G.R. No.

154469 December 6, 2006

METROPOLITAN BANK AND TRUST COMPANY, petitioners,

vs.
RENATO D. CABILZO, respondent.

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari, filed by petitioner Metropolitan Bank and
Trust Company (Metrobank) seeking to reverse and set aside the Decision1 of the Court of Appeals
dated 8 March 2002 and its Resolution dated 26 July 2002 affirming the Decision of the Regional
Trial Court (RTC) of Manila, Branch 13 dated 4 September 1998. The dispositive portion of the Court
of Appeals Decision reads:

WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED with

modifications (sic) that the awards for exemplary damages and attorney’s fees are hereby
deleted.

Petitioner Metrobank is a banking institution duly organized and existing as such under Philippine
laws.2

Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobank’s clients who maintained a current
account with Metrobank Pasong Tamo Branch.3

On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable to "CASH" and
postdated on 24 November 1994 in the amount of One Thousand Pesos (P1,000.00). The check
was drawn against Cabilzo’s Account with Metrobank Pasong Tamo Branch under Current Account
No. 618044873-3 and was paid by Cabilzo to a certain Mr. Marquez, as his sales commission.4

Subsequently, the check was presented to Westmont Bank for payment. Westmont Bank, in turn,
indorsed the check to Metrobank for appropriate clearing. After the entries thereon were examined,
including the availability of funds and the authenticity of the signature of the drawer, Metrobank
cleared the check for encashment in accordance with the Philippine Clearing House Corporation
(PCHC) Rules.

On 16 November 1994, Cabilzo’s representative was at Metrobank Pasong Tamo Branch to make
some transaction when he was asked by a bank personnel if Cabilzo had issued a check in the
amount of P91,000.00 to which the former replied in the negative. On the afternoon of the same
date, Cabilzo himself called Metrobank to reiterate that he did not issue a check in the amount
of P91,000.00 and requested that the questioned check be returned to him for verification, to which
Metrobank complied.5
Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988 which he issued
on 12 November 1994 in the amount of P1,000.00 was altered to P91,000.00 and the date 24
November 1994 was changed to 14 November 1994.6

Hence, Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to his account.
Metrobank, however, refused reasoning that it has to refer the matter first to its Legal Division for
appropriate action. Repeated verbal demands followed but Metrobank still failed to re-credit the
amount of P91,000.00 to Cabilzo’s account.7

On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand8 to Metrobank for the payment
of P90,000.00, after deducting the original value of the check in the amount of P1,000.00. Such
written demand notwithstanding, Metrobank still failed or refused to comply with its obligation.

Consequently, Cabilzo instituted a civil action for damages against Metrobank before the RTC of
Manila, Branch 13. In his Complaint docketed as Civil Case No. 95-75651, Renato D. Cabilzo v.
Metropolitan Bank and Trust Company, Cabilzo prayed that in addition to his claim for
reimbursement, actual and moral damages plus costs of the suit be awarded in his favor.9

For its part, Metrobank countered that upon the receipt of the said check through the PCHC on 14
November 1994, it examined the genuineness and the authenticity of the drawer’s signature
appearing thereon and the technical entries on the check including the amount in figures and in
words to determine if there were alterations, erasures, superimpositions or intercalations thereon,
but none was noted. After verifying the authenticity and propriety of the aforesaid entries, including
the indorsement of the collecting bank located at the dorsal side of the check which stated that, "all
prior indorsements and lack of indorsement guaranteed," Metrobank cleared the check.10

Anent thereto, Metrobank claimed that as a collecting bank and the last indorser, Westmont Bank
should be held liable for the value of the check. Westmont Bank indorsed the check as the an
unqualified indorser, by virtue of which it assumed the liability of a general indorser, and thus, among
others, warranted that the instrument is genuine and in all respect what it purports to be.

In addition, Metrobank, in turn, claimed that Cabilzo was partly responsible in leaving spaces on the
check, which, made the fraudulent insertion of the amount and figures thereon, possible. On account
of his negligence in the preparation and issuance of the check, which according to Metrobank, was
the proximate cause of the loss, Cabilzo cannot thereafter claim indemnity by virtue of the doctrine of
equitable estoppel.

Thus, Metrobank demanded from Cabilzo, for payment in the amount of P100,000.00 which
represents the cost of litigation and attorney’s fees, for allegedly bringing a frivolous and baseless
suit. 11

On 19 April 1996, Metrobank filed a Third-Party Complaint12 against Westmont Bank on account of
its unqualified indorsement stamped at the dorsal side of the check which the former relied upon in
clearing what turned out to be a materially altered check.

Subsequently, a Motion to Dismiss13 the Third-Party Complaint was then filed by Westmont bank
because another case involving the same cause of action was pending before a different court. The
said case arose from an action for reimbursement filed by Metrobank before the Arbitration
Committee of the PCHC against Westmont Bank, and now the subject of a Petition for Review
before the RTC of Manila, Branch 19.
In an Order14 dated 4 February 1997, the trial court granted the Motion to Dismiss the Third-Party
Complaint on the ground of litis pendentia.

On 4 September 1998, the RTC rendered a Decision15 in favor of Cabilzo and thereby ordered
Metrobank to pay the sum of P90,000.00, the amount of the check. In stressing the fiduciary nature
of the relationship between the bank and its clients and the negligence of the drawee bank in failing
to detect an apparent alteration on the check, the trial court ordered for the payment of exemplary
damages, attorney’s fees and cost of litigation. The dispositive portion of the Decision reads:

WHEREFORE, judgment is rendered ordering defendant Metropolitan Bank and Trust

Company to pay plaintiff Renato Cabilzo the sum of P90,000 with legal interest of 6 percent
per annum from November 16, 1994 until payment is made plus P20,000 attorney’s fees,
exemplary damages of P50,000, and costs of the suit.16

Aggrieved, Metrobank appealed the adverse decision to the Court of Appeals reiterating its previous
argument that as the last indorser, Westmont Bank shall bear the loss occasioned by the fraudulent
alteration of the check. Elaborating, Metrobank maintained that by reason of its unqualified
indorsement, Westmont Bank warranted that the check in question is genuine, valid and subsisting
and that upon presentment the check shall be accepted according to its tenor.

Even more, Metrobank argued that in clearing the check, it was not remiss in the performance of its
duty as the drawee bank, but rather, it exercised the highest degree of diligence in accordance with
the generally accepted banking practice. It further insisted that the entries in the check were regular
and authentic and alteration could not be determined even upon close examination.

In a Decision17 dated 8 March 2002, the Court of Appeals affirmed with modification the Decision of
the court a quo, similarly finding Metrobank liable for the amount of the check, without prejudice,
however, to the outcome of the case between Metrobank and Westmont Bank which was pending
before another tribunal. The decretal portion of the Decision reads:

WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED with the
modifications (sic) that the awards for exemplary damages and attorney’s fees are hereby
deleted.18

Similarly ill-fated was Metrobank’s Motion for Reconsideration which was also denied by the
appellate court in its Resolution19 issued on 26 July 2002, for lack of merit.

Metrobank now poses before this Court this sole issue:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING METROBANK,

AS DRAWEE BANK, LIABLE FOR THE ALTERATIONS ON THE SUBJECT CHECK
BEARING THE AUTHENTIC SIGNATURE OF THE DRAWER THEREOF.

We resolve to deny the petition.

An alteration is said to be material if it changes the effect of the instrument. It means that an
unauthorized change in an instrument that purports to modify in any respect the obligation of a party
or an unauthorized addition of words or numbers or other change to an incomplete instrument
relating to the obligation of a party.20 In other words, a material alteration is one which changes the
items which are required to be stated under Section 1 of the Negotiable Instruments Law.
Section 1 of the Negotiable Instruments Law provides:

Section 1. Form of negotiable instruments. - An instrument to be negotiable must conform to

the following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand or at a fixed determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise

indicated therein with reasonable certainty.

Also pertinent is the following provision in the Negotiable Instrument Law which states:

Section 125. What constitutes material alteration. – Any alteration which changes:

(a) The date;

(b) The sum payable, either for principal or interest;

(c) The time or place of payment;

(d) The number or the relation of the parties;

(e) The medium or currency in which payment is to be made;

Or which adds a place of payment where no place of payment is specified, or any other
change or addition which alters the effect of the instrument in any respect is a material
alteration.

In the case at bar, the check was altered so that the amount was increased from P1,000.00
to P91,000.00 and the date was changed from 24 November 1994 to 14 November 1994.
Apparently, since the entries altered were among those enumerated under Section 1 and 125,
namely, the sum of money payable and the date of the check, the instant controversy therefore
squarely falls within the purview of material alteration.

Now, having laid the premise that the present petition is a case of material alteration, it is now
necessary for us to determine the effect of a materially altered instrument, as well as the rights and
obligations of the parties thereunder. The following provision of the Negotiable Instrument Law will
shed us some light in threshing out this issue:

Section 124. Alteration of instrument; effect of. – Where a negotiable instrument is materially
altered without the assent of all parties liable thereon, it is avoided, except as against a party
who has himself made,authorized, and assented to the alteration and subsequent indorsers.
 But when the instrument has been materially altered and is in the hands of a holder in due
course not a party to the alteration, he may enforce the payment thereof according to its
original tenor. (Emphasis ours.)

Indubitably, Cabilzo was not the one who made nor authorized the alteration. Neither did he assent
to the alteration by his express or implied acts. There is no showing that he failed to exercise such
reasonable degree of diligence required of a prudent man which could have otherwise prevented the
loss. As correctly ruled by the appellate court, Cabilzo was never remiss in the preparation and
issuance of the check, and there were no indicia of evidence that would prove otherwise. Indeed,
Cabilzo placed asterisks before and after the amount in words and figures in order to forewarn the
subsequent holders that nothing follows before and after the amount indicated other than the one
specified between the asterisks.

The degree of diligence required of a reasonable man in the exercise of his tasks and the
performance of his duties has been faithfully complied with by Cabilzo. In fact, he was wary enough
that he filled with asterisks the spaces between and after the amounts, not only those stated in
words, but also those in numerical figures, in order to prevent any fraudulent insertion, but
unfortunately, the check was still successfully altered, indorsed by the collecting bank, and cleared
by the drawee bank, and encashed by the perpetrator of the fraud, to the damage and prejudice of
Cabilzo.

Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is therefore prevented from
asserting his rights under the doctrine of equitable estoppel when the facts on record are bare of
evidence to support such conclusion. The doctrine of equitable estoppel states that when one of the
two innocent persons, each guiltless of any intentional or moral wrong, must suffer a loss, it must be
borne by the one whose erroneous conduct, either by omission or commission, was the cause of
injury.21 Metrobank’s reliance on this dictum, is misplaced. For one, Metrobank’s representation that
it is an innocent party is flimsy and evidently, misleading. At the same time, Metrobank cannot
asseverate that Cabilzo was negligent and this negligence was the proximate cause22 of the loss in
the absence of even a scintilla proof to buttress such claim. Negligence is not presumed but must be
proven by the one who alleges it.23

Undoubtedly, Cabilzo was an innocent party in this instant controversy. He was just an ordinary
businessman who, in order to facilitate his business transactions, entrusted his money with a bank,
not knowing that the latter would yield a substantial amount of his deposit to fraud, for which Cabilzo
can never be faulted.

