G G.R. No. 88013 March 19, 1990
215477 dated June 9, 1981, in favor of Sea-Land
SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL
BANK, respondents.
CRUZ, J.:
We are concerned in this case with the question of damages, specifically moral and
exemplary damages. The negligence of the private respondent has already been
established. All we have to ascertain is whether the petitioner is entitled to the said
damages and, if so, in what amounts.
The parties agree on the basic facts. The petitioner is a private corporation engaged
in the exportation of food products. It buys these products from various local
suppliers and then sells them abroad, particularly in the United States, Canada and
the Middle East. Most of its exports are purchased by the petitioner on credit.
The petitioner was a depositor of the respondent bank and maintained a checking
account in its branch at Romulo Avenue, Cubao, Quezon City. On May 25, 1981, the
petitioner deposited to its account in the said bank the amount of P100,000.00, thus
increasing its balance as of that date to P190,380.74. 1 Subsequently, the petitioner
issued several checks against its deposit but was suprised to learn later that they had
been dishonored for insufficient funds.
The dishonored checks are the following:
1. Check No. 215391 dated May 29, 1981, in favor of California
Manufacturing Company, Inc. for P16,480.00:
2. Check No. 215426 dated May 28, 1981, in favor of the Bureau
of Internal Revenue in the amount of P3,386.73:
3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg
Pedreo in the amount of P7,080.00;
4. Check No. 215441 dated June 5, 1981, in favor of Malabon
Longlife Trading Corporation in the amount of P42,906.00:
5. Check No. 215474 dated June 10, 1981, in favor of Malabon
Longlife Trading Corporation in the amount of P12,953.00:
6. Check No.
Services, Inc. in the amount of P27,024.45:
7. Check No. 215412 dated June 10, 1981, in favor of Baguio
Country Club Corporation in the amount of P4,385.02: and
8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta
Bayla in the amount of P6,275.00. 2
As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a
letter of demand to the petitioner, threatening prosecution if the dishonored check
issued to it was not made good. It also withheld delivery of the order made by the
petitioner. Similar letters were sent to the petitioner by the Malabon Long Life
Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10, 1981.
Malabon also canceled the petitioner's credit line and demanded that future payments
be made by it in cash or certified check. Meantime, action on the pending orders of
the petitioner with the other suppliers whose checks were dishonored was also
deferred.
The petitioner complained to the respondent bank on June 10, 1981. 3 Investigation
disclosed that the sum of P100,000.00 deposited by the petitioner on May 25, 1981,
had not been credited to it. The error was rectified on June 17, 1981, and the
dishonored checks were paid after they were re-deposited. 4
In its letter dated June 20, 1981, the petitioner demanded reparation from the
respondent bank for its "gross and wanton negligence." This demand was not met.
The petitioner then filed a complaint in the then Court of First Instance of Rizal
claiming from the private respondent moral damages in the sum of P1,000,000.00
and exemplary damages in the sum of P500,000.00, plus 25% attorney's fees, and
costs.
After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and
exemplary damages were not called for under the circumstances. However,
observing that the plaintiff's right had been violated, he ordered the defendant to pay
nominal damages in the amount of P20,000.00 plus P5,000.00 attorney's fees and
costs. 5 This decision was affirmed in toto by the respondent court. 6
The respondent court found with the trial court that the private respondent was guilty
of negligence but agreed that the petitioner was nevertheless not entitled to moral
damages. It said:
The essential ingredient of moral damages is proof of bad faith (De
Aparicio vs. Parogurga, 150 SCRA 280). Indeed, there was the
omission by the defendant-appellee bank to credit appellant's
deposit of P100,000.00 on May 25, 1981. But the bank rectified its
 records. It credited the said amount in favor of plaintiff-appellant
in less than a month. The dishonored checks were eventually paid.
These circumstances negate any imputation or insinuation of
malicious, fraudulent, wanton and gross bad faith and negligence
on the part of the defendant-appellant.
It is this ruling that is faulted in the petition now before us.
This Court has carefully examined the facts of this case and finds that it cannot share
some of the conclusions of the lower courts. It seems to us that the negligence of the
private respondent had been brushed off rather lightly as if it were a minor infraction
requiring no more than a slap on the wrist. We feel it is not enough to say that the
private respondent rectified its records and credited the deposit in less than a month
as if this were sufficient repentance. The error should not have been committed in the
first place. The respondent bank has not even explained why it was committed at all.
It is true that the dishonored checks were, as the Court of Appeals put it, "eventually"
paid. However, this took almost a month when, properly, the checks should have
been paid immediately upon presentment.
As the Court sees it, the initial carelessness of the respondent bank, aggravated by
the lack of promptitude in repairing its error, justifies the grant of moral damages.
This rather lackadaisical attitude toward the complaining depositor constituted the
gross negligence, if not wanton bad faith, that the respondent court said had not been
established by the petitioner.
We also note that while stressing the rectification made by the respondent bank, the
decision practically ignored the prejudice suffered by the petitioner. This was simply
glossed over if not, indeed, disbelieved. The fact is that the petitioner's credit line
was canceled and its orders were not acted upon pending receipt of actual payment
by the suppliers. Its business declined. Its reputation was tarnished. Its standing was
reduced in the business community. All this was due to the fault of the respondent
bank which was undeniably remiss in its duty to the petitioner.
Article 2205 of the Civil Code provides that actual or compensatory damages may be
received "(2) for injury to the plaintiff s business standing or commercial credit."
There is no question that the petitioner did sustain actual injury as a result of the
dishonored checks and that the existence of the loss having been established
"absolute certainty as to its amount is not required." 7 Such injury should bolster all
the more the demand of the petitioner for moral damages and justifies the
examination by this Court of the validity and reasonableness of the said claim.
We agree that moral damages are not awarded to penalize the defendant but to
compensate the plaintiff for the injuries he may have suffered. 8 In the case at bar, the
petitioner is seeking such damages for the prejudice sustained by it as a result of the
private respondent's fault. The respondent court said that the claimed losses are
purely speculative and are not supported by substantial evidence, but if failed to
consider that the amount of such losses need not be established with exactitude
precisely because of their nature. Moral damages are not susceptible of pecuniary
estimation. Article 2216 of the Civil Code specifically provides that "no proof of
pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or
exemplary damages may be adjudicated." That is why the determination of the
amount to be awarded (except liquidated damages) is left to the sound discretion of
the court, according to "the circumstances of each case."
From every viewpoint except that of the petitioner's, its claim of moral damages in
the amount of P1,000,000.00 is nothing short of preposterous. Its business certainly
is not that big, or its name that prestigious, to sustain such an extravagant pretense.
Moreover, a corporation is not as a rule entitled to moral damages because, not being
a natural person, it cannot experience physical suffering or such sentiments as
wounded feelings, serious anxiety, mental anguish and moral shock. The only
exception to this rule is where the corporation has a good reputation that is debased,
resulting in its social humiliation. 9
We shall recognize that the petitioner did suffer injury because of the private
respondent's negligence that caused the dishonor of the checks issued by it. The
immediate consequence was that its prestige was impaired because of the bouncing
checks and confidence in it as a reliable debtor was diminished. The private
respondent makes much of the one instance when the petitioner was sued in a
collection case, but that did not prove that it did not have a good reputation that
could not be marred, more so since that case was ultimately settled. 10 It does not
appear that, as the private respondent would portray it, the petitioner is an unsavory
and disreputable entity that has no good name to protect.
Considering all this, we feel that the award of nominal damages in the sum of
P20,000.00 was not the proper relief to which the petitioner was entitled. Under
Article 2221 of the Civil Code, "nominal damages are adjudicated in order that a
right of the plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the plaintiff for
any loss suffered by him." As we have found that the petitioner has indeed incurred
loss through the fault of the private respondent, the proper remedy is the award to it
of moral damages, which we impose, in our discretion, in the same amount of
P20,000.00.
Now for the exemplary damages.
The pertinent provisions of the Civil Code are the following:
Art. 2229. Exemplary or corrective damages are imposed, by way
of example or correction for the public good, in addition to the
moral, temperate, liquidated or compensatory damages.
 Art. 2232. In contracts and quasi-contracts, the court may award against the repetition of the ineptness and indefference that has been displayed here,
exemplary damages if the defendant acted in a wanton, fraudulent, lest the confidence of the public in the banking system be further impaired.
reckless, oppressive, or malevolent manner.
ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private
The banking system is an indispensable institution in the modern world and plays a respondent is ordered to pay the petitioner, in lieu of nominal damages, moral
vital role in the economic life of every civilized nation. Whether as mere passive damages in the amount of P20,000.00, and exemplary damages in the amount of
entities for the safekeeping and saving of money or as active instruments of business P50,000.00 plus the original award of attorney's fees in the amount of P5,000.00, and
and commerce, banks have become an ubiquitous presence among the people, who costs.
have come to regard them with respect and even gratitude and, most of all,
confidence. Thus, even the humble wage-earner has not hesitated to entrust his life's SO ORDERED.
savings to the bank of his choice, knowing that they will be safe in its custody and
will even earn some interest for him. The ordinary person, with equal faith, usually
maintains a modest checking account for security and convenience in the settling of
his monthly bills and the payment of ordinary expenses. As for business entities like
the petitioner, the bank is a trusted and active associate that can help in the running
of their affairs, not only in the form of loans when needed but more often in the
conduct of their day-to-day transactions like the issuance or encashment of checks.

In every case, the depositor expects the bank to treat his account with the utmost
fidelity, whether such account consists only of a few hundred pesos or of millions.
The bank must record every single transaction accurately, down to the last centavo,
and as promptly as possible. This has to be done if the account is to reflect at any
given time the amount of money the depositor can dispose of as he sees fit, confident
that the bank will deliver it as and to whomever he directs. A blunder on the part of
the bank, such as the dishonor of a check without good reason, can cause the
depositor not a little embarrassment if not also financial loss and perhaps even civil
and criminal litigation.

The point is that as a business affected with public interest and because of the nature
of its functions, the bank is under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of their
relationship. In the case at bar, it is obvious that the respondent bank was remiss in
that duty and violated that relationship. What is especially deplorable is that, having
been informed of its error in not crediting the deposit in question to the petitioner,
the respondent bank did not immediately correct it but did so only one week later or
twenty-three days after the deposit was made. It bears repeating that the record does
not contain any satisfactory explanation of why the error was made in the first place
and why it was not corrected immediately after its discovery. Such ineptness comes
under the concept of the wanton manner contemplated in the Civil Code that calls for
the imposition of exemplary damages.

