange transactions, We hold that the public respondents
acted without jurisdiction when they investigated the charges against the petitioners. Consequently,
public respondents should be restrained from further proceeding with the criminal case for to allow the
case to continue, even if the petitioners could have appealed to the Ministry of Justice, would work great
injustice to petitioners and would render meaningless the proper administration of justice.
While as a rule, the prosecution in a criminal offense cannot be the subject of prohibition and injunction,
this court has recognized the resort to the extraordinary writs of prohibition and injunction in extreme
cases, thus:têñ.£îhqwâ£
On the issue of whether a writ of injunction can restrain the proceedings in Criminal Case No. 3140, the
general rule is that "ordinarily, criminal prosecution may not be blocked by court prohibition or
injunction." Exceptions, however, are allowed in the following instances:têñ.£îhqwâ£
"1. for the orderly administration of justice;
"2. to prevent the use of the strong arm of the law in an oppressive and vindictive manner;
"3. to avoid multiplicity of actions;
"4. to afford adequate protection to constitutional rights;
"5. in proper cases, because the statute relied upon is unconstitutional or was held invalid" ( Primicias vs.
Municipality of Urdaneta, Pangasinan, 93 SCRA 462, 469-470 [1979]; citing Ramos vs. Torres, 25 SCRA
557 [1968]; and Hernandez vs. Albano, 19 SCRA 95, 96 [1967]).
Likewise, in Lopez vs. The City Judge, et al. ( 18 SCRA 616, 621-622 [1966]), We held that:têñ.£îhqwâ£
The writs of certiorari and prohibition, as extraordinary legal remedies, are in the ultimate analysis,
intended to annul void proceedings; to prevent the unlawful and oppressive exercise of legal authority
and to provide for a fair and orderly administration of justice. Thus, in Yu Kong Eng vs. Trinidad, 47 Phil.
385, We took cognizance of a petition for certiorari and prohibition although the accused in the case
could have appealed in due time from the order complained of, our action in the premises being based
on the public welfare policy the advancement of public policy. In Dimayuga vs. Fajardo, 43 Phil. 304, We
also admitted a petition to restrain the prosecution of certain chiropractors although, if convicted, they
could have appealed. We gave due course to their petition for the orderly administration of justice and
to avoid possible oppression by the strong arm of the law. And in Arevalo vs. Nepomuceno, 63 Phil. 627,
the petition for certiorari challenging the trial court's action admitting an amended information was
sustained despite the availability of appeal at the proper time.
WHEREFORE, THE PETITION IS HEREBY GRANTED; THE TEMPORARY RESTRAINING ORDER PREVIOUSLY
ISSUED IS MADE PERMANENT. COSTS AGAINST THE PRIVATE RESPONDENT.

7
[G.R. No. 156940. December 14, 2004]
ASSOCIATED BANK (Now WESTMONT BANK), petitioner, vs. VICENTE HENRY TAN, respondent.
DECISION
PANGANIBAN, J.:
While banks are granted by law the right to debit the value of a dishonored check from a
depositors account, they must do so with the highest degree of care, so as not to prejudice the depositor
unduly.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the January 27,
2003 Decision[2] of the Court of Appeals (CA) in CA-GR CV No. 56292. The CA disposed as follows:
WHEREFORE, premises considered, the Decision dated December 3, 1996, of
the Regional Trial Court of Cabanatuan City, Third Judicial Region, Branch 26, in Civil Case No. 892-AF is
hereby AFFIRMED. Costs against the [petitioner].[3]
The Facts
The CA narrated the antecedents as follows:
Vicente Henry Tan (hereafter TAN) is a businessman and a regular depositor-creditor of the Associated
Bank (hereinafter referred to as the BANK). Sometime in September 1990, he deposited a postdated
UCPB check with the said BANK in the amount of P101,000.00 issued to him by a certain Willy Cheng
from Tarlac. The check was duly entered in his bank record thereby making his balance in the amount
of P297,000.00, as of October 1, 1990, from his original deposit of P196,000.00. Allegedly, upon advice
and instruction of the BANK that the P101,000.00 check was already cleared and backed up by sufficient
funds, TAN, on the same date, withdrew the sum of P240,000.00, leaving a balance of P57,793.45. A day
after, TAN deposited the amount of P50,000.00 making his existing balance in the amount
of P107,793.45, because he has issued several checks to his business partners, to wit:
CHECK NUMBERS DATE AMOUNT
a. 138814 Sept. 29, 1990 P9,000.00
b. 138804 Oct. 8, 1990 9,350.00
c. 138787 Sept. 30, 1990 6,360.00
d. 138847 Sept. 29, 1990 21,850.00
e. 167054 Sept. 29, 1990 4,093.40
f. 138792 ` Sept. 29, 1990 3,546.00
g. 138774 Oct. 2, 1990 6,600.00
h. 167072 Oct. 10, 1990 9,908.00
i. 168802 Oct. 10, 1990 3,650.00
However, his suppliers and business partners went back to him alleging that the checks he issued
bounced for insufficiency of funds.Thereafter, TAN, thru his lawyer, informed the BANK to take positive
steps regarding the matter for he has adequate and sufficient funds to pay the amount of the subject
checks. Nonetheless, the BANK did not bother nor offer any apology regarding the
incident.Consequently, TAN, as plaintiff, filed a Complaint for Damages on December 19, 1990, with the
Regional Trial Court of Cabanatuan City, Third Judicial Region, docketed as Civil Case No. 892-AF, against
the BANK, as defendant.
In his [C]omplaint, [respondent] maintained that he ha[d] sufficient funds to pay the subject checks and
alleged that his suppliers decreased in number for lack of trust. As he has been in the business
community for quite a time and has established a good record of reputation and probity, plaintiff
claimed that he suffered embarrassment, humiliation, besmirched reputation, mental anxieties and
sleepless nights because of the said unfortunate incident. [Respondent] further averred that he
continuously lost profits in the amount of P250,000.00. [Respondent] therefore prayed for exemplary
damages and that [petitioner] be ordered to pay him the sum of P1,000,000.00 by way of moral
damages, P250,000.00 as lost profits, P50,000.00 as attorneys fees plus 25% of the amount claimed
including P1,000.00 per court appearance.
Meanwhile, [petitioner] filed a Motion to Dismiss on February 7, 1991, but the same was denied for lack
of merit in an Order dated March 7, 1991. Thereafter, [petitioner] BANK on March 20, 1991 filed its
Answer denying, among others, the allegations of [respondent] and alleged that no banking institution
would give an assurance to any of its client/depositor that the check deposited by him had already been
cleared and backed up by sufficient funds but it could only presume that the same has been honored by
the drawee bank in view of the lapse of time that ordinarily takes for a check to be cleared. For its part,
[petitioner] alleged that on October 2, 1990, it gave notice to the [respondent] as to the return of his
UCPB check deposit in the amount of P101,000.00, hence, on even date, [respondent] deposited the
amount of P50,000.00 to cover the returned check.
By way of affirmative defense, [petitioner] averred that [respondent] had no cause of action against it
and argued that it has all the right to debit the account of the [respondent] by reason of the dishonor of
the check deposited by the [respondent] which was withdrawn by him prior to its clearing. [Petitioner]
further averred that it has no liability with respect to the clearing of deposited checks as the clearing is
being undertaken by the Central Bank and in accepting [the] check deposit, it merely obligates itself as
depositors collecting agent subject to actual payment by the drawee bank. [Petitioner] therefore prayed
that [respondent] be ordered to pay it the amount of P1,000,000.00 by way of loss of
goodwill, P7,000.00 as acceptance fee plus P500.00 per appearance and by way of attorneys fees.
Considering that Westmont Bank has taken over the management of the affairs/properties of the BANK,
[respondent] on October 10, 1996, filed an Amended Complaint reiterating substantially his allegations in
the original complaint, except that the name of the previous defendant ASSOCIATED BANK is now
WESTMONT BANK.
Trial ensured and thereafter, the court rendered its Decision dated December 3, 1996 in favor of the
[respondent] and against the [petitioner], ordering the latter to pay the [respondent] the sum
of P100,000.00 by way of moral damages, P75,000.00 as exemplary damages, P25,000.00 as attorneys
fees, plus the costs of this suit. In making said ruling, it was shown that [respondent] was not officially
informed about the debiting of the P101,000.00 [from] his existing balance and that the BANK merely
allowed the [respondent] to use the fund prior to clearing merely for accommodation because the BANK
considered him as one of its valued clients. The trial court ruled that the bank manager was negligent in
handling the particular checking account of the [respondent] stating that such lapses caused all the
inconveniences to the [respondent]. The trial court also took into consideration that [respondents]
mother was originally maintaining with the x x x BANK [a] current account as well as [a] time deposit, but
[o]n one occasion, although his mother made a deposit, the same was not credited in her favor but in the
name of another.[4]
Petitioner appealed to the CA on the issues of whether it was within its rights, as collecting bank,
to debit the account of its client for a dishonored check; and whether it had informed respondent about
the dishonor prior to debiting his account.
Ruling of the Court of Appeals
Affirming the trial court, the CA ruled that the bank should not have authorized the withdrawal of
the value of the deposited check prior to its clearing. Having done so, contrary to its obligation to treat
respondents account with meticulous care, the bank violated its own policy. It thereby took upon itself
the obligation to officially inform respondent of the status of his account before unilaterally debiting the
amount of P101,000. Without such notice, it is estopped from blaming him for failing to fund his account.
The CA opined that, had the P101,000 not been debited, respondent would have had sufficient
funds for the postdated checks he had issued. Thus, the supposed accommodation accorded by
petitioner to him is the proximate cause of his business woes and shame, for which it is liable for
damages.
Because of the banks negligence, the CA awarded respondent moral damages of P100,000. It also
granted him exemplary damages of P75,000 and attorneys fees of P25,000.
Hence this Petition.[5]
Issue
In its Memorandum, petitioner raises the sole issue of whether or not the petitioner, which is
acting as a collecting bank, has the right to debit the account of its client for a check deposit which was
dishonored by the drawee bank.[6]
The Courts Ruling
The Petition has no merit.
Sole Issue:
Debit of Depositors Account 
Petitioner-bank contends that its rights and obligations under the present set of facts were
misappreciated by the CA. It insists that its right to debit the amount of the dishonored check from the
8
account of respondent is clear and unmistakable.Even assuming that it did not give him notice that the
check had been dishonored, such right remains immediately enforceable.
In particular, petitioner argues that the check deposit slip accomplished by respondent
on September 17, 1990, expressly stipulated that the bank was obligating itself merely as the depositors
collecting agent and -- until such time as actual payment would be made to it -- it was reserving the right
to charge against the depositors account any amount previously credited. Respondent was allowed to
withdraw the amount of the check prior to clearing, merely as an act of accommodation, it added.
At the outset, we stress that the trial courts factual findings that were affirmed by the CA are not
subject to review by this Court.[7] As petitioner itself takes no issue with those findings, we need only to
determine the legal consequence, based on the established facts.
Right of Setoff
A bank generally has a right of setoff over the deposits therein for the payment of any withdrawals
on the part of a depositor.[8] The right of a collecting bank to debit a clients account for the value of a
dishonored check that has previously been credited has fairly been established by jurisprudence. To
begin with, Article 1980 of the Civil Code provides that [f]ixed, savings, and current deposits of money in
banks and similar institutions shall be governed by the provisions concerning simple loan.
Hence, the relationship between banks and depositors has been held to be that of creditor and
debtor.[9] Thus, legal compensation under Article 1278 [10] of the Civil Code may take place when all the
requisites mentioned in Article 1279 are present,[11] as follows:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be
of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.[12]
Nonetheless, the real issue here is not so much the right of petitioner to debit respondents
account but, rather, the manner in which it exercised such right. The Court has held that even while the
right of setoff is conceded, separate is the question of whether that remedy has properly been exercised.
[13]
The liability of petitioner in this case ultimately revolves around the issue of whether it properly
exercised its right of setoff. The determination thereof hinges, in turn, on the banks role and
obligations, first, as respondents depositary bank; and second, as collecting agent for the check in
question.
Obligation as
Depositary Bank
In BPI v. Casa Montessori,[14] the Court has emphasized that the banking business is impressed
with public interest.Consequently, the highest degree of diligence is expected, and high standards of
integrity and performance are even required of it. By the nature of its functions, a bank is under
obligation to treat the accounts of its depositors with meticulous care.[15]
Also affirming this long standing doctrine, Philippine Bank of Commerce v. Court of Appeals [16] has
held that the degree of diligence required of banks is more than that of a good father of a family where
the fiduciary nature of their relationship with their depositors is concerned. [17] Indeed, the banking
business is vested with the trust and confidence of the public; hence the appropriate standard of
diligence must be very high, if not the highest, degree of diligence.[18] The standard applies, regardless of
whether the account consists of only a few hundred pesos or of millions.[19]
The fiduciary nature of banking, previously imposed by case law,[20] is now enshrined in Republic
Act No. 8791 or the General Banking Law of 2000. Section 2 of the law specifically says that the State
recognizes the fiduciary nature of banking that requires high standards of integrity and performance.
Did petitioner treat respondents account with the highest degree of care? From all indications, it
did not.
It is undisputed -- nay, even admitted -- that purportedly as an act of accommodation to a valued
client, petitioner allowed the withdrawal of the face value of the deposited check prior to its
clearing. That act certainly disregarded the clearance requirement of the banking system. Such a practice
is unusual, because a check is not legal tender or money;[21]and its value can properly be transferred to a
depositors account only after the check has been cleared by the drawee bank.[22]
Under ordinary banking practice, after receiving a check deposit, a bank either immediately credit
the amount to a depositors account; or infuse value to that account only after the drawee bank shall
have paid such amount.[23] Before the check shall have been cleared for deposit, the collecting bank can
only assume at its own risk -- as herein petitioner did -- that the check would be cleared and paid out.
Reasonable business practice and prudence, moreover, dictated that petitioner should not have
authorized the withdrawal by respondent of P240,000 on October 1, 1990, as this amount was over and
above his outstanding cleared balance of P196,793.45.[24] Hence, the lower courts correctly appreciated
the evidence in his favor.
Obligation as
Collecting Agent
Indeed, the bank deposit slip expressed this reservation:
In receiving items on deposit, this Bank obligates itself only as the Depositors Collecting agent, assuming
no responsibility beyond carefulness in selecting correspondents, and until such time as actual payments
shall have come to its possession, this Bank reserves the right to charge back to the Depositors account
any amounts previously credited whether or not the deposited item is returned. x x x."[25]
However, this reservation is not enough to insulate the bank from any liability. In the past, we
have expressed doubt about the binding force of such conditions unilaterally imposed by a bank without
the consent of the depositor.[26] It is indeed arguable that in signing the deposit slip, the depositor does
so only to identify himself and not to agree to the conditions set forth at the back of the deposit slip.[27]
Further, by the express terms of the stipulation, petitioner took upon itself certain obligations as
respondents agent, consonant with the well-settled rule that the relationship between the payee or
holder of a commercial paper and the collecting bank is that of principal and agent. [28] Under Article
1909[29] of the Civil Code, such bank could be held liable not only for fraud, but also for negligence.
As a general rule, a bank is liable for the wrongful or tortuous acts and declarations of its officers
or agents within the course and scope of their employment. [30] Due to the very nature of their business,
banks are expected to exercise the highest degree of diligence in the selection and supervision of their
employees.[31] Jurisprudence has established that the lack of diligence of a servant is imputed to the
negligence of the employer, when the negligent or wrongful act of the former proximately results in an
injury to a third person;[32] in this case, the depositor.
The manager of the banks Cabanatuan branch, Consorcia Santiago, categorically admitted that she
and the employees under her control had breached bank policies. They admittedly breached those
policies when, without clearance from the drawee bank in Baguio, they allowed respondent to withdraw
on October 1, 1990, the amount of the check deposited.Santiago testified that respondent was not
officially informed about the debiting of the P101,000 from his existing balance of P170,000 on October
2, 1990 x x x.[33]
Being the branch manager, Santiago clearly acted within the scope of her authority in authorizing
the withdrawal and the subsequent debiting without notice. Accordingly, what remains to be determined
is whether her actions proximately caused respondents injury. Proximate cause is that which -- in a
natural and continuous sequence, unbroken by any efficient intervening cause --produces the injury, and
without which the result would not have occurred.[34]
Let us go back to the facts as they unfolded. It is undeniable that the banks premature
authorization of the withdrawal by respondent on October 1, 1990, triggered -- in rapid succession and in
a natural sequence -- the debiting of his account, the fall of his account balance to insufficient levels, and
the subsequent dishonor of his own checks for lack of funds. The CA correctly noted thus:
x x x [T]he depositor x x x withdrew his money upon the advice by [petitioner] that his money was
already cleared. Without such advice, [respondent] would not have withdrawn the sum
of P240,000.00. Therefore, it cannot be denied that it was [petitioners] fault which allowed [respondent]
to withdraw a huge sum which he believed was already his.
To emphasize, it is beyond cavil that [respondent] had sufficient funds for the check. Had
the P101,000.00 not [been] debited, the subject checks would not have been dishonored. Hence, we can
say that [respondents] injury arose from the dishonor of his well-funded checks.x x x.[35]
Aggravating matters, petitioner failed to show that it had immediately and duly informed
respondent of the debiting of his account. Nonetheless, it argues that the giving of notice was discernible
9
from his act of depositing P50,000 on October 2, 1990, to augment his account and allow the
debiting. This argument deserves short shrift.
First, notice was proper and ought to be expected. By the bank managers account, respondent
was considered a valued client whose checks had always been sufficiently funded from 1987 to 1990,
[36]
 until the October imbroglio. Thus, he deserved nothing less than an official notice of the precarious
condition of his account.
Second, under the provisions of the Negotiable Instruments Law regarding the liability of a general
indorser[37] and the procedure for a notice of dishonor, [38] it was incumbent on the bank to give proper
notice to respondent. In Gullas v. National Bank,[39] the Court emphasized:
x x x [A] general indorser of a negotiable instrument engages that if the instrument the check in this case
is dishonored and the necessary proceedings for its dishonor are duly taken, he will pay the amount
thereof to the holder (Sec. 66) It has been held by a long line of authorities that notice of dishonor is
necessary to charge an indorser and that the right of action against him does not accrue until the notice
is given.
x x x. The fact we believe is undeniable that prior to the mailing of notice of dishonor, and without
waiting for any action by Gullas, the bank made use of the money standing in his account to make good
for the treasury warrant. At this point recall that Gullas was merely an indorser and had issued checks in
good faith. As to a depositor who has funds sufficient to meet payment of a check drawn by him in favor
of a third party, it has been held that he has a right of action against the bank for its refusal to pay such a
check in the absence of notice to him that the bank has applied the funds so deposited in extinguishment
of past due claims held against him. (Callahan vs. Bank of Anderson [1904], 2 Ann. Cas., 203.) However
this may be, as to an indorser the situation is different, and notice should actually have been given him in
order that he might protect his interests.[40]
Third, regarding the deposit of P50,000 made by respondent on October 2, 1990, we fully
subscribe to the CAs observations that it was not unusual for a well-reputed businessman like him, who
ordinarily takes note of the amount of money he takes and releases, to immediately deposit money in his
current account to answer for the postdated checks he had issued.[41]
Damages
Inasmuch as petitioner does not contest the basis for the award of damages and attorneys fees,
we will no longer address these matters.
 