We never fail to stress the remarkable significance of a banking institution to commercial

transactions, in particular, and to the country’s economy in general. The banking system is an
indispensable institution in the modern world and plays a vital role in the economic life of every
civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as
active instruments of business and commerce, banks have become an ubiquitous presence among
the people, who have come to regard them with respect and even gratitude and, most of all,
confidence.24

Thus, even the humble wage-earner does not hesitate to entrust his life's savings to the bank of his
choice, knowing that they will be safe in its custody and will even earn some interest for him. The
ordinary person, with equal faith, usually maintains a modest checking account for security and
convenience in the settling of his monthly bills and the payment of ordinary expenses. As for a
businessman like the respondent, the bank is a trusted and active associate that can help in the
running of his affairs, not only in the form of loans when needed but more often in the conduct of
their day-to-day transactions like the issuance or encashment of checks.25
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.26

The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship. The appropriate degree of diligence
required of a bank must be a high degree of diligence, if not the utmost diligence.27

In the present case, it is obvious that Metrobank was remiss in that duty and violated that
relationship. As observed by the Court of Appeals, there are material alterations on the check that
are visible to the naked eye. Thus:

x x x The number "1" in the date is clearly imposed on a white figure in the shape of the
number "2". The appellant’s employees who examined the said check should have likewise
been put on guard as to why at the end of the amount in words, i.e., after the word "ONLY",
there are 4 asterisks, while at the beginning of the line or before said phrase, there is none,
even as 4 asterisks have been placed before and after the word "CASH" in the space for
payee. In addition, the 4 asterisks before the words "ONE THOUSAND PESOS ONLY" have
noticeably been erased with typing correction paper, leaving white marks, over which the
word "NINETY" was superimposed. The same can be said of the numeral "9" in the amount
"91,000", which is superimposed over a whitish mark, obviously an erasure, in lieu of the
asterisk which was deleted to insert the said figure. The appellant’s employees should have
again noticed why only 2 asterisks were placed before the amount in figures, while 3
asterisks were placed after such amount. The word "NINETY" is also typed differently and
with a lighter ink, when compared with the words "ONE THOUSAND PESOS ONLY." The
letters of the word "NINETY" are likewise a little bigger when compared with the letters of the
words "ONE THOUSAND PESOS ONLY".28

Surprisingly, however, Metrobank failed to detect the above alterations which could not escape the
attention of even an ordinary person. This negligence was exacerbated by the fact that, as found by
the trial court, the check in question was examined by the cash custodian whose functions do not
include the examinations of checks indorsed for payment against drawer’s accounts.29 Obviously, the
employee allowed by Metrobank to examine the check was not verse and competent to handle such
duty. These factual findings of the trial court is conclusive upon this court especially when such
findings was affirmed the appellate court.30

Apropos thereto, we need to reiterate that by the very nature of their work the degree of
responsibility, care and trustworthiness expected of their employees and officials is far better than
those of ordinary clerks and employees. Banks are expected to exercise the highest degree of
diligence in the selection and supervision of their employees.31

In addition, the bank on which the check is drawn, known as the drawee bank, is under strict liability
to pay to the order of the payee in accordance with the drawer’s instructions as reflected on the face
and by the terms of the check. Payment made under materially altered instrument is not payment
done in accordance with the instruction of the drawer.

When the drawee bank pays a materially altered check, it violates the terms of the check, as well as
its duty to charge its client’s account only for bona fide disbursements he had made. Since the
drawee bank, in the instant case, did not pay according to the original tenor of the instrument, as
directed by the drawer, then it has no right to claim reimbursement from the drawer, much less, the
right to deduct the erroneous payment it made from the drawer’s account which it was expected to
treat with utmost fidelity.

Metrobank vigorously asserts that the entries in the check were carefully examined: The date of the
instrument, the amount in words and figures, as well as the drawer’s signature, which after
verification, were found to be proper and authentic and was thus cleared. We are not persuaded.
Metrobank’s negligence consisted in the omission of that degree of diligence required of a bank
owing to the fiduciary nature of its relationship with its client. Article 1173 of the Civil Code provides:

The fault or negligence of the obligor consists in the omission of that diligence which is
required by the nature of the obligation and corresponds with the circumstances of the
persons, of the time and of the place. x x x.

Beyond question, Metrobank failed to comply with the degree required by the nature of its business
as provided by law and jurisprudence. If indeed it was not remiss in its obligation, then it would be
inconceivable for it not to detect an evident alteration considering its vast knowledge and technical
expertise in the intricacies of the banking business. This Court is not completely unaware of banks’
practices of employing devices and techniques in order to detect forgeries, insertions, intercalations,
superimpositions and alterations in checks and other negotiable instruments so as to safeguard their
authenticity and negotiability. Metrobank cannot now feign ignorance nor claim diligence; neither can
it point its finger at the collecting bank, in order to evade liability.

Metrobank argues that Westmont Bank, as the collecting bank and the last indorser, shall bear the
loss. Without ruling on the matter between the drawee bank and the collecting bank, which is already
under the jurisdiction of another tribunal, we find that Metrobank cannot rely on such indorsement, in
clearing the questioned check. The corollary liability of such indorsement, if any, is separate and
independent from the liability of Metrobank to Cabilzo.

The reliance made by Metrobank on Westmont Bank’s indorsement is clearly inconsistent, if not
totally offensive to the dictum that being impressed with public interest, banks should exercise the
highest degree of diligence, if not utmost diligence in dealing with the accounts of its own clients. It
owes the highest degree fidelity to its clients and should not therefore lightly rely on the judgment of
other banks on occasions where its clients money were involve, no matter how small or substantial
the amount at stake.

Metrobank’s contention that it relied on the strength of collecting bank’s indorsement may be merely
a lame excuse to evade liability, or may be indeed an actual banking practice. In either case, such
act constitutes a deplorable banking practice and could not be allowed by this Court bearing in mind
that the confidence of public in general is of paramount importance in banking business.

What is even more deplorable is that, having been informed of the alteration, Metrobank did not
immediately re-credit the amount that was erroneously debited from Cabilzo’s account but permitted
a full blown litigation to push through, to the prejudice of its client. Anyway, Metrobank is not left with
no recourse for it can still run after the one who made the alteration or with the collecting bank,
which it had already done. It bears repeating that the records are bare of evidence to prove that
Cabilzo was negligent. We find no justifiable reason therefore why Metrobank did not immediately
reimburse his account. Such ineptness comes within the concept of wanton manner contemplated
under the Civil Code which warrants the imposition of exemplary damages, "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
stern warning in order to deter the repetition of similar acts of negligence, lest the confidence of the
public in the banking system be further eroded. 32
WHEREFORE, premises considered, the instant Petition is DENIED. The Decision dated 8 March
2002 and the Resolution dated 26 July 2002 of the Court of Appeals are AFFIRMED with
modification that exemplary damages in the amount of P50,000.00 be awarded. Costs against the
petitioner.

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.

Rene Diokno for petitioner.

F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the Philippines.

Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent Overseas Bank of
Manila.

Josefina G. Salonga for all other respondents.

CONCEPCION, 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 6-½% interest, on March 6,
1967, of Two Hundred Thousand Pesos (P200,000.00) with the same respondent Overseas Bank of
Manila. 4

On 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.
G.R. No. 88013 March 19, 1990

SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents.

Don P. Porcuincula for petitioner.

San Juan, Gonzalez, San Agustin & Sinense for private respondent.

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 Pedreño 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. 215477 dated June 9, 1981, in favor of Sea-Land 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 exemplary damages
if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner.

The banking system is an indispensable institution in the modern world and plays a vital role in the
economic life of every civilized nation. Whether as mere passive entities for the safekeeping and
saving of money or as active instruments of business and commerce, banks have become an
ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and, most of all, confidence. Thus, even the humble wage-earner has not hesitated to
entrust his life's savings to the bank of his choice, knowing that they will be safe in its custody and
will even earn some interest for him. The ordinary person, with equal faith, usually maintains a
modest checking account for security and convenience in the settling of his monthly bills and the
payment of ordinary expenses. As for business entities like the petitioner, the bank is a trusted and
active associate that can help in the running of their affairs, not only in the form of loans when
needed but more often in the conduct of their day-to-day transactions like the issuance or
encashment of checks.

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

The 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 against the repetition of the ineptness and indefference that has been
displayed here, lest the confidence of the public in the banking system be further impaired.

ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is ordered
to pay the petitioner, in lieu of nominal damages, moral damages in the amount of P20,000.00, and
exemplary damages in the amount of P50,000.00 plus the original award of attorney's fees in the
amount of P5,000.00, and costs.

SO ORDERED.
 [G.R. No. 149454. May 28, 2004]

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. CASA

MONTESSORI INTERNATIONALE and LEONARDO T.
YABUT, respondents.

[G.R. No. 149507. May 28, 2004]

CASA MONTESSORI INTERNATIONALE, petitioner, vs. BANK OF THE

PHILIPPINE ISLANDS, respondent.

DECISION
PANGANIBAN, J.:

By the nature of its functions, a bank is required to take meticulous care of

the deposits of its clients, who have the right toexpect high standards of
integrity and performance from it. Among its obligations in furtherance thereof
is knowing the signatures of its clients. Depositors are not estopped from
questioning wrongful withdrawals, even if they have failed to question those
errors in the statements sent by the bank to them for verification.

The Case

Before us are two Petitions for Review under Rule 45 of the Rules of
[1]

Court, assailing the March 23, 2001 Decision and the August 17,
[2]

2001 Resolution of the Court of Appeals (CA) in CA-GR CV No. 63561. The
[3]

decretal portion of the assailed Decision reads as follows:

WHEREFORE, upon the premises, the decision appealed from is AFFIRMED with
the modification that defendant bank [Bank of the Philippine Islands (BPI)] is held
liable only for one-half of the value of the forged checks in the amount
of P547,115.00 after deductions subject to REIMBURSEMENT from third party
defendant Yabut who is likewise ORDERED to pay the other half to plaintiff
corporation [Casa Montessori Internationale (CASA)]. [4]
 The assailed Resolution denied all the parties Motions for
Reconsideration.

The Facts

The facts of the case are narrated by the CA as follows:

On November 8, 1982, plaintiff CASA Montessori International opened Current

[5]

Account No. 0291-0081-01 with defendant BPI[,] with CASAs President Ms. Ma.
Carina C. Lebron as one of its authorized signatories.

In 1991, after conducting an investigation, plaintiff discovered that nine (9) of its
checks had been encashed by a certain Sonny D. Santos since 1990 in the total amount
of P782,000.00, on the following dates and amounts:

Check No. Date Amount

1. 839700 April 24, 1990 P 43,400.00

2. 839459 Nov. 2, 1990 110,500.00

3. 839609 Oct. 17, 1990 47,723.00

4. 839549 April 7, 1990 90,700.00

5. 839569 Sept. 23, 1990 52,277.00

6. 729149 Mar. 22, 1990 148,000.00

7. 729129 Mar. 16, 1990 51,015.00

8. 839684 Dec. 1, 1990 140,000.00

9. 729034 Mar. 2, 1990 98,985.00

Total -- P 782,600.00 [6]

It turned out that Sonny D. Santos with account at BPIs Greenbelt Branch
[was] a fictitious name used by third party defendant Leonardo T. Yabut who
worked as external auditor of CASA. Third party defendant voluntarily
admitted that he forged the signature of Ms. Lebron and encashed the checks.
 The PNP Crime Laboratory conducted an examination of the nine (9)
checks and concluded that the handwritings thereon compared to the
standard signature of Ms. Lebron were not written by the latter.
On March 4, 1991, plaintiff filed the herein Complaint for Collection with
Damages against defendant bank praying that the latter be ordered to
reinstate the amount of P782,500.00 in the current and savings accounts of
[7]

the plaintiff with interest at 6% per annum.

On February 16, 1999, the RTC rendered the appealed decision in favor of
the plaintiff.
[8]

Ruling of the Court of Appeals

Modifying the Decision of the Regional Trial Court (RTC), the CA

apportioned the loss between BPI and CASA. The appellate court took into
account CASAs contributory negligence that resulted in the undetected
forgery. It then ordered Leonardo T. Yabut to reimburse BPI half the total
amount claimed; and CASA, the other half. It also disallowed attorneys fees
and moral and exemplary damages.
Hence, these Petitions. [9]

Issues

In GR No. 149454, Petitioner BPI submits the following issues for our
consideration:

I. The Honorable Court of Appeals erred in deciding this case NOT in accord with
the applicable decisions of this Honorable Court to the effect that forgery cannot be
presumed; that it must be proved by clear, positive and convincing evidence; and that
the burden of proof lies on the party alleging the forgery.