After deliberating on this particular matter, the Court, in the exercise of its
discretion, hereby imposes upon the respondent bank exemplary damages in the
amount of P50,000.00, "by way of example or correction for the public good," in the
words of the law. It is expected that this ruling will serve as a warning and deterrent
G.R. No. 127469 January 15, 2004
PHILIPPINE BANKING CORPORATION, petitioner,
vs.
COURT OF APPEALS and LEONILO MARCOS, respondents.
CARPIO, J.:
The Case
Before us is a petition for review of the Decision1 of the Court of Appeals in CA-
G.R. CV No. 34382 dated 10 December 1996 modifying the Decision 2 of the
Regional Trial Court, Fourth Judicial Region, Assisting Court, Bian, Laguna in
Civil Case No. B-3148 entitled "Leonilo Marcos v. Philippine Banking Corporation."
The Antecedent Facts
On 30 August 1989, Leonilo Marcos ("Marcos") filed with the trial court a
Complaint for Sum of Money with Damages 3 against petitioner Philippine Banking
Corporation ("BANK").4
Marcos alleged that sometime in 1982, the BANK through Florencio B. Pagsaligan
("Pagsaligan"), one of the officials of the BANK and a close friend of Marcos,
persuaded him to deposit money with the BANK. Marcos yielded to Pagsaligans
persuasion and claimed he made a time deposit with the BANK on two occasions.
The first was on 11 March 1982 for P664,897.67. The BANK issued Receipt No.
635734 for this time deposit. On 12 March 1982, Marcos claimed he again made a
time deposit with the BANK for P764,897.67. The BANK did not issue an official
receipt for this time deposit but it acknowledged a deposit of this amount through a
letter-certification Pagsaligan issued. The time deposits earned interest at 17% per
annum and had a maturity period of 90 days.
Marcos alleged that Pagsaligan kept the various time deposit certificates on the
assurance that the BANK would take care of the certificates, interests and renewals.
Marcos claimed that from the time of the deposit, he had not received the principal
amount or its interest.
Sometime in March 1983, Marcos wanted to withdraw from the BANK his time
deposits and the accumulated interests to buy materials for his construction business.
However, the BANK through Pagsaligan convinced Marcos to keep his time deposits
intact and instead to open several domestic letters of credit. The BANK required
Marcos to give a marginal deposit of 30% of the total amount of the letters of credit.
The time deposits of Marcos would secure 70% of the letters of credit. Since Marcos
trusted the BANK and Pagsaligan, he signed blank printed forms of the application
for the domestic letters of credit, trust receipt agreements and promissory notes.
Marcos executed three Trust Receipt Agreements totalling P851,250, broken down
as follows: (1) Trust Receipt No. CD 83.7 dated 8 March 1983 for P300,000; (2)
Trust Receipt No. CD 83.9 dated 15 March 1983 for P300,000; and (3) Trust Receipt
No. CD 83.10 dated 15 March 1983 for P251,250. Marcos deposited the required
30% marginal deposit for the trust receipt agreements. Marcos claimed that his
obligation to the BANK was therefore only P595,875 representing 70% of the letters
of credit.
Marcos believed that he and the BANK became creditors and debtors of each other.
Marcos expected the BANK to offset automatically a portion of his time deposits and
the accumulated interest with the amount covered by the three trust receipts
totalling P851,250 less the 30% marginal deposit that he had paid. Marcos argued
that if only the BANK applied his time deposits and the accumulated interest to his
remaining obligation, which is 70% of the total amount of the letters of credit, he
would have paid completely his debt. Marcos further pointed out that since he did
not apply for a renewal of the trust receipt agreements, the BANK had no right to
renew the same.
Marcos accused the BANK of unjustly demanding payment for the total amount of
the trust receipt agreements without deducting the 30% marginal deposit that he had
already made. He decried the BANKs unlawful charging of accumulated interest
because he claimed there was no agreement as to the payment of interest. The
interest arose from numerous alleged extensions and penalties. Marcos reiterated that
there was no agreement to this effect because his time deposits served as the
collateral for his remaining obligation.
Marcos also denied that he obtained another loan from the BANK for P500,000 with
interest at 25% per annum supposedly covered by Promissory Note No. 20-979-83
dated 24 October 1983. Marcos bewailed the BANKs belated claim that his time
deposits were applied to this void promissory note on 12 March 1985.
In sum, Marcos claimed that:
(1) his time deposit with the BANK "in the total sum of P1,428,795.345 has earned
accumulated interest since March 1982 up to the present in the total amount
of P1,727,305.45 at the rate of 17% per annum so his total money with defendant
(the BANK) is P3,156,100.79 less the amount of P595,875 representing the 70%
balance of the marginal deposit and/or balance of the trust agreements;" and
(2) his indebtedness was only P851,250 less the 30% paid as marginal deposit or a
balance of P595,875, which the BANK should have automatically deducted from his
time deposits and accumulated interest, leaving the BANKs indebtedness to him
at P2,560,025.79.
Marcos prayed the trial court to declare Promissory Note No. 20-979-83 void and to
order the BANK to pay the amount of his time deposits with interest. He also sought
the award of moral and exemplary damages as well as attorneys fees for P200,000
plus 25% of the amount due.
On 18 September 1989, summons and a copy of the complaint were served on the
BANK.6
On 9 October 1989, the BANK filed its Answer with Counterclaim. The BANK
denied the allegations in the complaint. The BANK believed that the suit was
Marcos desperate attempt to avoid liability under several trust receipt agreements
that were the subject of a criminal complaint.
The BANK alleged that as of 12 March 1982, the total amount of the various time
deposits of Marcos was only P764,897.67 and not P1,428,795.357 as alleged in the
complaint. The P764,897.67 included the P664,897.67 that Marcos deposited on 11
March 1982.
The BANK pointed out that Marcos delivered to the BANK the time deposit
certificates by virtue of the Deed of Assignment dated 2 June 1989. Marcos executed
the Deed of Assignment to secure his various loan obligations. The BANK claimed
that these loans are covered by Promissory Note No. 20-756-82 dated 2 June 1982
for P420,000 and Promissory Note No. 20-979-83 dated 24 October 1983
for P500,000. The BANK stressed that these obligations are separate and distinct
from the trust receipt agreements.
When Marcos defaulted in the payment of Promissory Note No. 20-979-83, the
BANK debited his time deposits and applied the same to the obligation that is now
considered fully paid.8 The BANK insisted that the Deed of Assignment authorized it
to apply the time deposits in payment of Promissory Note No. 20-979-83.
In March 1982, the wife of Marcos, Consolacion Marcos, sought the advice of
Pagsaligan. Consolacion informed Pagsaligan that she and her husband needed to
finance the purchase of construction materials for their business, L.A. Marcos
Construction Company. Pagsaligan suggested the opening of the letters of credit and
the execution of trust receipts, whereby the BANK would agree to purchase the
goods needed by the client through the letters of credit. The BANK would then
entrust the goods to the client, as entrustee, who would undertake to deliver the
proceeds of the sale or the goods themselves to the entrustor within a specified time.
The BANK claimed that Marcos freely entered into the trust receipt agreements.
When Marcos failed to account for the goods delivered or for the proceeds of the
sale, the BANK filed a complaint for violation of Presidential Decree No. 115 or the
Trust Receipts Law. Instead of initiating negotiations for the settlement of the
account, Marcos filed this suit.
The BANK denied falsifying Promissory Note No. 20-979-83. The BANK claimed
that the promissory note is supported by documentary evidence such as Marcos
application for this loan and the microfilm of the cashiers check issued for the loan.
The BANK insisted that Marcos could not deny the agreement for the payment of
interest and penalties under the trust receipt agreements. The BANK prayed for the
dismissal of the complaint, payment of damages, attorneys fees and cost of suit.
On 15 December 1989, the trial court on motion of Marcos counsel issued an order
declaring the BANK in default for filing its answer five days after the 15-day period
to file the answer had lapsed.9 The trial court also held that the answer is a mere
scrap of paper because a copy was not furnished to Marcos. In the same order, the
trial court allowed Marcos to present his evidence ex parte on 18 December 1989.
On that date, Marcos testified and presented documentary evidence. The case was
then submitted for decision.
On 19 December 1989, Marcos received a copy of the BANKs Answer with
Compulsory Counterclaim.
On 29 December 1989, the BANK filed an opposition to Marcos motion to declare
the BANK in default. On 9 January 1990, the BANK filed a motion to lift the order
of default claiming that it had only then learned of the order of default. The BANK
explained that its delayed filing of the Answer with Counterclaim and failure to serve
a copy of the answer on Marcos was due to excusable negligence. The BANK asked
the trial court to set aside the order of default because it had a valid and meritorious
defense.
On 7 February 1990, the trial court issued an order setting aside the default order and
admitting the BANKs Answer with Compulsory Counterclaim. The trial court
ordered the BANK to present its evidence on 12 March 1990.
On 5 March 1990, the BANK filed a motion praying to cross-examine Marcos who
had testified during the ex-partehearing of 18 December 1989. On 12 March 1990,
the trial court denied the BANKs motion and directed the BANK to present its
evidence. Trial then ensued.
The BANK presented two witnesses, Rodolfo Sales, the Branch Manager of the
BANKs Cubao Branch since 1987, and Pagsaligan, the Branch Manager of the same
branch from 1982 to 1986.
On 24 April 1990, the counsel of Marcos cross-examined Pagsaligan. Due to lack of
material time, the trial court reset the continuation of the cross-examination and
presentation of other evidence. The succeeding hearings were postponed, specifically
on 24, 27 and 28 of August 1990, because of the BANKs failure to produce its
witness, Pagsaligan. The BANK on these scheduled hearings also failed to present
other evidence.
On 7 September 1990, the BANK moved to postpone the hearing on the ground that
Pagsaligan could not attend the hearing because of illness. The trial court denied the
motion to postpone and on motion of Marcos counsel ruled that the BANK had
waived its right to present further evidence. The trial court considered the case
submitted for decision. The BANK moved for reconsideration, which the trial court
denied.
On 8 October 1990, the trial court rendered its decision in favor of Marcos.
Aggrieved, the BANK appealed to the Court of Appeals.
On 10 December 1996, the Court of Appeals modified the decision of the trial court
by reducing the amount of actual damages and deleting the attorneys fees awarded
to Marcos.
The Ruling of the Trial Court
The trial court ruled that the total amount of time deposits of Marcos
was P1,429,795.34 and not only P764,897.67 as claimed by the BANK. The trial
court found that Marcos made a time deposit on two occasions. The first time deposit
was made on 11 March 1982 for P664,897.67 as shown by Receipt No. 635743. On
12 March 1982, Marcos again made a time deposit for P764,897.67 as acknowledged
by Pagsaligan in a letter of certification. The two time deposits thus amounted
to P1,429,795.34.
The trial court pointed out that no receipt was issued for the 12 March 1982 time
deposit because the letter of certification was sufficient. The trial court made a
finding that the certification letter did not include the time deposit made on 11 March
1982. The 12 March 1982 deposit was in cash while the 11 March 1982 deposit was
in checks which still had to clear. The checks were not included in the certification
letter since the BANK could not credit the amounts of the checks prior to clearing.
The trial court declared that even the Deed of Assignment acknowledged that
Marcos made several time deposits as the Deed stated that the assigment was
charged against "various" time deposits.
The trial court recognized the existence of the Deed of Assignment and the two loans
that Marcos supposedly obtained from the BANK on 28 May 1982 for P340,000 and
on 2 June 1982 for P420,000. The two loans amounted to P760,000. On 2 June 1982,
the same day that he secured the second loan, Marcos executed a Deed of
Assignment assigning to the BANK P760,000 of his time deposits. The trial court
concluded that obviously the two loans were immediately paid by virtue of the Deed
of Assignment.
The trial court found it strange that Marcos borrowed money from the BANK at a
higher rate of interest instead of just withdrawing his time deposits. The trial court
saw no rhyme or reason why Marcos had to secure the loans from the BANK. The
trial court was convinced that Marcos did not know that what he had signed were
loan applications and a Deed of Assignment in payment for his loans. Nonetheless,
the trial court recognized "the said loan of P760,000 and its corresponding payment
by virtue of the Deed of Assignment for the equal sum."10
If the BANKs claim is true that the time deposits of Marcos amounted only
to P764,897.67 and he had already assigned P760,000 of this amount, the trial court
pointed out that what would be left as of 3 June 1982 would only
be P4,867.67.11 Yet, after the time deposits had matured, the BANK allowed Marcos
to open letters of credit three times. The three letters of credit were all secured by the
time deposits of Marcos after he had paid the 30% marginal deposit. The trial court
opined that if Marcos time deposit was only P764,897.67, then the letters of credit
totalling P595,875 (less 30% marginal deposit) was guaranteed by
only P4,867.67,12 the remaining time deposits after Marcos had executed the Deed of
Assignment for P760,000.
According to the trial court, a security of only P4,867.6713 for a loan worth P595,875
(less 30% marginal deposit) is not only preposterous, it is also comical. Worse, aside
from allowing Marcos to have unsecured trust receipts, the BANK still claimed to
have granted Marcos another loan for P500,000 on 25 October 1983 covered by
Promissory Note No. 20-979-83. The BANK is a commercial bank engaged in the
business of lending money. Allowing a loan of more than a million pesos without
collateral is in the words of the trial court, "an impossibility and a gross violation of
Central Bank Rules and Regulations, which no Bank Manager has such authority to
grant."14 Thus, the trial court held that the BANK could not have granted Marcos the
loan covered by Promissory Note No. 20-979-83 because it was unsecured by any
collateral.
The trial court required the BANK to produce the original copies of the loan
application and Promissory Note No. 20-979-83 so that it could determine who
applied for this loan. However, the BANK presented to the trial court only the
"machine copies of the duplicate" of these documents.
Based on the "machine copies of the duplicate" of the two documents, the trial court
noticed the following discrepancies: (1) Marcos signature on the two documents are
merely initials unlike in the other documents submitted by the BANK; (2) it is highly
unnatural for the BANK to only have duplicate copies of the two documents in its
custody; (3) the address of Marcos in the documents is different from the place of
residence as stated by Marcos in the other documents annexed by the BANK in its
Answer; (4) Pagsaligan made it appear that a check for the loan proceeds
of P470,588 less bank charges was issued to Marcos but the checks payee was one
ATTY. LEONILO MARCOS and, as the trial court noted, Marcos is not a lawyer;
and (5) Pagsaligan was not sure what branch of the BANK issued the check for the
loan proceeds. The trial court was convinced that Marcos did not execute the
questionable documents covering the P500,000 loan and Pagsaligan used these
documents as a means to justify his inability to explain and account for the time
deposits of Marcos.
The trial court noted the BANKs "defective" documentation of its transaction with
Marcos. First, the BANK was not in possession of the original copies of the
documents like the loan applications. Second, the BANK did not have a ledger of the
accounts of Marcos or of his various transactions with the BANK. Last, the BANK
did not issue a certificate of time deposit to Marcos. Again, the trial court attributed
the BANKs lapses to Pagsaligans scheme to defraud Marcos of his time deposits.
The trial court also took note of Pagsaligans demeanor on the witness stand.
Pagsaligan evaded the questions by giving unresponsive or inconsistent answers
compelling the trial court to admonish him. When the trial court ordered Pagsaligan
to produce the documents, he "conveniently became sick" 15 and thus failed to attend
the hearings without presenting proof of his physical condition.
The trial court disregarded the BANKs assertion that the time deposits were
converted into a savings account at 14% or 10% per annum upon maturity. The
BANK never informed Marcos that his time deposits had already matured and these
were converted into a savings account. As to the interest due on the trust receipts, the
trial court ruled that there is no basis for such a charge because the documents do not
stipulate any interest.
In computing the amount due to Marcos, the trial court took into account the
marginal deposit that Marcos had already paid which is equivalent to 30% of the
total amount of the three trust receipts. The three trust receipts totalling P851,250
would then have a balance of P595,875. The balance became due in March 1987 and
on the same date, Marcos time deposits of P669,932.30 had already earned interest
from 1983 to 1987 totalling P569,323.21 at 17% per annum. Thus, the trial court
ruled that the time deposits in 1987 totalled P1,239,115. From this amount, the trial
court deducted P595,875, the amount of the trust receipts, leaving a balance on the
time deposits of P643,240 as of March 1987. However, since the BANK failed to
return the time deposits of Marcos, which again matured in March 1990, the time
deposits with interest, less the amount of trust receipts paid in 1987, amounted
to P971,292.49 as of March 1990.
In the alternative, the trial court ruled that even if Marcos had only one time deposit
of P764,897.67 as claimed by the BANK, the time deposit would have still earned
interest at the rate of 17% per annum. The time deposit of P650,163 would have
increased to P1,415,060 in 1987 after earning interest. Deducting the amount of the
three trust receipts, Marcos time deposits still totalled P1,236,969.30 plus interest.
The dispositive portion of the decision of the trial court reads:
WHEREFORE, under the foregoing circumstances, judgment is hereby
rendered in favor of Plaintiff, directing Defendant Bank as follows:
1) to return to Plaintiff his time deposit in the sum of P971,292.49
with interest thereon at the legal rate, until fully restituted;
2) to pay attorneys fees of P200,000.00; [and]
3) [to pay the] cost of these proceedings.
IT IS SO ORDERED.16
The Ruling of the Court of Appeals
The Court of Appeals addressed the procedural and substantive issues that the
BANK raised.
The appellate court ruled that the trial court committed a reversible error when it
denied the BANKs motion to cross-examine Marcos. The appellate court ruled that
the right to cross-examine is a fundamental right that the BANK did not waive
because the BANK vigorously asserted this right. The BANKs failure to serve a
notice of the motion to Marcos is not a valid ground to deny the motion to cross-
examine. The appellate court held that the motion to cross-examine is one of those
non-litigated motions that do not require the movant to provide a notice of hearing to
the other party.
The Court of Appeals pointed out that when the trial court lifted the order of default,
it had the duty to afford the BANK its right to cross-examine Marcos. This duty
assumed greater importance because the only evidence supporting the complaint is
Marcos ex-parte testimony. The trial court should have tested the veracity of
Marcos testimony through the distilling process of cross-examination. The Court of
Appeals, however, believed that the case should not be remanded to the trial court
because Marcos testimony on the time deposits is supported by evidence on record
from which the appellate court could make an intelligent judgment.
On the second procedural issue, the Court of Appeals held that the trial court did not
err when it declared that the BANK had waived its right to present its evidence and
had submitted the case for decision. The appellate court agreed with the grounds
relied upon by the trial court in its Order dated 7 September 1990.
The Court of Appeals, however, differed with the finding of the trial court as to the
total amount of the time deposits. The appellate court ruled that the total amount of
the time deposits of Marcos is only P764,897.67 and not P1,429,795.34 as found by
the trial court. The certification letter issued by Pagsaligan showed that Marcos made
a time deposit on 12 March 1982 for P764,897.67. The certification letter shows that
the amount mentioned in the letter was the aggregate or total amount of the time
deposits of Marcos as of that date. Therefore, the P764,897.67 already included
the P664,897.67 time deposit made by Marcos on 11 March 1982.
The Court of Appeals further explained:
Besides, the Official Receipt (Exh. "B", p. 32, Records) dated March 11,
1982 covering the sum of P664,987.67 time deposit did not provide for a
maturity date implying clearly that the amount covered by said receipt
forms part of the total sum shown in the letter-certification which contained
a maturity date. Moreover, it taxes ones credulity to believe that appellee
would make a time deposit on March 12, 1982 in the sum
of P764,897.67 which except for the additional sum of P100,000.00 is
practically identical (see underlined figures) to the sum
of P664,897.67 deposited the day before March 11, 1982.
Additionally, We agree with the contention of the appellant that the lower
court wrongly appreciated the testimony of Mr. Pagsaligan. Our finding is
strengthened when we consider the alleged application for loan by the
appellee with the appellant in the sum of P500,000.00 dated October 24,
1983. (Exh. "J", p. 40, Records), wherein it was stated that the loan is for
additional working capital versus the various time deposit amounting
to P760,000.00.17 (Emphasis supplied)
The Court of Appeals sustained the factual findings of the trial court in ruling that
Promissory Note No. 20-979-83 is void. There is no evidence of a bank ledger or
computation of interest of the loan. The appellate court blamed the BANK for failing
to comply with the orders of the trial court to produce the documents on the loan.
The BANK also made inconsistent statements. In its Answer to the Complaint, the
BANK alleged that the loan was fully paid when it debited the time deposits of
Marcos with the loan. However, in its discussion of the assigned errors, the BANK
claimed that Marcos had yet to pay the loan.
The appellate court deleted the award of attorneys fees. It noted that the trial court
failed to justify the award of attorneys fees in the text of its decision. The
dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, premises considered, the appealed decision is SET
ASIDE. A new judgment is hereby rendered ordering the appellant bank to
return to the appellee his time deposit in the sum of P764,897.67 with
17% interest within 90 days from March 11, 1982 in accordance with
the letter-certification and with legal interest thereafter until fully paid.
Costs against the appellant.
SO ORDERED.18 (Emphasis supplied)
The Issues
The BANK anchors this petition on the following issues:
1) WHETHER OR NOT THE PETITIONER [sic] ABLE TO PROVE THE
PRIVATE RESPONDENTS OUTSTANDING OBLIGATIONS
SECURED BY THE ASSIGNMENT OF TIME DEPOSITS?
1.1) COROLLARILY, WHETHER OR NOT THE PROVISIONS
OF SECTION 8 RULE 10 OF [sic] THEN REVISED RULES OF
COURT BE APPLIED [sic] SO AS TO CREATE A JUDICIAL
ADMISSION ON THE GENUINENESS AND DUE
EXECUTION OF THE ACTIONABLE DOCUMENTS
APPENDED TO THE PETITIONERS ANSWER?
2) WHETHER OR NOT PETITIONER [sic] DEPRIVED OF DUE
PROCESS WHEN THE LOWER COURT HAS [sic] DECLARED
PETITIONER TO HAVE WAIVED PRESENTATION OF FURTHER
EVIDENCE AND CONSIDERED THE CASE SUBMITTED FOR
RESOLUTION?19
The Ruling of the Court
The petition is without merit.
Procedural Issues
There was no violation of the BANKs right to procedural due process when the trial
court denied the BANKs motion to cross-examine Marcos. Prior to the denial of the
motion, the trial court had properly declared the BANK in default. Since the BANK
was in default, Marcos was able to present his evidence ex-parte including his own
testimony. When the trial court lifted the order of default, the BANK was restored to
its standing and rights in the action. However, as a rule, the proceedings already
taken should not be disturbed.20 Nevertheless, it is within the trial courts discretion
to reopen the evidence submitted by the plaintiff and allow the defendant to
challenge the same, by cross-examining the plaintiffs witnesses or introducing
countervailing evidence.21 The 1964 Rules of Court, the rules then in effect at the
time of the hearing of this case, recognized the trial courts exercise of this
discretion. The 1997 Rules of Court retained this discretion.22 Section 3, Rule 18 of
the 1964 Rules of Court reads:
 Sec. 3. Relief from order of default. A party declared in default may any
time after discovery thereof and before judgment file a motion under oath to
set aside the order of default upon proper showing that his failure to answer
was due to fraud, accident, mistake or excusable neglect and that he has a
meritorious defense. In such case the order of default may be set aside on
such terms and conditions as the judge may imposein the interest of
justice. (Emphasis supplied)
The records show that the BANK did not ask the trial court to restore its right to
cross-examine Marcos when it sought the lifting of the default order on 9 January
1990. Thus, the order dated 7 February 1990 setting aside the order of default did not
confer on the BANK the right to cross-examine Marcos. It was only on 2 March
1990 that the BANK filed the motion to cross-examine Marcos. During the 12 March
1990 hearing, the trial court denied the BANKs oral manifestation to grant its
motion to cross-examine Marcos because there was no proof of service on Marcos.
The BANKs counsel pleaded for reconsideration but the trial court denied the plea
and ordered the BANK to present its evidence. Instead of presenting its evidence, the
BANK moved for the resetting of the hearing and when the trial court denied the
same, the BANK informed the trial court that it was elevating the denial to the
"upper court."23
To repeat, the trial court had previously declared the BANK in default. The trial
court therefore had the right to decide whether or not to disturb the testimony of
Marcos that had already been terminated even before the trial court lifted the order of
default.
We do not agree with the appellate courts ruling that a motion to cross-examine is a
non-litigated motion and that the trial court gravely abused its discretion when it
denied the motion to cross-examine. A motion to cross-examine is adversarial. The
adverse party in this case had the right to resist the motion to cross-examine because
the movant had previously forfeited its right to cross-examine the witness. The
purpose of a notice of a motion is to avoid surprises on the opposite party and to give
him time to study and meet the arguments.24 In a motion to cross-examine, the
adverse party has the right not only to prepare a meaningful opposition to the motion
but also to be informed that his witness is being recalled for cross-examination. The
proof of service was therefore indispensable and the trial court was correct in
denying the oral manifestation to grant the motion for cross-examination.
We find no justifiable reason to relax the application of the rule on notice of
motions25 to this case. The BANK could have easily re-filed the motion to cross-
examine with the requisite notice to Marcos. It did not do so. The BANK did not
make good its threat to elevate the denial to a higher court. The BANK waited until
the trial court rendered a judgment on the merits before questioning the interlocutory
order of denial.
While the right to cross-examine is a vital element of procedural due process, the
right does not necessarily require an actual cross-examination, but merely an
opportunity to exercise this right if desired by the party entitled to it. 26Clearly, the
BANKs failure to cross-examine is imputable to the BANK when it lost this
right27 as it was in default and failed thereafter to exhaust the remedies to secure the
exercise of this right at the earliest opportunity.
The two other procedural lapses that the BANK attributes to the appellate and trial
courts deserve scant consideration.
The BANK raises for the very first time the issue of judicial admission on the part of
Marcos. The BANK even has the audacity to fault the Court of Appeals for not
ruling on this issue when it never raised this matter before the appellate court or
before the trial court. Obviously, this issue is only an afterthought. An issue raised
for the first time on appeal and not raised timely in the proceedings in the lower
court is barred by estoppel.28
The BANK cannot claim that Marcos had admitted the due execution of the
documents attached to its answer because the BANK filed its answer late and even
failed to serve it on Marcos. The BANKs answer, including the actionable
documents it pleaded and attached to its answer, was a mere scrap of paper. There
was nothing that Marcos could specifically deny under oath. Marcos had already
completed the presentation of his evidence when the trial court lifted the order of
default and admitted the BANKs answer. The provision of the Rules of Court
governing admission of actionable documents was not enacted to reward a party in
default. We will not allow a party to gain an advantage from its disregard of the
rules.
As to the issue of its right to present additional evidence, we agree with the Court of
Appeals that the trial court correctly ruled that the BANK had waived this right. The
BANK cannot now claim that it was deprived of its right to conduct a re-direct
examination of Pagsaligan. The BANK postponed the hearings three times 29 because
of its inability to secure Pagsaligans presence during the hearings. The BANK could
have presented another witness or its other evidence but it obstinately insisted on the
resetting of the hearing because of Pagsaligans absence allegedly due to illness.
The BANKs propensity for postponements had long delayed the case. Its motion for
postponement based on Pagsaligans illness was not even supported by documentary
evidence such as a medical certificate. Documentary evidence of the illness is
necessary before the trial court could rule that there is a sufficient basis to grant the
postponement.30
The BANKs Fiduciary Duty to its Depositor
The BANK is liable to Marcos for offsetting his time deposits with a fictitious
promissory note. The existence of Promissory Note No. 20-979-83 could have been
easily proven had the BANK presented the original copies of the promissory note
and its supporting evidence. In lieu of the original copies, the BANK presented the
"machine copies of the duplicate" of the documents. These substitute documents
have no evidentiary value. The BANKs failure to explain the absence of the original
documents and to maintain a record of the offsetting of this loan with the time
deposits bring to fore the BANKs dismal failure to fulfill its fiduciary duty to
Marcos.
Section 2 of Republic Act No. 8791 (General Banking Law of 2000) expressly
imposes this fiduciary duty on banks when it declares that the State recognizes the
"fiduciary nature of banking that requires high standards of integrity and
performance." This statutory declaration merely echoes the earlier pronouncement of
the Supreme Court in Simex International (Manila) Inc. v. Court of
Appeals31 requiring banks to "treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship." 32 The Court
reiterated this fiduciary duty of banks in subsequent cases. 33
Although RA No. 8791 took effect only in the year 2000, 34 at the time that the
BANK transacted with Marcos, jurisprudence had already imposed on banks the
same high standard of diligence required under RA No. 8791. 35This fiduciary
relationship means that the banks obligation to observe "high standards of integrity
and performance" is deemed written into every deposit agreement between a bank
and its depositor.
The fiduciary nature of banking requires banks to assume a degree of diligence
higher than that of a good father of a family. Thus, the BANKs fiduciary duty
imposes upon it a higher level of accountability than that expected of Marcos, a
businessman, who negligently signed blank forms and entrusted his certificates of
time deposits to Pagsaligan without retaining copies of the certificates.
The business of banking is imbued with public interest. The stability of banks largely
depends on the confidence of the people in the honesty and efficiency of banks.
In Simex International (Manila) Inc. v. Court of Appeals 36 we pointed out the
depositors reasonable expectations from a bank and the banks corresponding duty
to its depositor, as follows:
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.
As the BANKs depositor, Marcos had the right to expect that the BANK was
accurately recording his transactions with it. Upon the maturity of his time deposits,
Marcos also had the right to withdraw the amount due him after the BANK had
correctly debited his outstanding obligations from his time deposits.
By the very nature of its business, the BANK should have had in its possession the
original copies of the disputed promissory note and the records and ledgers
evidencing the offsetting of the loan with the time deposits of Marcos. The BANK
inexplicably failed to produce the original copies of these documents. Clearly, the
BANK failed to treat the account of Marcos with meticulous care.
The BANK claims that it is a reputable banking institution and that it has no reason
to forge Promissory Note No. 20-979-83. The trial court and appellate court did not
rule that it was the bank that forged the promissory note. It was Pagsaligan, the
BANKs branch manager and a close friend of Marcos, whom the trial court
categorically blamed for the fictitious loan agreements. The trial court held that
Pagsaligan made up the loan agreement to cover up his inability to account for the
time deposits of Marcos.
Whether it was the BANKs negligence and inefficiency or Pagsaligans misdeed
that deprived Marcos of the amount due him will not excuse the BANK from its
obligation to return to Marcos the correct amount of his time deposits with interest.
The duty to observe "high standards of integrity and performance" imposes on the
BANK that obligation. The BANK cannot also unjustly enrich itself by keeping
Marcos money.
Assuming Pagsaligan was behind the spurious promissory note, the BANK would
still be accountable to Marcos. We have held that a bank is liable for the wrongful
acts of its officers done in the interest of the bank or in their dealings as bank
representatives but not for acts outside the scope of their authority. 37 Thus, we held:
A bank holding out its officers and agents as worthy of confidence will not
be permitted to profit by the frauds they may thus be enabled to perpetrate
in the apparent scope of their employment; nor will it be permitted to shirk
its responsibility for such frauds, even though no benefit may accrue to the
bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation
is liable to innocent third persons where the representation is made in the
course of its business by an agent acting within the general scope of his
authority even though, in the particular case, the agent is secretly abusing
his authority and attempting to perpetrate a fraud upon his principal or some
other person, for his own ultimate benefit.38
The Existence of Promissory Note No. 20-979-83 was not Proven
The BANK failed to produce the best evidence the original copies of the loan
application and promissory note. The Best Evidence Rule provides that the court
shall not receive any evidence that is merely substitutionary in its nature, such as
photocopies, as long as the original evidence can be had. 39 Absent a clear showing
that the original writing has been lost, destroyed or cannot be produced in court, the
photocopy must be disregarded, being unworthy of any probative value and being an
inadmissible piece of evidence.40
What the BANK presented were merely the "machine copies of the duplicate" of the
loan application and promissory note. No explanation was ever offered by the BANK
for its inability to produce the original copies of the documentary evidence. The
BANK also did not comply with the orders of the trial court to submit the originals.
The purpose of the rule requiring the production of the best evidence is the
prevention of fraud.41 If a party is in possession of evidence and withholds it, and
seeks to substitute inferior evidence in its place, the presumption naturally arises that
the better evidence is withheld for fraudulent purposes, which its production would
expose and defeat.42
The absence of the original of the documentary evidence casts suspicion on the
existence of Promissory Note No. 20-979-83 considering the BANKs fiduciary duty
to keep efficiently a record of its transactions with its depositors. Moreover, the
circumstances enumerated by the trial court bolster the conclusion that Promissory
Note No. 20-979-83 is bogus. The BANK has only itself to blame for the dearth of
competent proof to establish the existence of Promissory Note No. 20-979-83.
Total Amount Due to Marcos
The BANK and Marcos do not now dispute the ruling of the Court of Appeals that
the total amount of time deposits that Marcos placed with the BANK is
only P764,897.67 and not P1,429,795.34 as found by the trial court. The BANK has
always argued that Marcos time deposits only totalled P764,897.67.43 What the
BANK insists on in this petition is the trial courts violation of its right to procedural
due process and the absence of any obligation to pay or return anything to Marcos.
Marcos, on the other hand, merely prays for the affirmation of either the trial court or
appellate court decision.44 We uphold the finding of the Court of Appeals as to the
amount of the time deposits as such finding is in accord with the evidence on record.
Marcos claimed that the certificates of time deposit were with Pagsaligan for
safekeeping. Marcos was only able to present the receipt dated 11 March 1982 and
the letter-certification dated 12 March 1982 to prove the total amount of his time
deposits with the BANK. The letter-certification issued by Pagsaligan reads:
March 12, 1982
Dear Mr. Marcos:
This is to certify that we are taking care in your behalf various Time
Deposit Certificates with an aggregate value of PESOS: SEVEN
HUNDRED SIXTY FOUR THOUSAND EIGHT HUNDRED NINETY
SEVEN AND 67/100 (P764,897.67) ONLY, issued today for 90 days at
17% p.a. with the interest payable at maturity on June 10, 1982.
Thank you.
Sgd. FLORENCIO B. PAGSALIGAN
Branch Manager45
The foregoing certification is clear. The total amount of time deposits of Marcos as
of 12 March 1982 is P764,897.67, inclusive of the sum of P664,987.67 that Marcos
placed on time deposit on 11 March 1982. This is plainly seen from the use of the
word "aggregate."
We are not swayed by Marcos testimony that the certification is actually for the first
time deposit that he placed on 11 March 1982. The letter-certification speaks of
"various Time Deposits Certificates with an aggregate value of P764,897.67." If the
amount stated in the letter-certification is for a single time deposit only, and did not
include the 11 March 1982 time deposit, then Marcos should have demanded a new
letter of certification from Pagsaligan. Marcos is a businessman. While he already
made an error in judgment in entrusting to Pagsaligan the certificates of time
deposits, Marcos should have known the importance of making the letter-
certification reflect the true nature of the transaction. Marcos is bound by the letter-
certification since he was the one who prodded Pagsaligan to issue it.
We modify the amount that the Court of Appeals ordered the BANK to return to
Marcos. The appellate court did not offset Marcos outstanding debt with the BANK
covered by the three trust receipt agreements even though Marcos admits his
obligation under the three trust receipt agreements. The total amount of the trust
receipts is P851,250 less the 30% marginal deposit of P255,375 that Marcos had
already paid the BANK. This reduced Marcos total debt with the BANK
to P595,875 under the trust receipts.
The trial and appellate courts found that the parties did not agree on the imposition of
interest on the loan covered by the trust receipts and thus no interest is due on this
loan. However, the records show that the three trust receipt agreements contained
stipulations for the payment of interest but the parties failed to fill up the blank
spaces on the rate of interest. Put differently, the BANK and Marcos expressly
agreed in writing on the payment of interest46without, however, specifying the rate of
interest. We, therefore, impose the legal interest of 12% per annum, the legal interest
for the forbearance of money,47 on each of the three trust receipts.
Based on Marcos testimony48 and the BANKs letter of demand,49 the trust receipt
agreements became due in March 1987. The records do not show exactly when in
March 1987 the obligation became due. In accordance with Article 2212 of the Civil
Code, in such a case the court shall fix the period of the duration of the
obligation.50 The BANKs letter of demand is dated 6 March 1989. We hold that the
trust receipts became due on 6 March 1987.
Marcos payment of the marginal deposit of P255,375 for the trust receipts resulted
in the proportionate reduction of the three trust receipts. The reduced value of the
trust receipts and their respective interest as of 6 March 1987 are as follows:
1. Trust Receipt No. CD 83.7 issued on 8 March 1983 originally
for P300,000 was reduced to P210,618.75 with interest of P101,027.76.51
2. Trust Receipt No. CD 83.9 issued on 15 March 1983 originally
for P300,000 was reduced to P210,618.75 with interest of P100,543.04.52
3. Trust Receipt No. CD 83.10 issued on 15 March 1983 originally
for P251,250 was reduced to P174,637.5 with interest of P83,366.68. 53
We also award P20,000 to Marcos as exemplary damages. The law allows the grant
of exemplary damages by way of example for the public good. 62 The public relies on
the banks fiduciary duty to observe the highest degree of diligence. The banking
sector is expected to maintain at all times this high level of meticulousness. 63
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with
MODIFICATION. Petitioner Philippine Banking Corporation is ordered to return to
private respondent Leonilo Marcos P500,404.11, the remaining principal amount of
his time deposits, with interest at 17% per annum from 30 August 1989 until full
payment. Petitioner Philippine Banking Corporation is also ordered to pay to private
respondent Leonilo Marcos P211,622.96, the accumulated interest as of 30 August
1989, plus 12% legal interest per annum from 30 August 1989 until full payment.
Petitioner Philippine Banking Corporation is further ordered to pay P100,000 by way
of moral damages and P20,000 as exemplary damages to private respondent Leonilo
Marcos.
Costs against petitioner.
SO ORDERED

When the trust receipts became due on 6 March 1987, Marcos owed the
BANK P880,812.48. This amount included P595,875, the principal value of the three
trust receipts after payment of the marginal deposit, and P284,937.48, the interest
then due on the three trust receipts.

Upon maturity of the three trust receipts, the BANK should have automatically
deducted, by way of offsetting, Marcos outstanding debt to the BANK from his time
deposits and its accumulated interest. Marcos time deposits of P764,897.67 had
already earned interest54 of P616,318.92 as of 6 March 1987.55 Thus, Marcos total
funds with the BANK amounted to P1,381,216.59 as of the maturity of the trust
receipts. After deducting P880,812.48, the amount Marcos owed the BANK, from
Marcos funds with the BANK of P1,381,216.59, Marcos remaining time deposits
as of 6 March 1987 is only P500,404.11. The accumulated interest on
this P500,404.11 as of 30 August 1989, the date of filing of Marcos complaint with
the trial court, is P211,622.96.56 From 30 August 1989, the interest due on the
accumulated interest of P211,622.96 should earn legal interest at 12% per
annum pursuant to Article 221257 of the Civil Code.