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
SO ORDERED.

10
EQUITABLE PCI BANK,* G.R. No. 171545 G)    Directing plaintiff Ng Sheung Ngor and Ken Marketing to pay [Equitable]
AIMEE YU and BEJAN interest as follows:  
LIONEL APAS,  1)      12% per annum for the peso loans;  
Petitioners, Present: 2)      8% per annum for the dollar loans. The basis for the payment of
PUNO, C.J., Chairperson, - v e r s u s - SANDOVAL-GUTIERREZ, CORONA,AZCUNA nd LEONARDO-DE the dollar obligation is the conversion rate of P26.50 per dollar
CASTRO, JJ. availed of at the time of incurring of the obligation in accordance
NG SHEUNG NGOR** doing with Article 1250 of the Civil Code of the Philippines; 
business under the name H)    Dismissing [Equitable's] counterclaim except the payment of the
and style KEN MARKETING, Promulgated:  aforestated unpaid principal loan obligations and interest. 
KEN APPLIANCE DIVISION,   SO ORDERED.[19] 
INC. and BENJAMIN E. GO,  Equitable and respondents filed their respective notices of appeal.[20]
Respondents. December 19, 2007  In the March 1, 2004 order of the RTC, both notices were denied due course because Equitable and
 x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - x respondents failed to submit proof that they paid their respective appeal fees.[21] 
 D E C I S I O N WHEREFORE, premises considered, the appeal interposed by
 CORONA, J.:  defendants from the Decision in the above-entitled case is DENIED due course. As
This petition for review on certiorari[1] seeks to set aside the decision[2] of the Court of Appeals (CA) in CA- of February 27, 2004, the Decision dated February 5, 2004, is considered final and
G.R. SP No. 83112 and its resolution[3] denying reconsideration. executory in so far as [Equitable, Aimee Yu and Bejan Lionel Apas] are
On October 7, 2001, respondents Ng Sheung Ngor,[4] Ken Appliance Division, Inc. and concerned.[22] (emphasis supplied)  
Benjamin E. Go filed an action for annulment and/or reformation of documents and contracts [5] against  Equitable moved for the reconsideration of the March 1, 2004 order of the RTC [23] on the ground that it
petitioner Equitable PCI Bank (Equitable) and its employees, Aimee Yu and Bejan Lionel Apas, in the did in fact pay the appeal fees. Respondents, on the other hand, prayed for the issuance of a writ of
Regional Trial Court (RTC), Branch 16 of Cebu City.[6] They claimed that Equitable induced them to avail of execution.[24]
its peso and dollar credit facilities by offering low interest rates [7] so they accepted Equitable's proposal  
and signed the bank's pre-printed promissory notes on various dates beginning 1996. They, however, On March 24, 2004, the RTC issued an omnibus order denying Equitable's motion for reconsideration for
were unaware that the documents contained identical escalation clauses granting Equitable authority to lack of merit[25] and ordered the issuance of a writ of execution in favor of respondents. [26] According to
increase interest rates without their consent.[8] the RTC, because respondents did not move for the reconsideration of the previous order (denying due
 Equitable, in its answer, asserted that respondents knowingly accepted all the terms and conditions course to the parties notices of appeal), [27] the February 5, 2004 decision became final and executory as
contained in the promissory notes.[9] In fact, they continuously availed of and benefited from Equitable's to both parties and a writ of execution against Equitable was in order.[28]
credit facilities for five years.[10]  
 After trial, the RTC upheld the validity of the promissory notes. It found that, in 2001 alone, Equitable A writ of execution was thereafter issued[29] and three real properties of Equitable were levied upon.[30]
restructured respondents' loans amounting to US$228,200 and P1,000,000.[11] The trial court, however,  
invalidated the escalation clause contained therein because it violated the principle of mutuality of On March 26, 2004, Equitable filed a petition for relief in the RTC from the March 1, 2004 order. [31] It,
contracts.[12] Nevertheless, it took judicial notice of the steep depreciation of the peso during the however, withdrew that petition on March 30, 2004[32] and instead filed a petition for certiorari with an
intervening period[13] and declared the existence of extraordinary deflation. [14] Consequently, the RTC application for an injunction in the CA to enjoin the implementation and execution of the March 24, 2004
ordered the use of the 1996 dollar exchange rate in computing respondents' dollar-denominated loans. omnibus order.[33]
[15]
 Lastly, because the business reputation of respondents was (allegedly) severely damaged when  
Equitable froze their accounts,[16] the trial court awarded moral and exemplary damages to them.[17] On June 16, 2004, the CA granted Equitable's application for injunction. A writ of preliminary injunction
 The dispositive portion of the February 5, 2004 RTC decision[18] provided:  was correspondingly issued.[34]
WHEREFORE, premises considered, judgment is hereby rendered:   
  Notwithstanding the writ of injunction, the properties of Equitable previously levied upon were sold in a
A)    Ordering [Equitable] to reinstate and return the amount of public auction on July 1, 2004. Respondents were the highest bidders and certificates of sale were issued
[respondents'] deposit placed on hold status;  to them.[35]
B)     Ordering [Equitable] to pay [respondents] the sum of P12 [m]illion  
[p]esos as moral damages;   On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale and to cite the sheriffs who
C)    Ordering [Equitable] to pay [respondents] the sum of P10 [m]illion conducted the sale in contempt for proceeding with the auction despite the injunction order of the CA.[36]
[p]esos as exemplary damages;   
D)    Ordering defendants Aimee Yu and Bejan [Lionel] Apas to pay On October 28, 2005, the CA dismissed the petition for certiorari.[37] It found Equitable guilty of forum
[respondents], jointly and severally, the sum of [t]wo [m]illion [p]esos shopping because the bank filed its petition for certiorari in the CA several hours before withdrawing its
as moral and exemplary damages;  petition for relief in the RTC.[38] Moreover, Equitable failed to disclose, both in the statement of material
E)     Ordering [Equitable, Aimee Yu and Bejan Lionel Apas], jointly and dates and certificate of non-forum shopping (attached to its petition for certiorari in the CA), that it had a
severally, to pay [respondents'] attorney's fees in the sum of P300,000; pending petition for relief in the RTC.[39]
litigation expenses in the sum of P50,000 and the cost of suit;  Equitable moved for reconsideration[40] but it was denied.[41] Thus, this petition. 
F)     Directing plaintiffs Ng Sheung Ngor and Ken Marketing to pay [Equitable]  
the unpaid principal obligation for the peso loan as well as the unpaid Equitable asserts that it was not guilty of forum shopping because the petition for relief was withdrawn
obligation for the dollar denominated loan; on the same day the petition for certiorari was filed.[42] It likewise avers that its petition for certiorari was
meritorious because the RTC committed grave abuse of discretion in issuing the March 24, 2004 omnibus

11
order which was based on an erroneous assumption. The March 1, 2004 order denying its notice of
appeal for non payment of appeal fees was erroneous because it had in fact paid the required fees.
[43]
 Thus, the RTC, by issuing its March 24, 2004 omnibus order, effectively prevented Equitable from
appealing the patently wrong February 5, 2004 decision.[44]
 
This petition is meritorious. 
EQUITABLE WAS NOT GUILTY OF FORUM SHOPPING   the public respondent patently and grossly abused his discretion and that abuse amounted to an evasion
 
Forum shopping exists when two or more actions involving the same transactions, essential facts and
circumstances are filed and those actions raise identical issues, subject matter and causes of action.
[45]
 The test is whether, in two or more pending cases, there is identity of parties, rights or causes of
actions and reliefs.[46]
 
Equitable's petition for relief in the RTC and its petition for certiorari in the CA did not have identical
causes of action. The petition for relief from the denial of its notice of appeal was based on the RTCs
judgment or final order preventing it from taking an appeal by fraud, accident, mistake or excusable
negligence.[47] On the other hand, its petition for certiorari in the CA, a special civil action, sought to
correct the grave abuse of discretion amounting to lack of jurisdiction committed by the RTC.[48]
 
In a petition for relief, the judgment or final order is rendered by a court with competent
jurisdiction. In a petition for certiorari, the order is rendered by a court without or in excess of its
jurisdiction.
 
Moreover, Equitable substantially complied with the rule on non-forum shopping when it moved to
withdraw its petition for relief in the RTC on the same day (in fact just four hours and forty minutes after)
it filed the petition for certiorari in the CA. Even if Equitable failed to disclose that it had a pending
petition for relief in the RTC, it rectified what was doubtlessly a careless oversight by withdrawing the
petition for relief just a few hours after it filed its petition for certiorari in the CA ― a clear indication that
it had no intention of maintaining the two actions at the same time.
THE TRIAL COURT COMMITTED GRAVE ABUSE OF DISCRETION IN ISSUING ITS MARCH 1, 2004 &
MARCH 24, 2004 ORDERS
Section 1, Rule 65 of the Rules of Court provides:  EQUITABLE RAISED PURE QUESTIONS OF LAW IN ITS PETITION FOR REVIEW
Section 1. Petition for Certiorari. When any tribunal, board or officer exercising
judicial or quasi-judicial function has acted without or in excess of its or his
jurisdiction, or with grave abuse of discretion amounting to lack or excess of
jurisdiction, and there is no appeal, nor any plain, speedy or adequate remedy in
the ordinary course of law, a person aggrieved thereby may file a verified petition
in the proper court, alleging the facts with certainty and praying that judgment be
rendered annulling or modifying the proceedings of such tribunal, board or officer,
and granting such incidental reliefs as law and justice may require.  erroneous, specially the exor1bitant award of damages, as it was inconsistent with existing law and
 
The petition shall be accompanied by a certified true copy of the judgment, order
or resolution subject thereof, copies of all pleadings and documents relevant and
pertinent thereto, and a sworn certificate of non-forum shopping as provided in
the third paragraph of Section 3, Rule 46.
 
There are two substantial requirements in a petition for certiorari. These are: 
 
1.      that the tribunal, board or officer exercising judicial or quasi-judicial
functions acted without or in excess of his or its jurisdiction or with
grave abuse of discretion amounting to lack or excess of jurisdiction;
and
 
2.      that there is no appeal or any plain, speedy and adequate remedy in
the ordinary course of law.
 
For a petition for certiorari premised on grave abuse of discretion to prosper, petitioner must show that
of positive duty or a virtual refusal to perform a duty enjoined by law or to act at all in contemplation of
law, as where the power was exercised in an arbitrary and despotic manner by reason of passion or
hostility.[49]
 
The March 1, 2004 order denied due course to the notices of appeal of both Equitable and respondents.
However, it declared that the February 5, 2004 decision was final and executory only with respect to
Equitable.[50] As expected, the March 24, 2004 omnibus order denied Equitable's motion for
reconsideration and granted respondents' motion for the issuance of a writ of execution.[51]
 
The March 1, 2004 and March 24, 2004 orders of the RTC were obviously intended to prevent
Equitable, et al. from appealing the February 5, 2004 decision. Not only that. The execution of the
decision was undertaken with indecent haste, effectively obviating or defeating Equitable's right to avail
of possible legal remedies. No matter how we look at it, the RTC committed grave abuse of discretion in
rendering those orders. 
 