II. The Honorable Court of Appeals erred in deciding this case not in accord with
applicable laws, in particular the Negotiable Instruments Law (NIL) which precludes
CASA, on account of its own negligence, from asserting its forgery claim against BPI,
specially taking into account the absence of any negligence on the part of BPI.
[10]

In GR No. 149507, Petitioner CASA submits the following issues:

1. The Honorable Court of Appeals erred when it ruled that there is no showing that
[BPI], although negligent, acted in bad faith x x x thus denying the prayer for the
award of attorneys fees, moral damages and exemplary damages to [CASA]. The
Honorable Court also erred when it did not order [BPI] to pay interest on the amounts
due to [CASA].

2. The Honorable Court of Appeals erred when it declared that [CASA] was likewise
negligent in the case at bar, thus warranting its conclusion that the loss in the amount
of P547,115.00 be apportioned between [CASA] and [BPI] x x x. [11]

These issues can be narrowed down to three. First, was there forgery
under the Negotiable Instruments Law (NIL)? Second, were any of the parties
negligent and therefore precluded from setting up forgery as a defense? Third,
should moral and exemplary damages, attorneys fees, and interest be
awarded?

The Courts Ruling

The Petition in GR No. 149454 has no merit, while that in GR No. 149507
is partly meritorious.

First Issue:
Forged Signature Wholly Inoperative

Section 23 of the NIL provides:

Section 23. Forged signature; effect of. -- When a signature is forged or made without
the authority of the person whose signature it purports to be, it is wholly inoperative,
and no right x x x to enforce payment thereof against any party thereto, can be
acquired through or under such signature, unless the party against whom it is sought
to enforce such right is precluded from setting up the forgery or want of authority.[12]

Under this provision, a forged signature is a real or absolute [13]

defense, and a person whose signature on a negotiable instrument is forged

[14]

is deemed to have never become a party thereto and to have never

consented to the contract that allegedly gave rise to it. [15]

The counterfeiting of any writing, consisting in the signing of anothers

name with intent to defraud, is forgery. [16]
 In the present case, we hold that there was forgery of the drawers
signature on the check.
First, both the CA and the RTC found that Respondent Yabut himself
[17] [18]

had voluntarily admitted, through an Affidavit, that he had forged the drawers
signature and encashed the checks. He never refuted these findings. That
[19] [20]

he had been coerced into admission was not corroborated by any evidence on
record.[21]

Second, the appellate and the trial courts also ruled that the PNP Crime
Laboratory, after its examination of the said checks, had concluded that the
[22]

handwritings thereon -- compared to the standard signature of the drawer --

were not hers. This conclusion was the same as that in the Report that the
[23] [24]

PNP Crime Laboratory had earlier issued to BPI -- the drawee bank -- upon
the latters request.
Indeed, we respect and affirm the RTCs factual findings, especially when
affirmed by the CA, since these are supported by substantial evidence on
record.[25]

Voluntary Admission Not

Violative of Constitutional Rights

The voluntary admission of Yabut did not violate his constitutional rights
(1) on custodial investigation, and (2) against self-incrimination.
In the first place, he was not under custodial investigation. His Affidavit
[26]

was executed in private and before private individuals. The mantle of [27]

protection under Section 12 of Article III of the 1987 Constitution covers only[28]

the period from the time a person is taken into custody for investigation of his
possible participation in the commission of a crime or from the time he is
singled out as a suspect in the commission of a crime although not yet in
custody. [29]

Therefore, to fall within the ambit of Section 12, quoted above, there must
be an arrest or a deprivation of freedom, with questions propounded on him
by the police authorities for the purpose of eliciting admissions, confessions,
or any information. The said constitutional provision does not apply to
[30]

spontaneous statements made in a voluntary manner whereby an individual

[31]

orally admits to authorship of a crime. What the Constitution proscribes is the

[32]

compulsory or coercive disclosure of incriminating facts. [33]

 Moreover, the right against self-incrimination under Section 17 of Article
[34]

III of the Constitution, which is ordinarily available only in criminal

[35]

prosecutions, extends to all other government proceedings -- including civil

actions, legislative investigations, and administrative proceedings that
[36]

possess a criminal or penal aspect -- but not to private investigations done

[37]

by private individuals.Even in such government proceedings, this right may be

waived, provided the waiver is certain; unequivocal; and intelligently,
[38]

understandingly and willingly made. [39]

If in these government proceedings waiver is allowed, all the more is it so

in private investigations. It is of no moment that no criminal case has yet been
filed against Yabut. The filing thereof is entirely up to the appropriate
authorities or to the private individuals upon whom damage has been
caused. As we shall also explain later, it is not mandatory for CASA -- the
plaintiff below -- to implead Yabut in the civil case before the lower court.
Under these two constitutional provisions, [t]he Bill of Rights does not [40]

concern itself with the relation between a private individual and another
individual. It governs the relationship between the individual and the
State. Moreover, the Bill of Rights is a charter of liberties for the individual
[41]

and a limitation upon the power of the [S]tate. These rights are guaranteed
[42] [43]

to preclude the slightest coercion by the State that may lead the accused to
admit something false, not prevent him from freely and voluntarily telling the
truth. [44]

Yabut is not an accused here. Besides, his mere invocation of the

aforesaid rights does not automatically entitle him to the constitutional
protection. When he freely and voluntarily executed his Affidavit, the State
[45] [46]

was not even involved. Such Affidavit may therefore be admitted without
violating his constitutional rights while under custodial investigation and
against self-incrimination.

Clear, Positive and Convincing

Examination and Evidence

The examination by the PNP, though inconclusive, was nevertheless

clear, positive and convincing.
Forgery cannot be presumed. It must be established by clear, positive
[47]

and convincing evidence. Under the best evidence rule as applied to

[48]

documentary evidence like the checks in question, no secondary or

substitutionary evidence may inceptively be introduced, as the original writing
itself must be produced in court. But when, without bad faith on the part of
[49]

the offeror, the original checks have already been destroyed or cannot be
produced in court, secondary evidence may be produced. Without bad faith [50]

on its part, CASA proved the loss or destruction of the original checks through
the Affidavit of the one person who knew of that fact -- Yabut. He clearly
[51]

admitted to discarding the paid checks to cover up his misdeed. In such a [52]

situation, secondary evidence like microfilm copies may be introduced in

court.
The drawers signatures on the microfilm copies were compared with the
standard signature. PNP Document Examiner II Josefina de la Cruz testified
on cross-examination that two different persons had written them. Although [53]

no conclusive report could be issued in the absence of the original

checks, she
[54]
affirmed that her findings were 90 percent
conclusive. According to her, even if the microfilm copies were the only basis
[55]

of comparison, the differences were evident. Besides, the RTC explained

[56]

that although the Report was inconclusive, no conclusive report could have
been given by the PNP, anyway, in the absence of the original checks. This [57]

explanation is valid; otherwise, no such report can ever be relied upon in

court.
Even with respect to documentary evidence, the best evidence rule
applies only when the contents of a document -- such as the drawers
signature on a check -- is the subject of inquiry. As to whether the document
[58]

has been actually executed, this rule does not apply; and testimonial as well
as any other secondary evidence is admissible. Carina Lebron herself, the
[59]

drawers authorized signatory, testified many times that she had never signed
those checks. Her testimonial evidence is admissible; the checks have not
been actually executed. The genuineness of her handwriting is proved, not
only through the courts comparison of the questioned handwritings and
admittedly genuine specimens thereof, but above all by her.
[60]

The failure of CASA to produce the original checks neither gives rise to the
presumption of suppression of evidence nor creates an unfavorable
[61]

inference against it. Such failure merely authorizes the introduction of

[62]

secondary evidence in the form of microfilm copies. Of no consequence is

[63]

the fact that CASA did not present the signature card containing the
signatures with which those on the checks were compared. Specimens of [64]

standard signatures are not limited to such a card. Considering that it was not
produced in evidence, other documents that bear the drawers authentic
signature may be resorted to. Besides, that card was in the possession of
[65]

BPI -- the adverse party.

 We have held that without the original document containing the allegedly
forged signature, one cannot make a definitive comparison that would
establish forgery; and that a comparison based on a mere reproduction of
[66]

the document under controversy cannot produce reliable results. We have [67]

also said, however, that a judge cannot merely rely on a handwriting experts
testimony, but should also exercise independent judgment in evaluating the
[68]

authenticity of a signature under scrutiny. In the present case, both the RTC
[69]

and the CA conducted independent examinations of the evidence presented

and arrived at reasonable and similar conclusions. Not only did they admit
secondary evidence; they also appositely considered testimonial and other
documentary evidence in the form of the Affidavit.
The best evidence rule admits of exceptions and, as we have discussed
earlier, the first of these has been met. The result of examining a questioned
[70]

handwriting, even with the aid of experts and scientific instruments, may be
inconclusive; but it is a non sequitur to say that such result is not clear,
[71]

positive and convincing. The preponderance of evidence required in this case

has been satisfied. [72]

Second Issue:
Negligence Attributable to BPI Alone

Having established the forgery of the drawers signature, BPI -- the drawee --
erred in making payments by virtue thereof. The forged signatures are wholly
inoperative, and CASA -- the drawer whose authorized signatures do not
appear on the negotiable instruments -- cannot be held liable thereon. Neither
is the latter precluded from setting up forgery as a real defense.

Clear Negligence
in Allowing Payment
Under a Forged Signature

We have repeatedly emphasized that, since the banking business is

impressed with public interest, of paramount importance thereto is the trust
and confidence of the public in general. Consequently, the highest degree of
diligence is expected, and high standards of integrity and performance are
[73] [74]

even required, of it. By the nature of its functions, a bank is under obligation
[75]

to treat the accounts of its depositors with meticulous care, always having in
[76]

mind the fiduciary nature of their relationship. [77]

 BPI contends that it has a signature verification procedure, in which
checks are honored only when the signatures therein are verified to be the
same with or similar to the specimen signatures on the signature
cards. Nonetheless, it still failed to detect the eight instances of forgery. Its
negligence consisted in the omission of that degree of diligence required of a [78]

bank. It cannot now feign ignorance, for very early on we have already ruled
that a bank is bound to know the signatures of its customers; and if it pays a
forged check, it must be considered as making the payment out of its own
funds, and cannot ordinarily charge the amount so paid to the account of the
depositor whose name was forged. In fact, BPI was the same bank involved
[79]

when we issued this ruling seventy years ago.

Neither Waiver nor Estoppel

Results from Failure to
Report Error in Bank Statement

The monthly statements issued by BPI to its clients contain a notice

worded as follows: If no error is reported in ten (10) days, account will be
correct. Such notice cannot be considered a waiver, even if CASA failed to
[80]

report the error. Neither is it estopped from questioning the mistake after the
lapse of the ten-day period.
This notice is a simple confirmation or circularization -- in accounting
[81]

parlance -- that requests client-depositors to affirm the accuracy of items

recorded by the banks. Its purpose is to obtain from the depositors a direct
[82]

corroboration of the correctness of their account balances with their respective

banks. Internal or external auditors of a bank use it as a basic audit
[83]

procedure -- the results of which its client-depositors are neither interested in

[84]

nor privy to -- to test the details of transactions and balances in the banks
records. Evidential matter obtained from independent sources outside a
[85]

bank only serves to provide greater assurance of reliability than that [86]

obtained solely within it for purposes of an audit of its own financial

statements, not those of its client-depositors.
Furthermore, there is always the audit risk that errors would not be
detected for various reasons. One, materiality is a consideration in audit
[87]

planning; and two, the information obtained from such a substantive test is
[88]

merely presumptive and cannot be the basis of a valid waiver. BPI has no
[89]

right to impose a condition unilaterally and thereafter consider failure to meet

such condition a waiver. Neither may CASA renounce a right it has never
[90]

possessed. [91]
 Every right has subjects -- active and passive. While the active subject is
entitled to demand its enforcement, the passive one is duty-bound to suffer
such enforcement. [92]

On the one hand, BPI could not have been an active subject, because it
could not have demanded from CASA a response to its notice. Besides, the
notice was a measly request worded as follows: Please examine x x x and
report x x x. CASA, on the other hand, could not have been a passive
[93]

subject, either, because it had no obligation to respond. It could -- as it did --

choose not to respond.
Estoppel precludes individuals from denying or asserting, by their own
deed or representation, anything contrary to that established as the truth, in
legal contemplation. Our rules on evidence even make a juris et de
[94]

jure presumption that whenever one has, by ones own act or omission,
[95]

intentionally and deliberately led another to believe a particular thing to be true

and to act upon that belief, one cannot -- in any litigation arising from such act
or omission -- be permitted to falsify that supposed truth. [96]

In the instant case, CASA never made any deed or representation that
misled BPI. The formers omission, if any, may only be deemed an innocent
mistake oblivious to the procedures and consequences of periodic
audits. Since its conduct was due to such ignorance founded upon an
innocent mistake, estoppel will not arise. A person who has no knowledge of
[97]

or consent to a transaction may not be estopped by it. Estoppel cannot be

[98]

sustained by mere argument or doubtful inference x x x. CASA is not barred

[99]

from questioning BPIs error even after the lapse of the period given in the
notice.