The BANKs dismal failure to account for Marcos money justifies the award of
moral58 and exemplary damages.59Certainly, the BANK, as employer, is liable for the
negligence or the misdeed of its branch manager which caused Marcos mental
anguish and serious anxiety.60 Moral damages of P100,000 is reasonable and is in
accord with our rulings in similar cases involving banks negligence with regard to
the accounts of their depositors.61
[G.R. No. 138569. September 11, 2003]
THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs.
COURT OF APPEALS and L.C. DIAZ and COMPANY,
CPAs, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision[1] of the Court of Appeals
dated 27 October 1998 and its Resolution dated 11 May 1999. The assailed decision
reversed the Decision[2] of the Regional Trial Court of Manila, Branch 8, absolving
petitioner Consolidated Bank and Trust Corporation, now known as Solidbank
Corporation (Solidbank), of any liability. The questioned resolution of the appellate
court denied the motion for reconsideration of Solidbank but modified the decision
by deleting the award of exemplary damages, attorneys fees, expenses of litigation
and cost of suit.
The Facts
Solidbank is a domestic banking corporation organized and existing under
Philippine laws. Private respondent L.C. Diaz and Company, CPAs (L.C. Diaz), is a
professional partnership engaged in the practice of accounting.
Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank,
designated as Savings Account No. S/A 200-16872-6.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya
(Macaraya), filled up a savings (cash) deposit slip for P990 and a savings (checks)
deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre
(Calapre), to deposit the money with Solidbank. Macaraya also gave Calapre the
Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips
and the passbook. The teller acknowledged receipt of the deposit by returning to
Calapre the duplicate copies of the two deposit slips. Teller No. 6 stamped the
deposit slips with the words DUPLICATE and SAVING TELLER 6 SOLIDBANK
HEAD OFFICE. Since the transaction took time and Calapre had to make another
deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre
then went to Allied Bank. When Calapre returned to Solidbank to retrieve the
passbook, Teller No. 6 informed him that somebody got the passbook.[3] Calapre
went back to L.C. Diaz and reported the incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a check
of P200,000. Macaraya, together with Calapre, went to Solidbank and presented to
Teller No. 6 the deposit slip and check. The teller stamped the words DUPLICATE
and SAVING TELLER 6 SOLIDBANK HEAD OFFICE on the duplicate copy of
the deposit slip. When Macaraya asked for the passbook, Teller No. 6 told Macaraya
that someone got the passbook but she could not remember to whom she gave the
passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller
No. 6 answered that someone shorter than Calapre got the passbook. Calapre was
then standing beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the
deposit of a check for P90,000 drawn on Philippine Banking Corporation (PBC).
This PBC check of L.C. Diaz was a check that it had long closed.[4] PBC
subsequently dishonored the check because of insufficient funds and because the
signature in the check differed from PBCs specimen signature. Failing to get back
the passbook, Macaraya went back to her office and reported the matter to the
Personnel Manager of L.C. Diaz, Emmanuel Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive
Officer, Luis C. Diaz (Diaz), called up Solidbank to stop any transaction using the
same passbook until L.C. Diaz could open a new account. [5]On the same day, Diaz
formally wrote Solidbank to make the same request. It was also on the same day that
L.C. Diaz learned of the unauthorized withdrawal the day before, 14 August 1991,
of P300,000 from its savings account. The withdrawal slip for the P300,000 bore the
signatures of the authorized signatories of L.C. Diaz, namely Diaz and Rustico L.
Murillo. The signatories, however, denied signing the withdrawal slip. A certain
Noel Tamayo received the P300,000.
In an Information[6] dated 5 September 1991, L.C. Diaz charged its messenger,
Emerano Ilagan (Ilagan) and one Roscon Verdazola with Estafa through Falsification
of Commercial Document. The Regional Trial Court of Manila dismissed the
criminal case after the City Prosecutor filed a Motion to Dismiss on 4 August 1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank
the return of its money. Solidbank refused.
On 25 August 1992, L.C. Diaz filed a Complaint[7] for Recovery of a Sum of
Money against Solidbank with the Regional Trial Court of Manila, Branch 8. After
trial, the trial court rendered on 28 December 1994 a decision absolving Solidbank
and dismissing the complaint.
L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the
Court of Appeals issued its Decision reversing the decision of the trial court.
On 11 May 1999, the Court of Appeals issued its Resolution denying the
motion for reconsideration of Solidbank. The appellate court, however, modified its
decision by deleting the award of exemplary damages and attorneys fees.
The Ruling of the Trial Court
In absolving Solidbank, the trial court applied the rules on savings account
written on the passbook. The rules state that possession of this book shall raise the
presumption of ownership and any payment or payments made by the bank upon the
production of the said book and entry therein of the withdrawal shall have the same
effect as if made to the depositor personally.[9]
At the time of the withdrawal, a certain Noel Tamayo was not only in
possession of the passbook, he also presented a withdrawal slip with the signatures
of the authorized signatories of L.C. Diaz. The specimen signatures of these persons
were in the signature cards. The teller stamped the withdrawal slip with the words
Saving Teller No. 5. The teller then passed on the withdrawal slip to Genere Manuel
(Manuel) for authentication. Manuel verified the signatures on the withdrawal slip.
The withdrawal slip was then given to another officer who compared the signatures
on the withdrawal slip with the specimen on the signature cards. The trial court
concluded that Solidbank acted with care and observed the rules on savings account
when it allowed the withdrawal of P300,000 from the savings account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C. Diaz to
prove that the signatures on the withdrawal slip were forged. The trial court
admonished L.C. Diaz for not offering in evidence the National Bureau of
Investigation (NBI) report on the authenticity of the signatures on the withdrawal
slip for P300,000. The trial court believed that L.C. Diaz did not offer this evidence
because it is derogatory to its action.
Another provision of the rules on savings account states that the depositor must
keep the passbook under lock and key.[10] When another person presents the
passbook for withdrawal prior to Solidbanks receipt of the notice of loss of the
passbook, that person is considered as the owner of the passbook. The trial court
ruled that the passbook presented during the questioned transaction was now out of
the lock and key and presumptively ready for a business transaction. [11]
Solidbank did not have any participation in the custody and care of the
passbook. The trial court believed that Solidbanks act of allowing the withdrawal
of P300,000 was not the direct and proximate cause of the loss. The trial court held
that L.C. Diazs negligence caused the unauthorized withdrawal. Three facts establish
L.C. Diazs negligence: (1) the possession of the passbook by a person other than the
depositor L.C. Diaz; (2) the presentation of a signed withdrawal receipt by an
unauthorized person; and (3) the possession by an unauthorized person of a PBC
check long closed by L.C. Diaz, which check was deposited on the day of the
fraudulent withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank did not follow
the precautionary procedures observed by the two parties whenever L.C. Diaz
withdrew significant amounts from its account. L.C. Diaz claimed that a letter must
accompany withdrawals of more than P20,000. The letter must request Solidbank to
allow the withdrawal and convert the amount to a managers check. The bearer must
also have a letter authorizing him to withdraw the same amount. Another person
driving a car must accompany the bearer so that he would not walk from Solidbank
to the office in making the withdrawal. The trial court pointed out that L.C. Diaz
disregarded these precautions in its past withdrawal. On 16 July 1991, L.C. Diaz
withdrew P82,554 without any separate letter of authorization or any communication
with Solidbank that the money be converted into a managers check.
The trial court further justified the dismissal of the complaint by holding that
the case was a last ditch effort of L.C. Diaz to recover P300,000 after the dismissal
of the criminal case against Ilagan.
The dispositive portion of the decision of the trial court reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the
complaint.
The Court further renders judgment in favor of defendant bank pursuant to its
counterclaim the amount of Thirty Thousand Pesos (P30,000.00) as attorneys fees.
With costs against plaintiff.
SO ORDERED.[12]
The Ruling of the Court of Appeals
The Court of Appeals ruled that Solidbanks negligence was the proximate
cause of the unauthorized withdrawal of P300,000 from the savings account of L.C.
Diaz. The appellate court reached this conclusion after applying the provision of the
Civil Code on quasi-delict, to wit:
Article 2176. Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault or negligence,
if there is no pre-existing contractual relation between the parties, is called a quasi-
delict and is governed by the provisions of this chapter.
The appellate court held that the three elements of a quasi-delict are present in this
case, namely: (a) damages suffered by the plaintiff; (b) fault or negligence of the
defendant, or some other person for whose acts he must respond; and (c) the
connection of cause and effect between the fault or negligence of the defendant and
the damage incurred by the plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who received the
withdrawal slip for P300,000 allowed the withdrawal without making the necessary
inquiry. The appellate court stated that the teller, who was not presented by
Solidbank during trial, should have called up the depositor because the money to be
withdrawn was a significant amount. Had the teller called up L.C. Diaz, Solidbank
would have known that the withdrawal was unauthorized. The teller did not even
verify the identity of the impostor who made the withdrawal. Thus, the appellate
court found Solidbank liable for its negligence in the selection and supervision of its
employees.
 The appellate court ruled that while L.C. Diaz was also negligent in entrusting Hence, this petition.
its deposits to its messenger and its messenger in leaving the passbook with the
teller, Solidbank could not escape liability because of the doctrine of last clear
chance. Solidbank could have averted the injury suffered by L.C. Diaz had it called
The Issues
up L.C. Diaz to verify the withdrawal.
Solidbank seeks the review of the decision and resolution of the Court of
The appellate court ruled that the degree of diligence required from Solidbank
Appeals on these grounds:
is more than that of a good father of a family. The business and functions of banks
are affected with public interest. Banks are obligated to treat the accounts of their
depositors with meticulous care, always having in mind the fiduciary nature of their I. THE COURT OF APPEALS ERRED IN HOLDING THAT
relationship with their clients. The Court of Appeals found Solidbank remiss in its PETITIONER BANK SHOULD SUFFER THE LOSS BECAUSE
duty, violating its fiduciary relationship with L.C. Diaz. ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE
RESPONDENT BY TELEPHONE BEFORE IT ALLOWED THE
The dispositive portion of the decision of the Court of Appeals reads: WITHDRAWAL OF P300,000.00 TO RESPONDENTS
MESSENGER EMERANO ILAGAN, SINCE THERE IS NO
WHEREFORE, premises considered, the decision appealed from is hereby AGREEMENT BETWEEN THE PARTIES IN THE
REVERSED and a new one entered. OPERATION OF THE SAVINGS ACCOUNT, NOR IS THERE
ANY BANKING LAW, WHICH MANDATES THAT A BANK
1. Ordering defendant-appellee Consolidated Bank and Trust Corporation TELLER SHOULD FIRST CALL UP THE DEPOSITOR
to pay plaintiff-appellant the sum of Three Hundred Thousand BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT
Pesos (P300,000.00), with interest thereon at the rate of 12% per IN A SAVINGS ACCOUNT.
annum from the date of filing of the complaint until paid, the sum
of P20,000.00 as exemplary damages, and P20,000.00 as attorneys II. THE COURT OF APPEALS ERRED IN APPLYING THE
fees and expenses of litigation as well as the cost of suit; and DOCTRINE OF LAST CLEAR CHANCE AND IN HOLDING
THAT PETITIONER BANKS TELLER HAD THE LAST
2. Ordering the dismissal of defendant-appellees counterclaim in the OPPORTUNITY TO WITHHOLD THE WITHDRAWAL WHEN
amount of P30,000.00 as attorneys fees. IT IS UNDISPUTED THAT THE TWO SIGNATURES OF
RESPONDENT ON THE WITHDRAWAL SLIP ARE GENUINE
AND PRIVATE RESPONDENTS PASSBOOK WAS DULY
SO ORDERED.[13]
PRESENTED, AND CONTRARIWISE RESPONDENT WAS
Acting on the motion for reconsideration of Solidbank, the appellate court affirmed NEGLIGENT IN THE SELECTION AND SUPERVISION OF
its decision but modified the award of damages. The appellate court deleted the ITS MESSENGER EMERANO ILAGAN, AND IN THE
award of exemplary damages and attorneys fees. Invoking Article 2231 [14] of the SAFEKEEPING OF ITS CHECKS AND OTHER FINANCIAL
Civil Code, the appellate court ruled that exemplary damages could be granted if the DOCUMENTS.
defendant acted with gross negligence. Since Solidbank was guilty of simple
negligence only, the award of exemplary damages was not justified. Consequently, III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE
the award of attorneys fees was also disallowed pursuant to Article 2208 of the Civil INSTANT CASE IS A LAST DITCH EFFORT OF PRIVATE
Code. The expenses of litigation and cost of suit were also not imposed on RESPONDENT TO RECOVER ITS P300,000.00 AFTER
Solidbank. FAILING IN ITS EFFORTS TO RECOVER THE SAME FROM
ITS EMPLOYEE EMERANO ILAGAN.
The dispositive portion of the Resolution reads as follows:
IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE
WHEREFORE, foregoing considered, our decision dated October 27, 1998 is DAMAGES AWARDED AGAINST PETITIONER UNDER
affirmed with modification by deleting the award of exemplary damages and ARTICLE 2197 OF THE CIVIL CODE, NOTWITHSTANDING
attorneys fees, expenses of litigation and cost of suit. ITS FINDING THAT PETITIONER BANKS NEGLIGENCE
WAS ONLY CONTRIBUTORY.[16]
SO ORDERED.[15]
The Ruling of the Court
The petition is partly meritorious.
Solidbanks Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict on the
application of the law. The trial court pinned the liability on L.C. Diaz based on the
provisions of the rules on savings account, a recognition of the contractual
relationship between Solidbank and L.C. Diaz, the latter being a depositor of the
former. On the other hand, the Court of Appeals applied the law on quasi-delict to
determine who between the two parties was ultimately negligent. The law on quasi-
delict or culpa aquiliana is generally applicable when there is no pre-existing
contractual relationship between the parties.
We hold that Solidbank is liable for breach of contract due to negligence,
or culpa contractual.
The contract between the bank and its depositor is governed by the provisions
of the Civil Code on simple loan.[17] Article 1980 of the Civil Code expressly
provides that x x x savings x x x deposits of money in banks and similar institutions
shall be governed by the provisions concerning simple loan. There is a debtor-
creditor relationship between the bank and its depositor. The bank is the debtor and
the depositor is the creditor. The depositor lends the bank money and the bank agrees
to pay the depositor on demand. The savings deposit agreement between the bank
and the depositor is the contract that determines the rights and obligations of the
parties.
The law imposes on banks high standards in view of the fiduciary nature of
banking. Section 2 of Republic Act No. 8791 (RA 8791), [18] which took effect on 13
June 2000, declares that the State recognizes the fiduciary nature of banking that
requires high standards of integrity and performance. [19] This new provision in the
general banking law, introduced in 2000, is a statutory affirmation of Supreme Court
decisions, starting with the 1990 case of Simex International v. Court of
Appeals,[20] holding that 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.[21]
This fiduciary relationship means that the banks obligation to observe high
standards of integrity and performance is deemed written into every deposit
agreement between a bank and its depositor. The fiduciary nature of banking requires
banks to assume a degree of diligence higher than that of a good father of a
family. Article 1172 of the Civil Code states that the degree of diligence required of
an obligor is that prescribed by law or contract, and absent such stipulation then the
diligence of a good father of a family.[22] Section 2 of RA 8791 prescribes the
statutory diligence required from banks that banks must observe high standards of
integrity and performance in servicing their depositors. Although RA 8791 took
effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C.
Diazs savings account, jurisprudence[23] at the time of the withdrawal already
imposed on banks the same high standard of diligence required under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not convert
the contract between the bank and its depositors from a simple loan to a trust
agreement, whether express or implied. Failure by the bank to pay the depositor is
failure to pay a simple loan, and not a breach of trust. [24] The law simply imposes on
the bank a higher standard of integrity and performance in complying with its
obligations under the contract of simple loan, beyond those required of non-bank
debtors under a similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust
agreement because banks do not accept deposits to enrich depositors but to earn
money for themselves. The law allows banks to offer the lowest possible interest rate
to depositors while charging the highest possible interest rate on their own
borrowers. The interest spread or differential belongs to the bank and not to the
depositors who are not cestui que trust of banks. If depositors are cestui que trust of
banks, then the interest spread or income belongs to the depositors, a situation that
Congress certainly did not intend in enacting Section 2 of RA 8791.
Solidbanks Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that responsibility arising from
negligence in the performance of every kind of obligation is demandable. For breach
of the savings deposit agreement due to negligence, or culpa contractual, the bank is
liable to its depositor.
Calapre left the passbook with Solidbank because the transaction took time and
he had to go to Allied Bank for another transaction. The passbook was still in the
hands of the employees of Solidbank for the processing of the deposit when Calapre
left Solidbank. Solidbanks rules on savings account require that the deposit book
should be carefully guarded by the depositor and kept under lock and key, if
possible. When the passbook is in the possession of Solidbanks tellers during
withdrawals, the law imposes on Solidbank and its tellers an even higher degree of
diligence in safeguarding the passbook.
Likewise, Solidbanks tellers must exercise a high degree of diligence in
insuring that they return the passbook only to the depositor or his authorized
representative. The tellers know, or should know, that the rules on savings account
provide that any person in possession of the passbook is presumptively its owner. If
the tellers give the passbook to the wrong person, they would be clothing that person
presumptive ownership of the passbook, facilitating unauthorized withdrawals by
that person. For failing to return the passbook to Calapre, the authorized
representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to
observe such high degree of diligence in safeguarding the passbook, and in insuring
its return to the party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a
presumption that the defendant was at fault or negligent. The burden is on the
defendant to prove that he was not at fault or negligent. In contrast, in culpa
aquiliana the plaintiff has the burden of proving that the defendant was negligent. In
the present case, L.C. Diaz has established that Solidbank breached its contractual
obligation to return the passbook only to the authorized representative of L.C.
Diaz. There is thus a presumption that Solidbank was at fault and its teller was
negligent in not returning the passbook to Calapre. The burden was on Solidbank to
prove that there was no negligence on its part or its employees.
Solidbank failed to discharge its burden. Solidbank did not present to the trial
court Teller No. 6, the teller with whom Calapre left the passbook and who was
supposed to return the passbook to him. The record does not indicate that Teller No.
6 verified the identity of the person who retrieved the passbook. Solidbank also
failed to adduce in evidence its standard procedure in verifying the identity of the
person retrieving the passbook, if there is such a procedure, and that Teller No. 6
implemented this procedure in the present case.
Solidbank is bound by the negligence of its employees under the principle
of respondeat superior or command responsibility. The defense of exercising the
required diligence in the selection and supervision of employees is not a complete
defense in culpa contractual, unlike in culpa aquiliana.[25]
The bank must not only exercise high standards of integrity and performance, it
must also insure that its employees do likewise because this is the only way to insure
that the bank will comply with its fiduciary duty.Solidbank failed to present the teller
who had the duty to return to Calapre the passbook, and thus failed to prove that this
teller exercised the high standards of integrity and performance required of
Solidbanks employees.
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts is the
proximate cause of the unauthorized withdrawal. The trial court believed that L.C.
Diazs negligence in not securing its passbook under lock and key was the proximate
cause that allowed the impostor to withdraw the P300,000. For the appellate court,
the proximate cause was the tellers negligence in processing the withdrawal without
first verifying with L.C. Diaz. We do not agree with either court.
Proximate cause is that cause which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury and without which
the result would not have occurred.[26] Proximate cause is determined by the facts of
each case upon mixed considerations of logic, common sense, policy and
precedent.[27]
L.C. Diaz was not at fault that the passbook landed in the hands of the
impostor. Solidbank was in possession of the passbook while it was processing the
deposit. After completion of the transaction, Solidbank had the contractual obligation
to return the passbook only to Calapre, the authorized representative of L.C.
Diaz. Solidbank failed to fulfill its contractual obligation because it gave the
passbook to another person.
Solidbanks failure to return the passbook to Calapre made possible the
withdrawal of the P300,000 by the impostor who took possession of the
passbook. Under Solidbanks rules on savings account, mere possession of the
passbook raises the presumption of ownership. It was the negligent act of Solidbanks
Teller No. 6 that gave the impostor presumptive ownership of the passbook. Had the
passbook not fallen into the hands of the impostor, the loss of P300,000 would not
have happened. Thus, the proximate cause of the unauthorized withdrawal was
Solidbanks negligence in not returning the passbook to Calapre.
We do not subscribe to the appellate courts theory that the proximate cause of
the unauthorized withdrawal was the tellers failure to call up L.C. Diaz to verify the
withdrawal. Solidbank did not have the duty to call up L.C. Diaz to confirm the
withdrawal. There is no arrangement between Solidbank and L.C. Diaz to this
effect. Even the agreement between Solidbank and L.C. Diaz pertaining to measures
that the parties must observe whenever withdrawals of large amounts are made does
not direct Solidbank to call up L.C. Diaz.
There is no law mandating banks to call up their clients whenever their
representatives withdraw significant amounts from their accounts. L.C. Diaz
therefore had the burden to prove that it is the usual practice of Solidbank to call up
its clients to verify a withdrawal of a large amount of money. L.C. Diaz failed to do
so.
Teller No. 5 who processed the withdrawal could not have been put on guard to
verify the withdrawal. Prior to the withdrawal of P300,000, the impostor deposited
with Teller No. 6 the P90,000 PBC check, which later bounced. The impostor
apparently deposited a large amount of money to deflect suspicion from the
withdrawal of a much bigger amount of money. The appellate court thus erred when
it imposed on Solidbank the duty to call up L.C. Diaz to confirm the withdrawal
when no law requires this from banks and when the teller had no reason to be
suspicious of the transaction.
Solidbank continues to foist the defense that Ilagan made the
withdrawal. Solidbank claims that since Ilagan was also a messenger of L.C. Diaz,
he was familiar with its teller so that there was no more need for the teller to verify
the withdrawal. Solidbank relies on the following statements in the Booking and
Information Sheet of Emerano Ilagan:
xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and
indicated the amount of P90,000 which he deposited in favor of L.C. Diaz and
Company. After successfully withdrawing this large sum of money, accused Ilagan
gave alias Rey (Noel Tamayo) his share of the loot. Ilagan then hired a taxicab in the
amount of P1,000 to transport him (Ilagan) to his home province at Bauan,
Batangas. Ilagan extravagantly and lavishly spent his money but a big part of his loot
was wasted in cockfight and horse racing. Ilagan was apprehended and meekly
admitted his guilt.[28] (Emphasis supplied.)
 L.C. Diaz refutes Solidbanks contention by pointing out that the person who we hold that L.C. Diaz must shoulder 40% of the actual damages awarded by the
withdrew the P300,000 was a certain Noel Tamayo. Both the trial and appellate appellate court. Solidbank must pay the other 60% of the actual damages.
courts stated that this Noel Tamayo presented the passbook with the withdrawal slip.
WHEREFORE, the decision of the Court of Appeals
We uphold the finding of the trial and appellate courts that a certain Noel is AFFIRMED with MODIFICATION. Petitioner Solidbank Corporation shall pay
Tamayo withdrew the P300,000. The Court is not a trier of facts. We find no private respondent L.C. Diaz and Company, CPAs only 60% of the actual damages
justifiable reason to reverse the factual finding of the trial court and the Court of awarded by the Court of Appeals. The remaining 40% of the actual damages shall be
Appeals. The tellers who processed the deposit of the P90,000 check and the borne by private respondent L.C. Diaz and Company, CPAs. Proportionate costs.
withdrawal of the P300,000 were not presented during trial to substantiate
Solidbanks claim that Ilagan deposited the check and made the questioned SO ORDERED.
withdrawal. Moreover, the entry quoted by Solidbank does not categorically state Davide, Jr., C.J., (Chairman), Vitug, and Ynares-Santiago, JJ., concur.
that Ilagan presented the withdrawal slip and the passbook. Azcuna, J., on official leave.

Doctrine of Last Clear Chance

The doctrine of last clear chance states that where both parties are negligent but
the negligent act of one is appreciably later than that of the other, or where it is
impossible to determine whose fault or negligence caused the loss, the one who had
the last clear opportunity to avoid the loss but failed to do so, is chargeable with the
loss.[29] Stated differently, the antecedent negligence of the plaintiff does not
preclude him from recovering damages caused by the supervening negligence of the
defendant, who had the last fair chance to prevent the impending harm by the
exercise of due diligence.[30]
We do not apply the doctrine of last clear chance to the present case. Solidbank
is liable for breach of contract due to negligence in the performance of its contractual
obligation to L.C. Diaz. This is a case of culpa contractual, where neither the
contributory negligence of the plaintiff nor his last clear chance to avoid the loss,
would exonerate the defendant from liability.[31] Such contributory negligence or last
clear chance by the plaintiff merely serves to reduce the recovery of damages by the
plaintiff but does not exculpate the defendant from his breach of contract. [32]