With regard to whether Equitable had a plain, speedy and adequate remedy in the ordinary course of
law, we hold that there was none. The RTC denied due course to its notice of appeal in the March 1,
2004 order. It affirmed that denial in the March 24, 2004 omnibus order. Hence, there was no way
Equitable could have possibly appealed the February 5, 2004 decision.[52]
Although Equitable filed a petition for relief from the March 24, 2004 order, that petition was not a plain,
speedy and adequate remedy in the ordinary course of law.[53] A petition for relief under Rule 38 is an
equitable remedy allowed only in exceptional circumstances or where there is no other available or
adequate remedy.[54]
 
Thus, we grant Equitable's petition for certiorari and consequently give due course to its appeal. 
The jurisdiction of this Court in Rule 45 petitions is limited to questions of law. [55] There is a question of
law when the doubt or controversy concerns the correct application of law or jurisprudence to a certain
set of facts; or when the issue does not call for the probative value of the evidence presented, the truth
or falsehood of facts being admitted.[56]
 
Equitable does not assail the factual findings of the trial court. Its arguments essentially focus on the
nullity of the RTCs February 5, 2004 decision. Equitable points out that that decision was patently
jurisprudence.[57]
THE PROMISSORY NOTES WERE VALID
 
The RTC upheld the validity of the promissory notes despite respondents assertion that those
documents were contracts of adhesion.
 
A contract of adhesion is a contract whereby almost all of its provisions are drafted by one party. [58] The
participation of the other party is limited to affixing his signature or his adhesion to the contract.[59] For
this reason, contracts of adhesion are strictly construed against the party who drafted it.[60]
12
It is erroneous, however, to conclude that contracts of adhesion are invalid per se. They are, on the
contrary, as binding as ordinary contracts. A party is in reality free to accept or reject it. A contract of
adhesion becomes void only when the dominant party takes advantage of the weakness of the other
party, completely depriving the latter of the opportunity to bargain on equal footing.[61]
 
That was not the case here. As the trial court noted, if the terms and conditions offered by Equitable had
been truly prejudicial to respondents, they would have walked out and negotiated with another bank at
the first available instance. But they did not. Instead, they continuously availed of Equitable's credit
facilities for five long years.  establishment of the obligation shall be the basis of payment, unless there is an
 
While the RTC categorically found that respondents had outstanding dollar- and peso-denominated loans
with Equitable, it, however, failed to ascertain the total amount due (principal, interest and penalties, if
any) as of July 9, 2001. The trial court did not explain how it arrived at the amounts of US$228,200
and P1,000,000.[62] In Metro Manila Transit Corporation v. D.M. Consunji, [63] we reiterated that this Court
is not a trier of facts and it shall pass upon them only for compelling reasons which unfortunately are not
present in this case.[64] Hence, we ordered the partial remand of the case for the sole purpose of
determining the amount of actual damages.[65]
ESCALATION CLAUSE VIOLATED THE PRINCIPLE OF MUTUALITY OF CONTRACTS
  
Escalation clauses are not void per se. However, one which grants the creditor an unbridled right to
adjust the interest independently and upwardly, completely depriving the debtor of the right to assent to
an important modification in the agreement is void. Clauses of that nature violate the principle of
mutuality of contracts.[66]Article 1308[67] of the Civil Code holds that a contract must bind both contracting
parties; its validity or compliance cannot be left to the will of one of them.[68]
For this reason, we have consistently held that a valid escalation clause provides:
1.                  that the rate of interest will only be increased if the applicable
maximum rate of interest is increased by law or by the Monetary
Board; and   prove:
2.                  that the stipulated rate of interest will be reduced if the applicable
maximum rate of interest is reduced by law or by the Monetary Board
(de-escalation clause).[69]
  
The RTC found that Equitable's promissory notes uniformly stated:
 
If subject promissory note is extended, the interest for subsequent extensions shall
be at such rate as shall be determined by the bank.[70]
Equitable dictated the interest rates if the term (or period for repayment) of the loan was
extended. Respondents had no choice but to accept them. This was a violation of Article 1308 of the Civil
Code. Furthermore, the assailed escalation clause did not contain the necessary provisions for validity,
that is, it neither provided that the rate of interest would be increased only if allowed by law or the
Monetary Board, nor allowed de-escalation. For these reasons, the escalation clause was void.  month thereafter prior to the maturity of the loan) [85] or the amount due (principal plus interest) due on
 
With regard to the proper rate of interest, in New Sampaguita Builders v. Philippine National Bank [71] we
held that, because the escalation clause was annulled, the principal amount of the loan was subject to
the original or stipulated rate of interest. Upon maturity, the amount due was subject to legal interest at
the rate of 12% per annum.[72]
Consequently, respondents should pay Equitable the interest rates of 12.66% p.a. for their dollar-
denominated loans and 20% p.a. for their peso-denominated loans from January 10, 2001 to July 9,
2001. Thereafter, Equitable was entitled to legal interest of 12% p.a. on all amounts due.
THERE WAS NO EXTRAORDINARY DEFLATION
Extraordinary inflation exists when there is an unusual decrease in the purchasing power of currency
(that is, beyond the common fluctuation in the value of currency) and such decrease could not be
reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the
obligation. Extraordinary deflation, on the other hand, involves an inverse situation.[73]
Article 1250 of the Civil Code provides: 
  
Article 1250. In case an extraordinary inflation or deflation of the currency
stipulated should intervene, the value of the currency at the time of the
agreement to the contrary. 
  
For extraordinary inflation (or deflation) to affect an obligation, the following requisites must
be proven: 
1.      that there was an official declaration of extraordinary inflation or
deflation from the Bangko Sentral ng Pilipinas (BSP);[74] 
2.      that the obligation was contractual in nature;[75] and  
3.      that the parties expressly agreed to consider the effects of the
extraordinary inflation or deflation.[76]
  
Despite the devaluation of the peso, the BSP never declared a situation of extraordinary
inflation. Moreover, although the obligation in this instance arose out of a contract, the parties did not
agree to recognize the effects of extraordinary inflation (or deflation). [77] The RTC never mentioned that
there was a such stipulation either in the promissory note or loan agreement. Therefore, respondents
should pay their dollar-denominated loans at the exchange rate fixed by the BSP on the date of maturity.
[78]
THE AWARD OF MORAL & EXEMPLARY DAMAGES LACKED BASIS
Moral damages are in the category of an award designed to compensate the claimant for actual injury
suffered, not to impose a penalty to the wrongdoer.[79] To be entitled to moral damages, a claimant must
  
 
1.      That he or she suffered besmirched reputation, or physical, mental or
psychological suffering sustained by the claimant; 
2.      That the defendant committed a wrongful act or omission; 
3.      That the wrongful act or omission was the proximate cause of the
damages the claimant sustained; 
4.      The case is predicated on any of the instances expressed or envisioned
by Article 2219[80] and 2220[81]. [82] 
In culpa contractual or breach of contract, moral damages are recoverable only if the
defendant acted fraudulently or in bad faith or in wanton disregard of his contractual obligations. [83] The
breach must be wanton, reckless, malicious or in bad faith, and oppressive or abusive.[84]
The RTC found that respondents did not pay Equitable the interest due on February 9, 2001 (or any
July 9, 2001.[86]Consequently, Equitable applied respondents' deposits to their loans upon maturity. 
 
The relationship between a bank and its depositor is that of creditor and debtor.[87] For this reason, a
bank has the right to set-off the deposits in its hands for the payment of a depositor's indebtedness.[88]
 
Respondents indeed defaulted on their obligation. For this reason, Equitable had the option to exercise
its legal right to set-off or compensation. However, the RTC mistakenly (or, as it now appears,
deliberately) concluded that Equitable acted fraudulently or in bad faith or in wanton disregard of its
contractual obligations despite the absence of proof. The undeniable fact was that, whatever damage
13
respondents sustained was purely the consequence of their failure to pay their loans. There was
therefore absolutely no basis for the award of moral damages to them.
 
Neither was there reason to award exemplary damages. Since respondents were not entitled to moral
damages, neither should they be awarded exemplary damages.[89] And if respondents were not entitled
to moral and exemplary damages, neither could they be awarded attorney's fees and litigation expenses.
[90]

 
ACCORDINGLY, the petition is hereby GRANTED. 
 
The October 28, 2005 decision and February 3, 2006 resolution of the Court of Appeals in CA-G.R. SP No.
83112 are hereby REVERSED and SET ASIDE.
 
The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16, Cebu City in Civil Case No.
CEB-26983 is hereby ANNULLED for being rendered with grave abuse of discretion amounting to lack or
excess of jurisdiction. All proceedings undertaken pursuant thereto are likewise declared null and void. 
 
The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City in Civil Case No. CEB-26983 is
hereby SET ASIDE. The appeal of petitioners Equitable PCI Bank, Aimee Yu and Bejan Lionel Apas is
therefore given due course. 
 
The February 5, 2004 decision of the Regional Trial Court, Branch 16 of Cebu City in Civil Case No. CEB-
26983 is accordingly SET ASIDE. New judgment is hereby entered:
 
1.                 ordering respondents Ng Sheung Ngor, doing business under the name and style
of Ken Marketing, Ken Appliance Division, Inc. and Benjamin E. Go to pay
petitioner Equitable PCI Bank the principal amount of their dollar- and peso-
denominated loans;
2.                 ordering respondents Ng Sheung Ngor, doing business under the name and style
of Ken Marketing, Ken Appliance Division, Inc. and Benjamin E. Go to pay
petitioner Equitable PCI Bank interest at: 
a)                 12.66% p.a. with respect to their dollar-denominated loans from
January 10, 2001 to July 9, 2001;
b)                20% p.a. with respect to their peso-denominated loans from January
10, 2001 to July 9, 2001;[91]
c)                 pursuant to our ruling in Eastern Shipping Lines v. Court of Appeals,
[92]
 the total amount due on July 9, 2001 shall earn legal interest at
12% p.a. from the time petitioner Equitable PCI Bank demanded
payment, whether judicially or extra-judicially; and 
d)                after this Decision becomes final and executory, the applicable rate
shall be 12% p.a. until full satisfaction; 
3.                 all other claims and counterclaims are dismissed. 
As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall compute the exact amounts due
on the respective dollar-denominated and peso-denominated loans, as of July 9, 2001, of respondents
Ng Sheung Ngor, doing business under the name and style of Ken Marketing, Ken Appliance Division and
Benjamin E. Go. 
 
SO ORDERED.
 