Loss Borne by
Proximate Source
of Negligence

For allowing payment on the checks to a wrongful and fictitious payee,

[100]

BPI -- the drawee bank -- becomes liable to its depositor-drawer. Since the
encashing bank is one of its branches, BPI can easily go after it and hold it
[101]

liable for reimbursement. It may not debit the drawers account and is not
[102] [103]

entitled to indemnification from the drawer. In both law and equity, when one
[104]

of two innocent persons must suffer by the wrongful act of a third person, the
loss must be borne by the one whose negligence was the proximate cause of
the loss or who put it into the power of the third person to perpetrate the
wrong. [105]
 Proximate cause is determined by the facts of the case. It is that cause
[106]

which, in natural and continuous sequence, unbroken by any efficient

intervening cause, produces the injury, and without which the result would not
have occurred. [107]

Pursuant to its prime duty to ascertain well the genuineness of the

signatures of its client-depositors on checks being encashed, BPI is expected
to use reasonable business prudence. In the performance of that obligation,
[108]

it is bound by its internal banking rules and regulations that form part of the
contract it enters into with its depositors. [109]

Unfortunately, it failed in that regard. First, Yabut was able to open a bank
account in one of its branches without privity; that is, without the proper
[110]

verification of his corresponding identification papers. Second, BPI was

unable to discover early on not only this irregularity, but also the marked
differences in the signatures on the checks and those on the signature
card. Third, despite the examination procedures it conducted, the Central
Verification Unit of the bank even passed off these evidently different
[111]

signatures as genuine. Without exercising the required prudence on its part,

BPI accepted and encashed the eight checks presented to it. As a result, it
proximately contributed to the fraud and should be held primarily liable for [112]

the negligence of its officers or agents when acting within the course and
scope of their employment. It must bear the loss.
[113]

CASA Not Negligent

in Its Financial Affairs

In this jurisdiction, the negligence of the party invoking forgery is

recognized as an exception to the general rule that a forged signature is
[114]

wholly inoperative. Contrary to BPIs claim, however, we do not find CASA

[115]

negligent in handling its financial affairs.CASA, we stress, is not precluded

from setting up forgery as a real defense.

Role of Independent Auditor

The major purpose of an independent audit is to investigate and determine

objectively if the financial statements submitted for audit by a corporation have
been prepared in accordance with the appropriate financial reporting
practices of private entities.The relationship that arises therefrom is both
[116]

legal and moral. It begins with the execution of the engagement letter that
[117] [118]
embodies the terms and conditions of the audit and ends with the fulfilled
expectation of the auditors ethical and competent performance in all aspects
[119]

of the audit. [120]

The financial statements are representations of the client; but it is the

auditor who has the responsibility for the accuracy in the recording of data that
underlies their preparation, their form of presentation, and the
opinion expressed therein. The auditor does not assume the role of
[121] [122]

employee or of management in the clients conduct of operations and is [123]

never under the control or supervision of the client.

[124]

Yabut was an independent auditor hired by CASA. He handled its

[125]

monthly bank reconciliations and had access to all relevant documents and
checkbooks. In him was reposed the clients trust and confidence that he
[126] [127] [128]

would perform precisely those functions and apply the appropriate procedures
in accordance with generally accepted auditing standards. Yet he did not [129]

meet these expectations. Nothing could be more horrible to a client than to

discover later on that the person tasked to detect fraud was the same one
who perpetrated it.

Cash Balances
Open to Manipulation

It is a non sequitur to say that the person who receives the monthly bank
statements, together with the cancelled checks and other debit/credit
memoranda, shall examine the contents and give notice of any discrepancies
within a reasonable time.Awareness is not equipollent with discernment.
Besides, in the internal accounting control system prudently installed by
CASA, it was Yabut who should examine those documents in order to
[130]

prepare the bank reconciliations. He owned his working papers, and his
[131] [132]

output consisted of his opinion as well as the clients financial statements and
accompanying notes thereto. CASA had every right to rely solely upon his
output -- based on the terms of the audit engagement -- and could thus be
unwittingly duped into believing that everything was in order.Besides, [g]ood
faith is always presumed and it is the burden of the party claiming otherwise to
adduce clear and convincing evidence to the contrary. [133]

Moreover, there was a time gap between the period covered by the bank
statement and the date of its actual receipt. Lebron personally received the
December 1990 bank statement only in January 1991 -- when she was also[134]

informed of the forgery for the first time, after which she immediately
requested a stop payment order. She cannot be faulted for the late detection
of the forged December check. After all, the bank account with BPI was not
personal but corporate, and she could not be expected to monitor closely all
its finances. A preschool teacher charged with molding the minds of the youth
cannot be burdened with the intricacies or complexities of corporate
existence.
There is also a cutoff period such that checks issued during a given
month, but not presented for payment within that period, will not be reflected
therein. An experienced auditor with intent to defraud can easily conceal any
[135]

devious scheme from a client unwary of the accounting processes involved by

manipulating the cash balances on record -- especially when bank
transactions are numerous, large and frequent. CASA could only be blamed, if
at all, for its unintelligent choice in the selection and appointment of an auditor
-- a fault that is not tantamount to negligence.
Negligence is not presumed, but proven by whoever alleges it. Its mere
[136]

existence is not sufficient without proof that it, and no other cause, has given
[137]

rise to damages. In addition, this fault is common to, if not prevalent among,
[138]

small and medium-sized business entities, thus leading the Professional

Regulation Commission (PRC), through the Board of Accountancy (BOA), to
require today not only accreditation for the practice of public
accountancy, but also the registration of firms in the practice thereof. In fact,
[139]

among the attachments now required upon registration are the code of good
governance and a sworn statement on adequate and effective training.
[140] [141]

The missing checks were certainly reported by the bookkeeper to the [142]

accountant -- her immediate supervisor -- and by the latter to the

[143]

auditor. However, both the accountant and the auditor, for reasons known
only to them, assured the bookkeeper that there were no irregularities.
The bookkeeper who had exclusive custody of the checkbooks did not
[144] [145]

have to go directly to CASAs president or to BPI.Although she rightfully

reported the matter, neither an investigation was conducted nor a resolution of
it was arrived at, precisely because the person at the top of the helm was the
culprit. The vouchers, invoices and check stubs in support of all check
disbursements could be concealed or fabricated -- even in collusion -- and
management would still have no way to verify its cash accountabilities.
Clearly then, Yabut was able to perpetrate the wrongful act through no
fault of CASA. If auditors may be held liable for breach of contract and
negligence, with all the more reason may they be charged with the
[146]

perpetration of fraud upon an unsuspecting client. CASA had the discretion to

pursue BPI alone under the NIL, by reason of expediency or munificence or
both. Money paid under a mistake may rightfully be recovered, [147]
and under
such terms as the injured party may choose.

Third Issue:
Award of Monetary Claims

Moral Damages Denied

We deny CASAs claim for moral damages.

In the absence of a wrongful act or omission, or of fraud or bad [148]

faith, moral damages cannot be awarded. The adverse result of an action

[149] [150]

does not per se make the action wrongful, or the party liable for it. One may
err, but error alone is not a ground for granting such damages. While no [151]

proof of pecuniary loss is necessary therefor -- with the amount to be awarded

left to the courts discretion -- the claimant must nonetheless satisfactorily
[152]

prove the existence of its factual basis and causal relation to the claimants
[153] [154]

act or omission.
[155]

Regrettably, in this case CASA was unable to identify the particular

instance -- enumerated in the Civil Code -- upon which its claim for moral
damages is predicated. Neither bad faith nor negligence so gross that it
[156]

amounts to malice can be imputed to BPI. Bad faith, under the law, does not
[157]

simply connote bad judgment or negligence; it imports a dishonest purpose [158]

or some moral obliquity and conscious doing of a wrong, a breach of a known

duty through some motive or interest or ill will that partakes of the nature of
fraud.[159]

As a general rule, a corporation -- being an artificial person without

feelings, emotions and senses, and having existence only in legal
contemplation -- is not entitled to moral damages, because it cannot [160]

experience physical suffering and mental anguish. However, for breach of [161]

the fiduciary duty required of a bank, a corporate client may claim such
damages when its good reputation is besmirched by such breach, and social
humiliation results therefrom. CASA was unable to prove that BPI had
[162]

debased the good reputation of, and consequently caused incalculable

[163]

embarrassment to, the former. CASAs mere allegation or supposition thereof,

without any sufficient evidence on record, is not enough. [164]

Exemplary Damages Also Denied

 We also deny CASAs claim for exemplary damages.
Imposed by way of correction for the public good, exemplary damages
[165] [166]

cannot be recovered as a matter of right. As we have said earlier, there is

[167]

no bad faith on the part of BPI for paying the checks of CASA upon forged
signatures. Therefore, the former cannot be said to have acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner. The latter, having no [168]

right to moral damages, cannot demand exemplary damages. [169]

Attorneys Fees Granted

Although it is a sound policy not to set a premium on the right to

litigate, we find that CASA is entitled to reasonable attorneys fees based on
[170]

factual, legal, and equitable justification. [171]

When the act or omission of the defendant has compelled the plaintiff to
incur expenses to protect the latters interest, or where the court deems it
[172]

just and equitable, attorneys fees may be recovered. In the present case,
[173]

BPI persistently denied the claim of CASA under the NIL to recredit the latters
account for the value of the forged checks. This denial constrained CASA to
incur expenses and exert effort for more than ten years in order to protect its
corporate interest in its bank account. Besides, we have already cautioned
BPI on a similar act of negligence it had committed seventy years ago, but it
has remained unrelenting.Therefore, the Court deems it just and equitable to
grant ten percent (10%) of the total value adjudged to CASA as attorneys
[174]

fees.

Interest Allowed

For the failure of BPI to pay CASA upon demand and for compelling the
latter to resort to the courts to obtain payment, legal interest may be
adjudicated at the discretion of the Court, the same to run from the filing of [175]

the Complaint. Since a court judgment is not a loan or a forbearance of

[176]

recovery, the legal interest shall be at six percent (6%) per annum. If the [177]

obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary,
shall be the payment of x x x legal interest, which is six percent per
annum. The actual base for its computation shall be on the amount finally
[178]

adjudged, compounded annually to make up for the cost of

[179] [180]

money already lost to CASA.