Mitigated Damages
Under Article 1172, liability (for culpa contractual) may be regulated by the
courts, according to the circumstances. This means that if the defendant exercised the
proper diligence in the selection and supervision of its employee, or if the plaintiff
was guilty of contributory negligence, then the courts may reduce the award of
damages. In this case, L.C. Diaz was guilty of contributory negligence in allowing a
withdrawal slip signed by its authorized signatories to fall into the hands of an
impostor. Thus, the liability of Solidbank should be reduced.
In Philippine Bank of Commerce v. Court of Appeals,[33] where the Court held
the depositor guilty of contributory negligence, we allocated the damages between
the depositor and the bank on a 40-60 ratio. Applying the same ruling to this case,
MANLAPAT V. CA
DECISION
TINGA, J.:
Before this Court is a Rule 45 petition assailing the Decision[1] dated 29
September 1994 of the Court of Appeals that reversed the Decision[2] dated 30 April
1991 of the Regional Trial Court (RTC) of Bulacan, Branch 6, Malolos. The trial
court declared Transfer Certificates of Title (TCTs) No. T-9326-P(M) and No. T-
9327-P(M) as void ab initio and ordered the restoration of Original Certificate of
Title (OCT) No. P-153(M) in the name of Eduardo Manlapat (Eduardo), petitioners
predecessor-in-interest.
The controversy involves Lot No. 2204, a parcel of land with an area of
1,058 square meters, located at Panghulo, Obando, Bulacan. The property had been
originally in the possession of Jose Alvarez, Eduardos grandfather, until his demise
in 1916. It remained unregistered until 8 October 1976 when OCT No. P-153(M)
was issued in the name of Eduardo pursuant to a free patent issued in Eduardos
name[3] that was entered in the Registry of Deeds of Meycauayan, Bulacan.[4] The
subject lot is adjacent to a fishpond owned by one
Ricardo Cruz (Ricardo), predecessor-in-interest of respondents Consuelo Cruz and
Rosalina Cruz-Bautista (Cruzes).[5]
On 19 December 1954, before the subject lot was titled, Eduardo sold a
portion thereof with an area of 553 square meters to Ricardo. The sale is evidenced
by a deed of sale entitled Kasulatan ng Bilihang Tuluyan ng Lupang Walang Titulo
(Kasulatan)[6] which was signed by Eduardo himself as vendor and his wife Engracia
Aniceto with a certain Santiago Enriquez signing as witness. The deed was notarized
by Notary Public Manolo Cruz.[7] On 4 April 1963, the Kasulatan was registered
with the Register of Deeds of Bulacan.[8]
On 18 March 1981, another Deed of Sale[9] conveying another portion of the
subject lot consisting of 50 square meters as right of way was executed by Eduardo
in favor of Ricardo in order to reach the portion covered by the first sale executed in
1954 and to have access to his fishpond from the provincial road. [10] The deed was
signed by Eduardo himself and his wife Engracia Aniceto, together with Eduardo
Manlapat, Jr. and Patricio Manlapat. The same was also duly notarized on 18 July
1981 by Notary Public Arsenio Guevarra.[11]
In December 1981, Leon Banaag, Jr. (Banaag), as attorney-in-fact of his
father-in-law Eduardo, executed a mortgage with the Rural Bank of San Pascual,
Obando Branch (RBSP), for P100,000.00 with the subject lot as collateral. Banaag
deposited the owners duplicate certificate of OCT No. P-153(M) with the bank.
On 31 August 1986, Ricardo died without learning of the prior issuance of
OCT No. P-153(M) in the name of Eduardo.[12] His heirs, the Cruzes, were not
immediately aware of the consummated sale between Eduardo and Ricardo.
Eduardo himself died on 4 April 1987. He was survived by his heirs,
Engracia Aniceto, his spouse; and children, Patricio, Bonifacio, Eduardo, Corazon,
Anselmo, Teresita and Gloria, all surnamed Manlapat.[13] Neither did the heirs of
Eduardo (petitioners) inform the Cruzes of the prior sale in favor of their
predecessor-in-interest, Ricardo. Yet subsequently, the Cruzes came to learn about
the sale and the issuance of the OCT in the name of Eduardo.
Upon learning of their right to the subject lot, the Cruzes immediately tried
to confront petitioners on the mortgage and obtain the surrender of the OCT. The
Cruzes, however, were thwarted in their bid to see the heirs. On the advice of the
Bureau of Lands, NCR Office, they brought the matter to the barangay captain
of Barangay Panghulo, Obando, Bulacan. During the hearing, petitioners were
informed that the Cruzes had a legal right to the property covered by OCT and
needed the OCT for the purpose of securing a separate title to cover the interest of
Ricardo. Petitioners, however, were unwilling to surrender the OCT.[14]
Having failed to physically obtain the title from petitioners, in July 1989,
the Cruzes instead went to RBSP which had custody of the owners duplicate
certificate of the OCT, earlier surrendered as a consequence of the mortgage.
Transacting with RBSPs manager, Jose Salazar (Salazar), the Cruzes sought to
borrow the owners duplicate certificate for the purpose of photocopying the same
and thereafter showing a copy thereof to the Register of Deeds. Salazar allowed the
Cruzes to bring the owners duplicate certificate outside the bank premises when the
latter showed the Kasulatan.[15] The Cruzes returned the owners duplicate certificate
on the same day after having copied the same. They then brought the copy of the
OCT to Register of Deeds Jose Flores (Flores) of Meycauayan and showed the same
to him to secure his legal opinion as to how the Cruzes could legally protect their
interest in the property and register the same.[16] Flores suggested the preparation of a
subdivision plan to be able to segregate the area purchased by Ricardo from Eduardo
and have the same covered by a separate title.[17]
Thereafter, the Cruzes solicited the opinion of Ricardo Arandilla
(Arandilla), Land Registration Officer, Director III, Legal Affairs Department, Land
Registration Authority at Quezon City, who agreed with the advice given by
Flores.[18] Relying on the suggestions of Flores and Arandilla, the Cruzes hired two
geodetic engineers to prepare the corresponding subdivision plan. The subdivision
plan was presented to the Land Management Bureau, Region III, and there it was
approved by a certain Mr. Pambid of said office on 21 July 1989.
 After securing the approval of the subdivision plan, the Cruzes went back to
RBSP and again asked for the owners duplicate certificate from Salazar. The Cruzes
informed him that the presentation of the owners duplicate certificate was necessary,
per advise of the Register of Deeds, for the cancellation of the OCT and the issuance
in lieu thereof of two separate titles in the names of Ricardo and Eduardo in
accordance with the approved subdivision plan.[19] Before giving the owners
duplicate certificate, Salazar required the Cruzes to see Atty. Renato Santiago (Atty.
Santiago), legal counsel of RBSP, to secure from the latter a clearance to borrow the
title. Atty. Santiago would give the clearance on the condition that only Cruzes put
up a substitute collateral, which they did.[20] As a result, the Cruzes got hold again of
the owners duplicate certificate.
After the Cruzes presented the owners duplicate certificate, along with the
deeds of sale and the subdivision plan, the Register of Deeds cancelled the OCT and
issued in lieu thereof TCT No. T-9326-P(M) covering 603 square meters of Lot No.
2204 in the name of Ricardo and TCT No. T-9327-P(M) covering the remaining 455
square meters in the name of Eduardo.[21]
On 9 August 1989, the Cruzes went back to the bank and surrendered to
Salazar TCT No. 9327-P(M) in the name of Eduardo and retrieved the title they had
earlier given as substitute collateral. After securing the new separate titles, the
Cruzes furnished petitioners with a copy of TCT No. 9327-P(M) through
the barangay captain and paid the real property tax for 1989.[22]
The Cruzes also sent a formal letter to Guillermo Reyes, Jr., Director,
Supervision Sector, Department III of the Central Bank of the Philippines, inquiring
whether they committed any violation of existing bank laws under the circumstances.
A certain Zosimo Topacio, Jr. of the Supervision Sector sent a reply letter advising
the Cruzes, since the matter is between them and the bank, to get in touch with the
bank for the final settlement of the case.[23]
In October of 1989, Banaag went to RBSP, intending to tender full payment
of the mortgage obligation. It was only then that he learned of the dealings of the
Cruzes with the bank which eventually led to the subdivision of the subject lot and
the issuance of two separate titles thereon. In exchange for the full payment of the
loan, RBSP tried to persuade petitioners to accept TCT No. T-9327-P(M) in the
name of Eduardo.[24]
As a result, three (3) cases were lodged, later consolidated, with the trial
court, all involving the issuance of the TCTs, to wit:
(1) Civil Case No. 650-M-89, for reconveyance with
damages filed by the heirs of Eduardo Manlapat against Consuelo
Cruz, Rosalina Cruz-Bautista, Rural Bank of San Pascual, Jose
Salazar and Jose Flores, in his capacity as Deputy Registrar,
Meycauayan Branch of the Registry of Deeds of Bulacan;
(2) Civil Case No. 141-M-90 for damages filed by Jose
Salazar against Consuelo Cruz, et. [sic] al.; and
(3) Civil Case No. 644-M-89, for declaration of nullity of
title with damages filed by Rural Bank of San Pascual, Inc. against
the spouses Ricardo Cruz and Consuelo Cruz, et al.[25]
After trial of the consolidated cases, the RTC of Malolos rendered a
decision in favor of the heirs of Eduardo, the dispositive portion of which reads:
WHEREFORE, premised from the foregoing, judgment is
hereby rendered:
1.Declaring Transfer Certificates of Title Nos.
T-9326-P(M) and T-9327-P(M) as void ab initio and
ordering the Register of Deeds, Meycauayan Branch to
cancel said titles and to restore Original Certificate of
Title No. P-153(M) in the name of plaintiffs
predecessor-in-interest Eduardo Manlapat;
2.-Ordering the defendants Rural Bank of San
Pascual, Jose Salazar, Consuelo Cruz and Rosalina
Cruz-Bautista, to pay the plaintiffs Heirs of Eduardo
Manlapat, jointly and severally, the following:
a)P200,000.00 as moral damages;
b)P50,000.00 as exemplary damages;
c)P20,000.00 as attorneys fees; and
d)the costs of the suit.
3.Dismissing the counterclaims.
SO ORDERED.[26]
The trial court found that petitioners were entitled to the reliefs of reconveyance and
damages. On this matter, it ruled that petitioners were bona fide mortgagors of an
unclouded title bearing no annotation of any lien and/or encumbrance. This fact,
according to the trial court, was confirmed by the bank when it accepted the
mortgage unconditionally on 25 November 1981. It found that petitioners were
complacent and unperturbed, believing that the title to their property, while serving
as security for a loan, was safely vaulted in the impermeable confines of RBSP. To
their surprise and prejudice, said title was subdivided into two portions, leaving them
a portion of 455 square meters from the original total area of 1,058 square meters, all
because of the fraudulent and negligent acts of respondents and RBSP. The trial
court ratiocinated that even assuming that a portion of the subject lot was sold by
Eduardo to Ricardo, petitioners were still not privy to the transaction between the
bank and the Cruzes which eventually led to the subdivision of the OCT into TCTs
No. T-9326-P(M) and No. T-9327-P(M), clearly to the damage and prejudice of
petitioners.[27]
Concerning the claims for damages, the trial court found the same to be
bereft of merit. It ruled that although the act of the Cruzes could be deemed
fraudulent, still it would not constitute intrinsic fraud. Salazar, nonetheless, was
clearly guilty of negligence in letting the Cruzes borrow the owners duplicate
certificate of the OCT. Neither the bank nor its manager had business entrusting to
strangers titles mortgaged to it by other persons for whatever reason. It was a clear
violation of the mortgage and banking laws, the trial court concluded.
The trial court also ruled that although Salazar was personally responsible
for allowing the title to be borrowed, the bank could not escape liability for it was
guilty of contributory negligence. The evidence showed that RBSPs legal counsel
was sought for advice regarding respondents request. This could only mean that
RBSP through its lawyer if not through its manager had known in advance of the
Cruzes intention and still it did nothing to prevent the eventuality. Salazar was not
even summarily dismissed by the bank if he was indeed the sole person to blame.
Hence, the banks claim for damages must necessarily fail.[28]
The trial court granted the prayer for the annulment of the TCTs as a necessary
consequence of its declaration that reconveyance was in order. As to Flores, his work
being ministerial as Deputy Register of the Bulacan Registry of Deeds, the trial court
absolved him of any liability with a stern warning that he should deal with his future
transactions more carefully and in the strictest sense as a responsible government
official.[29]
Aggrieved by the decision of the trial court, RBSP, Salazar and the Cruzes
appealed to the Court of Appeals. The appellate court, however, reversed the
decision of the RTC. The decretal text of the decision reads:
THE FOREGOING CONSIDERED, the appealed
decision is hereby reversed and set aside, with costs against the
appellees.
SO ORDERED.[30]
The appellate court ruled that petitioners were not bona fide mortgagors
since as early as 1954 or before the 1981 mortgage, Eduardo already sold to Ricardo
a portion of the subject lot with an area of 553 square meters. This fact, the Court of
Appeals noted, is even supported by a document of sale signed by Eduardo Jr. and
Engracia Aniceto, the surviving spouse of Eduardo, and registered with the Register
of Deeds of Bulacan. The appellate court also found that on 18 March 1981, for the
second time, Eduardo sold to Ricardo a separate area containing 50 square meters, as
a road right-of-way.[31] Clearly, the OCT was issued only after the first sale. It also
noted that the title was given to the Cruzes by RBSP voluntarily, with knowledge
even of the banks counsel.[32] Hence, the imposition of damages cannot be justified,
the Cruzes themselves being the owners of the property. Certainly, Eduardo misled
the bank into accepting the entire area as a collateral since the 603-square meter
portion did not anymore belong to him. The appellate court, however, concluded that
there was no conspiracy between the bank and Salazar.[33]
Hence, this petition for review on certiorari.
Petitioners ascribe errors to the appellate court by asking the following
questions, to wit: (a) can a mortgagor be compelled to receive from the mortgagee a
smaller portion of the originally encumbered title partitioned during the subsistence
of the mortgage, without the knowledge of, or authority derived from, the registered
owner; (b) can the mortgagee question the veracity of the registered title of the
mortgagor, as noted in the owners duplicate certificate, and thus, deliver the
certificate to such third persons, invoking an adverse, prior, and unregistered claim
against the registered title of the mortgagor; (c) can an adverse prior claim against a
registered title be noted, registered and entered without a competent court order; and
(d) can belief of ownership justify the taking of property without due process of
law?[34]
The kernel of the controversy boils down to the issue of whether the
cancellation of the OCT in the name of the petitioners predecessor-in-interest and its
splitting into two separate titles, one for the petitioners and the other for the Cruzes,
may be accorded legal recognition given the peculiar factual backdrop of the case.
We rule in the affirmative.
Private respondents (Cruzes) own
the portion titled in their names
Consonant with law and justice, the ultimate denouement of the property
dispute lies in the determination of the respective bases of the warring claims. Here,
as in other legal disputes, what is written generally deserves credence.
A careful perusal of the evidence on record reveals that the Cruzes have
sufficiently proven their claim of ownership over the portion of Lot No. 2204 with an
area of 553 square meters. The duly notarized instrument of conveyance was
executed in 1954 to which no less than Eduardo was a signatory. The execution of
the deed of sale was rendered beyond doubt by Eduardos admission in
his Sinumpaang Salaysay dated 24 April 1963.[35] These documents make the
affirmance of the right of the Cruzes ineluctable. The apparent irregularity, however,
in the obtention of the owners duplicate certificate from the bank, later to be
presented to the Register of Deeds to secure the issuance of two new TCTs in place
of the OCT, is another matter.
Petitioners argue that the 1954 deed of sale was not annotated on the OCT
which was issued in 1976 in favor of Eduardo; thus, the Cruzes claim of ownership
based on the sale would not hold water. The Court is not persuaded.
Registration is not a requirement for validity of the contract as between the
parties, for the effect of registration serves chiefly to bind third persons.[36] The
principal purpose of registration is merely to notify other persons not parties to a
contract that a transaction involving the property had been entered into. Where the
party has knowledge of a prior existing interest which is unregistered at the time he
acquired a right to the same land, his knowledge of that prior unregistered interest
has the effect of registration as to him.[37]
Further, the heirs of Eduardo cannot be considered third persons for
purposes of applying the rule. The conveyance shall not be valid against any person
unless registered, except (1) the grantor, (2) his heirs and devisees, and (3) third
persons having actual notice or knowledge thereof.[38] Not only are petitioners the
heirs of Eduardo, some of them were actually parties to the Kasulatan executed in
favor of Ricardo. Thus, the annotation of the adverse claim of the Cruzes on the OCT
is no longer required to bind the heirs of Eduardo, petitioners herein.
Petitioners had no right to constitute
mortgage over disputed portion
The requirements of a valid mortgage are clearly laid down in Article 2085
of the New Civil Code, viz:
ART. 2085. The following requisites are essential to
the contracts of pledge and mortgage:
(1) That they be constituted to secure the
fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute
owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or
mortgage have the free disposal of their
property, and in the absence thereof, that they
be legally authorized for the purpose.
Third persons who are not parties to the principal
obligation may secure the latter by pledging or
mortgaging their own property. (emphasis supplied)
For a person to validly constitute a valid mortgage on real estate, he must be the
absolute owner thereof as required by Article 2085 of the New Civil Code. [39] The
mortgagor must be the owner, otherwise the mortgage is void. [40] In a contract of
mortgage, the mortgagor remains to be the owner of the property although the
property is subjected to a lien.[41] A mortgage is regarded as nothing more than a
mere lien, encumbrance, or security for a debt, and passes no title or estate to the
mortgagee and gives him no right or claim to the possession of the property. [42] In
this kind of contract, the property mortgaged is merely delivered to the mortgagee to
secure the fulfillment of the principal obligation.[43] Such delivery does not empower
the mortgagee to convey any portion thereof in favor of another person as the right to
dispose is an attribute of ownership.[44] The right to dispose includes the right to
donate, to sell, to pledge or mortgage. Thus, the mortgagee, not being the owner of
the property, cannot dispose of the whole or part thereof nor cause the impairment of
the security in any manner without violating the foregoing rule. [45] The mortgagee
only owns the mortgage credit, not the property itself. [46]
Petitioners submit as an issue whether a mortgagor may be compelled to
receive from the mortgagee a smaller portion of the lot covered by the originally
encumbered title, which lot was partitioned during the subsistence of the mortgage
without the knowledge or authority of the mortgagor as registered owner. This
formulation is disingenuous, baselessly assuming, as it does, as an admitted fact that
the mortgagor is the owner of the mortgaged property in its entirety. Indeed, it has
not become a salient issue in this case since the mortgagor was not the owner of the
entire mortgaged property in the first place.
Issuance of OCT No. P-153(M), improper
It is a glaring fact that OCT No. P-153(M) covering the property mortgaged
was in the name of Eduardo, without any annotation of any prior disposition or
encumbrance. However, the property was sufficiently shown to be not entirely
owned by Eduardo as evidenced by the Kasulatan. Readily apparent upon perusal of
the records is that the OCT was issued in 1976, long after the Kasulatan was
executed way back in 1954. Thus, a portion of the property registered in Eduardos
name arising from the grant of free patent did not actually belong to him. The
utilization of the Torrens system to perpetrate fraud cannot be accorded judicial
sanction.
Time and again, this Court has ruled that the principle of indefeasibility of a
Torrens title does not apply where fraud attended the issuance of the title, as was
conclusively established in this case. The Torrens title does not furnish a shied for
fraud.[47] Registration does not vest title. It is not a mode of acquiring ownership but
is merely evidence of such title over a particular property. It does not give the holder
any better right than what he actually has, especially if the registration was done in
bad faith. The effect is that it is as if no registration was made at all.[48] In fact, this
Court has ruled that a decree of registration cut off or extinguished a right acquired
by a person when such right refers to a lien or encumbrance on the landnot to the
right of ownership thereofwhich was not annotated on the certificate of title issued
thereon.[49]
Issuance of TCT Nos. T-9326-P(M)
and T-9327-P(M), Valid
The validity of the issuance of two TCTs, one for the portion sold to the
predecessor-in-interest of the Cruzes and the other for the portion retained by
petitioners, is readily apparent from Section 53 of the Presidential Decree (P.D.) No.
1529 or the Property Registration Decree. It provides:
SEC 53. Presentation of owners duplicate upon entry of
new certificate. No voluntary instrument shall be registered by the
Register of Deeds, unless the owners duplicate certificate is
presented with such instrument, except in cases expressly provided
for in this Decree or upon order of the court, for cause shown.
The production of the owners duplicate certificate,
whenever any voluntary instrument is presented for
registration, shall be conclusive authority from the registered
owner to the Register of Deeds to enter a new certificate or to
make a memorandum of registration in accordance with such
instrument, and the new certificate or memorandum shall be
binding upon the registered owner and upon all persons claiming
under him, in favor of every purchaser for value and in good faith.
In all cases of registration procured by fraud, the owner
may pursue all his legal and equitable remedies against the parties
to such fraud without prejudice, however, to the rights of any
innocent holder of the decree of registration on the original petition
or application, any subsequent registration procured by the
presentation of a forged duplicate certificate of title, or a forged
deed or instrument, shall be null and void. (emphasis supplied)
Petitioners argue that the issuance of the TCTs violated the third paragraph
of Section 53 of P.D. No. 1529. The argument is baseless. It must be noted that the
provision speaks of forged duplicate certificate of title and forged deed or
instrument. Neither instance obtains in this case. What the Cruzes presented before
the Register of Deeds was the very genuine owners duplicate certificate earlier
deposited by Banaag, Eduardos attorney-in-fact, with RBSP. Likewise, the
instruments of conveyance are authentic, not forged. Section 53 has never been
clearer on the point that as long as the owners duplicate certificate is presented to the
Register of Deeds together with the instrument of conveyance, such presentation
serves as conclusive authority to the Register of Deeds to issue a transfer certificate
or make a memorandum of registration in accordance with the instrument.
The records of the case show that despite the efforts made by the Cruzes in
persuading the heirs of Eduardo to allow them to secure a separate TCT on the
claimed portion, their ownership being amply evidenced by
the Kasulatan and Sinumpaang Salaysay where Eduardo himself acknowledged the
sales in favor of Ricardo, the heirs adamantly rejected the notion of separate titling.
This prompted the Cruzes to approach the bank manager of RBSP for the purpose of
protecting their property right. They succeeded in persuading the latter to lend the
owners duplicate certificate. Despite the apparent irregularity in allowing the Cruzes
to get hold of the owners duplicate certificate, the bank officers consented to the
Cruzes plan to register the deeds of sale and secure two new separate titles, without
notifying the heirs of Eduardo about it.
Further, the law on the matter, specifically P.D. No. 1529, has no explicit
requirement as to the manner of acquiring the owners duplicate for purposes of
issuing a TCT. This led the Register of Deeds of Meycauayan as well as the Central
Bank officer, in rendering an opinion on the legal feasibility of the process resorted
to by the Cruzes. Section 53 of P.D. No. 1529 simply requires the production of the
owners duplicate certificate, whenever any voluntary instrument is presented for
registration, and the same shall be conclusive authority from the registered owner to
the Register of Deeds to enter a new certificate or to make a memorandum of
registration in accordance with such instrument, and the new certificate or
memorandum shall be binding upon the registered owner and upon all persons
claiming under him, in favor of every purchaser for value and in good faith.
Quite interesting, however, is the contention of the heirs of Eduardo that the
surreptitious lending of the owners duplicate certificate constitutes fraud within the
ambit of the third paragraph of Section 53 which could nullify the eventual issuance
of the TCTs. Yet we cannot subscribe to their position.
Impelled by the inaction of the heirs of Eduardo as to their claim, the
Cruzes went to the bank where the property was mortgaged. Through its manager
and legal officer, they were assured of recovery of the claimed parcel of land since
they are the successors-in-interest of the real owner thereof. Relying on the bank
officers opinion as to the legality of the means sought to be employed by them and
the suggestion of the Central Bank officer that the matter could be best settled
between them and the bank, the Cruzes pursued the titling of the claimed portion in
the name of Ricardo. The Register of Deeds eventually issued the disputed TCTs.
The Cruzes resorted to such means to protect their interest in the property
that rightfully belongs to them only because of the bank officers acquiescence
thereto. The Cruzes could not have secured a separate TCT in the name of Ricardo
without the banks approval. Banks, their business being impressed with public
interest, are expected to exercise more care and prudence than private individuals in
their dealings, even those involving registered lands.[50] The highest degree of
diligence is expected, and high standards of integrity and performance are even
required of it.[51]
Indeed, petitioners contend that the mortgagee cannot question the veracity
of the registered title of the mortgagor as noted in the owners duplicate certificate,
and, thus, he cannot deliver the certificate to such third persons invoking an adverse,
prior, and unregistered claim against the registered title of the mortgagor. The
strength of this argument is diluted by the peculiar factual milieu of the case.
A mortgagee can rely on what appears on the certificate of title presented by
the mortgagor and an innocent mortgagee is not expected to conduct an exhaustive
investigation on the history of the mortgagors title. This rule is strictly applied to
banking institutions. A mortgagee-bank must exercise due diligence before entering
into said contract. Judicial notice is taken of the standard practice for banks, before
approving a loan, to send representatives to the premises of the land offered as
collateral and to investigate who the real owners thereof are. [52]
Banks, indeed, should exercise more care and prudence in dealing even with
registered lands, than private individuals, as their business is one affected with public
interest. Banks keep in trust money belonging to their depositors, which they should
guard against loss by not committing any act of negligence that amounts to lack of
good faith. Absent good faith, banks would be denied the protective mantle of the
land registration statute, Act 496, which extends only to purchasers for value and
good faith, as well as to mortgagees of the same character and description. [53] Thus,
this Court clarified that the rule that persons dealing with registered lands can rely
solely on the certificate of title does not apply to banks.[54]
Bank Liable for Nominal Damages
Of deep concern to this Court, however, is the fact that the bank lent the
owners duplicate of the OCT to the Cruzes when the latter presented the instruments
of conveyance as basis of their claim of ownership over a portion of land covered by
the title. Simple rationalization would dictate that a mortgagee-bank has no right to
deliver to any stranger any property entrusted to it other than to those contractually
and legally entitled to its possession. Although we cannot dismiss the banks
acknowledgment of the Cruzes claim as legitimized by instruments of conveyance in
their possession, we nonetheless cannot sanction how the bank was inveigled to do
the bidding of virtual strangers. Undoubtedly, the banks cooperative stance
facilitated the issuance of the TCTs. To make matters worse, the bank did not even
notify the heirs of Eduardo. The conduct of the bank is as dangerous as it is
unthinkably negligent. However, the aspect does not impair the right of the Cruzes to
be recognized as legitimate owners of their portion of the property.
Undoubtedly, in the absence of the banks participation, the Register of
Deeds could not have issued the disputed TCTs. We cannot find fault on the part of
the Register of Deeds in issuing the TCTs as his authority to issue the same is clearly
sanctioned by law. It is thus ministerial on the part of the Register of Deeds to issue
TCT if the deed of conveyance and the original owners duplicate are presented to
him as there appears on theface of the instruments no badge of irregularity or
nullity.[55] If there is someone to blame for the shortcut resorted to by the Cruzes, it
would be the bank itself whose manager and legal officer helped the Cruzes to
facilitate the issuance of the TCTs.
The bank should not have allowed complete strangers to take possession of
the owners duplicate certificate even if the purpose is merely for photocopying for a
danger of losing the same is more than imminent. They should be aware of the
conclusive presumption in
Section 53. Such act constitutes manifest negligence on the part of the bank which
would necessarily hold it liable for damages under Article 1170 and other relevant
provisions of the Civil Code.[56]
In the absence of evidence, the damages that may be awarded may be in the
form of nominal damages. Nominal damages are adjudicated in order that a right of
the plaintiff, which has been violated or invaded by the defendant, may be vindicated
or recognized, and not for the purpose of indemnifying the plaintiff for any loss
suffered by him.[57] This award rests on the mortgagors right to rely on the banks
observance of the highest diligence in the conduct of its business. The act of RBSP
of entrusting to respondents the owners duplicate certificate entrusted to it by the
mortgagor without even notifying the mortgagor and absent any prior investigation
on the veracity of respondents claim and
character is a patent failure to foresee the risk created by the act in view of the
provisions of Section 53 of P.D. No. 1529. This act runs afoul of every banks
mandate to observe the highest degree of diligence in dealing with its clients.
Moreover, a mortgagor has also the right to be afforded due process before
deprivation or diminution of his property is effected as the OCT was still in the name
of Eduardo. Notice and hearing are indispensable elements of this right which the
bank miserably ignored.
Under the circumstances, the Court believes the award of P50,000.00 as
nominal damages is appropriate.
Five-Year Prohibition against alienation
or encumbrance under the Public Land Act
One vital point. Apparently glossed over by the courts below and the parties
is an aspect which is essential, spread as it is all over the record and intertwined with
the crux of the controversy, relating as it does to the validity of the dispositions of
the subject property and the mortgage thereon. Eduardo was issued a title in 1976 on
the basis of his free patent application. Such application implies the recognition of
the public dominion character of the land and, hence, the five (5)-year prohibition
imposed by the Public Land Act against alienation or encumbrance of the land
covered by a free patent or homestead[58] should have been considered.
The deed of sale covering the fifty (50)-square meter right of way executed
by Eduardo on 18 March 1981 is obviously covered by the proscription, the free
patent having been issued on 8 October 1976. However, petitioners may recover the
portion sold since the prohibition was imposed in favor of the free patent holder.
In Philippine National Bank v. De los Reyes,[59] this Court ruled squarely on the
point, thus:
WHEREFORE, the Decision of the Court of Appeals is AFFIRMED, subject to the
modifications herein. Respondent Rural Bank of San Pascual is hereby ORDERED
to PAY petitioners Fifty Thousand Pesos (P50,000.00) by way of nominal damages.
Respondents Consuelo Cruz and Rosalina Cruz-Bautista are hereby DIVESTED of
title to, and respondent Register of Deeds of Meycauayan, Bulacan is accordingly
ORDERED to segregate, the portion of fifty (50) square meters of the subject Lot
No. 2204, as depicted in the approved plan covering the lot, marked as Exhibit A,
and to issue a new title covering the said portion in the name of the petitioners at the
expense of the petitioners. No costs.
SO ORDERED.

While the law bars recovery in a case where the object of the
contract is contrary to law and one or both parties acted in bad
faith, we cannot here apply the doctrine of in pari delicto which
admits of an exception, namely, that when the contract is merely
prohibited by law, not illegal per se, and the prohibition is
designed for the protection of the party seeking to recover, he is
entitled to the relief prayed for whenever public policy is enhanced
thereby. Under the Public Land Act, the prohibition to alienate is
predicated on the fundamental policy of the State to preserve and
keep in the family of the homesteader that portion of public land
which the State has gratuitously given to him, and recovery is
allowed even where the land acquired under the Public Land Act
was sold and not merely encumbered, within the prohibited
period.[60]

The sale of the 553 square meter portion is a different story. It was executed
in 1954, twenty-two (22) years before the issuance of the patent in 1976. Apparently,
Eduardo disposed of the portion even before he thought of applying for a free patent.
Where the sale or transfer took place before the filing of the free patent application,
whether by the vendor or the vendee, the prohibition should not be applied. In such
situation, neither the prohibition nor the rationale therefor which is
to keep in the family of the patentee that portion of the public land which the
government has gratuitously given him, by shielding him from the temptation to
dispose of his landholding, could be relevant. Precisely, he had disposed of his rights
to the lot even before the government could give the title to him.