14
G.R. No. 112392 February 29, 2000
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs.
COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents.
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No. 37392
affirming in toto that of the Regional Trial Court of Makati, Branch 139,2 which dismissed the complaint
filed by petitioner Bank of the Philippine Islands against private respondent Benjamin C. Napiza for sum
of money.
On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit (FCDU) Savings
Account No. 028-1873 which he maintained in petitioner bank's Buendia Avenue Extension Branch,
Continental Bank Manager's Check No. 000147574 dated August 17, 1984, payable to "cash" in the
amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly endorsed by private respondent on
its dorsal side.5 It appears that the check belonged to a certain Henry who went to the office of private
respondent and requested him to deposit the check in his dollar account by way of accommodation and
for the purpose of clearing the same. Private respondent acceded, and agreed to deliver to Chan a signed
blank withdrawal slip, with the understanding that as soon as the check is cleared, both of them would
go to the bank to withdraw the amount of the check upon private respondent's presentation to the bank
of his passbook.
Using the blank withdrawal slip given by private respondent to Chan, on October 23, 1984, one Ruben
Gayon, Jr. was able to withdraw the amount of $2,541.67 from FCDU Savings Account No. 028-187.
Notably, the withdrawal slip shows that the amount was payable to Ramon A. de Guzman and Agnes C.
de Guzman and was duly initialed by the branch assistant manager, Teresita Lindo.6
On November 20, 1984, petitioner received communication from the Wells Fargo Bank International of
New York that the said check deposited by private respondent was a counterfeit check7 because it was
"not of the type or style of checks issued by Continental Bank International."8 Consequently, Mr. Ariel
Reyes, the manager of petitioner's Buendia Avenue Extension Branch, instructed one of its employees,
Benjamin D. Napiza IV, who is private respondent's son, to inform his father that the check bounced.9
Reyes himself sent a telegram to private respondent regarding the dishonor of the check. In turn, private
respondent's son wrote to Reyes stating that the check been assigned "for encashment" to Ramon A. de
Guzman and/or Agnes C. de Guzman after it shall have been cleared upon instruction of Chan. He also
said that upon learning of the dishonor of the check, his father immediately tried to contact Chan but the
latter was out of town.10
Private respondent's son undertook to return the amount of $2,500.00 to petitioner bank. On December
18, 1984, Reyes reminded private respondent of his son's promise and warned that should he fail to
return that amount within seven (7) days, the matter would be referred to the bank's lawyers for
appropriate action to protect the bank's interest.11 This was followed by a letter of the bank's lawyer
dated April 8, 1985 demanding the return of the $2,500.00.12
In reply, private respondent wrote petitioner's counsel on April 20, 198513 stating that he deposited the
check "for clearing purposes" only to accommodate Chan. He added:
Further, please take notice that said check was deposited on September 3, 1984 and withdrawn on
October 23, 1984, or a total period of fifty (50) days had elapsed at the time of withdrawal. Also, it may
not be amiss to mention here that I merely signed an authority to withdraw said deposit subject to its
clearing, the reason why the transaction is not reflected in the passbook of the account. Besides, I did
not receive its proceeds as may be gleaned from the withdrawal slip under the captioned signature of
recipient.1âwphi1.nêt
If at all, my obligation on the transaction is moral in nature, which (sic) I have been and is (sic) still
exerting utmost and maximum efforts to collect from Mr. Henry Chan who is directly liable under the
circumstances.
xxx xxx xxx
On August 12, 1986, petitioner filed a complaint against private respondent, praying for the return of the
amount of $2,500.00 or the prevailing peso equivalent plus legal interest from date of demand to date of
full payment, a sum equivalent to 20% of the total amount due as attorney's fees, and litigation and/or
costs of suit.
Private respondent filed his answer, admitting that he indeed signed a "blank" withdrawal slip with the
understanding that the amount deposited would be withdrawn only after the check in question has been
cleared. He likewise alleged that he instructed the party to whom he issued the signed blank withdrawal
slip to return it to him after the bank draft's clearance so that he could lend that party his passbook for
the purpose of withdrawing the amount of $2,500.00. However, without his knowledge, said party was
able to withdraw the amount of $2,541.67 from his dollar savings account through collusion with one of
petitioner's employees. Private respondent added that he had "given the Plaintiff fifty one (51) days with
which to clear the bank draft in question." Petitioner should have disallowed the withdrawal because his
passbook was not presented. He claimed that petitioner had no one to blame except itself "for being
grossly negligent;" in fact, it had allegedly admitted having paid the amount in the check "by mistake" . . .
"if not altogether due to collusion and/or bad faith on the part of (its) employees." Charging petitioner
with "apparent ignorance of routine bank procedures," by way of counterclaim, private respondent
prayed for moral damages of P100,000.00, exemplary damages of P50,000.00 and attorney's fees of 30%
of whatever amount that would be awarded to him plus an honorarium of P500.00 per appearance in
court.
Private respondent also filed a motion for admission of a third party complaint against Chan. He alleged
that "thru strategem and/or manipulation," Chan was able to withdraw the amount of $2,500.00 even
without private respondent's passbook. Thus, private respondent prayed that third party defendant Chan
be made to refund to him the amount withdrawn and to pay attorney's fees of P5,000.00 plus P300.00
honorarium per appearance.
Petitioner filed a comment on the motion for leave of court to admit the third party complaint, whenever
it asserted that per paragraph 2 of the Rules and Regulations governing BPI savings accounts, private
respondent alone was liable "for the value of the credit given on account of the draft or check
deposited." It contended that private respondent was estopped from disclaiming liability because he
himself authorized the withdrawal of the amount by signing the withdrawal slip. Petitioner prayed for
the denial of the said motion so as not to unduly delay the disposition of the main case asserting that
private respondent's claim could be ventilated in another case.
Private respondent replied that for the parties to obtain complete relief and to avoid multiplicity of suits,
the motion to admit third party complaint should be granted. Meanwhile, the trial court issued orders on
August 25, 1987 and October 28, 1987 directing private respondent to actively participate in locating
Chan. After private respondent failed to comply, the trial court, on May 18, 1988, dismissed the third
party complaint without prejudice.
On November 4, 1991, a decision was rendered dismissing the complaint. The lower court held that
petitioner could not hold private respondent liable based on the check's face value alone. To so hold him
liable "would render inutile the requirement of "clearance" from the drawee bank before the value of a
particular foreign check or draft can be credited to the account of a depositor making such deposit." The
lower court further held that "it was incumbent upon the petitioner to credit the value of the check in
question to the account of the private respondent only upon receipt of the notice of final payment and
should not have authorized the withdrawal from the latter's account of the value or proceeds of the
check." Having admitted that it committed a "mistake" in not waiting for the clearance of the check
before authorizing the withdrawal of its value or proceeds, petitioner should suffer the resultant loss.
15
On appeal, the Court of Appeals affirmed the lower court's decision. The appellate court held that
petitioner committed "clears gross negligence" in allowing Ruben Gayon, Jr. to withdraw the money
without presenting private respondent's passbook and, before the check was cleared and in crediting the
amount indicated therein in private respondent's account. It stressed that the mere deposit of a check in
private respondent's account did not mean that the check was already private respondent's property.
The check still had to be cleared and its proceeds can only be withdrawn upon presentation of a
passbook in accordance with the bank's rules and regulations. Furthermore, petitioner's contention that
private respondent warranted the check's genuineness by endorsing it is untenable for it would render
useless the clearance requirement. Likewise, the requirement of presentation of a passbook to ascertain
the propriety of the accounting reflected would be a meaningless exercise. After all, these requirements
are designed to protect the bank from deception or fraud.
The Court of Appeals cited the case of Roman Catholic Bishop of Malolos, Inc. v. IAC,14 where this Court
stated that a personal check is not legal tender or money, and held that the check deposited in this case
must be cleared before its value could be properly transferred to private respondent's account.
Without filing a motion for the reconsideration of the Court of Appeals' Decision, petitioner filed this
petition for review on certiorari, raising the following issues:
1. WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS WARRANTIES AS A GENERAL INDORSER.
2. WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN RESPONDENT NAPIZA AND
RUBEN GAYON.
3. WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN ALLOWING THE WITHDRAWAL.
Petitioner claims that private respondent, having affixed his signature at the dorsal side of the check,
should be liable for the amount stated therein in accordance with the following provision of the
Negotiable Instruments Law (Act No. 2031):
Sec. 66. Liability of general indorser. — Every indorser who indorses without qualification, warrants to all
subsequent holders in due course —
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and
(b) That the instrument is at the time of his indorsement, valid and subsisting.
And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case
may be, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor
be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be
compelled to pay it.
Sec. 65, on the other hand, provides for the following warranties of a person negotiating an instrument
by delivery or by qualified indorsement: (a) that the instrument is genuine and in all respects what it
purports to be; (b) that he has a good title to it, and (c) that all prior parties had capacity to contract.15
In People v. Maniego,16 this Court described the liabilities of an indorser as follows:
Appellant's contention that as mere indorser, she may not be liable on account of the dishonor of the
checks indorsed by her, is likewise untenable. Under the law, the holder or last indorsee of a negotiable
instrument has the right "to enforce payment of the instrument for the full amount thereof against all
parties liable thereon. Among the "parties liable thereon." Is an indorser of the instrument, i.e., "a
person placing his signature upon an instrument otherwise than as a maker, drawer or acceptor * *
unless he clearly indicated by appropriate words his intention to be bound in some other capacity." Such
an indorser "who indorses without qualification," inter alia "engages that on due presentment, * * (the
instrument) shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be
dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to
the holder, or any subsequent indorser who may be compelled to pay it." Maniego may also be deemed
an "accommodation party" in the light of the facts, i.e., a person "who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value thereof, and for the purpose of lending his
name to some other person." As such, she is under the law "liable on the instrument to a holder for
value, notwithstanding such holder at the time of taking the instrument knew * * (her) to be only an
accommodation party," although she has the right, after paying the holder, to obtain reimbursement
from the party accommodated, "since the relation between them is in effect that of principal and surety,
the accommodation party being the surety.
It is thus clear that ordinarily private respondent may be held liable as an indorser of the check or even
as an accommodation party.17 However, to hold private respondent liable for the amount of the check
he deposited by the strict application of the law and without considering the attending circumstances in
the case would result in an injustice and in the erosion of the public trust in the banking system. The
interest of justice thus demands looking into the events that led to the encashment of the check.
Petitioner asserts that by signing the withdrawal slip, private respondent "presented the opportunity for
the withdrawal of the amount in question." Petitioner relied "on the genuine signature on the
withdrawal slip, the personality of private respondent's son and the lapse of more than fifty (50) days
from date of deposit of the Continental Bank draft, without the same being returned yet."18 We hold,
however, that the propriety of the withdrawal should be gauged by compliance with the rules thereon
that both petitioner bank and its depositors are duty-bound to observe.
In the passbook that petitioner issued to private respondent, the following rules on withdrawal of
deposits appear:
4. Withdrawals must be made by the depositor personally but in some exceptional circumstances, the
Bank may allow withdrawal by another upon the depositor's written authority duly authenticated; and
neither a deposit nor a withdrawal will be permitted except upon the presentation of the depositor's
savings passbook, in which the amount deposited withdrawn shall be entered only by the Bank.
5. Withdrawals may be made by draft, mail or telegraphic transfer in currency of the account at the
request of the depositor in writing on the withdrawal slip or by authenticated cable. Such request must
indicate the name of the payee/s, amount and the place where the funds are to be paid. Any stamp,
transmission and other charges related to such withdrawals shall be for the account of the depositor and
shall be paid by him/her upon demand. Withdrawals may also be made in the form of travellers checks
and in pesos. Withdrawals in the form of notes/bills are allowed subject however, to their (availability).
6. Deposits shall not be subject to withdrawal by check, and may be withdrawal only in the manner
above provided, upon presentation of the depositor's savings passbook and with the withdrawal form
supplied by the Bank at the counter.19
Under these rules, to be able to withdraw from the savings account deposit under the Philippine foreign
currency deposit system, two requisites must be presented to petitioner bank by the person withdrawing
an amount: (a) a duly filled-up withdrawal slip, and (b) the depositor's passbook. Private respondent
admits he signed a blank withdrawal slip ostensibly in violation of Rule No. 6 requiring that the request
for withdrawal must name the payee, the amount to be withdrawn and the place where such withdrawal
should be made. That the withdrawal slip was in fact a blank one with only private respondent's two
signatures affixed on the proper spaces is buttressed by petitioner's allegation in the instant petition that
had private respondent indicated therein the person authorized to receive the money, then Ruben
Gayon, Jr. could not have withdrawn any amount. Petitioner contends that "(I)n failing to do so (i.e.,
naming his authorized agent), he practically authorized any possessor thereof to write any amount and
to collect the same."20
Such contention would have been valid if not for the fact that the withdrawal slip itself indicates a special
instruction that the amount is payable to "Ramon A. de Guzman &/or Agnes C. de Guzman." Such being
the case, petitioner's personnel should have been duly warned that Gayon, who was also employed in
petitioner's Buendia Ave. Extension branch,21 was not the proper payee of the proceeds of the check.
16
Otherwise, either Ramon or Agnes de Guzman should have issued another authority to Gayon for such
withdrawal. Of course, at the dorsal side of the withdrawal slip is an "authority to withdraw" naming
Gayon the person who can withdraw the amount indicated in the check. Private respondent does not
deny having signed such authority. However, considering petitioner's clear admission that the
withdrawal slip was a blank one except for private respondent's signature, the unavoidable conclusion is
that the typewritten name of "Ruben C. Gayon, Jr." was intercalated and thereafter it was signed by
Gayon or whoever was allowed by petitioner to withdraw the amount. Under these facts, there could
not have been a principal-agent relationship between private respondent and Gayon so as to render the
former liable for the amount withdrawn.
Moreover, the withdrawal slip contains a boxed warning that states: "This receipt must be signed and
presented with the corresponding foreign currency savings passbook by the depositor in person. For
withdrawals thru a representative, depositor should accomplish the authority at the back." The
requirement of presentation of the passbook when withdrawing an amount cannot be given mere lip
service even though the person making the withdrawal is authorized by the depositor to do so. This is
clear from Rule No. 6 set out by petitioner so that, for the protection of the bank's interest and as a
reminder to the depositor, the withdrawal shall be entered in the depositor's passbook. The fact that
private respondent's passbook was not presented during the withdrawal is evidenced by the entries
therein showing that the last transaction that he made with the bank was on September 3, 1984, the
date he deposited the controversial check in the amount of $2,500.00.22
In allowing the withdrawal, petitioner likewise overlooked another rule that is printed in the passbook.
Thus:
2. All deposits will be received as current funds and will be repaid in the same manner; provided,
however, that deposits of drafts, checks, money orders, etc. will be accented as subject to collection only
and credited to the account only upon receipt of the notice of final payment. Collection charges by the
Bank's foreign correspondent in effecting such collection shall be for the account of the depositor. If the
account has sufficient balance, the collection shall be debited by the Bank against the account. If, for any
reason, the proceeds of the deposited checks, drafts, money orders, etc., cannot be collected or if the
Bank is required to return such proceeds, the provisional entry therefor made by the Bank in the savings
passbook and its records shall be deemed automatically cancelled regardless of the time that has
elapsed, and whether or not the defective items can be returned to the depositor; and the Bank is
hereby authorized to execute immediately the necessary corrections, amendments or changes in its
record, as well as on the savings passbook at the first opportunity to reflect such cancellation. (Emphasis
and underlining supplied.)
As correctly held by the Court of Appeals, in depositing the check in his name, private respondent did not
become the outright owner of the amount stated therein. Under the above rule, by depositing the check
with petitioner, private respondent was, in a way, merely designating petitioner as the collecting bank.
This is in consonance with the rule that a negotiable instrument, such as a check, whether a manager's
check or ordinary check, is not legal tender.23 As such, after receiving the deposit, under its own rules,
petitioner shall credit the amount in private respondent's account or infuse value thereon only after the
drawee bank shall have paid the amount of the check or the check has been cleared for deposit. Again,
this is in accordance with ordinary banking practices and with this Court's pronouncement that "the
collecting bank or last endorser generally suffers the loss because has the duty to ascertain the
genuineness of all prior endorsements considering that the act of presenting the check for payment to
the drawee is an assertion that the party making the presentment has done its duty to ascertain the
genuineness of the endorsements."24 The rule finds more meaning in this case where the check involved
is drawn on a foreign bank and therefore collection is more difficult than when the drawee bank is a local
one even though the check in question is a manager's check.25
In Banco Atlantico v. Auditor General,26 Banco Atlantico, a commercial bank in Madrid, Spain, paid the
amounts represented in three (3) checks to Virginia Boncan, the finance officer of the Philippine Embassy
in Madrid. The bank did so without previously clearing the checks with the drawee bank, the Philippine
National Bank in New York, on account of the "special treatment" that Boncan received from the
personnel of Banco Atlantico's foreign department. The Court held that the encashment of the checks
without prior clearance is "contrary to normal or ordinary banking practice specially so where the
drawee bank is a foreign bank and the amounts involved were large." Accordingly, the Court approved
the Auditor General's denial of Banco Atlantico's claim for payment of the value of the checks that was
withdrawn by Boncan.
Said ruling brings to light the fact that the banking business is affected with public interest. By the nature
of its functions, a bank is under obligation to treat the accounts of its depositors "with meticulous care,
always having in mind the fiduciary nature of their relationship."27 As such, in dealing with its
depositors, a bank should exercise its functions not only with the diligence of a good father of a family
but it should do so with the highest degree of care.28
In the case at bar, petitioner, in allowing the withdrawal of private respondent's deposit, failed to
exercise the diligence of a good father of a family. In total disregard of its own rules, petitioner's
personnel negligently handled private respondent's account to petitioner's detriment. As this Court once
said on this matter:
Negligence is the omission to do something which a reasonable man, guided by those considerations
which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a
prudent and reasonable man would do. The seventy-eight (78)-year-old, yet still relevant, case of Picart
v. Smith, provides that test by which to determine the existence of negligence in a particular case which
may be stated as follows: Did the defendant in doing the alleged negligent act use that reasonable care
and caution which an ordinarily prudent person would have used in the same situation? If not, then he is
guilty of negligence. The law here in effect adopts the standard supposed to be supplied by the imaginary
conduct of the discreet pater-familias of the Roman law. The existence of negligence in a given case is
not determined by reference to the personal judgment of the actor in the situation before him. The law
considers what would be reckless, blameworthy, or negligent in the man of ordinary intelligence and
prudence and determines liability by that.29
Petitioner violated its own rules by allowing the withdrawal of an amount that is definitely over and
above the aggregate amount of private respondent's dollar deposits that had yet to be cleared. The
bank's ledger on private respondent's account shows that before he deposited $2,500.00, private
respondent had a balance of only $750.00.30 Upon private respondent's deposit of $2,500.00 on
September 3, 1984, that amount was credited in his ledger as a deposit resulting in the corresponding
total balance of $3,250.00.31 On September 10, 1984, the amount of $600.00 and the additional charges
of $10.00 were indicated therein as withdrawn thereby leaving a balance $2,640.00. On September 30,
1984, an interest of $11.59 was reflected in the ledger and on October 23, 1984, the amount of
$2,541.67 was entered as withdrawn with a balance of $109.92.32 On November 19, 1984 the word
"hold" was written beside the balance of $109.92.33 That must have been the time when Reyes,
petitioner's branch manager, was informed unofficially of the fact that the check deposited was a
counterfeit, but petitioner's Buendia Ave. Extension Branch received a copy of the communication
thereon from Wells Fargo Bank International in New York the following day, November 20, 1984.34
According to Reyes, Wells Fargo Bank International handled the clearing of checks drawn against U.S.
banks that were deposited with petitioner.35
From these facts on record, it is at once apparent that petitioner's personnel allowed the withdrawal of
an amount bigger than the original deposit of $750.00 and the value of the check deposited in the
amount of $2,500.00 although they had not yet received notice from the clearing bank in the United
States on whether or not the check was funded. Reyes' contention that after the lapse of the 35-day
period the amount of a deposited check could be withdrawn even in the absence of a clearance thereon,
otherwise it could take a long time before a depositor could make a withdrawal,36 is untenable. Said
practice amounts to a disregard of the clearance requirement of the banking system.
17
While it is true that private respondent's having signed a blank withdrawal slip set in motion the events
that resulted in the withdrawal and encashment of the counterfeit check, the negligence of petitioner's
personnel was the proximate cause of the loss that petitioner sustained. Proximate cause, which is
determined by a mixed consideration of logic, common sense, policy and precedent, is "that cause,
which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the
injury, and without which the result would not have occurred."37 The proximate cause of the withdrawal
and eventual loss of the amount of $2,500.00 on petitioner's part was its personnel's negligence in
allowing such withdrawal in disregard of its own rules and the clearing requirement in the banking
system. In so doing, petitioner assumed the risk of incurring a loss on account of a forged or counterfeit
foreign check and hence, it should suffer the resulting damage.1âwphi1.nêt

WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of Appeals in CA-
G.R. CV No. 37392 is AFFIRMED.