[181]
 Moreover, the failure of the CA to award interest does not prevent us from
granting it upon damages awarded for breach of contract. Because BPI
[182]

evidently breached its contract of deposit with CASA, we award interest in

addition to the total amount adjudged. Under Section 196 of the NIL, any case
not provided for shall be governed by the provisions of existing legislation or,
in default thereof, by the rules of the law merchant. Damages are not
[183]

provided for in the NIL. Thus, we resort to the Code of Commerce and the
Civil Code. Under Article 2 of the Code of Commerce, acts of commerce shall
be governed by its provisions and, in their absence, by the usages of
commerce generally observed in each place; and in the absence of both rules,
by those of the civil law. This law being silent, we look at Article 18 of the
[184]

Civil Code, which states: In matters which are governed by the Code of
Commerce and special laws, their deficiency shall be supplied by its
provisions. A perusal of these three statutes unmistakably shows that the
award of interest under our civil law is justified.
WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and that
in GR No. 149507 PARTLY GRANTED. The assailed Decision of the Court of
Appeals is AFFIRMED with modification: BPI is held liable for P547,115, the
total value of the forged checks less the amount already recovered by CASA
from Leonardo T. Yabut, plus interest at the legal rate of six percent (6%) per
annum -- compounded annually, from the filing of the complaint until paid in
full; and attorneys fees of ten percent (10%) thereof, subject to reimbursement
from Respondent Yabut for the entire amount, excepting attorneys fees. Let a
copy of this Decision be furnished the Board of Accountancy of the
Professional Regulation Commission for such action as it may deem
appropriate against Respondent Yabut. No costs.
SO ORDERED.
BANK OF THE PHILIPPINE G.R. No. 176434
ISLANDS,
Petitioner,
Present:

QUISUMBING, J.,
Chairperson,
- versus - CARPIO MORALES,
TINGA,
VELASCO, JR., and
BRION, JJ.

LIFETIME MARKETING
CORPORATION,
Respondent. Promulgated:

June 25, 2008

x ---------------------------------------------------------------------------------x

DECISION
TINGA, J.:

The Bank of the Philippine Islands (BPI) seeks the reversal of the Decision[1] of the
Court of Appeals dated 31 July 2006 in CA-G.R. CV No. 62769 which ordered it
to pay Lifetime Marketing Corporation (LMC) actual damages in the amount
of P2,075,695.50 on account of its gross negligence in handling LMCs account.

The following facts, quoted from the decision of the Court of Appeals, are
undisputed:

On October 22, 1981, Lifetime Marketing Corporation (LMC, for

brevity), opened a current account with the Bank of the Philippine
Islands (BPI, for brevity), Greenhills-Edsa branch, denominated as
Account No. 3101-0680-63. In this account, the sales agents of LMC
would have to deposit their collections or payments to the latter. As a
result, LMC and BPI, made a special arrangement that the formers
agents will accomplish three (3) copies of the deposit slips, the third
copy to be retained and held by the teller until LMCs authorized
representatives, Mrs. Virginia Mongon and Mrs. Violeta Ancajas, shall
retrieve them on the following banking day.

Sometime in 1986, LMC availed of the BPIs inter-branch banking

network services in Metro Manila, whereby the formers agents could
make [a] deposit to any BPI branch in Metro Manila under the same
account. Under this system, BPIs bank tellers were no longer obliged to
retain the extra copy of the deposit slips instead, they will rely on the
machine-validated deposit slip, to be submitted by LMCs agents. For its
part, BPI would send to LMC a monthly bank statement relating to the
subject account. This practice was observed and complied with by the
parties.

As a business practice, the registered sales agents or the Lifetime

Educational Consultants of LMC, can get the books from the latter on
consignment basis, then they would go directly to their clients to sell.
These agents or Lifetime Educational Consultants would then pay to
LMC, seven (7) days after they pick up all the books to be sold. Since
LMC have several agents around the Philippines, it required to remit
their payments through BPI, where LMC maintained its current account.
It has been LMCs practice to require its agents to present a validated
deposit slip and, on that basis, LMC would issue to the latter an
acknowledgement receipt.

Alice Laurel, is one of LMCs Educational Consultants or agents.

On various dates covering the period from May, [sic] 1991 up to August,
1992, Alice Laurel deposited checks to LMCs subject account at
different branches of BPI, specifically: at the Harrison/Buendia branch-8
checks; at Arrangue branch-4 checks; at Araneta branch-1 check; at
Binondo branch-3 checks; at Ermita branch-5 checks; at Cubao
Shopping branch-1 check; at Escolta branch-4 checks; at the Malate
branch-2 checks; at Taft Avenue branch-2 checks; at Paseo de Roxas
branch-1 check; at J. Ruiz, San Juan branch, at West Avenue and
Commonwealth Quezon City branch- 2 checks; and at Vito Cruz branch-
2 checks.
 Each check thus deposited were retrieved by Alice Laurel after the
deposit slips were machine-validated, except the following thirteen (13)
checks, which bore no machine validation, to wit: CBC Check No.
484004, RCBC Check No. 419818, CBC Check No. 484042, FEBTC
Check No. 171857, RCBC Check No. 419847, CBC Check No. 484053,
MBTC Check No. 080726, CBC Check No. 484062, PBC Check No.
158076, CBC Check No. 484027, CBC Check No. 484017, CBC Check
No. 484023 and CBC Check No. 218190.

A verification with BPI by LMC showed that Alice Laurel made

check deposits with the named BPI branches and, after the check deposit
slips were machine-validated, requested the teller to reverse the
transactions. Based on general banking practices, however, the
cancellation of deposit or payment transactions upon request by any
depositor or payor, requires that all copies of the deposit slips must be
retrieved or surrendered to the bank. This practice, in effect, cancels the
deposit or payment transaction, thus, it leaves no evidence for any
subsequent claim or misrepresentation made by any innocent third
person. Notwithstanding this, the verbal requests of Alice Laurel and her
husband to reverse the deposits even after the deposit slips were already
received and consummated were accommodated by BPI tellers.

Alice Laurel presented the machine-validated deposit slips to

LMC which, on the strength thereof, considered her account paid. LMC
even granted her certain privileges or prizes based on the deposits she
made.

The total aggregate amount covered by Alice Laurels deposit slips

was Two Million Seven Hundred Sixty Seven Thousand, Five Hundred
Ninety Four Pesos (P2,767,594.00) and, for which, LMC paid Laurel the
total sum of Five Hundred Sixty Thousand Seven Hundred Twenty Six
Pesos (P560,726.00) by way of sales discount and promo prizes.

The above fraudulent transactions of Alice Laurel and her

husband was made possible through BPI tellers failure to retrieve the
duplicate original copies of the deposit slips from the former, every time
they ask for cancellation or reversal of the deposit or payment
transaction.

Upon discovery of this fraud in early August 1992, LMC made

queries from the BPI branches involved. In reply to said queries, BPI
 branch managers formally admitted that they cancelled, without the
permission of or due notice to LMC, the deposit transactions made by
Alice and her husband, and based only upon the latters verbal request or
representation.

Thereafter, LMC immediately instituted a criminal action for

Estafa against Alice Laurel and her husband Thomas Limoanco, before
the Regional Trial Court of Makati, Branch 65, docketed as Criminal
Case No. 93-7970 to 71, entitled People of the Philippines v. Thomas
Limoanco and Alice Laurel. This case for estafa, however, was archived
because summons could not be served upon the spouses as they have
absconded. Thus, the BPIs apparent reluctance to admit liability and
settle LMCs claim for damages, and a hopeless case of recovery from
Alice Laurel and her husband, has left LMC, with no option but to
recover damages from BPI.

On July 24, 1995, LMC, through its representative, Miss

Consolacion C. Rogacion, the President of the company, filed a
Complaint for Damages against BPI, docketed as Civil Case No. 95-
1106, and was raffled to Regional Trial Court of Makati City, Branch
141.

After trial on the merits, the court a quo rendered a Decision in

favor of LMC. The dispositive portion of which reads, as follows:

WHEREFORE, decision is hereby rendered ordering defendant

bank to pay plaintiff actual damages equitably reduced to one (1)
million pesos plus attorneys fees of P100,000.00.

No pronouncement as to costs.

SO ORDERED.[2]

Only BPI filed an appeal. The Court of Appeals affirmed the decision of the
trial court but increased the award ofactual damages to P2,075,695.50 and deleted
the award of P100,000.00 as attorneys fees.[3] Citing public interest, the appellate
court denied reconsideration in a Resolution[4] dated 30 January 2007.
 In this Petition for Review[5] dated 19 March 2007, BPI insists that LMC
should have presented evidence to prove not only the amount of the checks that
were deposited and subsequently reversed, but also the actual delivery of the books
and the payment of sales and promo prizes to Alice Laurel. Failing this, there was
allegedly no basis for the award of actual damages. Moreover, the actual damages
should not have been increased because the decision of the trial court became
conclusive as regards LMC when it did not appeal the said decision.

BPI further avers that LMCs negligence in considering the machine-

validated check deposit slips as evidence of Alice Laurels payment was the
proximate cause of its own loss. Allegedly, by allowing its agents to make deposits
with other BPI branches, LMC violated its own special arrangement with BPIs
Greenhills-EDSA branch for the latter to hold on to an extra copy of the deposit
slip for pick up by LMCs authorized representatives. BPI points out that the
deposits were in check and not in cash. As such, LMC should have borne in mind
that the machine validation in the deposit slips is still subject to the sufficiency of
the funds in the drawers account. Furthermore, LMC allegedly ignored the express
notice indicated in its monthly bank statements and consequently failed to check
the accuracy of the transactions reflected therein.

In its Manifestation of Compliance by Respondent on the Order Dated 20

June 2007 Received on 29 July 2007 to Submit Comment,[6] dated 9 August 2007,
LMC insists that it is indeed entitled to the actual damages awarded to it by the
appellate court.

BPI filed a Reply[7] dated 15 January 2008, in reiteration of its submissions.

We have repeatedly emphasized that the banking industry is impressed with

public interest. Of paramount importance thereto is the trust and confidence of the
public in general. Accordingly, the highest degree of diligence is expected, and
high standards of integrity and performance are required of it. By the nature of its
functions, a bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of its relationship with
them.[8] The fiduciary nature of banking, previously imposed by case law, is now
enshrined in Republic Act No. 8791 or the General Banking Law of 2000. Section
2 thereof specifically says that the state recognizes the fiduciary nature of banking
that requires high standards of integrity and performance.[9]

Whether BPI observed the highest degree of care in handling LMCs account
is the subject of the inquiry in this case.

LMC sought recovery from BPI on a cause of action based on tort. Article
2176 of the Civil Code provides, 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."
There are three elements of quasi-delict: (a) fault or negligence of the defendant, or
some other person for whose acts he must respond; (b) damages suffered by the
plaintiff; and (c) the connection of cause and effect between the fault or negligence
of the defendant and the damages incurred by the plaintiff.[10]

In this case, both the trial court and the Court of Appeals found that the
reversal of the transactions in question was unilaterally undertaken by BPIs tellers
without following normal banking procedure which requires them to ensure that all
copies of the deposit slips are surrendered by the depositor. The machine-validated
deposit slips do not show that the transactions have been cancelled, leading LMC
to rely on these slips and to consider Alice Laurels account as already paid.

Negligence is the omission to do something which a reasonable man, guided

by those considerations which ordinarily regulate the conduct of human affairs,
would do, or the doing of something which a prudent and reasonable man would
not do.[11] Negligence in this case lies in the tellers disregard of the validation
procedures in place and BPIs utter failure to supervise its employees. Notably,
BPIs managers admitted in several correspondences with LMC that the deposit
transactions were cancelled without LMCs knowledge and consent and based only
upon the request of Alice Laurel and her husband.[12]

It is well to reiterate that the degree of diligence required of banks is more

than that of a reasonable man or a good father of a family. In view of the fiduciary
nature of their relationship with their depositors, banks are duty-bound to treat the
accounts of their clients with the highest degree of care.[13]
 BPI cannot escape liability because of LMCs failure to scrutinize the
monthly statements sent to it by the bank. This omission does not change the fact
that were it not for the wanton and reckless negligence of BPIs tellers in failing to
require the surrender of the machine-validated deposit slips before reversing the
deposit transactions, the loss would not have occurred. BPIs negligence is
undoubtedly the proximate cause of the loss. Proximate cause is that cause which,
in a natural and continuous sequence, unbroken by any efficient intervening cause,
produces the injury, and without which the result would not have occurred.[14]

It is also true, however, that LMC should have been more vigilant in
managing and overseeing its own financial affairs. The damages awarded to it were
correctly reduced on account of its own contributory negligence in accordance with
Article 1172 of the Civil Code.[15]

Parenthetically, we find no merit in BPIs allegation that LMC should have

presented evidence of delivery of the books and payment of sales and promo prizes
to Alice Laurel. The evidence presented by LMC in the form of
BPIs own admission that the deposit transactions were
reversed at the instance of Alice Laurel and her husband, coupled with the
machine-validated deposit slips[16] which were supposed to have been deposited to
LMCs account but were cancelled without its knowledge and consent, sufficiently
form the bases for the actual damages claimed because they are the very same
documents relied upon by LMC in considering Alice Laurels account paid and in
granting her monetary privileges and prizes.