The mortgage executed in favor of RBSP is also beyond the pale of the
prohibition, as it was forged in December 1981 a few months past the period of
prohibition.
G.R. No. 108555 December 20, 1994
RAMON TAN, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and RIZAL COMMERCIAL
BANKING CORPORATION, respondents.
Yulo, Quisumbing, Torres, Ali & Bello Law Offices for petitioner.
Siguion Reyna, Montecillo & Ongsiako for private respondent.
KAPUNAN, J.:
This petition seeks to set aside the decision of the Court of Appeals dated January
12, 1993 in CA-G.R. CV No. 31083, entitled Ramon Tan, plaintiff-appellee, vs. Rizal
Commercial Banking Corporation, defendant-appellant, reversing the decision of the
Regional Trial Court dated December 28, 1990 ordering respondent bank Rizal
Commercial Banking Corporation (RCBC), Binondo Branch, to pay petitioner
damages and attorney's fees in the amount of ONE MILLION THIRTY FIVE
THOUSAND (P1,035,000.00) PESOS.
The following are the uncontroverted facts:
Petitioner Ramon Tan, a trader-businessman and community leader in Puerto
Princesa, had maintained since 1976 Current Account No. 109058068 with
respondent bank's Binondo branch. On March 11, 1988, to avoid carrying cash while
enroute to Manila, he secured a Cashier's Check No. L 406000126 from the
Philippine Commercial Industrial Bank (PCIB), Puerto Princesa branch, in the
amount of Thirty Thousand (P30,000.00) Pesos, payable to his order. He deposited
the check in his account with RCBC Binondo on March 15. On the same day, RCBC
erroneously sent the same cashier's check for clearing to the Central Bank which was
returned for having been "missent" or "misrouted." 1 The next day, March 16, RCBC
debited the amount covered by the same cashier's check from the account of the
petitioner. Respondent bank at this time had not informed the petitioner of its action
which the latter claims he learned of only 42 days after, specifically on March 16,
when he received the bank's debit memo.2 Relying on the common knowledge that a
cashier's check was as good as cash, that the usual banking practice that local checks
are cleared within three (3) working days and regional checks within seven (7)
working days, and the fact that the cashier's check was accepted, petitioner issued
two (2) personal checks both dated March 18. Check No. 040719 in the name of Go
Lac for Five Thousand Five Hundred (P5,5000.00) Pesos was presented on April
25,3more than 30 days from petitioner's deposit date of the cashier's check. Check
No. 040718 in the name of MS Development Trading Corporation for Six Thousand
Fifty-Three Pesos and Seventy Centavos (P6,053.70) was returned twice on March
24, nine (9) days from his deposit date and again on April 26, twenty-two days after
the day the cashier's check was deposited for insufficiency of funds. 4
Petitioner, alleging to have suffered humiliation and loss of face in the business
sector due to the bounced checks, filed a complaint against RCBC for damages in the
Regional Trial Court of Palawan and Puerto Princesa, Branch 47, docketed as Civil
Case No. 2101.5
During the trial, petitioner sought to prove:
First, that it was RCBC's responsibility to call his attention there and then that he had
erroneously filled the wrong deposit slip at the time he deposited the cashier's check
with the respondent bank's teller and it was negligence on RCBC's part not to have
done so;6
Second, that RCBC had been remiss in the performance of its obligation to the
petitioner when it "missent" the cashier's check to the Central Bank knowing, as it
should, that the source of the check, PCIB, Puerto Princesa Branch, is not included in
the areas required to be cleared by the Central Bank, a fact known to the banking
world and surely to the respondent bank; 7
Third, that RCBC upon knowing of its error in "missending" the cashier's check to
the Central Bank did not attempt to rectify its "misclearing" error by clearing it
seasonably with PCIB, Puerto Princesa, thru its own RCBC Puerto Princesa Branch
with whom it had direct radio contact;8
Fourth, that as an old client, with twelve (12) years of good standing then, RCBC
should have given him more consideration by exerting greater diligence in clearing
the check with PCIB, Puerto Princesa, to protect its client's interest;9
Fifth, that RCBC failed to inform petitioner promptly that the check had not been
cleared, despite its debiting without delay the amount covered by the check from the
account of the petitioner and hastily charging the latter service fees immediately after
the return of the "missent checks"; 10 and
Finally, that the bounced checks resulting from RCBC's "misclearing" had put in
doubt his credibility among his business peers and sullied his reputation as a
community leader which he had painstakingly cultivated for years. His community
standing as a business-socio-civic leader was a source of pride for him in his old age
of 70. He cited being Chairman of Palawan Boy Scout Council, 2-term President of
the Rotary Club of Puerto Princesa, member of Palawan Chamber of Commerce and
Industry, member of the Monitoring Team of the Palawan Integrated Area
Development Project, member of Lion's Club, Philippine Rifle Pistol Association
and the Saturday Health Club to justify his claim for moral damages. 11
In its defense, RCBC disowning any negligence, put the blame for the "misrouting"
on the petitioner for using the wrong check deposit slip. It insisted that the misuse of
a local check deposit slip, instead of a regional check deposit slip, triggered the
"misrouting" by RCBC of the cashier's check to the Central Bank and it was
petitioner's negligent "misuse" of a local deposit slip which was the proximate cause
of the "misrouting," thus he should bear the consequence. 12
RCBC alleged that it complied strictly with accepted banking practice when it
debited the amount of P30,000.00 against petitioner's account since under Resolution
No. 2202 dated December 21, 1979 of the Monetary Board, it is a matter of policy to
prohibit the drawing against uncollected deposits (DAUDS) except when the
drawings are made against uncollected deposits representing bank
manager's/cashier's/treasurer's checks, treasury warrants, postal money orders and
duly funded "on us" checks which may be permitted at the discretion of each
bank. 13 Without crediting the P30,000.00 deposit, petitioner's balance before and
after was Two Thousand Seven Hundred
Ninety-Two Pesos and the (P2,792.88) Eighty-Eight Centavos.14 Thus, it dishonored
the two (2) checks amounting to P11,553.70 since they were drawn against
insufficient funds. RCBC added that petitioner had no bills purchase (BP) line which
allows a depositor to receive or draw from proceeds of a check without waiting it to
be cleared. Besides, RCBC maintained, had it forwarded the Cashier's Check to
PCIB Puerto Princesa, Palawan, it would take at least twenty (20) working days for
the cashier's check to be cleared and it would take the same length of time to clear
the two (2) personal checks of Tan.15
RCBC further asseverated it was merely acting as petitioner's collecting agent and
it assumed no responsibilitybeyond care in selecting correspondents under the theory
that where a check is deposited with a collecting bank the relationship created is that
of agency and not creditor-debtor, thus it cannot be liable.16
Finally, respondent claimed that serious attempts were made to contact petitioner
through the telephone numbers in the signature specimen card of petitioner but to no
avail.17 The Assistant Branch Accountant of RCBC Binondo Branch testified that the
first telephone number in the card had been deleted from the phone company's list
and that when RCBC tried to contact petitioner's daughter Evelyn Tan-Banzon thru a
certain telephone number and when they asked for Evelyn Tan, they were told there
was no such person.18
The trial court rendered a decision on December 28, 1990 in petitioner's favor, the
dispositive portion 19 of which reads:
WHEREFORE, premises considered, plaintiff having proven the
allegations of his verified complaint by preponderance of evidence,
the court hereby renders judgment ordering defendant bank,
Binondo Branch, Manila, to pay him damages and attorney's fees
in the total amount of P1,035,000.00 Philippine Currency, broken
down as follows: P700,000.00 as moral damages, P200,000.00 as
exemplary damages; P135,000.00 which is 15% of the sum herein
awarded to plaintiff, as attorney's fees and to pay costs of suit.
For having failed to prove by any receipt or writing to underpin it,
plaintiff's claim for actual damage is denied for lack of merit.
IT IS SO ORDERED.
RCBC appealed to the Court of Appeals contending that the trial court erred in
holding RCBC liable to petitioner on account of its alleged negligence and in
awarding petitioner moral and exemplary damages and attorney's fees.
The Court of Appeals on January 12, 1993 rendered a decision 20 with the following
decretal portion:
WHEREFORE, and upon all the foregoing, the decision of the
court below is REVERSED and this complaint is DISMISSED
without pronouncement as to cost.
The Court of Appeals' decision is based on the following findings: 21
What appeared to have caused the unfortunate incident was that the
plaintiff filled up the wrong deposit slip which led to the sending
of the check to the Central Bank when the clearing should have
been made elsewhere.
But the claim of the plaintiff that he was not advised that the
Cashier's check was missent does not seem to be correct. The
evidence indicated that the defendant bank thru its personnel had
called him up thru telephone in the number (No. 60-45-23) which
he gave in his specimen signature card. But it came out, that said
telephone number was no longer active or was already deleted
from the list of telephone numbers.
There was an instruction on the part of the plaintiff for the bank to
contact his daughter, Mrs. Evelyn Tan Banzon and according to the
plaintiff, she too, was not contacted as per his instruction. The
evidence, however, indicated that Ms. Evelyn Tan also could not
be contacted at the number supposed to pertain to her as appeared
in the specimen signature card. In other words while there was
compliance with the instructions given by the plaintiff but said
instructions were faulty. The plaintiff as a customer of the bank is
 under obligation to inform the defendant of any changes in the
telephone numbers to be contacted in the event of any exigency.
All in all, the facts indicate that the refusal of RCBC to credit the
amount of P30,000.00 to the plaintiff's current account is
consistent with the accepted banking practice. As the defendant
bank had claimed, under Resolution No. 2202 dated December 21,
1979 of the Monetary Board, it had been emphatically declared as
a matter of policy that no drawings should be made against
uncollected deposits except when the drawings are made against
uncollected deposits representing bank
manager's/cashier's/treasurer's checks, treasury warrants, postal
money orders, and duly funded "on-us" checks as may be
permitted at the discretion of each bank.
It is clear that immediate payment without awaiting clearance of a
cashier's check is discretionary with the bank to whom the check is
presented and such being the case, the refusal to allow it as in this
case is not to be equated with negligence in the basic perception
that discretion is not demandable as a right. In the instant case,
prior to the deposit of P30,000.00, the plaintiff's account appeared
to be only in the amount of P2,792.98. So the two (2) checks
issued by the plaintiff amounting to P11,553.70 had to be
dishonored since they were drawn against insufficient funds.
What the plaintiff should have done, before issuing the two (2)
checks, was to await the clearance of the Cashier's check and his
failure to do so is a fault not ascribable to the defendant who
appeared under the circumstance merely to have followed the usual
banking practice.
Petitioner now seeks to reverse the decision of the Court of Appeals and affirm that
of the lower court. He raises the following errors:
1. THE HONORABLE COURT OF APPEALS COMMITTED
GROSS AND MANIFEST ERROR IN CONCLUDING THAT
THE NEGLIGENCE WAS ASCRIBABLE TO HEREIN
PETITIONER.
2. THE HONORABLE COURT OF APPEALS GRAVELY
ABUSED ITS DISCRETION IN FINDING THAT THE
RESPONDENT BANK HAD NOT BEEN REMISS IN THE
PERFORMANCE OF ITS OBLIGATIONS TO HEREIN
PETITIONER.
3. THE HONORABLE COURT OF APPEALS COMMITTED
GROSS AND MANIFEST ERROR AND GRAVE ABUSE OF
DISCRETION IN REVERSING THE AWARD OF MORAL
AND EXEMPLARY DAMAGES TO THE PETITIONER.
4. THE HONORABLE COURT OF APPEALS COMMITTED
GROSS AND MANIFEST ERROR AND GRAVE ABUSE OF
DISCRETION IN NOT AWARDING ATTORNEY'S FEES TO
PETITIONER.
In a most recent case decided by this Court, City Trust Corporation v. The
Intermediate Appellate Court, 22 involving damages against City Trust Banking
Corporation, the depositor, instead of stating her correct account number 29000823
inaccurately wrote 2900823. Because of this error, six postdated checks amounting
to P20,209.00 she issued were dishonored for insufficiency of funds. The Regional
Trial Court dismissed the complaint for lack of merit. The Court of Appeals,
however, found the appeal meritorious and ordered the bank to pay nominal damages
of P2,000.00, temperate and moderate damages of P5,000.00 and attorney's fees of
P4,000.00. Upon review, this Court quoted with favor the disquisition of the
appellate court:
We cannot uphold the position of defendant. For, even if it be true
that there was error on the part of the plaintiff in omitting a zero in
her account number, yet, it is a fact that her name, Emma E.
Herrero, is clearly written on said deposit slip (Exh. B). This is
controlling in determining in whose account the deposit is made or
should be posted. This is so because it is not likely to commit an
error in one's name that merely relying on numbers which are
difficult to remember, especially a number with eight (8) digits as
the account numbers of defendant's depositors. We view the use of
numbers as simply for the convenience of the bank but was never
intended to disregard the real name of its depositors. The bank is
engaged in business impressed with public interests, and it is its
duty to protect in return its many clients and depositors who
transact business with it. It should not be a matter of the bank alone
receiving deposits, lending out money and collecting interests. It is
also its obligation to see to it that all funds invested with it are
properly accounted for and duly posted in its ledgers.
In the case before Us, we are not persuaded that defendant bank
was not free from blame for the fiasco. In the first place, the teller
should not have accepted plaintiff's deposit without correcting the
account number on the deposit slip which, obviously, was
erroneous because, as pointed out by defendant, it contained only
seven (7) digits instead of eight (8). Second, the complete name of
plaintiff depositor appears in bold letters on the deposit slip (Exh.
 B). There could be no mistaking in her name, and that the deposit
was made in her name, Emma E. Herrero. In fact, defendant's teller
should not have fed her deposit slip to the computer knowing that
her account number written thereon was wrong as it contained only
seven (7) digits. As it happened, according to defendant, plaintiff's
deposit had to be consigned to the suspense accounts pending
verification. This, indeed, could have been avoided at the first
instance had the teller of defendant bank performed her duties
efficiently and well. For then she could have readily detected that
the account number in the name of Emma E. Herrero was
erroneous and would be rejected by the computer. That is, or
should be, part of the training and standard operating procedure
of the bank's employees. On the other hand, the depositors are not
concerned with banking procedure. That is the responsibility of the
bank and its employees. Depositors are only concerned with the
facility of depositing their money, earning interest thereon, if any,
and withdrawing therefrom, particularly businessmen, like
plaintiff, who are supposed to be always on-the-go. Plaintiff's
account is a current account which should immediately be posted.
After all, it does not earn interest. At least, the forbearance should
be commensurated with prompt, efficient and satisfactory service.
Bank clients are supposed to rely on the services extended by the
bank, including the assurance that their deposits will be duly
credited them as soon as they are made. For, any delay in crediting
their account can be embarrassing to them as in the case of
plaintiff.
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.
(Emphasis supplied).
In the light of the above-cited case, the respondent bank cannot exculpate itself from
liability by claiming that its depositor "impliedly instructed" the bank to clear his
check with the Central Bank by filling a local check deposit slip. Such posture is
disingenuous, to say the least. First, why would RCBC follow a patently erroneous
act born of ignorance or inattention or both. Second, bank transactions pass through a
succession of bank personnel whose duty is to check and countercheck transactions
for possible errors. In the instant case, the teller should not have accepted the local
deposit slip with the cashier's check that on its face was clearly a regional check
without calling the depositor's attention to the mistake at the very moment this was
presented to her. Neither should everyone else down the line who processed the same
check for clearing have allowed the check to be sent to Central Bank. Depositors do
not pretend to be past master of banking technicalities, much more of clearing
procedures. As soon as their deposits are accepted by the bank teller, they wholly
repose trust in the bank personnel's mastery of banking, their and the bank's sworn
profession of diligence and meticulousness in giving irreproachable service.
We do not subscribe to RCBC's assertion that petitioner's use of the wrong deposit
slip was the proximate cause of the clearing fiasco and so, petitioner must bear the
consequence. In Pilipinas Bank, v. CA, 23 this Court said:
The bank is not expected to be infallible but, as correctly observed
by respondent Appellate Court, in this instance, it must bear the
blame for not discovering the mistake of its teller despite the
established procedure requiring the papers and bank books to pass
through a battery of bank personnel whose duty it is to check and
countercheck them for possible errors. Apparently, the officials
and employees tasked to do that did not perform their duties with
due care, . . .
So it is in the instance case, where the conclusion is inevitable that respondent RCBC
had been remiss in the performance of its duty and obligation to its client, as well as
to itself. We draw attention to the fact that the two dishonored checks issued by
petitioner, Check No. 040719 and Check
No. 040718 were presented for payment 24 more than 45 days from the day the
cashier's check was deposited. This gave RCBC more than ample time to have
cleared the cashier's check had it corrected its "missending" the same upon return
from Central Bank using the correct slip this time so it can be cleared properly.
Instead, RCBC promptly debited the amount of P30,000.00 against petitioner's
account and left it at that.
We observe, likewise, that RCBC inquired about an Evelyn Tan but no Evelyn Tan-
Banzon as specifically instructed in the same signature card. (Emphasis supplied) 25
RCBC insists that immediate payment without awaiting clearance of a cashier's
check is discretionary with the bank to whom the check is presented and such being
the case, its refusal to immediately pay the cashier's check in this case is not to be
equated with negligence on its part. We find this disturbing and unfortunate.
An ordinary check is not a mere undertaking to pay an amount of money. There is an
element of certainty or assurance that it will be paid upon presentation that is why it
is perceived as a convenient substitute for currency in commercial and financial
transactions. The basis of the perception being confidence. Any practice that destroys
that confidence will impair the usefulness of the check as a currency substitute and
create havoc in trade circles and the banking community. 26
Now, what was presented for deposit in the instant cases was not just an ordinary
check but a cashier's check payable to the account of the depositor himself. A
cashier's check is a primary obligation of the issuing bank and accepted in
advance by its mere issuance. 27 By its very nature, a cashier's check is the bank's
order to pay drawn upon itself, committing in effect its total resources, integrity and
honor behind the check. A cashier's check by its peculiar character and general use in
the commercial world is regarded substantially to be as good as the money which it
represents.28 In this case, therefore, PCIB by issuing the check created an
unconditional credit in favor of any collecting bank.
All these considered, petitioner's reliance on the layman's perception that a cashier's
check is as good as cash is not entirely misplaced, as it is rooted in practice, tradition,
and principle. We see no reason thus why this so-called discretion was not exercised
in favor of petitioner, specially since PCIB and RCBC are members of the same
clearing house group relying on each other's solvency. RCBC could surely rely on
the solvency of PCIB when the latter issued its cashier's check.
alleviate the moral suffering he has undergone. In the instant case, we find the award
of P700,000.00 as moral damages excessive and, accordingly, reduce it to one
hundred thousand (P100,000.00) pesos. We find the award of exemplary damages of
P200,000.00 unjustified in the absence of malice, bad faith or gross
negligence.31 The award of reasonable attorney's fees is proper for the petitioner was
compelled to litigate to protect his interest.32
IN VIEW WHEREOF, we REVERSE the decision of respondent Court of Appeals
and hereby order private respondent RCBC, Binondo Branch, to pay petitioner the
amount of one hundred thousand (P100,000.00) pesos as moral damages and the sum
of fifty thousand (P50,000.00) pesos as attorney's fees, plus costs.
SO ORDERED.

On the third and fourth issue, RCBC contends that moral damages cannot be
recovered in an action for breach of contract since under Article 2219 of the New
Civil Code, the instant case is not among those enumerated. For an award of moral
damages in a breach of contract, it is imperative that the party acted in bad faith or
fraudulently as provided for in Art. 2220 of the Civil Code, to wit:

Art. 2220. Willful injury to property may be a legal ground for

awarding moral damages if the court should find that, under the
circumstances, such damages are justly due. The same rule applies
to breaches of contract where the defendant acted fraudulently or
in bad faith.

In the absence of moral damages, RCBC argues, exemplary damages cannot be

awarded under Art. 2225 of the same Code which states:

Exemplary damages or corrective damages are imposed, by way of

example or correction for the public good, in addition to the moral,
temperate, liquidated or compensatory damages.

We hold that petitioner has the right to recover moral damages even if the bank's
negligence may not have been attended with malice and bad faith. In American
Express International, Inc. v. IAC, 29 we held:

While petitioner was not in bad faith, its negligence caused the
private respondent to suffer mental anguish, serious anxiety,
embarrassment and humiliation, for which he is entitled to recover,
reasonable moral damages (Art. 2217, Civil Code).

In Zenith Insurance Corporation v. CA, 30 we also said that moral damages are not
meant to enrich a complainant at the expense of defendant. It is only intended to

OMENGAN V. CA
CORONA, J.
This petition for review on certiorari[1] seeks a review and reversal of the Court of
Appeals (CA) decision[2] and resolution[3] in CA-G.R. CV No. 71302.
In October 1996, the Philippine National Bank (PNB) Tabuk (Kalinga) Branch
approved petitioners-spouses application for a revolving credit line of P3
million. The loan was secured by two residential lots in Tabuk, Kalinga-
Apayao covered by Transfer Certificate of Title (TCT) Nos. 12954 and 12112. The
certificates of title, issued by the Registry of Deeds of the Province of Kalinga-
Apayao, were in the name of Edgar[4] Omengan married to Dinah Omengan.
The first P2.5 million was released by Branch Manager Henry Montalvo on three
separate dates. The release of the final half million was, however, withheld
by Montalvo because of a letter allegedly sent by Edgars sisters. It read:
Appas, Tabuk
Kalinga
7 November 1996
The Manager
Philippine National Bank
Tabuk Branch
Poblacion, Tabuk
Kalinga
Sir:
This refers to the land at Appas, Tabuk in the name of our brother,
Edgar Omengan, which was mortgaged to [the] Bank in the
amount of Three Million Pesos (P3,000,000.00), the sum of [P2.5
Million] had already been released and received by our brother,
Edgar.
In this connection, it is requested that the remaining unreleased
balance of [half a million pesos] be held in abeyance pending an
understanding by the rest of the brothers and sisters of
Edgar. Please be informed that the property mortgaged, while
in the name of Edgar Omengan, is owned in co-ownership by
all the children of the late Roberto and Elnora Omengan. The
lawyer who drafted the document registering the subject
property under Edgars name can attest to this fact. We had a
prior understanding with Edgar in allowing him to make use
of the property as collateral, but he refuses to comply with
such arrangement. Hence, this letter. (emphasis ours)
Very truly yours,
(Sgd.) Shirley O. Gamon (Sgd.) Imogene O. Bangao
(Sgd.) Caroline O. Salicob (Sgd.) Alice O. Claver[5]
Montalvo was eventually replaced as branch manager by Manuel Acierto who
released the remaining half million pesos to petitioners on May 2, 1997. Acierto also
recommended the approval of a P2 million increase in their credit line to
the Cagayan Valley Business Center Credit Committee in Santiago City.
The credit committee approved the increase of petitioners credit line (from P3
million to P5 million), provided Edgars sisters gave their
conformity. Acierto informed petitioners of the conditional approval of their credit
line.
But petitioners failed to secure the consent of Edgars sisters; hence, PNB put on hold
the release of the additional P2 million.
On October 7, 1998, Edgar Omengan demanded the release of the P2 million. He
claimed that the condition for its release was not part of his credit line agreement
with PNB because it was added without his consent. PNB denied his request.
On March 3, 1999, petitioners filed a complaint for breach of contract and damages
against PNB with the Regional Trial Court (RTC), Branch 25 in Tabuk, Kalinga.
After trial, the court decided in favor of petitioners.
Accordingly, judgment is hereby rendered finding in favor of
[petitioners.] [PNB is ordered]:
1) To release without delay in favor of [petitioners] the
amount of P2,000,000.00 to complete the P5,000,000.00 credit
line agreement;
2) To pay [petitioners] the amount of P2,760,000.00
representing the losses and/or expected income of the
[petitioners] for three years;
3) To pay lawful interest, until the amount
aforementioned on paragraphs 1 and 2 above are fully paid; and
4) To pay the costs.
 SO ORDERED.[6]
The CA, however, on June 18, 2003, reversed and set aside the RTC decision dated
April 21, 2001.[7]
Petitioners now contend that the CA erred when it did not sustain the finding of
breach of contract by the RTC. [8]
The existence of breach of contract is a factual matter not usually reviewed in a
petition filed under Rule 45. But since the RTC and the CA had contradictory
findings, we are constrained to rule on this issue.
Was there a breach of contract? There was none.
Breach of contract is defined as follows:
[It] is the failure without legal reason to comply with the terms of a
contract. It is also defined as the [f]ailure, without legal excuse, to
perform any promise which forms the whole or part of the
contract.[9]
In this case, the parties agreed on a P3 million credit line. This sum was completely
released to petitioners who subsequently applied[10] for an increase in their credit
line. This was conditionally approved by PNBs credit committee. For all intents and
purposes, petitioners sought an additional loan.
The condition attached to the increase in credit line requiring petitioners to acquire
the conformity of Edgars sisters was never acknowledged and accepted by
petitioners. Thus, as to the additional loan, no meeting of the minds actually occurred
and no breach of contract could be attributed to PNB. There was no perfected
contract over the increase in credit line.
[T]he business of a bank is one affected with public interest, for which reason the
bank should guard against loss due to negligence or bad faith. In approving the loan
of an applicant, the bank concerns itself with proper [information] regarding its
debtors.[11] Any investigation previously conducted on the property offered by
petitioners as collateral did not preclude PNB from considering new information on
the same property as security for a subsequent loan. The credit and property
investigation for the original loan of P3 million did not oblige PNB to grant and
release any additional loan. At the time the original P3 million credit line was
approved, the title to the property appeared to pertain exclusively to petitioners. By
the time the application for an increase was considered, however, PNB already had
reason to suspect petitioners claim of exclusive ownership.
A mortgagee can rely on what appears on the certificate of title
presented by the mortgagor and an innocent mortgagee is not
expected to conduct an exhaustive investigation on the history of
the mortgagors title. This rule is strictly applied to banking
institutions. xxx
Banks, indeed, should exercise more care and prudence in
dealing even with registered lands, than private individuals, as
their business is one affected with public interest. xxx Thus,
this Court clarified that the rule that persons dealing with
registered lands can rely solely on the certificate of title
does not apply to banks.[12] (emphasis supplied)
Here, PNB had acquired information sufficient to induce a reasonably prudent
person to inquire into the status of the title over the subject property. Instead of
defending their position, petitioners merely insisted that reliance on the face of the
certificate of title (in their name) was sufficient. This principle, as already
mentioned, was not applicable to financial institutions like PNB.
In truth, petitioners had every chance to turn the situation in their favor if,
as they said, they really owned the subject property alone, to the exclusion of any
other owner(s). Unfortunately, all they offered were bare denials of the co-ownership
claimed by Edgars sisters.
PNB exercised reasonable prudence in requiring the above-mentioned
condition for the release of the additional loan. If the condition proved unacceptable
to petitioners, the parties could have discussed other terms instead of making an
obstinate and outright demand for the release of the additional amount. If the alleged
co-ownership in fact had no leg to stand on, petitioners could have introduced
evidence other than a simple denial of its existence.
Since PNB did not breach any contract and since it exercised the degree of
diligence expected of it, it cannot be held liable for damages.
WHEREFORE, the decision and resolution of the Court of Appeals in CA-G.R. CV
No. 71302 are hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.
G.R. No. L-30511 February 14, 1980
MANUEL M. SERRANO, petitioner,
vs.
CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA;
EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR.,
JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA, ANTONIO B.
RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA,
VICTORIA RAMOS TANJUATCO, and TEOFILO
TANJUATCO, respondents.
CONCEPION, JR., J.:
Petition for mandamus and prohibition, with preliminary injunction, that seeks the
establishment of joint and solidary liability to the amount of Three Hundred Fifty
Thousand Pesos, with interest, against respondent Central Bank of the Philippines
and Overseas Bank of Manila and its stockholders, on the alleged failure of the
Overseas Bank of Manila to return the time deposits made by petitioner and assigned
to him, on the ground that respondent Central Bank failed in its duty to exercise strict
supervision over respondent Overseas Bank of Manila to protect depositors and the
general public.1 Petitioner also prays that both respondent banks be ordered to
execute the proper and necessary documents to constitute all properties fisted in
Annex "7" of the Answer of respondent Central Bank of the Philippines in G.R. No.
L-29352, entitled "Emerita M. Ramos, et al vs. Central Bank of the Philippines," into
a trust fund in favor of petitioner and all other depositors of respondent Overseas
Bank of Manila. It is also prayed that the respondents be prohibited permanently
from honoring, implementing, or doing any act predicated upon the validity or
efficacy of the deeds of mortgage, assignment. and/or conveyance or transfer of
whatever nature of the properties listed in Annex "7" of the Answer of respondent
Central Bank in G.R. No. 29352.2
A sought for ex-parte preliminary injunction against both respondent banks was not
given by this Court.
Undisputed pertinent facts are:
On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for
one year with 6% interest, of One Hundred Fifty Thousand Pesos (P150,000.00) with
the respondent Overseas Bank of Manila. 3 Concepcion Maneja also made a time
deposit, for one year with 6-% interest, on March 6, 1967, of Two Hundred
Thousand Pesos (P200,000.00) with the same respondent Overseas Bank of
Manila.4On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano,
assigned and conveyed to petitioner Manuel M. Serrano, her time deposit of
P200,000.00 with respondent Overseas Bank of Manila. 5
Notwithstanding series of demands for encashment of the aforementioned time
deposits from the respondent Overseas Bank of Manila, dating from December 6,
1967 up to March 4, 1968, not a single one of the time deposit certificates was
honored by respondent Overseas Bank of Manila. 6
Respondent Central Bank admits that it is charged with the duty of administering the
banking system of the Republic and it exercises supervision over all doing business
in the Philippines, but denies the petitioner's allegation that the Central Bank has the
duty to exercise a most rigid and stringent supervision of banks, implying that
respondent Central Bank has to watch every move or activity of all banks, including
respondent Overseas Bank of Manila. Respondent Central Bank claims that as of
March 12, 1965, the Overseas Bank of Manila, while operating, was only on a
limited degree of banking operations since the Monetary Board decided in its
Resolution No. 322, dated March 12, 1965, to prohibit the Overseas Bank of Manila
from making new loans and investments in view of its chronic reserve deficiencies
against its deposit liabilities. This limited operation of respondent Overseas Bank of
Manila continued up to 1968.7
Respondent Central Bank also denied that it is guarantor of the permanent solvency
of any banking institution as claimed by petitioner. It claims that neither the law nor
sound banking supervision requires respondent Central Bank to advertise or
represent to the public any remedial measures it may impose upon chronic
delinquent banks as such action may inevitably result to panic or bank "runs". In the
years 1966-1967, there were no findings to declare the respondent Overseas Bank of
Manila as insolvent. 8
Respondent Central Bank likewise denied that a constructive trust was created in
favor of petitioner and his predecessor in interest Concepcion Maneja when their
time deposits were made in 1966 and 1967 with the respondent Overseas Bank of
Manila as during that time the latter was not an insolvent bank and its operation as a
banking institution was being salvaged by the respondent Central Bank. 9
Respondent Central Bank avers no knowledge of petitioner's claim that the properties
given by respondent Overseas Bank of Manila as additional collaterals to respondent
Central Bank of the Philippines for the former's overdrafts and emergency loans
were acquired through the use of depositors' money, including that of the petitioner
and Concepcion Maneja. 10
In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the
Philippines," a case was filed by the petitioner Ramos, wherein respondent Overseas
Bank of Manila sought to prevent respondent Central Bank from closing, declaring
the former insolvent, and liquidating its assets. Petitioner Manuel Serrano in this
case, filed on September 6, 1968, a motion to intervene in G.R. No. L-29352, on the
ground that Serrano had a real and legal interest as depositor of the Overseas Bank of
Manila in the matter in litigation in that case. Respondent Central Bank in G.R. No.
L-29352 opposed petitioner Manuel Serrano's motion to intervene in that case, on the
ground that his claim as depositor of the Overseas Bank of Manila should properly
be ventilated in the Court of First Instance, and if this Court were to allow Serrano to
intervene as depositor in G.R. No. L-29352, thousands of other depositors would
follow and thus cause an avalanche of cases in this Court. In the resolution dated
October 4, 1968, this Court denied Serrano's, motion to intervene. The contents of
said motion to intervene are substantially the same as those of the present petition. 11
This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which
became final and executory on March 3, 1972, favorable to the respondent Overseas
Bank of Manila, with the dispositive portion to wit:
WHEREFORE, the writs prayed for in the petition are hereby
granted and respondent Central Bank's resolution Nos. 1263, 1290
and 1333 (that prohibit the Overseas Bank of Manila to participate
in clearing, direct the suspension of its operation, and ordering the
liquidation of said bank) are hereby annulled and set aside; and
said respondent Central Bank of the Philippines is directed to
comply with its obligations under the Voting Trust Agreement, and
to desist from taking action in violation therefor. Costs against
respondent Central Bank of the Philippines. 12
Because of the above decision, petitioner in this case filed a motion for judgment in
this case, praying for a decision on the merits, adjudging respondent Central Bank
jointly and severally liable with respondent Overseas Bank of Manila to the
petitioner for the P350,000 time deposit made with the latter bank, with all interests
due therein; and declaring all assets assigned or mortgaged by the respondents
Overseas Bank of Manila and the Ramos groups in favor of the Central Bank as trust
funds for the benefit of petitioner and other depositors. 13
By the very nature of the claims and causes of action against respondents, they in
reality are recovery of time deposits plus interest from respondent Overseas Bank of
Manila, and recovery of damages against respondent Central Bank for its alleged
failure to strictly supervise the acts of the other respondent Bank and protect the
interests of its depositors by virtue of the constructive trust created when respondent
Central Bank required the other respondent to increase its collaterals for its
overdrafts said emergency loans, said collaterals allegedly acquired through the use
of depositors money. These claims shoud be ventilated in the Court of First Instance
of proper jurisdiction as We already pointed out when this Court denied petitioner's
motion to intervene in G.R. No. L-29352. Claims of these nature are not proper in
actions for mandamus and prohibition as there is no shown clear abuse of discretion
by the Central Bank in its exercise of supervision over the other respondent Overseas
Bank of Manila, and if there was, petitioner here is not the proper party to raise that
question, but rather the Overseas Bank of Manila, as it did in G.R. No. L-29352.
Neither is there anything to prohibit in this case, since the questioned acts of the
respondent Central Bank (the acts of dissolving and liquidating the Overseas Bank of
Manila), which petitioner here intends to use as his basis for claims of damages
against respondent Central Bank, had been accomplished a long time ago.
Furthermore, both parties overlooked one fundamental principle in the nature of
bank deposits when the petitioner claimed that there should be created a constructive
trust in his favor when the respondent Overseas Bank of Manila increased its
collaterals in favor of respondent Central Bank for the former's overdrafts and
emergency loans, since these collaterals were acquired by the use of depositors'
money.
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. 14 Current and
savings deposit are loans to a bank because it can use the same. The petitioner here
in making time deposits that earn interests with 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 he respondent Bank to honor the
time deposit is failure to pay s obligation as a debtor and not a breach of trust arising
from depositary's failure to return the subject matter of the deposit
WHEREFORE, the petition is dismissed for lack of merit, with costs against
petitioner.
SO ORDERED.
Antonio, Abad Santos, JJ., concur.
Barredo (Chairman) J., concur in the judgment on the of the concurring opinion of
Justice Aquino.
Separate Opinions
AQUINO, J., concurring:
The petitioner prayed that the Central Bank be ordered to pay his time deposits of
P350,000, plus interests, which he could not recover from the distressed Overseas
Bank of Manila, and to declare all the assets assigned or mortgaged by that bank and
the Ramos group to the Central Bank as trust properties for the benefit of the
petitioner and other depositors.
The petitioner has no causes of action agianst the Central Bank to obtain those
reliefs. They cannot be granted in petitioner's instant original actions in this Court for
mandamus and prohibition. It is not the Central Bank's ministerial duty to pay
petitioner's time deposits or to hold the mortgaged properties in trust for the
depositors of the Overseas Bank of Manila. The petitioner has no cause of action for
prohibition, a remedy usually available against any tribunal, board, corporation or
person exercising judicial or ministerial functions.