SO ORDERED.

18
PHILIPPINE SAVINGS BANK, G.R. No. 177526
Petitioner,
Present:
YNARES-SANTIAGO, J., Chairperson, - versus - AUSTRIA-MARTINEZ, CHICO-NAZARIO, NACHURA, and
REYES, JJ.
 CHOWKING FOOD Promulgated:
CORPORATION,Respondent. July 4, 2008
 x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
 D E C I S I O N
 REYES, R.T., J.:
 IT is the peculiar quality of a fool to perceive the fault of others and to forget his own. Ang isang
kakatuwang katangian ng isang hangal ay punahin ang kamalian ng iba at kalimutan naman ang sa
kanya.
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) reinstating the
Decision of the Regional Trial Court (RTC), Manila, Branch 5. The RTC ordered petitioner Philippine
Savings Bank (PSBank) and its Bustos Branch Head, Erlinda O. Santos, to reimburse respondent Chowking
Food Corporation (Chowking) the amount corresponding to five (5) illegally encashed checks.
The Facts
 Between March 15, 1989 and August 10, 1989, Joe Kuan Food Corporation issued in favor of Chowking
five (5) PSBank checks with the following numbers, dates and denominations:
Check No. Amount Date
017069 P 44,120.00 15 March 1989
053528 P135,052.87 09 May 1989
074602 P160,138.12 08 August 1989
074631 P159,634.13 08 August 1989
017096 P 60,036.74 10 August 1989[2]
 
The total amount of the subject checks reached P556,981.86.
 
On the respective due dates of each check, Chowkings acting accounting manager, Rino T. Manzano,
endorsed and encashed said checks with the Bustos branch of respondent PSBank.[3]
 
All the five checks were honored by defendant Santos, even with only the endorsement of Manzano
approving them. The signatures of the other authorized officers of respondent corporation were absent
in the five (5) checks, contrary to usual banking practice. [4] Unexpectedly, Manzano absconded with and
misappropriated the check proceeds.[5]
 
When Chowking found out Manzanos scheme, it demanded reimbursement from PSBank. [6] When
PSBank refused to pay, Chowking filed a complaint[7] for a sum of money with damages before
the RTC. Likewise impleaded were PSBanks president, Antonio S. Abacan, and Bustos branch
head, Santos.[8]
 
Both PSBank and Santos filed cross claims and third party complaints against Manzano.[9] Despite all
diligent efforts, summonses were not served upon third party defendant Manzano. Santos did not take
any further action and her third party complaint was archived.[10]
 
Meanwhile, petitioner caused the service of its summons on the cross-claim and third party complaints
through publication. On its subsequent motion, Manzano was declared in default for failure to file a
responsive pleading.[11]
 
Respondent filed a motion for summary judgment. Petitioner opposed the
motion. On February 1, 1995, the trial court denied the motion via an order of even date.[12]
 
In its Answer, petitioner did not controvert the foregoing facts, but denied liability to respondent for the
encashed checks.[13] Petitioner bank maintained it exercised due diligence in the supervision of all its
employees. It even dismissed defendant Santos after she was found guilty of negligence in the
performance of her duties.[14]
 
Defendant Santos, on the other hand, denied that she had been negligent in her job. She averred that
she merely followed the banks practice of honoring respondents checks even if accompanied only by
Manzanos endorsement.[15]
 
Defendant Abacan likewise denied any liability to respondent. He alleged that, as president and officer of
petitioner bank, he played no role in the transactions complained of. [16] Thus, respondent has no cause of
action against him.
Petitioner, Santos and Abacan were unanimous in asserting that respondent is estopped from
claiming reimbursement and damages since it was negligent in allowing Manzano to take hold, endorse,
and encash its checks. Petitioner pointed out that the proximate cause of respondents loss was its own
negligence.[17]
RTC Disposition 
On August 24, 1998, the RTC rendered judgment in favor of respondent, the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
plaintiff and as against defendant Philippine Savings Bank and Erlinda O. Santos
ordering the said defendants to pay plaintiff, jointly and severally:
 
1. The amount of P556,981.86 plus interest at the rate of
12% per annum from August 15, 1989 until said
amount shall have been paid;
2. 20% of the total amount due plaintiff as attorneys fees;
3. The sum of P100,000.00 as exemplary damages;
4. The sum of P1,000,000.00 for plaintiffs unrealized profits.
 
The complaint with respect to defendant Antonio Abacan, Jr. as well as
his counterclaim and cross claim are hereby DISMISSED.
 
With respect to the cross claim of defendant PSBank against Erlinda
Santos and its third-party complaint against Rino T. Manzano, both Santos and
Manzano are hereby ordered to jointly and severally, reimburse defendant PSBank
whatever amount the latter shall be constrained to pay plaintiff in connection with
this case. 
SO ORDERED.[18]
  
Aggrieved, petitioner filed a motion for reconsideration. Through an Order dated January 11, 1999,
the RTCreversed its earlier ruling and held that it was respondents own negligence that was the
proximate cause of the loss.The fallo of the amended RTC decision now reads:
 
In light of the foregoing grounds and observations, the Decision
of August 24, 1998, by this Court is accordingly modified as follows:
 
1. Ordering the dismissal of the complaint by the plaintiff
Chowking Food Corporation against the defendants,
Philippine Savings Bank (PSBank) and Erlinda Santos
for lack of basis in fact and law;
19
  
2. Ordering the third party defendant, Regino or Rino T.
Manzano to pay the plaintiff Chowking Food
Corporation, the following:
 
a. To reimburse the plaintiff the amount
of P556,981.86 plus interest at the rate
of 12% per annum from August 15,
1989, until said amount has been fully
satisfied;
 
b. To pay an attorneys fee equivalent to 20% of
the total amount due the plaintiff;
 
c. To pay an amount of P100,000.00 the
plaintiff for actual and compensatory
damages, plus the costs of this suit.
 
SO ORDERED.[19]
 
Dissatisfied with the modified ruling of the RTC, respondent appealed to the CA.
 
CA Disposition  supervision of employees, the employer must formulate standard operating
In its appeal, respondent Chowking contended, inter alia, that the RTC erred in ruling that the
proximate cause of the loss was its own negligence; and that its claim was barred by estoppel.
  
On January 31, 2007, the CA granted the appeal, disposing as follows:
 
WHEREFORE, the instant appeal is GRANTED. The order appealed from
is hereby SET ASIDE and the 24 August 1998 decision is consequently REINSTATED
with modification that the awards of attorneys fees, exemplary damages, and
alleged P1,000,000.00 unrealized profits of the appellant are DELETED.
 IT IS SO ORDERED.[20]
 
The CA held that both petitioner PSBank and Santos should bear the loss. Said the appellate
court:  The CA ratiocinated:
It is admitted that PSB cashed, over the counter, the checks of the
appellant indorsed by Manzano alone. Since there is no more dispute on the
negligent act of Santos in honoring the appellants checks, over the counter,
despite the proper indorsements, the categorical finding of negligence against her,
remaining unrebutted, is deemed established. This in effect warrants a finding
that Santos is liable for damages to the appellant. The lower court therefore erred
in dismissing the complaint against her.[21]
 
Further, the CA held that:
 
Contrary to PSBs contention that it should not be held liable because it
neither consented to nor had knowledge of Santos (sic) violations, such liability
of Santos is solidary with PSB pursuant to Article 2176 in relation to Article 2180 of
the Civil Code which states:
 
Art. 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for
the damage done....
Art. 2180. The obligation imposed by Art. 2176 is
demandable not only for one's own acts or omissions but
also for those of persons for whom one is responsible.
 x x x x
 Employers shall be liable for the damage caused by their
employees and household helpers acting within the scope of
their assigned tasks even though the former are not engaged
in any business or activity.
 x x x x
 The responsibility treated of in this article shall cease when
the persons herein mentioned prove that they observed all
the diligence of a good father of a family to prevent damage.
 
x x x However, with banks like PSB, the degree of diligence required is more than
that of a good father of a family considering that the business of banking is imbued
with public interest due to the nature of its functions. Highest degree of diligence
is needed which PSB, in this case, failed to observe.
x x x Its argument that it should no be held responsible for the negligent acts
of Santos because those were independent acts x x x perpetrated without its
knowledge and consent is without basis in fact and in law. Assuming that PSB did
not err in hiring Santos for her position, its lack of supervision over her made it
solidarily liable for the unauthorized encashment of the checks involved. In the
procedures, monitor their implementation and impose disciplinary measures for
the breach thereof. The appellee, in this case, presented no evidence that it
formulated rules/guidelines for the proper performance of functions of its
employees and that it strictly implemented and monitored compliance
therewith. x x x[22]
 
The CA also disagreed with petitioners contention that respondents own negligence was the proximate
cause of its loss. The CA opined that even assuming that respondent was also negligent in allowing
Manzano to encash its checks, petitioner had the last clear chance to avert injury and loss to
respondent. This could have been done if petitioner, through Santos, faithfully and carefully observed its
encashment rules and procedures.
 
 
x x x Had Santos not been remiss in verifying the indorsements of the checks
involved, she would not have cashed the same because Manzano, whose only
signature appears therein, is apparently not an authorized signatory of the
appellant x x x had every means to determine the validity of those indorsements
but for one reason or another she was neglectful of her duty x x x as admitted
by PSB, such over the counter encashments are not even sanctioned by its policies
but Santos simply ignored the same. It appears clear that Santos let the
opportunity slip by when an exercise of ordinary prudence expected of bank
employees would have sufficed to prevent the loss.[23]
  Issues 
Petitioner has resorted to the present recourse and assigns to the CA the following errors:
 
I
THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT RESPONDENT
WAS ESTOPPEDFROM ASSERTING ITS CLAIM AGAINST PETITIONER.
II
THE HONORABLE COURT OF APPEALS ERRED WHEN IT DID NOT RULE THAT
RESPONDENT'S NEGLIGENCE WAS THE PROXIMATE CAUSE OF ITS OWN
LOSS. (Underscoring supplied)
20
 
Our Ruling
 The doctrine of equitable estoppel or estoppel in pais finds no application in the present case. The
equitable doctrine of estoppel was explained by this Court in Caltex (Philippines), Inc. v. Court of Appeals:
[24]
 
Under the doctrine of estoppel, an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon. A party may not go back on his
own acts and representations to the prejudice of the other party who relied upon
them. In the law of evidence, whenever a party has, by his own declaration, act, or
omission, intentionally and deliberately led another to believe a particular thing
true, to act upon such belief, he cannot, in any litigation arising out of such
declaration, act, or omission, be permitted to falsify it.[25]
The principle received further elaboration in Maneclang v. Baun:[26]
 
In estoppel by pais, as related to the party sought to be estopped, it is
necessary that there be a concurrence of the following requisites: (a) conduct
amounting to false representation or concealment of material facts or at least
calculated to convey the impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently attempts to assert; (b)
intent, or at least expectation that this conduct shall be acted upon, or at least
influenced by the other party; and (c) knowledge, actual or constructive of the
actual facts.[27]
 
Estoppel may vary somewhat in definition, but all authorities agree that a party invoking the doctrine
must have been misled to ones prejudice. That is the final and, in reality, most important of the elements
of equitable estoppel.[28] It is this element that is lacking here.
 
We agree with the CA that Chowking did not make any false representation or concealment of material
facts in relation to the encashments of the previous checks. As adverted to earlier, respondent may have
allowed Manzano to previously encash its checks, but it has always been accompanied with the
endorsements of the other authorized signatories. Respondent did not allow petitioner to have its
checks encashed without the signature of all of its authorized signatories.
The CA pointed out:
 
We find at the back of those checks, whereon indorsement usually
appears, the signature of Manzano together with other
signature/signatures though mostly are illegible. It appears then that, assuming
the appellant impliedly tolerated the act of Manzano in indorsing the checks, it did
not allow Manzano alone to indorse its checks as what actually happened in this
case because his previous indorsements were coupled with other indorsements of
the appellants signatories. There is, therefore, no sufficient evidence to
sustain PSBs submission. On this score alone, the defense of estoppel must fail. [29]
(Underscoring and emphasis supplied)
 
Neither can estoppel be appreciated in relation to petitioner itself. In Kalalo v. Luz,[30] the Court
enumerated the elements of estoppel in this wise:
x x x As related to the party claiming the estoppel, the essential
elements are (1) lack of knowledge and of the means of knowledge of the truth as
the facts in question; (2) reliance, in good faith, upon the conduct and statements
of the party to be estopped; (3) action or inaction based thereon of such character
as to change the position or status of the party claiming the estoppel, to his injury,
detriment or prejudice.[31]
 
Here, the first two elements are wanting. Petitioner has knowledge of the truth and the means to it as
to the proper endorsements necessary in encashing respondents checks. Respondent has an account
with petitioner bank and, as such, is privy to the proper signatories to endorse respondents checks.
 
Neither can petitioner claim good faith.
 
It is elementary that estoppel cannot be sustained in doubtful inference. Absent the conclusive proof
that its essential elements are present, estoppel must fail. Because estoppel, when misapplied, becomes
a most effective weapon to accomplish an injustice, inasmuch as it shuts a mans mouth from speaking
the truth.[32]
Petitioner failed to prove that it has observed the due diligence required of banks under the
law. Contrary to petitioners view, its negligence is the proximate cause of respondents loss.
 
It cannot be over emphasized that the banking business is impressed with public interest. Of
paramount importance is the trust and confidence of the public in general in the banking
industry. Consequently, the diligence required of banks is more than that of a Roman pater familias or a
good father of a family.[33] The highest degree of diligence is expected.[34]
  
In its declaration of policy, the General Banking Law of 2000 [35] requires of banks the highest
standards of integrity and performance. Needless to say, a bank is under obligation to treat the accounts
of its depositors with meticulous care.[36] The fiduciary nature of the relationship between the bank and
the depositors must always be of paramount concern.[37]
 
Petitioner, through Santos, was clearly negligent when it honored respondents checks with
the lone endorsement of Manzano. In the similar case of Philippine Bank of Commerce v. Court of
Appeals,[38] an employee of Rommels Marketing Corporation (RMC) was able to illegally deposit in a
different account the checks of the corporation. This Court found that it was the bank tellers failure to
exercise extraordinary diligence to validate the deposit slips that caused the crime to be perpetrated.
 