Be that as it may, we find the appellate courts decision increasing the award
of actual damages in favor of LMC improper since the latter did not appeal from
the decision of the trial court. It is well-settled that a party who does not appeal
from the decision may not obtain any affirmative relief from the appellate court
other than what he has obtained from the lower court whose decision is brought up
on appeal. The exceptions to this rule, such as where there are (1) errors affecting
the lower courts jurisdiction over the subject matter, (2) plain errors not specified,
and (3) clerical errors, do not apply in this case.[17]
 WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No.
62769 dated 31 July 2006 and its Resolution dated January 30, 2007 are
AFFIRMED with the MODIFICATION that the Bank
of the Philippine Islands is ordered to pay actual damages to Lifetime

Marketing Corporation in the amount of One Million Pesos (P1,000,000.00). No

pronouncement as to costs.

SO ORDERED.
CENTRAL BANK OF G.R. No. 141835
THE PHILIPPINES,
Petitioner, Present:

CARPIO MORALES,* J., Acting

Chairperson,
- versus - TINGA,
NAZARIO,
NACHURA,** and
BRION, JJ.
CITYTRUST BANKING
CORPORATION,
Respondent. Promulgated:
February 4, 2009
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DECISION

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.
 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. 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.
 [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 of the Court of Appeals

[1]

dated 27 October 1998 and its Resolution dated 11 May 1999. The assailed
decision reversed the Decision of the Regional Trial Court of Manila, Branch
[2]

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. Calapre went back to L.C. Diaz and reported the
[3]

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. PBC subsequently dishonored the check because of insufficient
[4]

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. On the same
[5]

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 dated 5 September 1991, L.C. Diaz charged its
[6]

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 for Recovery of a Sum of
[7]

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 to the Court of Appeals. On 27 October 1998,
[8]

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. When another person presents
[10]

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 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 up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from
Solidbank 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 relationship with their clients. The Court of
Appeals found Solidbank remiss in its duty, violating its fiduciary relationship
with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:

WHEREFORE, premises considered, the decision appealed from is hereby

REVERSED and a new one entered.

1. Ordering defendant-appellee Consolidated Bank and Trust Corporation to

pay plaintiff-appellant the sum of Three Hundred Thousand Pesos
(P300,000.00), with interest thereon at the rate of 12% per 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 fees and expenses of
litigation as well as the cost of suit; and

2. Ordering the dismissal of defendant-appellees counterclaim in the amount

of P30,000.00 as attorneys fees.

SO ORDERED. [13]

Acting on the motion for reconsideration of Solidbank, the appellate court

affirmed its decision but modified the award of damages.The appellate court
deleted the award of exemplary damages and attorneys fees. Invoking Article
2231 of the Civil Code, the appellate court ruled that exemplary damages
[14]

could be granted if the defendant acted with gross negligence. Since

Solidbank was guilty of simple negligence only, the award of exemplary
damages was not justified. Consequently, the award of attorneys fees was
also disallowed pursuant to Article 2208 of the Civil Code. The expenses of
litigation and cost of suit were also not imposed on Solidbank.
The dispositive portion of the Resolution reads as follows:

WHEREFORE, foregoing considered, our decision dated October 27, 1998 is

affirmed with modification by deleting the award of exemplary damages and attorneys
fees, expenses of litigation and cost of suit.

SO ORDERED. [15]

Hence, this petition.

The Issues
 Solidbank seeks the review of the decision and resolution of the Court of
Appeals on these grounds:

I. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER

BANK SHOULD SUFFER THE LOSS BECAUSE ITS TELLER
SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT BY
TELEPHONE BEFORE IT ALLOWED THE WITHDRAWAL
OF P300,000.00 TO RESPONDENTS MESSENGER EMERANO
ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE
PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT,
NOR IS THERE ANY BANKING LAW, WHICH MANDATES THAT
A BANK TELLER SHOULD FIRST CALL UP THE DEPOSITOR
BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A
SAVINGS ACCOUNT.

II. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE

OF LAST CLEAR CHANCE AND IN HOLDING THAT
PETITIONER BANKS TELLER HAD THE LAST OPPORTUNITY
TO WITHHOLD THE WITHDRAWAL WHEN IT IS UNDISPUTED
THAT THE TWO SIGNATURES OF RESPONDENT ON THE
WITHDRAWAL SLIP ARE GENUINE AND PRIVATE
RESPONDENTS PASSBOOK WAS DULY PRESENTED, AND
CONTRARIWISE RESPONDENT WAS NEGLIGENT IN THE
SELECTION AND SUPERVISION OF ITS MESSENGER EMERANO
ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS AND
OTHER FINANCIAL DOCUMENTS.

III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE

INSTANT CASE IS A LAST DITCH EFFORT OF PRIVATE
RESPONDENT TO RECOVER ITS P300,000.00 AFTER FAILING IN
ITS EFFORTS TO RECOVER THE SAME FROM ITS EMPLOYEE
EMERANO ILAGAN.

IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE

DAMAGES AWARDED AGAINST PETITIONER UNDER ARTICLE
2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS FINDING
THAT PETITIONER BANKS NEGLIGENCE WAS ONLY
CONTRIBUTORY. [16]

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. Article 1980 of the Civil Code
[17]

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
[18]

13 June 2000, declares that the State recognizes the fiduciary nature of
banking that requires high standards of integrity and performance. This new
[19]

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
[20]

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. Section 2 of RA 8791 prescribes the statutory diligence required from
[22]

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
[23]

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. The law
[24]

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. Proximate cause is determined by
[26]

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. (Emphasis supplied.)
[28]

L.C. Diaz refutes Solidbanks contention by pointing out that the person
who withdrew the P300,000 was a certain Noel Tamayo.Both the trial and
appellate courts stated that this Noel Tamayo presented the passbook with
the withdrawal slip.
We uphold the finding of the trial and appellate courts that a certain Noel
Tamayo withdrew the P300,000. The Court is not a trier of facts. We find no
justifiable reason to reverse the factual finding of the trial court and the Court
of Appeals. The tellers who processed the deposit of the P90,000 check and
the withdrawal of the P300,000 were not presented during trial to substantiate
Solidbanks claim that Ilagan deposited the check and made the questioned
withdrawal. Moreover, the entry quoted by Solidbank does not categorically
state that Ilagan presented the withdrawal slip and the passbook.

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. Stated differently, the antecedent
[29]

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. Such contributory negligence or last clear chance by the plaintiff
[31]

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, where the Court
[33]

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, we hold that L.C. Diaz must shoulder 40% of the actual
damages awarded by the appellate court. Solidbank must pay the other 60%
of the actual damages.
 WHEREFORE, the decision of the Court of Appeals
is AFFIRMED with MODIFICATION. Petitioner Solidbank Corporation shall
pay private respondent L.C. Diaz and Company, CPAs only 60% of the actual
damages awarded by the Court of Appeals. The remaining 40% of the actual
damages shall be borne by private respondent L.C. Diaz and Company,
CPAs. Proportionate costs.
SO ORDERED.
PHILIPPINE NATIONAL G.R. No. 157845
BANK,
P e t i t i o n e r, Present:

PUNO,
Chairman,
AUSTRIA-MARTINEZ,
- versus CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.

Promulgated:
NORMAN Y. PIKE,
R e s p o n d e n t. September 20, 2005
x----------------------------------------x

DECISION

CHICO-NAZARIO, J.:

This petition for review on certiorari under Rule 45 of the 1997

Rules of Civil Procedure, as amended, seeks to reverse the
Decision [ 1] dated 19 December 2002, and the Resolution [ 2] dated 02

April 2003, both of the Court of Appeals, in CA -G.R. CV No. 59389,

which affirmed with modification the Decision [ 3] rendered by the
Regional Trial Court (RTC), Branch 07 of Manila, dated 10 January
1997, in Civil Case No. 94-68821 in favor of herein respondent
Norman Pike (Pike).

The case stemmed from a complaint [ 4] filed by herein respondent

Pike for damages [ 5 ] against Philippine National Bank (PNB) on 04

January 1994.

Complainant Pike often traveled to and from Japan as a gay

entertainer in said country. Sometime in 1991, he opened U.S. Dollar
Savings Account No. 0265-704591-0 with herein petitioner PNB
Buendia branch for which he was issued a corresponding passbook.
The complaint alleged in substance that before complainant Pike left
for Japan on 18 March 1993, he kept the aforementioned passbook
inside a cabinet under lock and key, in his home; that on 19 April

1993, a few hours after he arrived from Japan, he discover ed that some
of his valuables were missing including the passbook; that he
immediately reported the incident to the police which led to the arrest

and prosecution of a certain Mr. Joy Manuel Davasol; that

complainant Pike also discovered that Davasol made two (2)
unauthorized withdrawals from his U.S. Dollar Savings Account No.

0265-704591-0, both times at the PNB Buendia branch on the

following dates:
 DATE AMOUNT
31 March 1993 $3,500.00
05 April 1993 4,000.00
TOTAL $7,500.00

that on several occasions, complainant Pike went to defendant PNBs

Buendia branch and verbally protested the unauthorized withdrawals

and likewise demanded the return of the total withdrawn amount of
U.S. $7,500.00, on the ground that he never authorized a nybody to

withdraw from his account as the signatures appearing on the subject

withdrawal slips were clearly forgeries; that defendant PNB refused to
credit said amount back to complainants U.S. Dollar Savings Account

without justifiable reason, and instea d, defendant bank wrote him that
it exercised due diligence in the handling of said account; and that on
06 May 1993, complainant Pike wrote defendant PNB simply to
request that the hold-account be lifted so that he may withdraw the
remaining balance left in his U.S.$ Savings Account and nothing else.

On the other hand, defendant PNB alleged, in its Motion to

Dismiss [ 6 ] of 18 April 1994, a counterstatement of facts. Its factual
allegations read:

. . . On March 15, 1993 at PNB Buendia Branch, Mr.

Norman Y. Pike, together with a certain Joy Davasol went to
see PNB AVP Mr. Lorenzo T. Val (sic), Jr. purposely to
withdraw the amount of $2,000.00. Mr. Pike also in formed
AVP Val that he is leaving for abroad (Japan) and made verbal
instruction to honor all withdrawals to be transmitted by his
Talent Manager and Choreographer, Joy Davasol who shall
present pre-signed withdrawal slips bearing his (Pikes)
signature. . .

On April 19, 1993, a certain Josephine Balmaceda, who

claimed to be plaintiffs sister executed an affidavit . . . .
stating therein that they discovered today (April 19, 1993) the
lost (sic) of her brothers passbook issued by PNB on account of
robbery, committed in the residence/office of her brother,
promptly reporting the matter to the police authorities and her
brother cannot report the matter to the Bank because he was
currently in Japan and therefore requesting the Bank to issue a
hold-order on her brothers passbook.

But a copy of an alarm (Police) Report dated April 19,

1993. . . stated that plaintiff (who was the one who reported the
matter) after one month in Japan, he (complainant) arrived
yesterday. . .

On April 26, 1993, Atty. Nathaniel Ifurung who claims to

be plaintiffs counsel sent a demand letter to VP Violeta T.
Suquila (then VP and Manager of PNB Buendia Branch)
demanding the bank to credit back the amount of US$7,500.00
which were withdrawn on March 31, 1993 and April 5, 1993,
because his clients signatures were forged and the withdrawal
made thereon were unauthorized. . .