Since the Overseas Bank of Manila was found to be insolvent and the Superintendent
of Banks was ordered to take over its assets preparatory to its liquidation under
section 29 of Republic Act No. 265 (p. 197, Rollo, Manifestation of September 19,
1973), petitioner's remedy is to file his claim in the liquidating proceeding (Central
Bank vs. Morfe, L-38427, March 12, 1975, 63 SCRA 114; Hernandez vs. Rural
Bank of Lucena, Inc., L-29791, January 10, 1978, 81 SCRA 75).

Separate Opinions

AQUINO, J., concurring:

The petitioner prayed that the Central Bank be ordered to pay his time deposits of
P350,000, plus interests, which he could not recover from the distressed Overseas
Bank of Manila, and to declare all the assets assigned or mortgaged by that bank and
the Ramos group to the Central Bank as trust properties for the benefit of the
petitioner and other depositors.

The petitioner has no causes of action agianst the Central Bank to obtain those
reliefs. They cannot be granted in petitioner's instant original actions in this Court for
mandamus and prohibition. It is not the Central Bank's ministerial duty to pay
petitioner's time deposits or to hold the mortgaged properties in trust for the
depositors of the Overseas Bank of Manila. The petitioner has no cause of action for
prohibition, a remedy usually available against any tribunal, board, corporation or
person exercising judicial or ministerial functions.

Since the Overseas Bank of Manila was found to be insolvent and the Superintendent
of Banks was ordered to take over its assets preparatory to its liquidation under
section 29 of Republic Act No. 265 (p. 197, Rollo, Manifestation of September 19,
1973), petitioner's remedy is to file his claim in the liquidating proceeding (Central
Bank vs. Morfe, L-38427, March 12, 1975, 63 SCRA 114; Hernandez vs. Rural
Bank of Lucena, Inc., L-29791, January 10, 1978, 81 SCRA 75).
CENTRAL BANK V. CITYTRUST BANKING CORPORATION
CARPIO MORALES, J.:
Pursuant to Republic Act No. 625, the old Central Bank Law, respondent
Citytrust Banking Corporation (Citytrust), formerly Feati Bank, maintained a
demand deposit account with petitioner Central Bank of the Philippines, now
Bangko Sentral ng Pilipinas.
As required, Citytrust furnished petitioner with the names and
corresponding signatures of five of its officers authorized to sign checks and serve as
drawers and indorsers for its account. And it provided petitioner with the list and
corresponding signatures of its roving tellers authorized to withdraw, sign receipts
and perform other transactions on its behalf. Petitioner later issued security
identification cards to the roving tellers one of whom was Rounceval Flores (Flores).
On July 15, 1977, Flores presented for payment to petitioners Senior Teller
Iluminada dela Cruz (Iluminada) two Citytrust checks of even date, payable to
Citytrust, one in the amount of P850,000 and the other in the amount of P900,000,
both of which were signed and indorsed by Citytrusts authorized signatory-drawers.
After the checks were certified by petitioners Accounting Department,
Iluminada verified them, prepared the cash transfer slip on which she affixed her
signature, stamped the checks with the notation Received Payment and asked Flores
to, as he did, sign on the space above such notation. Instead of signing his name,
however, Flores signed as Rosauro C. Cayabyab a fact Iluminada failed to notice.
Iluminada thereupon sent the cash transfer slip and checks to petitioners
Cash Department where an officer verified and compared the drawers signatures on
the checks against their specimen signatures provided by Citytrust, and finding the
same in order, approved the cash transfer slip and paid the corresponding amounts to
Flores. Petitioner then debited the amount of the checks totaling P1,750,000 from
Citytrusts demand deposit account.
More than a year and nine months later, Citytrust, by letter dated April 23,
1979, alleging that the checks were already cancelled because they were stolen,
demanded petitioner to restore the amounts covered thereby to its demand deposit
account. Petitioner did not heed the demand, however.
Citytrust later filed a complaint for estafa, with reservation on the filing of a
separate civil action, against Flores. Flores was convicted.
Citytrust thereafter filed before the Regional Trial Court (RTC) of Manila a
complaint for recovery of sum of money with damages against petitioner which it
alleged erred in encashing the checks and in charging the proceeds thereof to its
account, despite the lack of authority of Rosauro C. Cayabyab.
By Decision[1] of November 13, 1991, Branch 32 of the RTC of Manila
found both Citytrust and petitioner negligent and accordingly held them equally
liable for the loss. Both parties appealed to the Court of Appeals which, by
Decision[2] dated July 16, 1999, affirmed the trial courts decision, it holding that both
parties contributed equally to the fraudulent encashment of the checks, hence, they
should equally share the loss in consonance with Article 2179[3] vis a vis Article
1172[4] of the Civil Code.
In arriving at its Decision, the appellate court noted that while Citytrust
failed to take adequate precautionary measures to prevent the fraudulent encashment
of its checks, petitioner was not entirely blame-free in light of its failure to verify the
signature of Citytrusts agent authorized to receive payment.
Brushing aside petitioners contention that it cannot be sued, the appellate
court held that petitioners Charter specifically clothes it with the power to sue and be
sued.
Also brushing aside petitioners assertion that Citytrusts reservation of the
filing of a separate civil action against Flores precluded Citytrust from filing the civil
action against it, the appellate court held that the action for the recovery of sum of
money is separate and distinct and is grounded on a separate cause of action from
that of the criminal case for estafa.
Hence, the present appeal, petitioner maintaining that Flores having been an
authorized roving teller, Citytrust is bound by his acts. Also maintaining that it was
not negligent in releasing the proceeds of the checks to Flores, the failure of its teller
to properly verify his signature notwithstanding, petitioner contends that verification
could be dispensed with, Flores having been known to be an authorized roving teller
of Citytrust who had had numerous transactions with it (petitioner) on its (Citytrusts)
behalf for five years prior to the questioned transaction.
Attributing negligence solely to Citytrust, petitioner harps on Citytrusts
allowing Flores to steal the checks and failing to timely cancel them; allowing Flores
to wear the issued identification card issued by it (petitioner); failing to report Flores
absence from work on the day of the incident; and failing to explain the
circumstances surrounding the supposed theft and cancellation of the checks.
Drawing attention to Citytrusts considerable delay in demanding the
restoration of the proceeds of the checks, petitioners argue that,
assuming arguendo that its teller was negligent, Citytrusts negligence,
which preceded that committed by the teller, was the proximate cause of the loss or
fraud.
The petition is bereft of merit.
 Petitioners teller Iluminada did not verify Flores signature on the flimsy
excuse that Flores had had previous transactions with it for a number of years. That
circumstance did not excuse the teller from focusing attention to or at least glancing
at Flores as he was signing, and to satisfy herself that the signature he had just
affixed matched that of his specimen signature. Had she done that, she would have
readily been put on notice that Flores was affixing, not his but a fictitious signature.
Given that petitioner is the government body mandated to supervise and
regulate banking and other financial institutions, this Courts ruling in Consolidated
Bank and Trust Corporation v. Court of Appeals[5] illumines:
The contract between the bank and its depositor is
governed by the provisions of the Civil Code on simple loan.
Article 1980 of the Civil Code expressly provides that x x x
savings x x x deposits of money in banks and similar institutions
shall be governed by the provisions concerning simple loan. There
is a debtor-creditor relationship between the bank and its
depositor. The bank is the debtor and the depositor is the
creditor. The depositor lends the bank money and the bank agrees
to pay the depositor on demand. The savings deposit agreement
between the bank and the depositor is the contract that determines
the rights and obligations of the parties.
The law imposes on banks high standards in view of the
fiduciary nature of banking. Section 2 of Republic Act No. 8791
(RA 8791), which took effect on 13 June 2000, declares that the
State recognizes the fiduciary nature of banking that requires high
standards of integrity and performance. This new provision in the
general banking law, introduced in 2000, is a statutory affirmation
of Supreme Court decisions, starting with the 1990 case of Simex
International v. Court of Appeals, holding that the bank is under
obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their
relationship.
the diligence of a good father of a family. Section 2 of RA 8791
prescribes the statutory diligence required from banks that banks
must observe high standards of integrity and performance in
servicing their depositors. Although RA 8791 took effect almost
nine years after the unauthorized withdrawal of the P300,000
from L.C. Diazs savings account, jurisprudence at the time of
the withdrawal already imposed on banks the same high
standard of diligence required under RA No. 8791. (Emphasis
supplied)
Citytrusts failure to timely examine its account, cancel the checks and notify
petitioner of their alleged loss/theft should mitigate petitioners liability, in
accordance with Article 2179 of the Civil Code which provides that if
the plaintiffs negligence was only contributory, the immediate and proximate cause
of the injury being the defendants lack of due care, the plaintiff may recover
damages, but the courts shall mitigate the damages to be awarded. For had Citytrust
timely discovered the loss/theft and/or subsequent encashment, their proceeds or part
thereof could have been recovered.
In line with the ruling in Consolidated Bank, the Court deems it proper to
allocate the loss between petitioner and Citytrust on a 60-40 ratio.
WHEREFORE, the assailed Court of Appeals Decision of July 16, 1999 is
hereby AFFIRMED with MODIFICATION, in that petitioner and Citytrust should
bear the loss on a 60-40 ratio.
SO ORDERED.

This fiduciary relationship means that the banks

obligation to observe high standards of integrity and
performance is deemed written into every deposit agreement
between a bank and its depositor. The fiduciary nature of
banking requires banks to assume a degree of diligence higher
than that of a good father of a family. Article 1172 of the Civil
Code states that the degree of diligence required of an obligor is
that prescribed by law or contract, and absent such stipulation then
PHILIPPINE NATIONAL BANK, Petitioner, v. PABLO V.
RAYMUNDO, Respondent.
PERALTA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court,
seeking to reverse and set aside the Decision1 dated May 31, 2013 and the Resolution
dated August 14, 2013 of the Court of Appeals (CA) in CA-G.R. CV No. 96760. The
CA denied the appeal of Philippine National Bank (PNB)2from the civil aspect of the
Decision dated December 4, 20093 of the Regional Trial Court (RTC) of San Pedro
Laguna, Branch 93, which acquitted Pablo V. Raymundo of the charge of violation
of Section 3(e) of Republic Act (RA) No. 3019, otherwise known as the Anti-Graft
and Corrupt Practices Act, in Criminal Case No. 0414-SPL.
The CA summarized the facts as follows.4
On July 30, 1993, accused-appellee Pablo V. Raymundo (Raymundo), then
Department Manager of PNB San Pedro Branch, approved for deposit a foreign draft
check dated June 23, 1993, in the amount of $172,549.00 issued by Solomon
Guggenheim Foundation, drawn against Morgan Guaranty Company of New York,
payable to Merry May Juan (Ms. Juan) in the opening of the latter's checking
account with PNB San Pedro Branch. Consequent to the approval for deposit of the
foreign draft check, Checking Account No. 447-810168-1 and a check booklet were
issued to Ms. Juan. On even date, Ms. Juan drew six (6) PNB Checks, five (5) of
which were made payable to C&T Global Futures and one (1) payable to "CASH",
all in the aggregate amount of FOUR MILLION PESOS (P4,000,000.00). The six
(6) checks were negotiated by Ms. Juan and were approved for payment on the same
day by Raymundo, without waiting for the foreign draft check, intended to fund the
issued check, to be cleared by the PNB Foreign Currency Clearing Unit.
On August 2, 1993, the PNB Foreign Checks Unit and Clearing Services received
the foreign draft check for negotiation with Morgan Trust Company of New York,
through PNB's correspondent bank in New York, the Banker's Trust Co. of New
York (BTCNY for brevity).
On August 6, 1993 and within the clearing period of twenty-one (21) days for
foreign draft checks, the PNB received a telex message from BTCNY that the
foreign draft check was dishonored for being fraudulent. Subsequent to the said telex
message, a letter dated August 20, 1993 was sent by BTCNY to the PNB Corporate
Auditor stating the same reason for such dishonor.
On September 9, 1993, Mr. Emerito Sapinoso, Department Manager II of the PNB
Foreign Currency Clearing Unit, sent a memorandum to Raymundo, as then Manager
of PNB San Pedro, and informed the latter of the return and dishonor of the foreign
currency draft and the corresponding debit of the PNB's account to collect the
proceeds of the erroneously paid foreign draft check.
For irregularly approving the payment of the six (6) checks issued by Ms. Juan,
without waiting for the foreign draft check to be cleared, Raymundo, as then
Department Manager of PNB San Pedro Branch, was administratively charged by
PNB for Conduct Prejudicial to the Interest of the Service and/or Gross Violation of
Bank's Rules and Regulations.
Accused Pablo V. Raymundo denied the allegations that he committed acts which
defrauded the PNB of the sum of P4,000,000.00. Outlining the procedure from the
time the check was presented to the PNB San Pedro Laguna Branch where he
worked as Branch Manager up to the time it is paid or dishonored, he noted that the
check will pass through the bookkeeper, Ms. Leonida Moredo, who would determine
if the check is funded or not. If the check is not funded, the bookkeeper will
accomplish a check return slip and will stamp the back and front of the check that it
has no funds and thereafter give it to the accountant, Rodrigo Camello, to verify if
indeed the check is not funded. After the receipt of the check, the accountant will
check the ledger and the circumstances of the return and thereafter forward the same
to the branch manager, or in his absence, the cashier. Upon receipt of the check
deposit slip, the branch manager, if there is no return slip, would automatically sign
the check because the absence of a return slip is his guide that the check is good. He
noted that it is the duty of the bookkeeper to go over the records of the account of
each particular client. When he came to know that withdrawals had been made on a
deposited check which had no funds, he immediately instructed bookkeeper Leonila
Moredo and accountant Rodrigo Camello to hold further withdrawals on the account.
He likewise filed criminal charges against Merry May Juan. The case was decided in
his favor and the accused therein was made to pay him and the bank the amount of
the check. There was no actual payment made however.
In an Information dated September 27, 1996, the Office of the Ombudsman charged
Raymundo with violation of Section 3(e) of RA No. 3019, to wit:
That on or about August 3, 1993, or subsequent thereto, in San Pedro, Laguna,
Philippines and within the jurisdiction of this Honorable Court, accused Pablo V.
Raymundo, then the Assistant Department Manager of PNB, San Pedro Branch,
Laguna, and a public officer, while in the performance and taking advantage of his
official function as manager, with evident bad faith, manifest partiality, and gross
inexcusable negligence, did then and there willfully and unlawfully approve/allow
the encashment of a total of six (6) checks drawn against an uncleared foreign checks
in complete disregard of existing banking regulations, that was subsequently returned
by the drawee bank as a fraudulent foreign check, thus causing undue injury to
complainant PNB in the total sum of P4,000,000.00.
CONTRARY TO LAW.
Upon arraignment, Raymundo entered a plea of not guilty to the charge. He waived
his right to a pre-trial, and trial on the merits ensued.
After trial, the RTC rendered the Decision dated December 4, 2009, the dispositive
portion of which reads:
In light of the foregoing, it is very clear that the prosecution failed to establish the
guilt of accused Pablo V. Raymundo beyond reasonable doubt for the crime charged.
Consequently, accused Pablo V. Raymundo is hereby acquitted of the charge of
Violation of Sec. 3(e), R.A. 3019.
No costs.
SO ORDERED.
The RTC held that it would be too harsh and inequitable to impose criminal liability
upon Raymundo, who approved the withdrawal because of his belief that the checks
were funded, due to the absence of the stamp mark "Returned Check'' on the checks,
and check return slips. Considering that Raymundo's duties as Branch Manager
entailed a lot of responsibility, the RTC found it almost unreasonable to expect him
to directly and personally check the books of accounts of each particular client every
time a check is presented to the bank for payment and for his approval. The RTC
stressed that it has been established that the responsibility to go over the account
records of clients falls on the bookkeeper, and Raymundo's act of relying upon the
bookkeeper's verification that the checks were good cannot be deemed gross and
inexcusable negligence.
Aggrieved, the PNB appealed from the civil aspect of the RTC Decision which
acquitted Raymundo of the charge of violation of Section 3(e) of R.A. No. 3019.
In a Decision dated May 31, 2013, the CA denied the PNB's appeal for lack of merit.
In a Resolution dated August 14, 2013, it also denied the PNB's motion for
reconsideration for lack of merit. It ruled that Raymundo acted in good faith in
relying upon his subordinates, i.e., the bookkeeper and accountant, who were
primarily assigned with the task of clearing the checks and ensuring that they are
sufficiently funded. It held that he has no duty to go beyond the verification of the
documents submitted by the bookkeeper and the accountant, and to personally
authenticate the procedures taken. It added that considering that his duties as Branch
Manager entails a lot of responsibility, it is unreasonable to require him to
accomplish and direct a personal examination of the records of the account of each
particular client before affixing his signature on the documents as approving
authority.
Dissatisfied, the PNB filed this petition for review on certiorari, arguing that the CA
committed serious errors, namely: (1) when it ruled that the trial court aptly
concluded that there was lack of malice or bad faith, nor negligence on the part of
Raymundo in approving the payment of the checks; (2) when it failed to consider
Raymundo's negligence and entirely disregarded the testimonial and documentary
evidence of the PNB before the trial court; and (3) when it ruled that Raymundo is
not civilly liable for the offense charged.5
The petition is meritorious.
The Court explains the two kinds of acquittal recognized by law, as well their effects
on the civil liability of the accused, thus:
Our law recognizes two kinds of acquittal, with different effects on the civil liability
of the accused. First is an acquittal on the ground that the accused is not the author of
the act or omission complained of. This instance closes the door to civil liability, for
a person who has been found to be not the perpetrator of any act or omission cannot
and can never be held liable for such act or omission. There being no delict, civil
liability ex delicto is out of the question, and the civil action, if any, which may be
instituted must be based on grounds other than the delict complained of. This is the
situation contemplated in Rule 111 of the Rules of Court. The second instance is an
acquittal based on reasonable doubt on the guilt of the accused. In this case, even if
the guilt of the accused has not been satisfactorily established, he is not exempt from
civil liability which may be proved by preponderance of evidence only.
The Rules of Court requires that in case of an acquittal, the judgment shall state
"whether the evidence of the prosecution absolutely failed to prove the guilt of the
accused or merely failed to prove his guilt beyond reasonable doubt. In either case,
the judgment shall determine if the act or omission from which the civil liability
might arise did not exist."6
In light of the foregoing, Raymundo can still be held civilly liable for the charge of
violation of Section 3(e) of R.A. No. 3019 because he was only acquitted for failure
of the prosecution to establish his guilt beyond reasonable doubt, and the RTC and
the CA erroneously determined that no civil liability might arise from his act of
relying on the bookkeeper's verification that the six (6) checks amounting to
P4,000,000.00 were all good, but later turned out to be drawn against uncollected
deposit, i.e., the account has, on its face, sufficient funds but not yet available to the
drawer because the deposit, usually a check, had not yet been cleared. 7
Factual findings of the appellate court generally are conclusive, and carry even more
weight when said court affirms the findings of the trial court, absent any showing
that the findings are totally devoid of support in the records, or that they are so
glaringly erroneous as to constitute grave abuse of discretion.8 In this case, however,
both the RTC and the CA totally ignored the testimonial and documentary evidence
of the PNB, showing Raymundo's gross negligence in approving the payment of six
(6) checks negotiated by Ms. Juan on August 3, 1993 and August 5, 1993, without
waiting for the foreign draft check intended to fund the peso checking account she
opened on July 30, 1993, to be cleared by the PNB Foreign Currency Clearing Unit.
Despite their having been identified9 and formally offered10 by PNB, and admitted in
evidence11 by the trial court, the RTC and the CA failed to give due credence to
Raymundo's affidavits, complaints and testimonies before the other trial courts in
San Pedro, Laguna, where he had filed separate criminal and civil cases against Ms.
Juan and her cohorts in order to recover the value of the six (6) checks which were
encashed despite having been drawn against uncollected deposit. Contrary to
Raymundo's claim, such extra-judicial admissions do not violate his right against self
incrimination, which simply proscribes the legal process of extracting from the lips
of the accused an admission of guilt. Suffice it to state that Raymundo's
Complaints12 and Affidavits13 in the civil and criminal cases he filed against Ms.
Juan contain his voluntary statements, which were subscribed and sworn to either
before the Assistant Provincial Prosecutor and the Judge or the Notary Public,
whereas his testimonies14 were given during hearings in the said cases. Clearly,
Raymundo is not being compelled to testify against himself. In the same vein, PNB
cannot be faulted for merely using the documentary and testimonial evidence he
willingly proffered in the cases he had filed to recover the losses incurred by the
bank due to his unauthorized approval for payment of the six (6) checks drawn
against the uncollected deposit.
The circumstances showing Raymundo's gross negligence can be gathered in the
Complaint for sum of money he had filed against Ms. Juan and her cohorts, to wit:
3. That on July 30, 1993, a group of persons composed of the above-named
defendants [including Ms. Juan] who, for some time, have been known to the
plaintiff [Raymundo] as ranking and top executives of the herein defendant
corporation [payee C&T Global Futures, Inc.] engaged in the foreign currency
trading business, came to the Office of herein plaintiff. They intimated their plan of
opening a current account with the said San Pedro Branch of the Philippine National
Bank. They let it appear that this was in line with C&T Global Futures, Inc.'s on-
going contest which the said group wanted to win the first prize which was
purportedly a round-trip ticket to Hong Kong. For this purpose, they wanted the
checking account to be opened immediately in the name of defendant Mary May M.
Juan with the amount of $172,549.00 (P4,778,744.55) embodied in a Morgan
Guaranty and Trust Company of New York Check No. 069748 as initial deposit.
They further assured the herein plaintiff that some more dollars are coming in the
near future if this transaction would prosper;
4. That at first, plaintiff herein [Raymundo] was a bit hesitant to immediately
accommodate the seemingly hasty manner of opening a current account not
only on the fact that the amount involved was quite big but also on account that
he was dealing with a foreign check. But when the group, particularly
defendant "Cleo" Tan, showed to him the record of a just-concluded overseas
call confirming that the said Morgan Guaranty Company check was good,
plaintiff allowed the issuance of six (6) checks bearing different dates in the total
amount of P4,000,000.00 all payable to herein defendant corporation upon the
undertaking of the group that the same would not be "traded" or negotiated
until the said Morgan Guaranty Trust Co. check has been finally cleared;
5. That in utter violation of the trust and confidence reposed in them by the herein
plaintiff, defendants went on negotiating all those six (6) checks until it was
discovered that the said Morgan Guaranty Trust Company Check No. 069748 was
"FRAUDULENT" and from all indications, herein defendants are parts of the
criminal syndicate; 15
Raymundo's gross negligence is likewise underscored in the Affidavit dated October
25, 1993 he had executed to support his complaint for estafa against Ms. Juan and
her cohorts, thus:
2. That on July 30, 1993, while I was at the office of PNB San Pedro, Laguna,
Cleopatra Tan alias "Cleo", Josefina Resari, and Merry May M. Juan, representing
themselves as department manager, Vice President and employee, respectively of the
C&T Global Futures, Inc., and some persons whose identities are not yet known, by
false pretenses and fraudulent acts, intimated to me their plan of opening a current
account with the Philippine National Bank San Pedro Branch;
3. That, they told me of their plan of opening a current account in line with the C&T
Global Futures, Inc.'s on-going contest with the end in view of winning its hefty first
prize trip to Hong Kong and for that purpose they are ready to make an initial deposit
of US$172,549.00, embodied in a Morgan Guaranty Trust Company of New York
[check];
4. That, because what was shown to me was a foreign check and involving as it
does a huge amount of money, I was hesitant to accommodate them and made
further inquiries from them until Cleopatra Tan gave me a very strong and
convincing assurance that the Morgan Guaranty Check was good by way of
telling me of a just-concluded overseas call confirming that said check was good,
which facts she further buttressed later by giving a copy of the bill of the detailed
transaction x x x;
5. That, not knowing their dirty scheme and desirous to generate bigger bank
deposits, I allowed them to make an initial deposit of US$172,549.00 embodied as
earlier stated in a Morgan Guaranty Trust Company of New York [check] dated June
29, 1993 bearing No. 069748 with Merry May M. Juan as payee, xxx;
6. That, having been fully assured that the Morgan check is good and trusting on Since their business and industry are imbued with public interest, banks are required
their respective representations that they are top executives of the C&T Global to exercise extraordinary diligence, which is more than that of a Roman pater
Futures, Inc., I allowed the issuance of six (6) checks, as follows: familias or a good father of a family, in handling their transactions. 18 Banks are also
expected to exercise the highest degree of diligence in the selection and supervision
PAYEE AMOUNT CHECK NO. DATE of their employees.19 By the very nature of their work in handling millions of pesos
in daily transactions, the degree of responsibility, care and trustworthiness expected
of bank employees and officials is far greater than those of ordinary clerks and
C&T Global
P1,000,000.00 004801
July 30, employees.20
Futures Inc. 1993
C&T Global July 30, A bank's disregard of its own banking policy amounts to gross negligence, which is
350,000.00 004802
Futures Inc. 1993 described as "negligence characterized by the want of even slight care, acting or
C&T Global July 30, omitting to act in a situation where there is duty to act, not inadvertently but willfully
350,000.00 004803 and unintentionally with a conscious indifference to consequences insofar as other
Futures Inc. 1993
persons may be affected."21 Payment of the amounts of checks without previously
C&T Global July 30,
1,000,000.00 004804 clearing them with the drawee bank, especially so where the drawee bank is a foreign
Futures Inc. 1993
bank and the amounts involved were large, is contrary to normal or ordinary banking
C&T Global July 30, practice.22 Before the check shall have been cleared for deposit, the collecting bank
1,000,000.00 004805
Futures Inc. 1993 can only assume at its own risk that the check would be cleared and paid out. 23 As a
Cash 300,000.00 004806 August bank Branch Manager, Raymundo is expected to be an expert in banking procedures,
5, 1993 and he has the necessary means to ascertain whether a check, local or foreign, is
sufficiently funded.
with a total amount of P4,000,000.00, Philippine Currency x x x;
Raymundo's act of approving the deposit to Ms. Juan's newly-opened peso checking
7. That I allowed the aforecited checks to be issued on the strong and collective account of the peso conversion [P4,752,689.65] 24 of the foreign check prior to the
lapse of the 21-day clearing period is the proximate cause why the six (6) checks
undertaking of all the accused, that the same would not be traded until after the
worth P4,000,000.00 were later encashed, thereby causing the PNB undue injury.
Morgan Guaranty Check shall have been cleared;
Defined as that cause which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces injury and without which the result would not
8. That, in utter disregard of the trust and confidence I reposed on all of them, in have occurred, the proximate cause can be determined by asking a simple question:
violation of their undertaking, accused negotiated all the six (6) checks until it was "If the event did not happen, would the injury have resulted? If the answer is no, then
discovered that the Morgan Guaranty Check was fraudulent xxx as per memorandum the event is the proximate cause."25cralawred If Raymundo did not disregard the
of the Assistant Department Manager II Clearing Services Group, Philippine bank's foreign check clearing policy when he approved crediting of the peso
National Bank dated September 9, 1993, x x x;16 conversion of Ms. Juan's foreign check in her newly-opened peso checking account,
the PNB would not have suffered losses due to the irregular encashment of the six
While his prompt filing of criminal and civil cases against Ms. Juan and her cohorts (6) checks.
for the recovery of the money negates bad faith in causing undue injury to the PNB,
it incidentally revealed Raymundo's gross negligence (1) in allowing the peso It is well settled that actual damages, to be recoverable, must not only be capable of
conversion of the foreign check to be credited to her newly-opened peso checking proof, but must actually be proved with a reasonable degree of certainty. To justify
account,17 even before the lapse of the 21-day clearing period, and (2) in issuing her an award of actual damages, there must be competent proof of the actual amount of
a check booklet, all on the very same day the said account was opened on July 30, loss, credence can be given only to claims which are duly supported by receipts, and
1993. In his desire to secure bigger bank deposits, Raymundo disregarded the bank's courts cannot simply rely on speculation, conjecture or guesswork in determining the
foreign check clearing policy, and risked his trust and confidence on Ms. Juan's and fact and amount of damages.26 While the PNB claims having suffered damages to the
her cohorts' assurance that the foreign check was good and that they would not extent of P4,000,000.00 due to the encashment of checks drawn against uncollected
negotiate any check until the former check is cleared. deposit, the testimonial and documentary evidence on record show that it only
incurred losses in the total sum of P2,100,882.87. Based on the accounts receivable
ledger27 and the PNB's letter28 dated December 5, 1995, Raymundo's account
receivable was reduced to P2,100,882.87 after the application of six (6) check and that as of said date, the damages sustained due to the fraudulent encashment of
payments aggregating P1,725,172.03 on October 1, 1993. the foreign check is P5,524,023.57.30 However, considering that it failed to formally
offer in evidence or at least attach to the record the statement of account in order to
Confirming the two documentary evidence, Jose Rodrigo Cabello, PNB's own prove such higher amount of damages, PNB can only be awarded actual damages in
witness and former accountant of its San Pedro Laguna Branch, has testified that the the amount of P2,100,882.87.
bank's losses out of Raymundo's approval of the checks per its accounts receivable
ledger, is around P2,100,000.00: Since PNB was unduly deprived of its use of the P2,100,882.87 due to Raymundo's
gross negligence, the Court also finds it proper to impose on such forbearance of
money the following legal interests on the damages awarded, sans an express
[Atty. Reyes Geromo, counsel for PNB and for the prosecution] contract as to such interest rate, in line with current jurisprudence: 31 (1) twelve
percent (12%) per annum reckoned from the filing of the criminal information on
Q. Mr. Witness, as of today do you know how much is still the bank loss out of May 19, 1997 which is the making of judicial demand for his liability until June
the said approval of withdrawal by the accused? 30, 2013;32 (2) the reduced interest of six percent (6%) per annum from July 1,
201333 until finality of this Decision; and (3) the interest rate of 6% per annum from
such finality until fully paid.
xxx
WHEREFORE, premises considered, the petition is GRANTED, and the Decision
dated May 31, 2013 and the Resolution dated August 14, 2013 of the Court of
[PNB Witness Jose Rodrigo Cabello]
Appeals in CA-G.R. CV No. 96760 are REVERSED and SET
ASIDE. Accordingly, petitioner Pablo V. Raymundo is ordered to pay the
A. Around P2,100,000.00, Sir. I think.
Philippine National Bank actual damages in the amount of P2,100,882.87 with the
following legal interest rates, in line with current jurisprudence: 34 (1) twelve percent
(12%) per annum, reckoned from the filing of the criminal information on May 19,
1997 until June 30, 2013; and (2) six percent (6%) per annum from July 1, 2013 until
Q. And what was your basis Mr. Witness? Do you have evidence to show that
finality of this Decision; and (3) six percent (6%) per annum from such finality until
amount Mr. Witness?
fully paid.
A. Yes, Sir.
SO ORDERED.