The Court held thus:
Negligence here lies not only on the part of Ms. Mabayad but also on the part of
the bank itself in its lackadaisical selection and supervision of Ms. Mabayad. This
was exemplified in the testimony of Mr. Romeo Bonifacio, then Manager of the
Pasig Branch of the petitioner bank and now its Vice-President, to the effect that,
while he ordered the investigation of the incident, he never came to know that
blank deposit slips were validated in total disregard of the bank's validation
procedures, viz.:
 
Q: Did he ever tell you that one of your cashiers affixed the
stamp mark of the bank on the deposit slips and they
validated the same with the machine, the fact that
those deposit slips were unfilled up, is there any
report similar to that?
A: No, it was not the cashier but the teller.
Q: The teller validated the blank deposit slip?
A: No it was not reported.
 
Q: You did not know that any one in the bank tellers or
cashiers validated the blank deposit slip?
21
 A: I am not aware of that.
 
Q: It is only now that you are aware of that?
A: Yes, Sir.
 
xxxx
 
It was this negligence x x x coupled by the negligence of the petitioner
bank in the selection and supervision of its bank teller, which was the proximate
cause of the loss suffered by private respondent, and not the latters act of
entrusting cash to a dishonest employee, as insisted by the petitioners.[39]
 
Proximate cause is determined by the facts of the case. 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.[40]
 
Measured by the foregoing yardstick, the proximate cause of the loss is not respondents
alleged negligence in allowing Manzano to take hold and encash respondents checks. The proximate
cause is petitioners own negligence in the supervision of its employees when it overlooked the irregular
practice of encashing checks even without the requisite endorsements.
 
In Bank of the Philippine Islands v. Casa Montessori Internationale,[41] this Court similarly held:
 
For allowing payment 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, BPI can easily go after it and hold it liable for
reimbursement. x x x 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.[42]
 
Further, the Court ruled:
 
 
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. 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.
 
Unfortunately, it failed in that regard. x x x 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 liable for the negligence of its officers or agents when acting
within the course and scope of their employment. It must bear the loss.[43]
 
WHEREFORE, the petition is DENIED for lack of merit.
 
SO ORDERED.

22
[G.R. No. 149454. May 28, 2004]
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. CASA MONTESSORI INTERNATIONALE and
LEONARDO T. YABUT, respondents.
[G.R. No. 149507. May 28, 2004]
CASA MONTESSORI INTERNATIONALE, petitioner, vs. BANK OF THE PHILIPPINE ISLANDS, respondent.
DECISION
PANGANIBAN, J.:
By the nature of its functions, a bank is required to take meticulous care of the deposits of its
clients, who have the rightto expect high standards of integrity and performance from it. 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
Before us are two Petitions for Review [1] under Rule 45 of the Rules of Court, assailing the March
23, 2001 Decision[2]and the August 17, 2001 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No.
63561. The decretal portion of the assailed Decision reads as follows:
WHEREFORE, upon the premises, the decision appealed from is AFFIRMED with the modification that
defendant bank [Bank of the Philippine Islands (BPI)] is held liable only for one-half of the value of the
forged checks in the amount of P547,115.00 after deductions subject to REIMBURSEMENT from third
party defendant Yabut who is likewise ORDERED to pay the other half to plaintiff corporation [Casa
Montessori Internationale (CASA)].[4]
The assailed Resolution denied all the parties Motions for Reconsideration.
The Facts
The facts of the case are narrated by the CA as follows:
On November 8, 1982, plaintiff CASA Montessori International[5] opened Current Account No. 0291-0081-
01 with defendant BPI[,] with CASAs President Ms. Ma. Carina C. Lebron as one of its authorized
signatories.
In 1991, after conducting an investigation, plaintiff discovered that nine (9) of its checks had been
encashed by a certain Sonny D. Santos since 1990 in the total amount of P782,000.00, on the following
dates and amounts:
Check No. Date Amount
1.      839700 April 24, 1990 P 43,400.00
2.      839459 Nov. 2, 1990 110,500.00
3.      839609 Oct. 17, 1990 47,723.00
4.      839549 April 7, 1990 90,700.00
5.      839569 Sept. 23, 1990 52,277.00
6.      729149 Mar. 22, 1990 148,000.00
7.      729129 Mar. 16, 1990 51,015.00
8.      839684 Dec. 1, 1990 140,000.00
9.      729034 Mar. 2, 1990 98,985.00
Total -- P 782,600.00[6]
It turned out that Sonny D. Santos with account at BPIs Greenbelt Branch [was] a fictitious name used by
third party defendant Leonardo T. Yabut who worked as external auditor of CASA. Third party defendant
voluntarily admitted that he forged the signature of Ms. Lebron and encashed the checks.
The PNP Crime Laboratory conducted an examination of the nine (9) checks and concluded that
the handwritings thereon compared to the standard signature of Ms. Lebron were not written by the
latter.
On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages against
defendant bank praying that the latter be ordered to reinstate the amount of P782,500.00[7] in the
current and savings accounts of the plaintiff with interest at 6% per annum.
On February 16, 1999, the RTC rendered the appealed decision in favor of the plaintiff.[8]
Ruling of the Court of Appeals
Modifying the Decision of the Regional Trial Court (RTC), the CA apportioned the loss between BPI
and CASA. The appellate court took into account CASAs 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 attorneys 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 Courtto 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 attorneys 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 P547,115.00 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, attorneys fees, and interest be
awarded?
The Courts 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 real [13] 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 anothers name with intent to
defraud, is forgery.[16]
In the present case, we hold that there was forgery of the drawers signature on the check.
First, both the CA[17] and the RTC[18] found that Respondent Yabut himself had voluntarily admitted,
through an Affidavit, that he had forged the drawers 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
Report[24] that the PNP Crime Laboratory had earlier issued to BPI -- the drawee bank -- upon the latters
request.
Indeed, we respect and affirm the RTCs 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.
23
 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
Constitution[28] 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-incrimination [34] under Section 17 of Article III[35] 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 aspect[37] -- 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 Rights [40] 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 rights[43] 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
executed[46] 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 fact[51] -- 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 drawers 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 drawers 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 drawers 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 courts 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 evidence[61]nor creates an unfavorable inference against it. [62] Such failure merely
authorizes the introduction of secondary evidence[63]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 drawers
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 experts 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 drawers 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 diligence[73] 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 required[78]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 confirmation[81] 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 procedure [84] -- the results of which
its client-depositors are neither interested in nor privy to -- to test the details of transactions and
24
balances in the banks records.[85] Evidential matter obtained from independent sources outside a bank
only serves to provide greater assurance of reliability[86] 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 detected [87] 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 right[90] 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 presumption[95] that whenever one has, by ones 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 formers
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 BPIs error even after the lapse of the period given in the notice.
Loss Borne by Proximate Source of Negligence  the audit engagement -- and could thus be unwittingly duped into believing that everything was in
For allowing payment[100] 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 drawers account [103] 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 Unit[111] 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 liable[112] 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 exception [114] to
the general rule that a forged signature is wholly inoperative.[115] Contrary to BPIs 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 practices[116]of private entities. The relationship that arises therefrom is
both legal and moral.[117] It begins with the execution of the engagement letter[118] that embodies the
terms and conditions of the audit and ends with the fulfilled expectation of the auditors ethical[119] 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 opinion[121] expressed therein.[122]The auditor does not assume the role of
employee or of management in the clients conduct of operations[123] and is never under the control or
supervision[124] of the client.
Yabut was an independent auditor[125] hired by CASA. He handled its monthly bank reconciliations
and had access to all relevant documents and checkbooks. [126] In him was reposed the clients[127] trust and
confidence[128] 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 clients financial statements and
accompanying notes thereto. CASA had every right to rely solely upon his output -- based on the terms of
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
1991[134] -- 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
governance[140] and a sworn statement on adequate and effective training.[141]
The missing checks were certainly reported by the bookkeeper [142] to the accountant[143] -- 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 bookkeeper[144] who had exclusive custody of the checkbooks[145] did not have to go directly to
CASAs 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
25
the culprit. The vouchers, invoices and check stubs in support of all check disbursements could be stipulation to the contrary, shall be the payment of x x x legal interest, which is six percent per annum.
[178]
concealed or fabricated -- even in collusion -- and management would still have no way to verify its cash  The actual base for its computation shall be on the amount finally adjudged,
[179]
accountabilities.  compounded[180] annually to make up for the cost of money[181] already lost to CASA.
Clearly then, Yabut was able to perpetrate the wrongful act through no fault of CASA. If auditors Moreover, the failure of the CA to award interest does not prevent us from granting it upon
may be held liable for breach of contract and negligence, [146] with all the more reason may they be damages awarded for breach of contract.[182] Because BPI evidently breached its contract of deposit with
charged with the perpetration of fraud upon an unsuspecting client. CASA had the discretion to pursue CASA, we award interest in addition to the total amount adjudged. Under Section 196 of the NIL, any
BPI alone under the NIL, by reason of expediency or munificence or both. Money paid under a mistake case not provided for shall be governed by the provisions of existing legislation or, in default thereof, by
may rightfully be recovered,[147] and under such terms as the injured party may choose. the rules of the law merchant.[183] Damages are not provided for in the NIL. Thus, we resort to the Code
Third Issue: of Commerce and the Civil Code. Under Article 2 of the Code of Commerce, acts of commerce shall be
Award of Monetary Claims Moral Damages Denied governed by its provisions and, in their absence, by the usages of commerce generally observed in each
We deny CASAs claim for moral damages. place; and in the absence of both rules, by those of the civil law. [184] This law being silent, we look at
In the absence of a wrongful act or omission,[148] or of fraud or bad faith,[149] moral damages cannot Article 18 of the Civil Code, which states: In matters which are governed by the Code of Commerce and
be awarded.[150] The adverse result of an action does not per se make the action wrongful, or the party special laws, their deficiency shall be supplied by its provisions. A perusal of these three statutes
liable for it. One may err, but error alone is not a ground for granting such damages. [151] While no proof of unmistakably shows that the award of interest under our civil law is justified.
pecuniary loss is necessary therefor -- with the amount to be awarded left to the courts discretion[152] -- WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and that in GR No. 149507 PARTLY
the claimant must nonetheless satisfactorily prove the existence of its factual basis[153] and causal GRANTED. The assailed Decision of the Court of Appeals is AFFIRMED with modification: BPI is held liable
relation[154] to the claimants act or omission.[155] for P547,115, the total value of the forged checks less the amount already recovered by CASA from
Regrettably, in this case CASA was unable to identify the particular instance -- enumerated in the Leonardo T. Yabut, plus interest at the legal rate of six percent (6%) per annum -- compounded annually,
Civil Code -- upon which its claim for moral damages is predicated. [156] Neither bad faith nor negligence so from the filing of the complaint until paid in full; and attorneys fees of ten percent (10%) thereof, subject
gross that it amounts to malice [157]can be imputed to BPI. Bad faith, under the law, does not simply to reimbursement from Respondent Yabut for the entire amount, excepting attorneys fees.Let a copy of
connote bad judgment or negligence;[158] it imports a dishonest purpose or some moral obliquity and this Decision be furnished the Board of Accountancy of the Professional Regulation Commission for such
conscious doing of a wrong, a breach of a known duty through some motive or interest or ill will that action as it may deem appropriate against Respondent Yabut. No costs.
partakes of the nature of fraud.[159] SO ORDERED.
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. CASAs mere allegation or supposition thereof, without any sufficient evidence on record, [164] is
not enough.
Exemplary Damages Also Denied
We also deny CASAs claim for exemplary damages.
Imposed by way of correction[165] 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]
Attorneys 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 attorneys 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 latters interest,[172] or where the court deems it just and equitable,[173] attorneys fees may be
recovered. In the present case, BPI persistently denied the claim of CASA under the NIL to recredit the
latters account for the value of the forged checks. This denial 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 attorneys 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 filing[175] 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