On May 5, 1993, Mr. Norman Y. Pike executed an

affidavit of loss (sic) Dollar Account Passbook and requested
the PNB to replace the same and allow him to make
withdrawals thereon. He stated that his passbook was stolen
together with other valuables which he discovered only in the
early morning of April 19, 1993. . .
On May 6, 1993, plaintiff Norman Y. Pike wrote a letter.
. . addressed to the Manager of PNB, Buen dia Branch the full
contents of said letter hereto quoted as follows:
May 6, 1993

The Manager
Philippine National Bank
Buendia Branch
Paseo de Roxas cor. Gil Puyat Street
Makati, Metro Manila
 Sir:

In connection with the request of my sister, Mrs.

Josephine P. Balmaceda for the hold -order on m y dollar
savings passbook No. 265 -704591-0, I am now
requesting your good office to lift the same so I can
withdraw the remaining balance of m y passbook which
was reported lost sometime in March of this year.

I also promise not to hold responsible the bank and its

officers for the withdrawal made on m y dollar savings
passbook on March 19 and April 5, 1993 respectivel y
as a result of the lost (sic) of m y passboo k.

Sgd. NORMAN Y. PIKE

Depositor
Philippine Passport
No. H918022
Issued at Manila on
Sept. 6, 1990
Place of Issuance

On the same day May 6, 1993 Plaintiff Norman Y. Pike

was allowed by defendant bank to withdraw the remaining
balance from his passbook .

A letter dated May 18, 1993 was sent to Plaintiffs counsel

by PNB stating that the Bank regrets that it cannot accede to
such request inasmuch as the Bank exercised due diligence of a
good father to his family in the handling of transactions
covering the deposit account of Mr. Pike .

On July 2, 1993, Plaintiffs counsel sent a letter to PNB

Vice Pres. Suquila denying that his client made any such
promise not to hold responsible the bank and its officers for the
withdrawal made .

A letter dated July 29, 1993 was sent to Plaintiffs counsel

by VP Suquila stating that plaintiffs withdrawal of the
remaining balance of his account with the Bank effectively
estops him from claiming on the alleged unauthorized
withdrawals.
 The trial court, in its decision dated 10 January 1997, made the
following findings of fact:

. . . [T]hat the bank is responsible for such unauthorized

withdrawals. The court is not impressed with the defense put up
by the bank. Its contention that the withdrawal s were
authorized by the plaintiff because there was an arrangement
between the bank represented by its Asst. Vice President
Lorenzo Bal, Jr. and the depositor Norman Y. Pike to the effect
that pre-signed withdrawal slips, that is, withdrawal slip signed
by the depositor in the presence of Mr. Bal whereby it would be
made to appear that it was the depositor himself who presented
the same to the bank despite the fact that it was another person
who presented the same should be honored by the bank cannot
be sanctioned by the court. Firstly, the court is not satisfied
that there was indeed such an arrangement. . . It is Mr. Bals
contention that such an arrangement although not ordinaril y
entered into is still a legal procedure of the bank and is
resorted to accommodate the depositors specially honored and
valued depositor at that.

.. .

The court compared the signatures in the questioned

withdrawal slips with the known signatures of the depositor and
is convinced that the signatures in the unauthorized withdr awal
slips do not correspond to the true signatures of the depositor.

From the evidence that it received, the court is convinced

that the bank was negligent in the performance of its duties
such that unauthorized withdrawals were made in the deposit of
plaintiff Norman Y. Pike. [ 7 ]

The dispositive portion of the trial courts decision reads:

 WHEREFORE and considering the foregoing, judgment is
hereby rendered in favor of the plaintiff and against the
defendant and ordering the defendant to pay the following:

1. US$7,500.00 plus interest thereon at the rate of

12% per annum until the full amount is paid;
2. P25,000.00 for and as at torneys fees;
3. P50,000.00 as moral damages and P50,000.00 as
exemplary damages; and
4. Plus the costs of suit. [ 8 ]

Defendant PNBs motion for reconsideration was subsequently

denied by the court a quo. [ 9 ]

On appeal, the Court of Appeals issued the assailed decision

dated 19 December 2002, affirming the findings of the RTC that
indeed defendant-appellant PNB was negligent in exercising the
diligence required of a business imbued with public interest such as
that of the banking industry, however, it modified the rate of interest
and award for damages, to wit:

WHEREFORE, premises considered, the Decision dated

January 10, 1997 issued by the Regional Trial Court of Manila,
Branch 7, in Civil Case No. 94 -68821, is hereby AFFIRMED
with MODIFICATION, as follows:

1. Ordering appellant, the Philippine National Bank,

Buendia Branch, to refund appellee the amount of
$7,500.00 plus interest of 6% per annum to be
computed from the date of the filing of the
complaint which interest rate shall become 12% per
 annum from the time the judgment in this case
becomes final and executory until its satisfaction;

2. The award for moral damages is reduced to

P20,000.00; and

3. The award for exemplary damages is likewise reduced

to P20,000.00.

Costs against appellant. [ 1 0 ]

The appellate court held that:

Appellant claims that appellee personally talked to its

officers to allow Joy Manuel Davasol to make withdrawals.
Appellee even left pre -signed withdrawal slips before he went
to Japan. However, appellant could have told appellee to
authorize the withdrawal by a representative by indic ating the
same at the space provided at the back portion of the
withdrawal slip. This operational flaw was observed by the trial
court, when it ruled:

The court cannot also understand why the

bank did not require the correct, proper and the
usual procedure of requiring a depositor who is
withdrawing the money through a representative to
fill up the back portion of the withdrawal slips,
which form was issued by the bank itself.

A perusal of the records discloses that appellee had

previously authorized wi thdrawals by a representative.
However, these withdrawals were properly accompanied by a
withdrawal by a representative form aside from a handwritten
request by appellee to allow such withdrawals by his
representative, or a typewritten letter -request for withdrawal by
a representative. Certainly, appellant lacked the due care and
caution required of managers and employees of a firm engaged
in so sensitive and demanding business as banking.

In its desire to be exonerated from liability, appellant

advances the argument that, granting negligence on its part,
 appellee condoned this negligence as shown in his letter dated
May 6, 1993, wherein appellee purportedly undertook, not to
hold the bank and its officers responsible for the unauthorized
withdrawals from his account.

We do not agree. It should be emphasized that while the

appellee admitted signing the letter dated May 6, 1993, he,
however, denied having undertook (sic) to exonerate the
appellant from liability for the unauthorized withdrawals.
Appellee questioned the second paragraph of the said letter as
being superimposed so that his signature overlapped the text of
the second paragraph of said letter. A waiver of right, in order
to be valid, should be in a language that clearly manifests his
desire to do so. In the instant case, appellees filing of the
instant action is inconsistent with appellants contention that he
had waived his right to question appellants negligent act of
allowing the unauthorized withdrawals from his account. [ 1 1 ]

Defendant-appellant PNB filed a motion for reconsideration. In a

Resolution dated 02 April 2003, the Court of Appeals denied said
motion.

Hence, this petition.

Petitioner PNB now seeks the review of the aforequoted decision

and resolution of the Court of Appeals predicated on the following
issues:

I.

WHETHER OR NOT THE PRINCIPLE OF ESTOPPEL WAS

NOT PROPERLY APPLIED IN THIS CASE;

II.
 WHETHER OR NOT RESPONDENT HAVE SUBSTANTIALLY
PROVEN THAT THE SIGNATURES APPEARING ON THE
TWO (2) QUESTIONED PRE-SIGNED WITHDRAWAL SLIP
FORMS ARE ALL FORGERIES IN ACCORDANCE WITH
SECTION 22, RULE 132 OF THE REVISED RULES OF
COURT; and

III.

WHETHER OR NOT MORAL AND EXEMPLARY DAMAGES

CAN BE AWARDED AGAINST A PARTY IN GOOD FAITH.

Petitioner PNB contends that due to the verbal instructions [ 1 2 ] of

respondent Pike, a valued depositor, it allowed the withdrawal by

another person. Plus, the fact that said respondent withdrew the
remaining balance in his US Savings Account and executed a waiver
releasing petitioner PNB from any liability due to the loss of the funds
should rightly negate a finding of negligence on its part. Accordingly,
petitioner PNB claims that the appellate court, as well as the trial
court erred in holding that the withdrawals in question were
unauthorized as the signatures appearing on the subject withdrawal
slips were forgeries. Petitioner PNB, therefore, argues that it should
not be held liable for the amount withdrawn from the account of
respondent Pike in the sum of $7,500.00, as well as for moral and
exemplary damages.
 A priori, it is quite evident that the petition is anchored on a plea
to review or re-examine the factual conclusions reached by the trial

court and affirmed by the Court of Appeals, and for this Court to hold
otherwise. Whether:

1) respondent Pikes signatures appearing on the pertinent

withdrawal slips used by Joy Manuel Davasol [ 1 3 ] to withdraw
the amount of $7,500.00, were forgeries, as found by the trial
court and affirmed by the Court of Appeals, or were authentic
as claimed by petitioner bank; and

2) respondent Pike in fact executed a waiver absolving

petitioner bank from any legal responsibility due to the
unauthorized withdrawals, as maintained by petitioner bank, or
the paragraph containing said waiver was intercalated by some
other person, thus, amounting no waiver at all, as held by the
courts a quo.

are questions of fact and not of law. Inexorably, these issues call for
an inquiry into the facts and evidence on record. Thi s, as we have so
often held, we cannot do.

Elementary is the rule that this Court is not the appropriate

venue to consider anew the factual issues as it is not a trier of facts,
and, it generally does not weigh anew the evidence already passed
upon by the Court of Appeals. [ 1 4] When this Court is tasked to go over
once more the evidence presented by both parties, and analyze, assess
and weigh them to ascertain if t he trial court and the appellate court
were correct in according superior credit to this or that piece of
evidence of one party or the other, the Court cannot and will not do
the same. [ 1 5 ] Such task is foreclosed by the rule enunciated under
Section 1 of Rule 45 [ 1 6 ] of the Rules of Court:

SECTION 1. Filing of petition with Supreme Court. - . . .

The petition shall raise only questions of law [ 1 7 ] which must be
distinctly set forth.

We have oft ruled that factual findings of the Court of Appeals

are conclusive on the parties and not reviewable by this Court and
they carry even more weight when the Court of Appeals affirms the
factual findings of the trial court, [ 1 8 ] and in the absence of any
showing that the findings complained of are totally devoid of support
in the evidence on record, or that they are so glaringly erroneous as to
constitute serious abuse of discretion, such finding s must stand. The
courts a quo are in a much better position to evaluate properly the
evidence.

Finding no other alternative but to affirm their finding that

petitioner PNB negligently allowed the unauthorized withdrawals
subject of the case at bar, the instant petition for review must
necessarily fail.

At this juncture, it bears emphasizing that negligence of banking

institutions should never be countenanced. The negligence here lies in
the lackadaisical attitude exhibited by employees of petitioner PN B in
their treatment of respondent Pikes US Dollar Savings Account that
resulted in the unauthorized withdrawal of $7,500.00. Nevertheless,
though its employees may be the ones negligent, a banks liability as an
obligor is not merely vicarious but primary, as banks are expected to
exercise the highest degree of diligence in the selection and
supervision of their employees, [ 1 9 ] and having such obligation,
this Court cannot ignore the circumstances surrounding the case at bar
how the employees of petitioner PNB turned their heads, nay, closed
their eyes to the suspicious circumstances enfolding the two
withdrawals subject of the case at bar. It may even be said that th ey
went out of their ways to disregard standard operating procedures
formulated to ensure the security of each and every account that they
are handling. Petitioner PNB does not deny that the withdrawal slips
used were in breach of standard operating proced ures of banks in the
ordinary and usual course of banking operations as testified to by one
of its witnesses, Mr. Lorenzo T. Bal, Assistant Vice President of
Petitioner PNBs Buendia branch, on cross -examination [ 2 0] he stated
thus:

Q: Mr. Witness, when the original of Exhibit B [ 2 1 ] was

presented to you for approval, how many signatures of
depositor appears thereon?

A: Two (2) signatures appears (sic) on the face of the

withdrawal slip.