Velasco, Jr., (Chairperson), Perez, Reyes and Jardeleza, JJ., concur

Q. What particular document, Mr. Witness?

A. The Accounts receivable ledger, Sir.

Q. When you said accounts receivable ledger, is this the document previously
marked as Exhibit "P", Mr. Witness?

A. Yes, Sir.29

Cabello's testimony is corroborated by Victor Arapan, PNB's witness and accountant

of its San Pedro Branch as of August 14, 2001, who testified that per its books of
account, the amount of P2,100,882.87 remained unpaid or uncollected by the bank,
and is still lodged as account receivable of "Merry May Juan c/o Pablo Raymundo,"
PHILIPPINE NATIONAL BANK, Petitioner, v. JUAN F. VILA, Respondent.
DECISION
PEREZ, J.:
For resolution of the Court is the instant Petition for Review on Certiorari1 filed by
petitioner Philippine National Bank (PNB), seeking to reverse and set aside the
Decision2 dated 18 December 2013 and Resolution3 dated 13 June 2014 of the Court
of Appeals (CA) in CA-G.R. CV No. 97612. The assailed decision and resolution
affirmed the 22 June 2011 Decision4 of the Regional Trial- Court (RTC) of Villasis,
Pangasinan, Branch 50 which found that petitioner PNB is not a mortgagee in good
faith.
The Facts
Petitioner PNB is a universal banking corporation duly authorized by Bangko Sentral
ng Pilipinas (BSP) to engage in banking business.
Sometime in 1986, Spouses Reynaldo Cormsta and Erlinda Gamboa Cornista
(Spouses Cornista) obtained a loan from Traders Royal Bank (Traders Bank). 5 To
secure the said obligation, the Spouses Cornista mortgaged to the bank a parcel of
land with an area of 451 square meters designated as Lot 555-A-2 and registered
under Transfer Certificate of Title (TCT) No. 131498 in their names by the Register
of Deeds of Pangasinan.
For failure of the Spouses Cornista to make good of their loan obligation after it has
become due, Traders Bank foreclosed the mortgage constituted on the security of the
loan. After the notice and publication requirements were complied with, the subject
property was sold at the public auction on 23 December 1987. During the public
sale, respondent Juan F. Vila (Vila) was declared as the highest bidder after he
offered to buy the subject property for P50,000.00. The Certificate of Sale dated 13
January 1988 was duly recorded in TCT No. 131498 under Entry No. 623599.6c
To exercise his right of ownership, Vila immediately took possession of the subject
property and paid the real estate taxes corresponding thereon.
On 11 February 1989, a Certificate of Final Sale was issued to Vila after the one-
year redemption period had passed without the Spouses Cornista exercising their
statutory right to redeem the subject property. He was, however, prevented from
consolidating the ownership of the property under his name because the owner's
copy of the certificate of title was not turned over to him by the Sheriff.
Despite the lapse of the redemption period and the fact of issuance of a Certificate of
Final Sale to Vila, the Spouses Cormsta were nonetheless allowed to buy back the
subject property by tendering the amount of P50,000.00. A Certificate of
Redemption7 dated 14 March 1989 was issued for this purpose and was duly
annotated in the title under Entry No. 708261.
Claiming that the Spouses Cornista already lost their right to redeem the subject
property, Vila filed an action for nullification of redemption, transfer of title and
damages against the Spouses Cornista and Alfredo Vega in his capacity as the
Register of Deeds of Pangasinan. The case was docketed as Civil Case No. V-
0242 on 10 January 1992 and was raffled to Branch 50. A Notice of Lis Pendens was
issued for this purpose and was duly recorded in the certificate of title of the property
on 19 October 1992 under Entry No. 759302.8
On 3 February 1995, the RTC rendered a Decision9 in Civil Case No. V-0242 in
favor of Vila thereby ordering the Register of Deeds to cancel the registration of the
certificate of redemption and the annotation thereof on TCT No. 131498. The said
decision was affirmed by the CA on 19 October 1997 in CA-G.R. CV No.
49463.10 The decision of the appellate court became final and executory on 19
November 1997.
In order to enforce the favorable decision, Vila filed before the RTC a Motion for the
Issuance of Writ of Execution which was granted by the court. Accordingly, a Writ
of Execution11 was issued by the RTC on 14 December 1997.
By unfortunate turn of events, the Sheriff could not successfully enforce the decision
because the certificate of title covering the subject property was no longer registered
under the names of the Spouses Cornista. Hence, the judgment was returned
unsatisfied as shown in Sheriffs Return12 dated 13 July 1999.
Upon investigation it was found out that during the interregnum the Spouses
Cornista were able to secure a loan from the PNB in the amount of P532,000.00
using the same property subject of litigation as security. The Real Estate Mortgage
(REM) was recorded on 28 September 1992 under Entry No. 75817113 or month
before the Notice of Lis Pendens was annotated.
Eventually, the Spouses Cornista defaulted in the payment of their loan obligation
with the PNB prompting the latter to foreclose the property offered as security. The
bank emerged as the highest bidder during the public sale as shown at the Certificate
of Sale issued by the Sheriff. As with the prior mortgage, the Spouses Cornista once
again failed to exercise their right of redemption within the required period allowing
PNB to consolidate its ownership over the subject property. Accordingly, TCT No.
13149814 in the name of the Spouses Cornista was cancelled and a new one under
TCT No. 21677115 under the name of the PNB was issued.
The foregoing turn of events left Vila with no other choice but to commence another
round of litigation against the Spouses Cornista and PNB before the RTC of Viliasis,
Pangasinan, Branch 50. In his Complaint docketed as Civil Case No. V-0567, Vila
sought for the nullification of TCT No. 216771 issued under the name of PNB and
for the payment of damages.
To refute the allegations of Vila, PNB pounded that it was a mortgagee in good faith
pointing the fact that at the time the subject property was mortgaged to it, the same
was still free from any liens and encumbrances and the Notice of Lis Pendens was
registered only a month after the REM was annotated on the title. PNB meant to say
that at the time of the transaction, the Spouses Cornista were still the absolute owners
of the property possessing all the rights to mortgage the same to third persons. PNB
also harped on the fact that a close examination of title was conducted and nowhere
was it shown that there was any cloud in the title of the Spouses Cornista, the latter
having redeemed the property after they have lost it in a foreclosure
sale.16chanrobleslaw
After the Pre-Trial Conference, trial on the merits ensued. The court a quo then
proceeded to receive documentary and testimonial evidence from the opposing
parties. Thereafter, the parties submitted their respective memorandum and the case
was submitted for decision.
On 22 June 2011, the RTC rendered a Decision17 in favor of Vila and ruled that PNB
is not a mortgagee in good faith. As a financial institution, the trial court held that
PNB is expected to observe a higher degree of diligence. In hastily granting the loan,
the trial court declared that PNB failed in this regard. Had the bank exercised due
diligence, it could have easily discovered that the Spouses Cornista were not the
possessors of the subject property which could lead it to the fact that at the time the
subject property was mortgaged to it, a litigation involving the same was already
commenced before the court. It was further ratiocinated by the RTC that "[a]
mortgagee cannot close his eyes to facts which should put a reasonable man upon his
guard" in ascertaining the status of a mortgaged property. The dispositive portion of
the decision reads:
"WHEREFORE, judgment is hereby rendered:
1. Declaring the Real Estate Mortgage dated September 28, 1992, executed by
the Spouses Reynaldo Cornista and Erlinda Gamboa in favor of the
Philippine National Bank, Tayug, Pangasinan Branch, over the parcel of
land covered by TCT No. 131498 null and void;
2. Declaring the Deed of Sale dated September 27, 1996, in favor of the PNB
null and void;
3. Ordering the nullification and cancellation of Transfer Certificate of Title
No. 216771 in the name of PNB;
4. Ordering the Register of Deeds of Pangasinan to issue a new certificate of
title covering the property subject matter of this case in the name-of Juan F.
Vila; and cralawlawlibrary
5. Ordering [the] defendant PNB to pay the plaintiff P50,000.00 moral
damages, P50,000.00 exemplary damages and P100,000.00 attorney's fees
and litigation expenses.
Costs against defendant Philippine National Bank.
SO ORDERED."18chanroblesvirtuallawlibrary
In a Resolution19 dated 13 June 2014, the RTC refused to reconsider its earlier
decision and thereby denied the Motion for Reconsideration interposed by PNB.
On appeal, the CA Decision20 dated 18 December 2013 affirmed the RTC ruling. In
failing to exercise greater care and diligence in approving the loan of the Spouses
Cornista without first ascertaining if there were any defects in their title, the
appellate court held that PNB could not be afforded the status of a mortgagee in good
faith. It went further by declaring that [a] bank whose business is impressed with
public interest is expected to exercise more care and prudence in its dealings than a
private individual, even in cases involving registered lands. A bank cannot assume
that, simply because the title offered as security is on its face free of any
encumbrances of lien, it is relieved of the responsibility of taking further steps to
verify the title and inspect the properties to be mortgaged. 21 The CA thus disposed:
"WHEREFORE, the instant appeal is DENIED. The assailed Decision dated June
22, 2011 and the Resolution dated August 11, 2011 of the Regional Trial Court of
Villasis, Pangasinan, Branch 50, in Civil Case No, V-0567 are
hereby AFFIRMED."22
On 13 June 2014, the CA issued a Resolution23 denying the Motion for
Reconsideration of the PNB prompting the bank to seek recourse before the
Court via instant Petition for Review on Certiorari. For Our resolution are the
following issues:
The Issues
I. WHETHER OR NOT PNB IS A MORTGAGEE IN GOOD FAITH;
II. WHETHER OR NOT PNB IS LIABLE FOR
DAMAGES.24chanroblesvirtuallawlibrary
The Court's Ruling
We resolve to deny the petition.
In general, the issue of whether a mortgagee is in good faith cannot be entertained in
a Rule 45 petition. This is because the ascertainment of good faith or the lack
thereof, and the determination of negligence are factual matters which lay outside the
scope of a petition for review on certiorari. Good faith, or the lack of it, is a question
of intention. In ascertaining intention, courts are necessarily controlled by the
evidence as to the conduct and outward facts by which alone the inward motive may,
with safety, be determined.25cralawred A recognized, exception to the rule is when
there are conflicting findings of fact by the CA and the RTC. 26 In the case at bar,
RTC and the CA agreed on their findings.
The RTC, which possessed the first hand opportunity to observe the demeanor of the
witnesses and admit the documentary evidence, found that PNB accepted outright
the collateral offered by the Spouses Cornista without making farther inquiry as to
the real status of the subject property. Had the bank been prudent and diligent
enough in ascertaining the condition of the property, it could have discovered that
the same was in the possession of Vila who, at that time, possessed a colorable title
thereon being a holder of a Final Certificate of Sale. The RTC further exposed the
frailty of PNB's claim by pointing to the fact that it was Vila who was paying the
realty tax on the property, a crucial information that the bank could have easily
discovered had it exercised due diligence.
Resonating the findings of the RTC, the CA also declared that PNB fell short in
exercising the degree of diligence expected from bank and financial Institutions. We
hereby quote with approval the disquisition of the appellate court:
Thus, before approving a loan application, it is a standard operating practice for these
institutions to conduct an ocular inspection of the property offered for mortgage and
to verify the genuineness of the title to determine the real owner thereof. The
apparent purpose of an ocular inspection is to protect the "true owner" of the
property as well as innocent third parties with a right, interest or claim thereon from
a usurper who may have acquired a fraudulent certificate of title thereto. Here, [the]
PNB has failed to exercise the requisite due diligence in ascertaining the status and
condition of the property being offered to it as security for the loan before it
approved the same. xxx.27chanroblesvirtuallawlibrary
Clearly, the PNB failed to observe the exacting standards required of banking
institutions which are behooved by statutes and jurisprudence to exercise greater care
and prudence before entering into a mortgage contract.
No credible proof on the records could substantiate the claim of PNB that a physical
inspection of the property was conducted. We agree with, bbth the RTC and CA that
if in fact it were true that ocular inspection was conducted, a suspicion could have
been raised as to the real status of property. By failing to uncover a crucial fact that
the mortgagors were not the possessors of the subject property. We could not lend
credence to claim of the bank that an ocular inspection of the property was
conducted. What further tramples upon PNB's claim is the fact that, as shown on the
records, it was Vila who was religiously paying the real property tax due on the
property from 1989 to 1996, another significant fact that could have raised a red flag
as to the real ownership of the property. The failure of the mortgagee to take
precautionary steps would mean negligence on his part and would thereby preclude it
from invoking that it is a mortgagee in good faith.
Before approving a loan application, it is standard operating procedure for banks and
financial institutions to conduct an ocular inspection of the property offered for
mortgage and to determine the real owner(s) thereof The apparent purpose of an
ocular inspection is to protect the "true owner" of the property as well as innocent
third parties with a right, interest or claim thereon from a usurper who may have
acquired a fraudulent certificate of title thereto.28chanrobleslaw
In this case, it was adjudged by the courts of competent jurisdiction in a final and
executory decision that the Spouses Cornista's reacquisition of the property after the
lapse of the redemption period is fraudulent and the property used by the mortgagors
as collateral rightfully belongs to Vila, an innocent third party with a right, could
have been protected if PNB only observed the degree diligence expected from it.
In Land Bank of the Philippines v. Belle Corporation,29 the Court exhorted banks to
exercise the highest degree of diligence in its dealing with properties offered as
securities for the loan obligation: When the purchaser or the mortgagee is a bank, the
rule on innocent purchasers or mortgagees for value is applied more strictly. Being in
the business of extending loans secured by real estate mortgage, banks are presumed
to be familiar with the rules on land registration. Since the banking business-is
impressed with public interest, they are expected to be more cautious, to exercise a
higher degree of diligence, care and prudence, than private individuals in their
dealings, even those involving registered lands. Banks may not simply rely on the
face of the certificate of title. Hence, they cannot assume that, xxx the title offered as
security is on its face free of any encumbrances or lien, they are relieved of the
responsibility of taking further steps to verify the title and inspect the properties to be
mortgaged. As expected, the ascertainment of the status or condition of a property
offered to it as security for a loan must be a standard and indispensable part of the
bank's operations. xxx. (Citations omitted)
We never fail to stress the remarkable significance of a banking institution to
commercial transactions, in particular, and to the country's economy in
general.30 The banking system is an indispensable institution in the modern world
and plays a vital role in the economic life of every civilized nation. 31Whether as
mere passive entities for the safekeeping and saving of money or as active
instruments of business and commerce, banks have become an ubiquitous presence
among the people, who have come to regard them with respect and even gratitude
and, most of all, confidence.32 Consequently, the highest degree of diligence is
expected, and high standards of integrity and performance are even required, of
it.33chanrobleslaw
PNB clearly failed to observe the required degree of caution in readily approving the
loan and accepting the collateral offered by the Spouses Cornista without first
ascertaining the real ownership of the property. It should not have simply relied on
the face of title but went furthef to physically ascertain the actual condition of the
property. That the propprty offered as security was in the possession of the person
other than the lone applying for the loan and the taxes were declared not in their
names could have raised a suspicion. A person who deliberately ignores a significant
fact that could create suspicion in an otherwise reasonable person is not an innocent
purchaser for value.34

Having laid down that the PNB is not in good faith, We are led to affirm the
award of moral damages, exemplary damages, attorney's fees and costs of litigation
in favor of Vila. Moral damages are not awardecl to penalize the defendant but to
compensate the plaintiff for the injuries he may have suffered. 35 Willful injury to
property may be a legal ground for awarding moral damages if the court should find
that, under the circumstances, such damages are justly due. 36 In the instant case, we
find that the award of moral damages is proper. 37 As for the award of exemplary
damages, we deem that the same is proper for the PNB was remiss in its obligation to
inquire the real status of the subject property, causing damage to Vila. 38 Finally, we
rule that the award of attorney's fees and litigation expenses is valid since Vila was
compelled to litigate and thus incur expenses in order to protect its rights over the
subject property.39c

WHEREFORE, premises considered, the petition is DENIED. The

assailed Decision and Resolution of the Court of Appeals are hereby AFFIRMED.
Accordingly, the decision of the RTC dated 22 June 2011 STANDS as the final
resolution of this case.