26
G.R. No. 171845               October 10, 2012
SPOUSES GODFREY and GERARDINA SERFINO, Petitioners,  their adverse claim after they sent three letters, they claim that:
vs.
FAR EAST BANK AND TRUST COMPANY, INC., now BANK OF THE PHILIPPINE ISLANDS, Respondent.
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari,  1 filed under Rule 45 of the Rules of Court, assailing
the decision2 dated February 23, 2006 of the Regional Trial Court (RTC) of Bacolod City, Branch 41, in Civil
Case No. 95-9344.
FACTUAL ANTECEDENTS
The present case traces its roots to the compromise judgment dated October 24, 19953 of the RTC of
Bacolod City, Branch 47, in Civil Case No. 95-9880. Civil Case No. 95-9880 was an action for collection of
sum of money instituted by the petitioner spouses Godfrey and Gerardina Serfino (collectively, spouses
Serfino) against the spouses Domingo and Magdalena Cortez (collectively, spouses Cortez). By way of
settlement, the spouses Serfino and the spouses Cortez executed a compromise agreement on October
20, 1995, in which the spouses Cortez acknowledged their indebtedness to the spouses Serfino in the
amount of ₱ 108,245.71. To satisfy the debt, Magdalena bound herself "to pay in full the judgment debt
out of her retirement benefits[.]"4 Payment of the debt shall be made one (1) week after Magdalena has
received her retirement benefits from the Government Service Insurance System (GSIS). In case of
default, the debt may be executed against any of the properties of the spouses Cortez that is subject to
execution, upon motion of the spouses Serfino. 5 After finding that the compromise agreement was not
contrary to law, morals, good custom, public order or public policy, the RTC approved the entirety of the
parties’ agreement and issued a compromise judgment based thereon. 6 The debt was later reduced to ₱
155,000.00 from ₱ 197,000.00 (including interest), with the promise that the spouses Cortez would pay
in full the judgment debt not later than April 23, 1996.7  By allowing Grace to withdraw the deposit that is due them under the compromise judgment, the
No payment was made as promised. Instead, Godfrey discovered that Magdalena deposited her
retirement benefits in the savings account of her daughter-in-law, Grace Cortez, with the respondent, Far
East Bank and Trust Company, Inc. (FEBTC). As of April 23, 1996, Grace’s savings account with FEBTC
amounted to ₱ 245,830.37, the entire deposit coming from Magdalena’s retirement benefits.8 That same
day, the spouses Serfino’s counsel sent two letters to FEBTC informing the bank that the deposit in
Grace’s name was owned by the spouses Serfino by virtue of an assignment made in their favor by the
spouses Cortez. The letter requested FEBTC to prevent the delivery of the deposit to either Grace or the
spouses Cortez until its actual ownership has been resolved in court.
On April 25, 1996, the spouses Serfino instituted Civil Case No. 95- 9344 against the spouses Cortez,
Grace and her husband, Dante Cortez, and FEBTC for the recovery of money on deposit and the
payment of damages, with a prayer for preliminary attachment.
On April 26, 1996, Grace withdrew ₱ 150,000.00 from her savings account with FEBTC. On the same
day, the spouses Serfino sent another letter to FEBTC informing it of the pending action; attached to the
letter was a copy of the complaint filed as Civil Case No. 95-9344.
During the pendency of Civil Case No. 95-9344, the spouses Cortez manifested that they were turning
over the balance of the deposit in FEBTC (amounting to ₱ 54,534.00) to the spouses Serfino as partial
payment of their obligation under the compromise judgment. The RTC issued an order dated July 30,
1997, authorizing FEBTC to turn over the balance of the deposit to the spouses Serfino.
On February 23, 2006, the RTC issued the assailed decision (a) finding the spouses Cortez, Grace and
Dante liable for fraudulently diverting the amount due the spouses Serfino, but (b) absolving FEBTC from
any liability for allowing Grace to withdraw the deposit. The RTC declared that FEBTC was not a party to
the compromise judgment; FEBTC was thus not chargeable with notice of the parties’ agreement, as
there was no valid court order or processes requiring it to withhold payment of the deposit. Given the
nature of bank deposits, FEBTC was primarily bound by its contract of loan with Grace. There was,
therefore, no legal justification for the bank to refuse payment of the account, notwithstanding the claim
of the spouses Serfino as stated in their three letters.
THE PARTIES’ ARGUMENTS
The spouses Serfino appealed the RTC’s ruling absolving FEBTC from liability for allowing the
withdrawal of the deposit. They allege that the RTC cited no legal basis for declaring that only a court
order or process can justify the withholding of the deposit in Grace’s name. Since FEBTC was informed of
Upon receipt of a notice of adverse claim in proper form, it becomes the duty of the bank to: 1.
Withhold payment of the deposit until there is a reasonable opportunity to institute legal proceedings to
contest ownership; and 2) give prompt notice of the adverse claim to the depositor. The bank may be
held liable to the adverse claimant if it disregards the notice of adverse claim and pays the depositor.
When the bank has reasonable notice of a bona fide claim that money deposited with it is the property
of another than the depositor, it should withhold payment until there is reasonable opportunity to
institute legal proceedings to contest the ownership.9 (emphases and underscoring supplied)
Aside from the three letters, FEBTC should be deemed bound by the compromise judgment, since Article
1625 of the Civil Code states that an assignment of credit binds third persons if it appears in a public
instrument.10 They conclude that FEBTC, having been notified of their adverse claim, should not have
allowed Grace to withdraw the deposit.
While they acknowledged that bank deposits are governed by the Civil Code provisions on loan, the
spouses Serfino allege that the provisions on voluntary deposits should apply by analogy in this case,
particularly Article 1988 of the Civil Code, which states:
Article 1988. The thing deposited must be returned to the depositor upon demand, even though a
specified period or time for such return may have been fixed.
This provision shall not apply when the thing is judicially attached while in the depositary’s possession,
or should he have been notified of the opposition of a third person to the return or the removal of the
thing deposited. In these cases, the depositary must immediately inform the depositor of the
attachment or opposition.
Based on Article 1988 of the Civil Code, the depository is not obliged to return the thing to the depositor
if notified of a third party’s adverse claim.
spouses Serfino claim that FEBTC committed an actionable wrong that entitles them to the payment of
actual and moral damages.
FEBTC, on the other hand, insists on the correctness of the RTC ruling. It claims that it is not bound by the
compromise judgment, but only by its contract of loan with its depositor. As a loan, the bank deposit is
owned by the bank; hence, the spouses Serfino’s claim of ownership over it is erroneous.
Based on these arguments, the case essentially involves a determination of the obligation of banks to a
third party who claims rights over a bank deposit standing in the name of another.
THE COURT’S RULING
We find the petition unmeritorious and see no reason to reverse the RTC’s ruling.
Claim for actual damages not
meritorious because there could be
no pecuniary loss that should be
compensated if there was no
assignment of credit
The spouses Serfino’s claim for damages against FEBTC is premised on their claim of ownership of the
deposit with FEBTC. The deposit consists of Magdalena’s retirement benefits, which the spouses Serfino
claim to have been assigned to them under the compromise judgment. That the retirement benefits
were deposited in Grace’s savings account with FEBTC supposedly did not divest them of ownership of
the amount, as "the money already belongs to the [spouses Serfino] having been absolutely assigned to
them and constructively delivered by virtue of the x x x public instrument[.]" 11 By virtue of
the assignment of credit, the spouses Serfino claim ownership of the deposit, and they posit that FEBTC
was duty bound to protect their right by preventing the withdrawal of the deposit since the bank had
been notified of the assignment and of their claim.
We find no basis to support the spouses Serfino’s claim of ownership of the deposit.
"An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who
acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor. It
may be in the form of sale, but at times it may constitute a dation in payment, such as when a debtor, in
order to obtain a release from his debt, assigns to his creditor a credit he has against a third
27
person."12 As a dation in payment, the assignment of credit operates as a mode of extinguishing the The spouses Serfino invoke American common law that imposes a duty upon a bank receiving a notice
obligation;13 the delivery and transmission of ownership of a thing (in this case, the credit due from a of adverse claim to the fund in a depositor’s account to freeze the account for a reasonable length of
third person) by the debtor to the creditor is accepted as the equivalent of the performance of the time, sufficient to allow the adverse claimant to institute legal proceedings to enforce his right to the
obligation.14  fund.22 In other words, the bank has a duty not to release the deposits unreasonably early after a third
The terms of the compromise judgment, however, did not convey an intent to equate the assignment of party makes known his adverse claim to the bank deposit. Acknowledging that no such duty is imposed
Magdalena’s retirement benefits (the credit) as the equivalent of the payment of the debt due the by law in this jurisdiction, the spouses Serfino ask the Court to adopt this foreign rule.23 
spouses Serfino (the obligation). There was actually no assignment of credit; if at all, the compromise To adopt the foreign rule, however, goes beyond the power of this Court to promulgate rules governing
judgment merely identified the fund from which payment for the judgment debt would be sourced: pleading, practice and procedure in all courts.24 The rule reflects a matter of policy that is better
(c) That before the plaintiffs file a motion for execution of the decision or order based [on this] addressed by the other branches of government, particularly, the Bangko Sentral ng Pilipinas, which is
Compromise Agreement, the defendant, Magdalena Cortez undertake[s] and bind[s] herself to pay in the agency that supervises the operations and activities of banks, and which has the power to issue
full the judgment debt out of her retirement benefits as Local [T]reasury Operation Officer in the City of "rules of conduct or the establishment of standards of operation for uniform application to all
Bacolod, Philippines, upon which full payment, the plaintiffs waive, abandon and relinquish absolutely institutions or functions covered[.]"25 To adopt this rule will have significant implications on the banking
any of their claims for attorney’s fees stipulated in the Promissory Note (Annex "A" to the industry and practices, as the American experience has shown. Recognizing that the rule imposing duty
Complaint).15 [emphasis ours] on banks to freeze the deposit upon notice of adverse claim adopts a policy adverse to the bank and its
Only when Magdalena has received and turned over to the spouses Serfino the portion of her retirement functions, and opens it to liability to both the depositor and the adverse claimant, 26 many American
benefits corresponding to the debt due would the debt be deemed paid. states have since adopted adverse claim statutes that shifted or, at least, equalized the burden.
In Aquitey v. Tibong,16 the issue raised was whether the obligation to pay the loan was extinguished by Essentially, these statutes do not impose a duty on banks to freeze the deposit upon a mere notice of
the execution of the deeds of assignment. The Court ruled in the affirmative, given that, in the deeds adverse claim; they first require either a court order or an indemnity bond.27 
involved, the respondent (the debtor) assigned to the petitioner (the creditor) her credits "to make In the absence of a law or a rule binding on the Court, it has no option but to uphold the existing policy
good" the balance of her obligation; the parties agreed to relieve the respondent of her obligation to pay that recognizes the fiduciary nature of banking. It likewise rejects the adoption of a judicially-imposed
the balance of her account, and for the petitioner to collect the same from the respondent’s rule giving third parties with unverified claims against the deposit of another a better right over the
debtors.17 The Court concluded that the respondent’s obligation to pay the balance of her accounts with deposit. As current laws provide, the bank’s contractual relations are with its depositor, not with the
the petitioner was extinguished, pro tanto, by the deeds of assignment of credit executed by the third party;28 "a bank is under obligation to treat the accounts of its depositors with meticulous care and
respondent in favor of the petitioner.18  always to have in mind the fiduciary nature of its relationship with them." 29 In the absence of any positive
In the present case, the judgment debt was not extinguished by the mere designation in the compromise duty of the bank to an adverse claimant, there could be no breach that entitles the latter to moral
judgment of Magdalena’s retirement benefits as the fund from which payment shall be sourced. That the damages.
compromise agreement authorizes recourse in case of default on other executable properties of the WHEREFORE, in view of the foregoing, the petition for review on certiorari is DENIED, and the decision
spouses Cortez, to satisfy the judgment debt, further supports our conclusion that there was no dated February 23, 2006 of the Regional Trial Court of Bacolod City, Branch 41, in Civil Case No. 95-9344
assignment of Magdalena’s credit with the GSIS that would have extinguished the obligation. is AFFIRMED. Costs against the petitioners.
The compromise judgment in this case also did not give the supposed assignees, the spouses Serfino, the SO ORDERED.
power to enforce Magdalena’s credit against the GSIS. In fact, the spouses Serfino are prohibited from
enforcing their claim until after the lapse of one (1) week from Magdalena’s receipt of her retirement
benefits:
(d) That the plaintiffs shall refrain from having the judgment based upon this Compromise Agreement
executed until after one (1) week from receipt by the defendant, Magdalena Cortez of her retirement
benefits from the [GSIS] but fails to pay within the said period the defendants’ judgment debt in this
case, in which case [this] Compromise Agreement [may be] executed upon any property of the
defendants that are subject to execution upon motion by the plaintiffs.19 
An assignment of credit not only entitles the assignee to the credit itself, but also gives him the power to
enforce it as against the debtor of the assignor.
Since no valid assignment of credit took place, the spouses Serfino cannot validly claim ownership of the
retirement benefits that were deposited with FEBTC. Without ownership rights over the amount, they
suffered no pecuniary loss that has to be compensated by actual damages. The grant of actual damages
presupposes that the claimant suffered a duly proven pecuniary loss.20 
Claim for moral damages not
meritorious because no duty exists
on the part of the bank to protect
interest of third person claiming
deposit in the name of another
Under Article 2219 of the Civil Code, moral damages are recoverable for acts referred to in Article 21 of
the Civil Code.21 Article 21 of the Civil Code, in conjunction with Article 19 of the Civil Code, is part of the
cause of action known in this jurisdiction as "abuse of rights." The elements of abuse of rights are:
(a) there is a legal right or duty; (b) exercised in bad faith; and (c) for the sole intent of prejudicing or
injuring another.1âwphi1

28
[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 THE COURT OF APPEALS, respondents.
DECISION
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.
G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995 Decision[1] 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 Philippine 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 Decision [3] of the Court
of Appeals and its March 5, 1997 Resolution[4] 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 plaintiffs Citibank 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 plaintiffs percentage
or manufacturers sales taxes for the third quarter of 1977.  (NBI) revealed that Citibank Check No. SN-04867 was recalled by Godofredo Rivera, the General Ledger
The aforesaid check was deposited with the defendant 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
Payees 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 plaintiffs 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 Metrobank, Alabang
Branch to receive the tax payment of the plaintiff.
On December 19, 1977, plaintiffs 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 same 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 plaintiffs 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 plaintiffs lawyers, plaintiff on March 11, 1982, paid to the Bureau of
Internal Revenue, the amount of P4,746,114.41, representing payment of plaintiffs percentage tax for
the third quarter of 1977.
As a consequence of defendants refusal to reimburse plaintiff of the payment it had made for the second
time to the BIR of its percentage taxes, plaintiff filed on January 20, 1983 its original complaint before
this Court.
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 plaintiffs 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 plaintiffs injury is the gross negligence of defendant IBAA in
indorsing the plaintiffs Citibank check in question.
It is admitted that on December 19, 1977 when the proceeds of plaintiffs Citibank Check No. SN-04867
was paid to defendant IBAA as collecting bank, plaintiff was maintaining a checking account with
defendant Citibank.[5]
Although it was not among the stipulated facts, an investigation by the National Bureau of Investigation
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 Riveras instruction, PCIBank
replaced the check with two of its own Managers 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 court 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 plaintiffs
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 Citibanks 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 the 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
29
 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 Court 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 renders 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 plaintiffs 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]
PCIBank 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.  The Regional Trial Court of Makati, Branch 57, which tried the case, made its findings on
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
cause 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 respondents 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 Payees 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. PCIBank 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, PCIBanks 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 Fords cause of action had not prescribed.[13]
II. G.R. No. 128604
The same syndicate apparently embezzled the proceeds of checks intended, this time, to settle
Fords 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 left corner between
which were written the words payable to the payees 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 concerned, 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 anew, while an action was filed against Citibank and PCIBank for the recovery of the
amount of Citibank Check Numbers SN-10597 and 16508.
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 plaintiffs check marked Ex. A [Citibank Check No. SN-10597] for payment to the
BIR. Instead, however, of delivering the same to 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 PCIBs main office enroute to the Central Bank for clearing, replaced this
worthless check with FORDs 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, Riveras Assistant at FORD.
From this Reynaldo Reyes account, Castro drew various checks distributing the shares 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, FORDs Godofredo Rivera and PCIBs Remberto Castro; (3) JUAN CASTILLO who assisted
de Leon in the initial arrangements; (4) GODOFREDO RIVERA, FORDs accountant who passed on the first
check (Exhibit A) to Castro; (5) REMBERTO CASTRO, PCIBs 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, PCIBs 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, Riveras 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 FORDs 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 absolving PCIBank from any liability, disposing as follows:
30
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 attorneys fees and expenses of litigation, and
to pay the defendant, PCIB (on its counterclaim to crossclaim) the sum of P300,000.00 as attorneys 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 institution.
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 arguendo that defendant 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 in 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
Fords 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 appropriate quarterly percentage taxes
of Ford, the checks were diverted and encashed for the eventual distribution among the members 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
force 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 perpetrator 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, through their own negligence, allowed 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 the question 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 in 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 syndicates 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 funds of Citibank Check Nos. SN-10597 and 16508, PCIBank claims that the proximate
cause of the damage to Ford lies in its own officers and employees who carried out the fraudulent
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 that 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 servants wrongful act, the law imputes to
the master the act of the servant, and if that act is negligent or wrongful and proximately results in injury
to a third person, the negligence or 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 concurring contributory negligence of his own servant or agent, the latters
negligence is imputed to his superior and will defeat the superiors action against the third person,
assuming, 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, Fords 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 which 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 Fords 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.Riveras instruction to replace the said check with PCIBanks Managers Check
was not in the ordinary 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 Fords employees, who were acting on their own personal capacity.
Given these circumstances, the mere fact that the forgery was committed by a drawer-payors
confidential employee or agent, who by virtue of his position had unusual facilities for perpetrating the
fraud and imposing the forged paper upon the bank, does not entitle the bank to shift 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, PCIBanks share of negligence when the syndicate achieved its ultimate agenda of stealing the
proceeds of these checks.
31
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 Managers
checks and enabled the syndicate to encash the same.  had, by the usual proper investigation, satisfied itself of the authenticity of the negotiation of the
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:
x x x. Since the questioned crossed check was deposited with IBAA [now PCIBank], which claimed to be a
depository/collecting bank of the BIR, it has the responsibility to make sure that the check in question is
deposited in Payees account only.
x x x x x x x x x
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 one Godofredo Rivera and in his signature to the authenticity of such 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 agreement 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 Banks clearing stamp appearing at the back of the questioned
checks stating that ALL PRIOR INDORSEMENTS AND/OR LACK OF INDORSEMENTS GUARANTEED 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 asserts that the proximate cause of Fords injury is the gross
negligence of PCIBank. Since the questioned crossed 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
question is deposited in Payees account only.
Indeed, the crossing of the check with the phrase Payees 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 payees account only.Therefore, it is the collecting bank
(PCIBank) which is bound to scrutinize 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 petitioners liability on said instruments, this court is in full accord with the ruling of the PCHCs
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 defendants clear
warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such
warranty, plaintiff would not have paid on the checks.  Moreover, as correctly pointed out by Ford, Section 5[31] of Central Bank Circular No. 580, Series of
No amount of legal jargon can reverse the clear meaning of defendants 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 precautions to learn whether or not it is genuine. And if the one cashing the check through
indifference or other 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)
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 banks 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 personal, 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 participation of PCIBank in
the embezzlement. As a general rule, however, a banking corporation is liable for the wrongful or
tortuous acts and declarations of its officers or agents 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 participated.
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
PCIBanks 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 Pro-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 it 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 indebtedness lodged with his bank for collection, the bank is liable for his misappropriation
of such sum.[30]
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 PCIBanks 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 Fords checks 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 infirmity in the issuance of the checks in
32
question (2) coupled by the fact that said checks were sufficiently funded and (3) the endorsement of the Finally, we also find that Ford is not completely blameless in its failure to detect the fraud. Failure
Payee or lack thereof was guaranteed by PCI Bank (formerly IBAA), thus, it has the obligation to honor on the part of the depositor to examine its passbook, statements of account, and cancelled checks and to
and pay the same. give notice within a reasonable time (or as required by statute) of any discrepancy which it may in the
For its part, Ford contends that Citibank as the drawee bank owes to Ford an absolute and exercise of due care and diligence find therein, serves to mitigate the banks liability by reducing the
contractual duty to pay the proceeds of the subject check only to the payee thereof, the CIR. Citing award of interest from twelve percent (12%) to six percent (6%) per annum. As provided in Article 1172
Section 62[32] of the Negotiable Instruments Law, Ford argues that by accepting the instrument, the of the Civil Code of the Philippines, responsibility arising from negligence in the performance of every
acceptor which is Citibank engages that it will pay according to the tenor of its acceptance, and that it kind of obligation is also demandable, but such liability may be regulated by the courts, according to the
will pay only to the payee, (the CIR), considering the fact that here the check was crossed with circumstances. In quasi-delicts, the contributory negligence of the plaintiff shall reduce the damages that
annotation Payees Account Only. he may recover.[42]
As ruled by the Court of Appeals, Citibank must likewise answer for the damages incurred by Ford WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No.
on Citibank Checks Numbers SN 10597 and 16508, because of the contractual relationship existing 25017, are AFFIRMED.PCIBank, known formerly as Insular Bank of Asia and America, is declared solely
between the two. Citibank, as the drawee bank breached its contractual obligation with Ford and such responsible for the loss of the proceeds of Citibank Check No. SN 04867 in the amount P4,746,114.41,
degree of culpability contributed to the damage caused to the latter. On this score, we agree with the which shall be paid together with six percent (6%) interest thereon to Ford Philippines Inc. from the date
respondent courts ruling. when the original complaint was filed until said amount is fully paid.
Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying the However, the Decision and Resolution of the Court of Appeals in CA-G.R. No. 28430 are MODIFIED
amount of the proceeds thereof to the collecting bank of the BIR. One thing is clear from the record: the as follows: PCIBank and Citibank are adjudged liable for and must share the loss, (concerning the
clearing stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not bear any initials. Citibank proceeds of Citibank Check Numbers SN 10597 and 16508 totalling P12,163,298.10) on a fifty-fifty ratio,
failed to notice and verify the absence of the clearing stamps. Had this been duly examined, the and each bank is ORDERED to pay Ford Philippines Inc. P6,081,649.05, with six percent (6%) interest
switching of the worthless checks to Citibank Check Nos. 10597 and 16508 would have been discovered thereon, from the date the complaint was filed until full payment of said amount.
in time. For this reason, Citibank had indeed failed to perform what was incumbent upon it, which is to Costs against Philippine Commercial International Bank and Citibank, N.A.
ensure that the amount of the checks should be paid only to its designated payee. The fact that the SO ORDERED.
drawee bank did not discover the irregularity seasonably, in our view, constitutes negligence in carrying
out the banks 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 importance such that the appropriate
standard of diligence must be very high, if not the highest, degree of diligence.[34] A banks 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 years 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, 1983, barely six years had lapsed. Thus, we
conclude that Fords cause of action to recover the amount of Citibank Check No. SN 04867 was
seasonably filed within the period provided by law.