Q: When it (sic) was (sic) presented to you immediately?

A: Yes, sir.

Q: Are you sure of that?

A: Yes, sir. Because it was pre signed withdrawal slip.

Q: What does the signature appear, the word recipient means?

A: Received.

Q: So, what you are saying is that, the depositor here signed
this even before receiving the amount?

A: Because before the withdrawal was made, Mr. Pike, the

depositor came to the bank when he withdrew the
$2,000.00 and instructed me or requested us even the
supervisor to honor all withdrawal slip.

Q: And this is a regular procedure?

A: Yes, sir.

Q: Are you sure of that?

A: Yes, sir.

Q: Do you have written manual on this particular procedure,

Mr. Witness?

A: Of course, that includes in the Rules and regulations of the

bank.

Q: Are you are (sic) are very sure of that?

A: And banking is a fast transaction between the depositor and

the bank.

Q: And then, is the use of the back portion of the withdrawal

slip with a heading of authorization?

A: Normally, a depositor and the bank agrees on certain terms

that if you allow withdrawal from his account, his or her
account, its enough that the signature of the depositor
appears on both spaces in the front side of the
withdrawal slip. Even if you do not have the back portion
of the withdrawal slip.
 Q: You are very sure of that?

A: Yes, sir.

Q: And that has b een done with the other withdrawal slip of
Norman Pike as stated or as shown in the Statement of
Account?

A: Yes, sir.

Q: That withdrawal made by representative?

A: Yes, sir.

From the foregoing, petitioner PNBs witness was utterly remiss

in protecting the banks client, as well as the bank itself, when he
allowed an account holder to make it appear as if he was the one
actually withdrawing from an account and actually receiving the
withdrawn amount. Ordinarily, banks allow withdrawal by someone
who is not the account holder so long as the account holder authorizes
his representative to withdraw and receive from his account by signing
on the space provided particularly for such transactions, usually found
at the back of withdrawal slips. As fitting ly found by the courts a quo,
if indeed, respondent Pike signed the withdrawal slips in the presence
of Mr. Lorenzo Bal, petitioner PNBs AVP at its Buendia branch, why
did he not call respondent Pikes attention and refer him to the space
provided for authorizing representatives to withdraw from and receive
the proceeds of such withdrawal? Or, at the very least, sign or initial
the same so that he could ident ify the pre-signed withdrawal slips
made by Mr. Pike?
Q: You are also saying that on March 15, 1993, you likewise
met Joy Manuel Dabasol?

A: Yes, sir.

Q: And you (sic) also saying on March 15, 1993, you also met
Norman Pike, the depositor,

A: Yes, sir.

Q: And when did you first met (sic) Norman Pike?

A: March 15 when he withdrew $2,000.00.

Q: That was the first time?

A: First time, yes.

Q: And Mr. Norman Pike was already transacting with you long
before that day, is this correct? For how long was he
transacting with you?

A: That was my first time.

Q: That was the first time. What I mean is, that he was
transacting with the PNB, Buendia Branch long before
you met him?

A: Maybe.

Q: And the withdrawal made on April 5, 1993 which you

approved, you did not look at Exhibit C, the Savings
Signature Card Individual?

A: We do not look at that, that is kept in the vault.

Q: Yes or no?

A: No, sir.
 Q: And Mr. witness, Exhibit C -1 [ 2 2 ] which is being kept at your
vault, also contains a picture?

A: Yes, sir.

Q: And the picture of the depositor?

A: Yes, sir.

Q: And are you familiar with the identity of the depositor

Norman Pike?

A: What particular identity?

Q: His appearance?

A: He is gay looking fellow.

COURT: Answer. You are familiar with his physical

appearance?

A: Not so much. Because there are so much depositor (sic) in

the bank. [ 2 3 ] [Emphasis ours.]

By his own testimony, the witness negated the very reason for
the banks bizarre accommodation of the alleged verbal request of
respondent Pike that he was a valued client. From the aforequoted, it
appears that the witness, Lorenzo Bal, was not even reasona bly
familiar with respondent Pike, yet, he was ready, willing and able to
accommodate the verbal request of said depositor. Worse still, the
witness still approved the withdrawal transaction without asking for
any proof of identification for the reason tha t: 1) Davasol was in
possession of a pre-signed withdrawal slip; and 2) the witness
recognized the signature of respondent Pike even after admitting that
he did not bother to counter check the signature on the slip with the
specimen signature card of respondent Pike and that he met respondent
Pike just once so that he cannot seem to recall what the latter looks
like. The ensuing quoted testimony of the same witness will justify a
finding of negligence amounting to bad faith, to wit:

Q: And you also met Jo y Manuel Dabasol on March 15?

A: Yes, sir.

Q: And can you describe Joy Manuel Dabasol?

A: I cannot recall his face but then he is a Talent manager,

because there are so many depositors in the bank.

.. .

Q: Mr. witness, you are saying that Mr. Pi ke, the depositor
gave you verbal authority to honor withdrawal by Joy
Manuel Dabasol?

A: Yes, sir.

Q: Why did you not require then that Mr. Pike instead sign the
authorization portion and that the name of Joy Manuel
Dabasol appear thereon with his signature?

.. .

A: I required Mr. Norman Pike to sign the withdrawal slip on

the face of the withdrawal slip.

Q: But not the authorization portion of the said withdrawal

slip?

.. .

A: No, because that is sufficient already.

Q: And is this your normal procedure, Mr. witness? This
particular procedure that you conducted?

A: I dont think so.

Q: Mr. witness, when on April 5, 1993, when Joy Dabasol came

to the office and according to you, you do not remember
him, is that correct?

A: I cannot recall his face.

.. .

Q: And he just showed you a withdrawal slip, is this correct?

A: Yes, on April 5.

Q: Did you require him to produce any Identification Card, yes

or no?

A: No.

Q: And how did you know then that it was Joy Dabasol who was
making the withdrawal on April 5?

A: Because the presigned withdrawal slip was presented to me.

Q: Is that all your basis?

A: Yes, sir. Because his signature appears.

.. .

Q: Mr. witness, this alleged authority given to you by Norman

Pike to honor withdrawal by Joy Manuel Dabasol, was
that in writing?

A: It was verbally requested.

Q: And that is SPO (sic) of PNB, Buendia Branch to accept

verbal authorities?

A: Yes.
 Q: Is that Standard Operating Procedure?

A: It is not SPO, but when you knew the client, Your Honor,
you have to honor also the trust and confidence. Let us
say if you

Q: According to you, you met Norman Pike only on March 15,

1993 and immediately you allowed him to withdraw
through pre-signed withdrawal slip?

A: Yes, Your Honor. Because a depositor requested you to

honor his signature, you have to do that or else willand
besides the request is for purpose of expediency, Your
Honor. Because most often than that, he is out of the
country, in Japan. And his Talent Manager is the one
managing the recruiting agency. The money will be used
in the operating expenses.

.. .

Q: You did not even bother to look at the Savings Signature

Card Individual, yes or no?

A: No, sir. [ 2 4 ] [Emphases supplied.]

Having admitted that pre-signed withdrawal slips do not

constitute the normal procedure with respect to withdrawals by
representatives should have already put petitioner PNBs
employees on guard. Rather than readily validating and permitting
said withdrawals, they should have proceeded more cautiously.
Clearly, petitioner banks employee, Lorenzo T. Bal, an Assistant
Vice President at that, was exceedingly careless in his treatment
of respondent Pikes savings account.
 From the foregoing, the evidence clearl y showed that the
petitioner bank did not exercise the degree of diligence that it ought to
have exercised in dealing with their clients.

With banks, the degree of diligence required, contrary to the

position of petitioner PNB, is more than that of a good father of a

family considering that the business of banking is imbued with public

interest due to the nature of their functions. The stability of banks
largely depends on the confidence of the people in the honesty and
efficiency of banks. Thus, the law imposes on banks a high degree of
obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of banking. Section 2 of

Republic Act No. 8791, [ 2 5] which took effect on 13 June 2000, makes a
categorical declaration that the State recognizes the fiduciary nature
of banking that requires high standards of integrity and

performance. [ 2 6 ]

Though passed long after the unauthorized withdrawals in this

case, the aforequoted provision is a statutory affirmation of Supreme

Court decisions already in esse at the time of such withdrawals. We
elucidated in the 1990 case of Simex International, Inc. v. Court of

Appeals, [ 2 7] 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. [ 2 8]

Likewise, in the case of The Consolidated Bank and Tru st

Corporation v. Court of Appeals , [ 29 ] we clarified that said fiduciary

relationship means that the banks obligation to observe highest

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 New
Civil Code states that the degree of diligence required of an
obligor [ 30 ] is that prescribed by law or contract, and absent such
stipulation then the diligence of a fami ly. In every case, the depositor
expects the bank to treat his account with the utmost fidelity, whether

such accounts consist only of a few hundred pesos or of millions of

pesos. [ 31 ]

Anent the issue of the propriety of the award of damages in this

case, petitioner PNB asseverates that there was no evidence to prove
that respondent Pike suffered anguish, embarrassment and mental
sufferings [ 3 2] due to its acts in allowing the alleged unauthorized
withdrawals. And, having relied on the instructions of a valued
depositor, petitioner PNB likewise avers that its actions were made in
good faith, for this reason, there is no factual basis for said award.
 Petitioner PNBs assertions fail to impress us.

The award of moral and exemplary damages is left to the sound

discretion of the court, and if such discretion is well exercised, as in
this case, it will not be disturbed on appeal. [ 33 ] In the case
of Philippine Telegraph & Telephone Corporation v. Court of
Appeals, [ 3 4] we had the occasion to reiterate the conditions to be met
in order that moral damages may be recovered. In said case we stated:

An award of moral damages would require, firstly,

evidence of besmirched reputation, or physical, mental or
psychological suffering sustained by the claimant; secondly, a
culpable act or omission factually established; thirdly, proof
that the wrongful act or omission of the defendant is the
proximate cause of the damages sustained by the claimant; and
fourthly, that the case is predicated on any of the instances
expressed or envisioned by Articles 2219 [ 3 5 ] and 2220 [ 3 6 ] of the
Civil Code.

Specifically, in culpa contractual or breach of contract, as here,

moral damages are recoverable only if the defendant has acted
fraudulently or in bad faith, [ 3 7] or is found guilty of gross negligence
amounting to bad faith, [ 3 8 ] or in wanton disregard of his contractual
obligations. [ 3 9] Verily, the breach must be wanton, reckless, malicious,
or in bad faith, oppressive or abusive. [ 4 0 ]

There is no reason to disturb the trial courts finding of petitioner

banks employees negligence in their treatment of respondent Pikes
account. In the case on hand, the Court of Appeals sustained, and
rightly so, that an award of moral damages is warranted. For, as found
by said appellate court, citing the case of Prudential Bank v. Court of
Appeals, [ 4 1] the banks negligence is a result of lack of due care and
caution required of managers and emplo yees of a firm engaged in so
sensitive and demanding business, as banking, hence, the award
of P20,000.00 as moral damages, is proper.

The award of exemplary damages is also proper as a warning to

petitioner PNB and all concerned not to recklessly disregard their
obligation to exercise the highest and strictest diligence in serving
their depositors.
Finally, the aforestated grant of exemplary damages entitles
respondent Pike the award of attorney's fees in the amount of
P20,000.00 and the award of P10,000.00 for litigation expenses. [ 42 ]
WHEREFORE, the instant petition is DENIED. The
assailed Decision dated 19 December 2002, and the Resolution dated
02 April 2003, both of the Court of Appeals, in CA -G.R. CV No.
59389, which affirmed with modification the Decision rendered by the
Regional Trial Court (RTC), Branch 07 of Manila, dated 10 January
1997, in Civil Case No. 94 -68821, are hereby AFFIRMED with
the MODIFICATION that petitioner PNB is directed to pay respondent
Pike additional 1) P20,000.00 representing attorneys fees; and
2) P10,000.00 representing expenses of litigation . Costs against
petitioner PNB.

SO ORDERED.