SO ORDERED.
G.R. No. 202514
ANNA MARIE L. GUMABON, Petitioner
vs.
PHILIPPINE NATIONAL BANK, Respondent
DECISION
BRION, J.:
Before us is a petition for review on certiorari1under Rule 45 of the Rules of Court
filed by Anna Marie Gumabon (Anna Marie) assailing the December 16, 2011
decision2 and June 26, 2012 resolution3 of the Court of Appeals (CA) in CA-G.R.
CV. No. 96289. The CA reversed the Regional Trial Court (RTC)'s ruling4 in Civil
Case No. Q-04-53432 favoring Anna Marie.
The Facts
On August 12, 2004, Anna Marie filed a complaint for recovery of sum of money
and damages before the RTC against the Philippine National Bank (PNB) and the
PNB Delta branch manager Silverio Fernandez (Fernandez). The case stemmed from
the PNBs refusal to release Anna Maries money in a consolidated savings account
and in two foreign exchange time deposits, evidenced by Foreign Exchange
Certificates of Time Deposit (FXCTD).
In 2001, Anna Marie, together with her mother Angeles and her siblings Anna Elena
and Santiago, (the Gumabons) deposited with the PNB Delta Branch $10,945.28 and
$16,830.91, for which they were issued FXCTD Nos. A-9939025 and A-
993992,6 respectively.
7
The Gumabons also maintained eight (8) savings accounts in the same bank. Anna
Marie decided to consolidate the eight (8) savings accounts and to withdraw
2,727,235.85 from the consolidated savings account to help her sisters financial
needs.
Anna Marie called the PNB employee handling her accounts, Reino Antonio Salvoro
(Salvoro), to facilitate the consolidation of the savings accounts and the withdrawal.
When she went to the bank on April 14, 2003, she was informed that she could not
withdraw from the savings accounts since her bank records were missing and
Salvoro could not be contacted.
On April 15, 2003, Anna Marie presented her two FXCTDs, but was also unable to
withdraw against them. Fernandez informed her that the bank would still verify and
investigate before allowing the withdrawal since Salvoro had not reported for work.
Thus, Anna Marie sent two demand letters8 dated April 23 and April 25, 2003 to the
PNB.
After a month, the PNB finally consolidated the savings accounts and issued a
passbook for Savings Account (SA) No. 6121200.9 The PNB also confirmed that the
total deposits amounted to 2,734,207.36. Anna Marie, her mother, and the PNB
executed a Deed of Waiver and Quitclaim dated May 23, 200310 to settle all
questions regarding the consolidation of the savings accounts. After withdrawals, the
balance of her consolidated savings account was 250,741.82.
On July 30, 2003, the PNB sent letters to Anna Marie to inform her that the PNB
refused to honor its obligation under FXCTD Nos. 993902 and 993992, 11 and that
the PNB withheld the release of the balance of 250,741.82 in the consolidated
savings account.12 According to the PNB, Anna Marie pre-terminated, withdrew
and/or debited sums against her deposits.
Thus, Anna Marie filed before the RTC a complaint for sum of money and damages
against the PNB and Fernandez.13
As to the two FXCTDs, Anna Marie contended that the PNBs refusal to pay her
time deposits is contrary to law.1wphi1The PNB cannot claim that the bank
deposits have been paid since the certificates of the time deposits are still with Anna
Marie.14
As to the consolidated savings account, Anna Marie stated that the PNB had already
acknowledged the accounts balance in the Deed of Waiver and Quitclaim amounting
to 2,734,207.36. As of January 26, 2004, the remaining balance was 250,741.82.
PNB presented no concrete proof that this amount had been withdrawn.
Anna Marie prayed that the PNB and Fernandez be held solidarily liable for actual,
moral, and exemplary damages, as well as attorneys fees, costs of suit, and legal
interests because of the PNBs refusal to honor its obligations.
In its answer,15 the PNB argued that: (1) Anna Marie is not entitled to the balance of
the consolidated savings account based on solutio indebiti; (2) the PNB already paid
the $10,058.01 covered by FXCTD No. 993902; (3) the PNB is liable to pay only
$10,718.87 of FXCTD No. 993992, instead of the full amount of $17,235.41; and (4)
Anna Marie is guilty of contributory negligence. The PNBs arguments are discussed
below.
First, Anna Marie is not entitled to the alleged balance of 250,741.82. The PNBs
investigation showed that Anna Marie withdrew a total of 251,246.81 16 from two of
the eight savings accounts and she used this amount to purchase managers check
No. 0000760633.17 Hence, 251,246.81 should be deducted from the sum agreed
upon in the Deed of Waiver and Quitclaim. The PNB offered photocopies of the
PNBs miscellaneous ticket18 and the managers check as evidence to prove the
withdrawals. The PNB argued that unjust enrichment would result if Anna Marie
would be allowed to collect 250,741.82 from the consolidated savings account
without deducting her previous withdrawal of 251,246.81.
Second, Anna Marie is not entitled to receive $10,058.01 covered by FXCTD No.
993902. Based on the PNBs records, Anna Marie pre-terminated FXCTD No.
993902 on March 11, 2002, and used the deposit, together with another deposit
covered by FXCTD No. 993914 (for $8,111.35), to purchase a foreign demand
draft (FX Demand Draft No. 4699831) payable to Anna Rose/Angeles Gumabon.
The PNB presented a facsimile copy of Anna Roses Statement of Account
(SOA)19 from the PNB Bank to prove that the amount covered by FXCTD No.
993902 was already paid.
Third, Anna Marie is only entitled to receive $10,718.87 instead of the full amount
of $17,235.41 covered by FXCTD No. 993992 because: (a) the amount of $1,950.00
was part of the money used by Anna Marie to purchase the managers check; (2) the
amount of $2,566.54 was credited to Current Account No. 227-810961-8 owned by
Anna Maries aunt, Lolita Lim; and (3) the amount of $2,000.00 was credited to
Current Account No. 2108107498 of Anna Marie and Savings Account No. 212-
5057333 of Anna Marie/or Angeles or Santiago/or Elena (all surnamed Gumabon).
Hence, these amounts should be deducted from the amount payable to Anna Marie.
Finally, the PNB alleged that Anna Marie was guilty of contributory negligence in
her bank dealings.
In her reply,20 Anna Marie argued that the best evidence of her withdrawals is the
withdrawal slips duly signed by her and the passbooks pertaining to the accounts.
PNB, however, failed to show any of the withdrawal slips and/or passbooks, and also
failed to present sufficient evidence that she used her accounts funds.
The RTC Ruling
The RTC ruled in Anna Maries favour.21
The RTC held that the PNB had not yet paid the remaining balance of $10,058.01
under FXCTD No. 993902. Anna Maries SOA,22 which the PNB relied upon, is a
mere photocopy and does not satisfy the best evidence rule. Moreover, there is no
indication on the stated amounts in the SOA that the funds have come from FXCTD
No. 993902.23 The PNB failed to obtain the deposition of a PNC Bank officer or
present any other evidence to show that the amounts stated in the SOA came from
FXCTD No. 993902. The RTC also held that the alleged pre-termination of FXCTD
No. 993902 on March 11, 2002, is hard to believe since the certificate shows that the
last entry was made on March 24, 2003, with a reflected balance of $10,058.01.
On FXCTD No. 993992, the RTC held that the PNB failed to prove Anna Maries
alleged withdrawals. These alleged withdrawals are not reflected at the back of the
certificate. Anna Maries ledger was also not presented as evidence to show that
several withdrawals had been made against FXCTD No. 993992.
On the consolidated savings account, the RTC held that the PNB failed to prove
that Anna Marie withdrew the balance of 250,741.82. The RTC excluded PNBs
evidence, i.e., photocopies of the miscellaneous ticket and managers check, to prove
the alleged withdrawals, since these documents were just photocopies and thus failed
to satisfy the best evidence rule.
The RTC awarded damages to Anna Marie due to the PNBs mishandling of her
account through its employee, Salvoro. The RTC also held that the PNB failed to
establish Anna Maries contributory negligence.
In conclusion, the RTC ordered the PNB to pay Anna Marie these amounts:
(1) Actual damages of:
(a) $10,058.01, as the outstanding balance of FXCTD No. 993902;
(b) $20,244.42, as the outstanding balance of FXCTD No. 993992;and
(c) 250,741.82, as the outstanding balance of SA No. 6121200;
(2) 100,000.00 as moral damages;
(3) 50,000.00 as exemplary damages;
(4) 150,000.00 as attorneys fees; and
(5) Costs of suit.
From this ruling, the PNB appealed before the CA.
The CA Ruling
The CA reversed the RTCs ruling.24
The CA held that the PNB had paid the actual amounts claimed by Anna Marie in
her complaint. The CA noted Anna Maries suspicious and exclusive dealings with
Salvoro and the Gumabons instruction to Salvoro to make unauthorized and
unrecorded withdrawals. Hence, there are no entries of withdrawals reflected in
Anna Maries passbook.
The CA also considered Anna Roses SOA as proof that the PNB had paid the
remaining balance of $10,058.01 on FXCTD No. 993902. The CA held that the PNB
verified the SOA and it was corroborated by the affidavit25 of the PNB Branch
Operations Officer in New York. The CA stated that the RTC should have allowed
the taking of the deposition of the PNB bank officer.
The CA also relied on the PNBs investigation and concluded that the PNB had
already paid the amounts claimed by Anna Marie under FXCTD Nos. 993902 and
993992.
As to Anna Maries consolidated savings account, the CA gave credence to the
miscellaneous ticket and the managers check presented by the PNB to prove that it
had already paid the balance.
Anna Marie moved but failed to obtain reconsideration of the CAs decision; hence,
the present petition.26
The Petition
Anna Marie filed the present petition for review to question the CAs decision and
resolution which reversed the RTCs ruling.
Anna Marie argues that: first, the CA should not have disregarded the RTCs
conclusive findings; second, the CA erred in considering the PNB New York bank
officers affidavit because it was not formally offered as evidence; third, the CA
erroneously relied on a foreign demand draft27 to prove the PNBs payment of the
amount due under FXCTD No. 993902; fourth, the CA erroneously considered the
miscellaneous ticket and the managers check because these documents are mere
photocopies and inadmissible under the best evidence rule; and fifth, the CAs
conclusion about a purported "connivance" between Anna Marie and Salvoro has no
evidentiary basis.
In its comment, the PNB counters that: first, the CA can rectify the RTCs factual
findings since the RTC committed errors in its appreciation of the evidence; second,
the RTC completely ignored the PNBs several evidence proving its payment of
Anna Maries FXCTDs; third, Anna Marie did not refute the PNBs allegations of
payment; fourth, the CA has the right to review even those exhibits which were
excluded by the RTC; and fifth, the CA correctly ruled that the PNB should not be
faulted about the unrecorded transactions, and that the PNB had done its duty to its
depositors when it conducted investigations and an internal audit of Anna Maries
accounts.
The Issues
The issue before this Court is whether Anna Marie is entitled to the payment of the
following amounts:
(a) $10,058.01 or the outstanding balance under FXCTD No. 993902;
(b) $20,244.42 for FXCTD No. 993992;
(c) 250,741.82 for SA No. 6121200; and
(3) Damages.
Our Ruling
We grant the petition and reverse the CAs ruling.
The core issue raised in the present petition is a question of fact. As a general rule, a
petition for review under Rule 45 of the Rules of Court covers only questions of law.
Questions of fact are not reviewable and cannot be passed upon by the Court in the
exercise of its power to review under Rule 45.28
There are, however, exceptions to the general rule. Questions of fact may be raised
before this Court in any of these instances: (1) when the findings are grounded
entirely on speculations, surmises, or conjectures; (2) when the inference made is
manifestly mistaken, absurd, or impossible; (3) when there is a grave abuse of
discretion; (4) when the judgment is based on misappreciation of facts; (5) when the
findings of fact are conflicting; (6) when in making its findings, the same are
contrary to the admissions of both appellant and appellee; (7) when the findings are
contrary to those of the trial court; (8) when the findings are conclusions without
citation of specific evidence on which they are based; (9) when the facts set forth in
the petition as well as in the petitioners main and reply briefs are not disputed by the
respondent; and (10) when the findings of fact are premised on the supposed absence
of evidence and contradicted by the evidence on record. 29
The present case falls under two of the exceptions, particularly that the CAs
findings are contrary to the RTCs findings, and that the CAs findings of fact are
premised on absent evidence and contradicted by the evidence on record.
We note that the CA considered pieces of evidence which are inadmissible under the
Rules of Court, particularly the managers check and the corresponding
miscellaneous ticket, Anna Roses SOA, and the affidavit of the PNB New Yorks
bank officer. The inadmissibility of these documents is explained more fully in the
following discussion.
PNB failed to establish the fact of that the original copy of the document must be presented whenever the content of the
payment to Anna Marie in FXCTD document is under inquiry.36
Nos. 993902 and 993992, and SA No. 6121200.
However, there are instances when the Court may allow the presentation of
It is a settled rule in evidence that the one who alleges payment has the burden of secondary evidence in the absence of the original document. Section 3, Rule 130 of
proving it.30 The burden of proving that the debt had been discharged by payment the Rules of Court enumerates these exceptions:
rests upon the debtor once the debts existence has been fully established by the
evidence on record. When the debtor introduces some evidence of payment, the (a) when the original has been lost, or destroyed, or cannot be produced in court,
burden of going forward with the evidence as distinct from the burden of proof without bad faith on the part of the offeror;
shifts to the creditor. Consequently, the creditor has a duty to produce evidence to
show non-payment.31
(b) when the original is in the custody or under the control of the party against whom
the evidence is offered, and the latter fails to produce it after reasonable notice;
In the present case, both the CA and the RTC declared that the PNB has the burden
of proving payment. The lower courts, however, differed in resolving the question of
(c) when the original consists of numerous accounts or other documents which
whether the PNB presented sufficient evidence of payment to shift the burden of
cannot be examined in court without great loss of time and the fact sought to be
evidence to Anna Marie. The RTC ruled that the PNB failed to do so, after excluding
established from them is only the general result of the whole; and
PNBs evidence, i.e., miscellaneous ticket, managers check, and the affidavit of the
PNB New Yorks bank officer, based on the rules of evidence. The CA, on the other
hand, considered the excluded evidence and found that the PNB presented sufficient (d) when the original is a public record in the custody of a public officer or is
proof of payment. recorded in a public office.

i. The PNBs alleged payment of While the RTC cannot consider the excluded evidence to resolve the issues, such
the amount covered by SA No. evidence may still be admitted on appeal provided there has been tender of the
6121200 excluded evidence under Section 40 of Rule 132 of the Rules of Court.37

The PNB alleged that it had already paid the balance of the consolidated savings
account (SA No. 6121200) amounting to P250,741.82. It presented the managers
check to prove that Anna Marie purchased the check using the amounts covered by
the Gumabons two savings accounts which were later part of Anna Maries
consolidated savings account. The PNB also presented the miscellaneous ticket to
prove Anna Maries withdrawal from the savings accounts.
The RTC denied the admission of the managers check and the miscellaneous ticket
since the original copies were never presented.32 The PNB moved to tender the
excluded evidence and argued that even without the presentation of the original
copies, the photocopies are admissible because they have been identified by
Fernandez.33
Evidence, to be admissible, must comply with two qualifications: (a) relevance and
(b) competence. Evidence is relevant if it has a relation to the fact in issue as to
induce a belief in its existence or nonexistence.34 On the other hand, evidence is
competent if it is not excluded by the law or by the Rules of Court.35
One of the grounds under the Rules of Court that determines the competence of
evidence is the best evidence rule. Section 3, Rule 130 of the Rules of Court provides
The PNB cannot simply substitute the mere photocopies of the subject documents for
the original copies without showing the court that any of the exceptions under
Section 3 of Rule 130 of the Rules of Court applies. The PNBs failure to give a
justifiable reason for the absence of the original documents and to maintain a record
of Anna Maries transactions only shows the PNBs dismal failure to fulfill its
fiduciary duty to Anna Marie.38 The Court expects the PNB to "treat the accounts of
its depositors with meticulous care, always having in mind the fiduciary nature of
their relationship."39 The Court explained in Philippine Banking Corporation v.
CA,40 the fiduciary nature of the banks relationship with its depositors, to wit:
The business of banking is imbued with public interest. The stability of banks largely
depends on the confidence of the people in the honesty and efficiency of banks.
In Simex International (Manila) Inc. v. Court of Appeals we pointed out the
depositors reasonable expectations from a bank and the banks corresponding
duty to its depositor, as follows:
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. (emphasis
and underscoring supplied)
Consequently, the CA should not have admitted the subject documents even if the
PNB tendered the excluded evidence.
Notably, the PNB clearly admitted in the executed Deed of Waiver and
Quitclaim that it owed Anna Marie 2,734,207.36 under the consolidated savings
account. After a number of uncontested transactions, the remaining balance of Anna
Maries deposit became 250,741.82. The inevitable conclusion is that PNBs
obligation to pay 250,741.82 under SA No. 6121200 subsists.
ii. The PNBs alleged payment of
the amount covered by FXCTD No. 993902
The PNB claimed that it had already paid the amount of $10,058.01 covered by
FXCTD No. 993902. It presented the foreign demand draft dated March 11, 2002
which Anna Marie allegedly purchased with the funds of FXCTD No. 993902. In
addition, the PNB also presented Anna Roses SOA to show that there was a fund
transfer involving the contested amount. To further support its claim, the PNB
annexed the affidavit of the PNB New Yorks branch officer about the fund transfer.
The PNB, however, failed to formally offer the affidavit as evidence.
Anna Marie moved for the exclusion of the photocopy of Anna Roses SOA for
failing to conform to the best evidence rule. The RTC granted her motion and denied
its admission. When the case reached the CA, the CA stated that the RTC should
have considered the evidence in the light of the PNBs identification of the SOA as
an exact copy of the original and the claim that it is corroborated by the affidavit of
the PNB New Yorks bank officer.
The PNB explained that its failure to present the original copy of Anna Roses SOA
was because the original was not in the PNBs possession.
We rule that the SOA is inadmissible because it fails to qualify as relevant evidence.
As the RTC correctly stated, the SOA "does not show which of the amount stated
therein came from the funds of Certificate of Time Deposit No. A-993902."41
The affidavit of the PNB New Yorks bank officer is also inadmissible in the
light of the following self-explanatory provision of the Rules of Court:
"Sec. 34. Offer of evidence. The court shall consider no evidence which has not
been formally offered. x x x." 42
Formal offer means that the offeror shall inform the court of the purpose of
introducing its exhibits into evidence. Without a formal offer of evidence, courts
cannot take notice of this evidence even if this has been previously marked and
identified.43
In Heirs of Pedro Pasag v. Parocha,44 we reiterated the importance of a formal offer
of evidence. Courts are mandated to rest their factual findings and their judgment
only and strictly upon the evidence offered by the parties at the trial. The formal
offer enables the judge to know the purpose or purposes for which the proponent is
presenting the evidence. It also affords the opposing parties the chance to examine
the evidence and to object to its admissibility. Moreover, it facilitates review as the
appellate court will not be required to review documents not previously scrutinized
by the trial court.
In People v. Napat-a,45 People v. Mate,46 and Heirs of Romana Saves, et al. v.
Escolastico Saves, et al.,47 we recognized the exceptions from the requirement of a
formal offer of evidence, namely: (a) the evidence must have been duly identified by
testimony duly recorded; and (b) the evidence must have been incorporated in the
records of the case.
It is unmistakable that the PNB did not include the affidavit of the PNB New Yorks
bank officer in its formal offer of evidence to corroborate Anna Roses SOA.
Although the affidavit was included in the records and identified by Fernandez, it
remains inadmissible for being hearsay. Jurisprudence dictates that an affidavit is
merely hearsay evidence when its affiant or maker did not take the witness stand. 48
In the present case, Fernandez is not the proper party to identify the affidavit
executed by the PNB New Yorks bank officer since he is not the affiant. Therefore,
the affidavit is inadmissible.
Thus, the PNB failed to present sufficient and admissible evidence to prove payment
of the $10,058.01.This failure leads us to conclude that the PNB is still liable to pay
the amount covered by FXCTD No. 993902.
iii. The PNBs alleged payment of
the amount covered by FXCTD No. 993992
The PNB alleged that Anna Maries claim over FXCTD No. 993992 should only be
limited to $5,857.79. It presented the managers check, which admissibility we have
heretofore discussed and settled, and the miscellaneous tickets.
We cannot absolve the PNB from liability based on these miscellaneous tickets
alone. As the RTC correctly stated, the transactions allegedly evidenced by these
tickets were neither posted at the back of Anna Maries certificate, nor recorded on
her ledger to show that several withdrawals had been made on the account.
At this point, we remind the PNB of the negotiability of a certificate of deposit as it
is a written acknowledgment by the bank of the receipt of a sum of money on deposit
which the bank promises to pay to the depositor, to the latters order, or to some
other person or the latters order.49 To discharge a debt, the bank must pay to
someone authorized to receive the payment.50 A bank acts at its peril when it pays
deposits evidenced by a certificate of deposit, without its production and surrender
after proper indorsement.51
Again, as the RTC had correctly stated, the PNB should not have allowed the
withdrawals, if there were indeed any, without the presentation of the covering
foreign certificates of time deposit. There are no irregularities on Anna Maries
certificates to justify the PNBs refusal to pay the stated amounts in the certificates
when it was presented for payment.
Therefore, the PNB is liable for Anna Maries claims since it failed to prove that it
had already been discharged from its obligation.
PNB is liable to Anna Marie for actual, moral, and
exemplary damages as well as attorneys fees for its
negligent acts as a banking institution.
Since the PNB is clearly liable to Anna Marie for her deposits, the Court now
determines PNBs liability for damages under existing laws and jurisprudence.
Section 2 of Republic Act No. 8791,52 declares the States recognition of the
"fiduciary nature of banking that requires high standards of integrity and
performance." It cannot be overemphasized that the banking business is impressed
with public interest. The trust and confidence of the public to the industry is given
utmost importance.53Thus, the bank is under obligation to treat its depositors
accounts with meticulous care, having in mind the nature of their relationship. 54 The
bank is required to assume a degree of diligence higher than that of a good father of a
family.55
As earlier settled, the PNB was negligent for its failure to update and properly handle
Anna Maries accounts. This is patent from the PNBs letter to Anna Marie,
admitting the error and unauthorized withdrawals from her account. Moreover, Anna
Marie was led to believe that the amounts she has in her accounts would remain
because of the Deed of Waiver and Quitclaim executed by her, her mother, and PNB.
Assuming arguendo that Anna Marie made the contested withdrawals, due diligence
requires the PNB to record the transactions in her passbooks.
The Court has established in a number of cases the standard of care required from
banks, and the banks liability for the damages sustained by the depositor. The bank
is not absolved from liability by the fact that it was the banks employee who
committed the wrong and caused damage to the depositor. 56 Article 2180 of the New
Civil Code provides that the owners and managers of an establishment are
responsible for damages caused by their employees while performing their
functions.57
In addition, we held in PNB v. Pike,58 that although the banks employees are the
ones negligent, a bank is primarily liable for the employees acts because banks are
expected to exercise the highest degree of diligence in the selection and supervision
of their employees.
Indeed, a great possibility exists that Salvoro was involved in the unauthorized
withdrawals. Anna Marie entrusted her accounts to and made her banking
transactions only through him. Salvaros unexplained disappearance further confirms
this Courts suspicions. The Court is alarmed that he was able to repeatedly do these
unrecorded transactions without the bank noticing it. This only shows that the PNB
has been negligent in the supervision of its employees.
As to contributory negligence, the Court agrees with the RTC that the PNB failed to
substantiate its allegation that Anna Marie was guilty of contributory negligence.
Contributory negligence is conduct on the part of the injured party, contributing as a
legal cause to the harm he has suffered, which falls below the standard to which he is
required to conform for his own protection. 59 Whether contributory negligence
transpired is a factual matter that must be proven.
In the present case, Anna Marie cannot be held responsible for entrusting her account
with Salvoro. As shown in the records, Salvoro was the banks time deposit
specialist. Anna Marie cannot thus be faulted if she engaged the banks services
through Salvoro for transactions related to her time deposits.
The Court also cannot accept the CAs conclusion that there was connivance
between Anna Marie and Salvoro. This conclusion is simply not supported by the
records and is therefore baseless.
In these lights, we hold that Anna Marie is entitled to moral damages of
100,000.00. In cases of breach of contract, moral damages are recoverable only if
the defendant acted fraudulently or in bad faith, or is guilty of gross negligence
amounting to bad faith, or in clear disregard of his contractual obligations. 60 Anna
Marie was able to establish the mental anguish and serious anxiety that she suffered
because of the PNBs refusal to honor its obligations.
Anna Marie is likewise entitled to exemplary damages of 50,000.00. Article 2229
of the New Civil Code imposes exemplary damages by way of example or correction
for the public good. To repeat, banks must treat the accounts of its depositors with
meticulous care and always have in mind the fiduciary nature of its relationship with
them.61Having failed to observe these, the award of exemplary damages is justified.
As exemplary damages are awarded herein62 and as Anna Marie was compelled to (2) Legal interest of twelve percent (12%) per annum of the total actual damages
litigate to protect her interests,63the award of attorneys fees and expenses of from August 12, 2004 to June 30, 2013, and six percent (6o/o) per annum from July
litigation of 150,000.00 is proper. 1, 2013 until full satisfaction;

Finally, we impose legal interest pursuant to the guidelines in Nacar v. Gallery (3) l00,000.00 as moral damages;
Frames.64 We held in that case that for interest awarded on actual and compensatory
damages, the interest rate is imposed as follows: (4) 50,000.00 as exemplary damages;

1. When the obligation is breached, and it consists in the payment of a sum of (5) l50,000.00 as attorney's fees; and
money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
(7) Costs of suit.
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum [changed to 6% per annumstarting July
1, 2013] to be computed from default, i.e., from extrajudicial demand under and Let a copy of this Decision be furnished the Financial Consumers Protection
subject to the provisions of Article 1169 of the Civil Code. Department of the Bangko Sentral ng Pilipinas, for information and possible action
in accordance with the Bangko Sentral ng Pilipinas' mandate to protect the banking
public.
xxxx
SO ORDERED.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest x x x shall be 6% per annum from such finality
until its satisfaction. x x x

We note that pursuant to the Bangko Sentral ng Pilipinas-Monetary Board Circular

No. 799, the legal interest rate is 6% per annum effective July 1, 2013. The new rate
is applicable prospectively; thus, the 12% per annum shall still apply until June 30,
2013.

In the present case, Anna Marie filed her complaint on August 12, 2004. PNB is
therefore liable for legal interest of 12% per annum from Augus t 12, 2004 until June
30, 2013, and 6% per annum from July 1, 2013, until its full satisfaction.

WHEREFORE, the petition is GRANTED. The assailed December 16, 2011

decision and June 26, 2012 resolution of the Court of Appeals is hereby reversed.
The October 26, 2010 decision of the Regional Trial Court is REINSTATED with
MODIFICATIONS. Thus, the Philippine National Bank is ORDERED to pay
Anna Marie Gumabon the following:

(1) Actual damages of:

(a) $10,058.01, as the outstanding balance of FXCTD No. 993902;

(b) $ 20,244.42, as the outstanding balance of FXCTD No. 993992; and

(c) 250,741.82, as the outstanding balance of SA No. 6121200;