33
[G.R. No. 125536. March 16, 2000]
PRUDENTIAL BANK, petitioner, vs. COURT OF APPEALS and LETICIA TUPASI-VALENZUELA joined by
husband Francisco Valenzuela, respondents. Ed-pm-is
DECISION
QUISUMBING, J.:
This appeal by certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the Decision
dated January 31, 1996, and the Resolution dated July 2, 1997, of the Court of Appeals in CA G.R. CV No.
35532, which reversed the judgment of the Regional Trial Court of Valenzuela, Metro Manila, Branch
171, in Civil Case No. 2913-V-88, dismissing the private respondent's complaint for damages.[1]
In setting aside the trial court's decision, the Court of Appeals disposed as follows:
"WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE and,
another rendered ordering the appellee bank to pay appellant the sum of
P100,000.00 by way of moral damages; P50,000.00 by way of exemplary damages,
P50,000.00 for and as attorney's fees; and to pay the costs. Jjs-c
SO ORDERED."[2]
The facts of the case on record are as follows:
Private respondent Leticia Tupasi-Valenzuela opened Savings Account No. 5744 and Current Account No.
01016-3 in the Valenzuela Branch of petitioner Prudential Bank, with automatic transfer of funds from
the savings account to the current account.
On June 1, 1988, herein private respondent deposited in her savings account Check No. 666B (104561 of
even date) the amount of P35,271.60, drawn against the Philippine Commercial International Bank
(PCIB). Taking into account that deposit and a series of withdrawals, private respondent as of June 21,
1988 had a balance of P35,993.48 in her savings account and P776.93 in her current account, or total
deposits of P36,770.41, with petitioner. Sc-jj
Thereafter, private respondent issued Prudential Bank Check No. 983395 in the amount of P11,500.00
post-dated June 20, 1988, in favor of one Belen Legaspi. It was issued to Legaspi as payment for jewelry
which private respondent had purchased. Legaspi, who was in jewelry trade, endorsed the check to one
Philip Lhuillier, a businessman also in the jewelry business. When Lhuillier deposited the check in his
account with the PCIB, Pasay Branch, it was dishonored for being drawn against insufficient funds.
Lhuillier's secretary informed the secretary of Legaspi of the dishonor. The latter told the former to
redeposit the check. Legaspi's secretary tried to contact private respondent but to no avail.
Upon her return from the province, private respondent was surprised to learn of the dishonor of the
check. She went to the Valenzuela Branch of Prudential Bank on July 4, 1988, to inquire why her check
was dishonored. She approached one Albert Angeles Reyes, the officer in charge of current account, and
requested him for the ledger of her current account. Private respondent discovered a debit of P300.00
penalty for the dishonor of her Prudential Check No. 983395. She asked why her check was dishonored
when there were sufficient funds in her account as reflected in her passbook. Reyes told her that there
was no need to review the passbook because the bank ledger was the best proof that she did not have
sufficient funds. Then, he abruptly faced his typewriter and started typing. S-jcj
Later, it was found out that the check in the amount of P35,271.60 deposited by private respondent on
June 1, 1988, was credited in her savings account only on June 24, 1988, or after a period of 23 days.
Thus the P11,500.00 check was redeposited by Lhuillier on June 24, 1988, and properly cleared on June
27, 1988.
Because of this incident, the bank tried to mollify private respondent by explaining to Legaspi and
Lhuillier that the bank was at fault. Since this was not the first incident private respondent had
experienced with the bank, private respondent was unmoved by the bank's apologies and she
commenced the present suit for damages before the RTC of Valenzuela.
After trial, the court rendered a decision on August 30, 1991, dismissing the complaint of private
respondent, as well as the counterclaim filed by the defendant, now petitioner.
Undeterred, private respondent appealed to the Court of Appeals. On January 31, 1996, respondent
appellate court rendered a decision in her favor, setting aside the trial court's decision and ordering
herein petitioner to pay private respondent the sum of P100,000.00 by way of moral damages;
P50,000.00 exemplary damages; P50,000.00 for and as attorney's fees; and to pay the costs.[3]
Petitioner filed a timely motion for reconsideration but it was denied. Hence, this petition, raising the
following issues:
I. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED WITH GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN DEVIATING
FROM ESTABLISHED JURISPRUDENCE IN REVERSING THE DISMISSAL JUDGMENT OF
THE TRIAL COURT AND INSTEAD AWARDED MORAL DAMAGES, EXEMPLARY
DAMAGES AND ATTORNEY'S FEES. Supr-eme
II. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED IN GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION WHERE, EVEN IN
THE ABSENCE OF EVIDENCE AS FOUND BY THE TRIAL COURT, AWARDED MORAL
DAMAGES IN THE AMOUNT OF P100,000.00.
III. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED IN GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION, WHERE, EVEN IN
THE ABSENCE OF EVIDENCE AS FOUND BY THE TRIAL COURT, AWARDED
P50,000.00 BY WAY OF EXEMPLARY DAMAGES. Co-urt
IV. WHETHER OR NOT THE RESPONDENT COURT OF APPEALS ACTED WITH GRAVE
ABUSE OF DISCRETION WHERE EVEN IN THE ABSENCE OF EVIDENCE, AWARDED
ATTORNEY'S FEES.
Simply stated, the issue is whether the respondent court erred and gravely abused its discretion in
awarding moral and exemplary damages and attorney's fees to be paid by petitioner to private
respondent.
Petitioner claims that generally the factual findings of the lower courts are final and binding upon this
Court. However, there are exceptions to this rule. One is where the trial court and the Court of Appeals
had arrived at diverse factual findings.[4]Petitioner faults the respondent court from deviating from the
basic rule that finding of facts by the trial court is entitled to great weight, because the trial court had the
opportunity to observe the deportment of witness and the evaluation of evidence presented during the
trial. Petitioner contends that the appellate court gravely abused its discretion when it awarded damages
to the plaintiff, even in the face of lack of evidence to prove such damages, as found by the trial court.
Firstly, petitioner questions the award of moral damages. It claims that private respondent did not suffer
any damage upon the dishonor of the check. Petitioner avers it acted in good faith. It was an honest
mistake on its part, according to petitioner, when misposting of private respondent's deposit on June 1,
1988, happened. Further, petitioner contends that private respondent may not "claim" damages because
the petitioner's manager and other employee had profusely apologized to private respondent for the
error. They offered to make restitution and apology to the payee of the check, Legaspi, as well as the
alleged endorsee, Lhuillier. Regrettably, it was private respondent who declined the offer and allegedly
said, that there was nothing more to it, and that the matter had been put to rest.[5]Jle-xj
Admittedly, as found by both the respondent appellate court and the trial court, petitioner bank had
committed a mistake. It misposted private respondent's check deposit to another account and delayed
the posting of the same to the proper account of the private respondent. The mistake resulted to the
dishonor of the private respondent's check. The trial court found "that the misposting of plaintiffs check
deposit to another account and the delayed posting of the same to the account of the plaintiff is a clear
proof of lack of supervision on the part of the defendant bank."[6] Similarly, the appellate court also
found that "while it may be true that the bank's negligence in dishonoring the properly funded check of
appellant might not have been attended with malice and bad faith, as appellee [bank] submits,
nevertheless, it is the result of lack of due care and caution expected of an employee of a firm engaged in
so sensitive and accurately demanding task as banking."[7]
In Simex International (Manila), Inc, vs. Court of Appeals, 183 SCRA 360, 367 (1990), and Bank of
Philippine Islands vs. IAC, et al., 206 SCRA 408, 412-413 (1992), this Court had occasion to stress the
fiduciary nature of the relationship between a bank and its depositors and the extent of diligence
expected of the former in handling the accounts entrusted to its care, thus: Lex-juris
"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 bank, such as the dishonor of a check without good reason,
34
 can cause the depositor not a little embarrassment if not also financial loss and
perhaps even civil and criminal litigation.
The point is that as a business affected with public interest and because of the
nature of its functions, the bank is under obligation to treat the account of its
depositors with meticulous care, always having in mind the fiduciary nature of
their relationship. x x x"
In the recent case of Philippine National Bank vs. Court of Appeals,[8] we held that "a bank is under
obligation to treat the accounts of its depositors with meticulous care whether such account consists
only of a few hundred pesos or of millions of pesos. Responsibility arising from negligence in the
performance of every kind of obligation is demandable. While petitioner's negligence in this case may
not have been attended with malice and bad faith, nevertheless, it caused serious anxiety,
embarrassment and humiliation". Hence we ruled that the offended party in said case was entitled to
recover reasonable moral damages.
Even if malice or bad faith was not sufficiently proved in the instant case, the fact remains that petitioner
has committed a serious mistake. It dishonored the check issued by the private respondent who turned
out to have sufficient funds with petitioner. The bank's negligence was the result of lack of due care and
caution required of managers and employees of a firm engaged in so sensitive and demanding business
as banking. Accordingly, the award of moral damages by the respondent Court of Appeals could not be
said to be in error nor in grave abuse of its discretion. Juri-smis
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. In our view, the award of P100,000.00 is reasonable, considering the
reputation and social standing of private respondent Leticia T. Valenzuela.[9]
The law allows the grant of exemplary damages by way of example for the public good. [10] The public
relies on the banks' sworn profession of diligence and meticulousness in giving irreproachable service.
The level of meticulousness must be maintained at all times by the banking sector. Hence, the Court of
Appeals did not err in awarding exemplary damages. In our view, however, the reduced amount of
P20,000.00 is more appropriate. Jj-juris
The award of attorney's fees is also proper when exemplary damages are awarded and since private
respondent was compelled to engage the services of a lawyer and incurred expenses to protect her
interest.[11] The standards in fixing attorney's fees are: (1) the amount and the character of the services
rendered; (2) labor, time and trouble involved; (3) the nature and importance of the litigation and
business in which the services were rendered; (4) the responsibility imposed; (5) the amount of money
and the value of the property affected by the controversy or involved in the employment; (6) the skill
and the experience called for in the performance of the services; (7) the professional character and the
social standing of the attorney; (8) the results secured, it being a recognized rule that an attorney may
properly charge a much larger fee when it is contingent than when it is not. [12] In this case, all the
aforementioned weighed, and considering that the amount involved in the controversy is only
P36,770.41, the total deposit of private respondent which was misposted by the bank, we find the award
of respondent court of P50,000.00 for attorney's fees, excessive and reduce the same to P30,000.00.
WHEREFORE, the assailed DECISION of the Court of Appeals is hereby AFFIRMED, with MODIFICATION.
The petitioner is ordered to pay P100,000.00 by way of moral damages in favor of private respondent
Leticia T. Valenzuela. It is further ordered to pay her exemplary damages in the amount of P20,000.00
and P30,000.00, attorney's fees. Jksm
Costs against petitioner.
SO ORDERED.

35