G.R. No.

90027 March 3, 1993 In due course, the trial court, now designated as Branch 161 of the Regional Trial Court (RTC) of Pasig, Metro
Manila, rendered a decision5 adverse to the petitioner on 8 December 1986, the dispositive portion of which reads:
CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,
vs. WHEREFORE, premises considered, judgment is hereby rendered dismissing plaintiff's complaint.
THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.
On defendant's counterclaim, judgment is hereby rendered ordering plaintiff to pay defendant the amount
DAVIDE, JR., J.: of FIVE THOUSAND (P5,000.00) PESOS as attorney's fees.

Is the contractual relation between a commercial bank and another party in a contract of rent of a safety deposit box With costs against plaintiff. 6
with respect to its contents placed by the latter one of bailor and bailee or one of lessor and lessee?
The unfavorable verdict is based on the trial court's conclusion that under paragraphs 13 and 14 of the contract of
This is the crux of the present controversy. lease, the Bank has no liability for the loss of the certificates of title. The court declared that the said provisions are
binding on the parties.
On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon and Paula Pugao entered
into an agreement whereby the former purchased from the latter two (2) parcels of land for a consideration of Its motion for reconsideration7 having been denied, petitioner appealed from the adverse decision to the respondent
P350,625.00. Of this amount, P75,725.00 was paid as downpayment while the balance was covered by three (3) Court of Appeals which docketed the appeal as CA-G.R. CV No. 15150. Petitioner urged the respondent Court to
postdated checks. Among the terms and conditions of the agreement embodied in a Memorandum of True and reverse the challenged decision because the trial court erred in (a) absolving the respondent Bank from liability from
Actual Agreement of Sale of Land were that the titles to the lots shall be transferred to the petitioner upon full the loss, (b) not declaring as null and void, for being contrary to law, public order and public policy, the provisions in
payment of the purchase price and that the owner's copies of the certificates of titles thereto, Transfer Certificates of the contract for lease of the safety deposit box absolving the Bank from any liability for loss, (c) not concluding that in
Title (TCT) Nos. 284655 and 292434, shall be deposited in a safety deposit box of any bank. The same could be this jurisdiction, as well as under American jurisprudence, the liability of the Bank is settled and (d) awarding
withdrawn only upon the joint signatures of a representative of the petitioner and the Pugaos upon full payment of attorney's fees to the Bank and denying the petitioner's prayer for nominal and exemplary damages and attorney's
the purchase price. Petitioner, through Sergio Aguirre, and the Pugaos then rented Safety Deposit Box No. 1448 of fees.8
private respondent Security Bank and Trust Company, a domestic banking corporation hereinafter referred to as the
respondent Bank. For this purpose, both signed a contract of lease (Exhibit "2") which contains, inter alia, the
In its Decision promulgated on 4 July 1989,9 respondent Court affirmed the appealed decision principally on the
following conditions:
theory that the contract (Exhibit "2") executed by the petitioner and respondent Bank is in the nature of a contract of
lease by virtue of which the petitioner and its co-renter were given control over the safety deposit box and its
13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of contents while the Bank retained no right to open the said box because it had neither the possession nor control over
the same. it and its contents. As such, the contract is governed by Article 1643 of the Civil Code 10 which provides:

14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it Art. 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment or use
assumes absolutely no liability in connection therewith.1 of a thing for a price certain, and for a period which may be definite or indefinite. However, no lease for
more than ninety-nine years shall be valid.
After the execution of the contract, two (2) renter's keys were given to the renters — one to Aguirre (for the
petitioner) and the other to the Pugaos. A guard key remained in the possession of the respondent Bank. The safety It invoked Tolentino vs. Gonzales  11 — which held that the owner of the property loses his control over the
deposit box has two (2) keyholes, one for the guard key and the other for the renter's key, and can be opened only property leased during the period of the contract — and Article 1975 of the Civil Code which provides:
with the use of both keys. Petitioner claims that the certificates of title were placed inside the said box.
Art. 1975. The depositary holding certificates, bonds, securities or instruments which earn interest shall
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots at a price of P225.00 be bound to collect the latter when it becomes due, and to take such steps as may be necessary in
per square meter which, as petitioner alleged in its complaint, translates to a profit of P100.00 per square meter or a order that the securities may preserve their value and the rights corresponding to them according to law.
total of P280,500.00 for the entire property. Mrs. Ramos demanded the execution of a deed of sale which
necessarily entailed the production of the certificates of title. In view thereof, Aguirre, accompanied by the Pugaos,
The above provision shall not apply to contracts for the rent of safety deposit boxes.
then proceeded to the respondent Bank on 4 October 1979 to open the safety deposit box and get the certificates of
title. However, when opened in the presence of the Bank's representative, the box yielded no such certificates.
Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew her earlier offer to purchase the lots; as a and then concluded that "[c]learly, the defendant-appellee is not under any duty to maintain the contents of
consequence thereof, the petitioner allegedly failed to realize the expected profit of P280,500.00. Hence, the latter the box. The stipulation absolving the defendant-appellee from liability is in accordance with the nature of
filed on 1 September 1980 a complaint2 for damages against the respondent Bank with the Court of First Instance the contract of lease and cannot be regarded as contrary to law, public order and public policy." 12 The
(now Regional Trial Court) of Pasig, Metro Manila which docketed the same as Civil Case No. 38382. appellate court was quick to add, however, that under the contract of lease of the safety deposit box,
respondent Bank is not completely free from liability as it may still be made answerable in case
unauthorized persons enter into the vault area or when the rented box is forced open. Thus, as expressly
In its Answer with Counterclaim,3 respondent Bank alleged that the petitioner has no cause of action because of
provided for in stipulation number 8 of the contract in question:
paragraphs 13 and 14 of the contract of lease (Exhibit "2"); corollarily, loss of any of the items or articles contained in
the box could not give rise to an action against it. It then interposed a counterclaim for exemplary damages as well
as attorney's fees in the amount of P20,000.00. Petitioner subsequently filed an answer to the counterclaim. 4
BANKING Batch 1 Page 1 Page 1 of 34
 8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe The petition is partly meritorious.
and beyond this, the Bank will not be responsible for the contents of any safe rented from it. 13
We agree with the petitioner's contention that the contract for the rent of the safety deposit box is not an ordinary
Its motion for reconsideration 14 having been denied in the respondent Court's Resolution of 28 August contract of lease as defined in Article 1643 of the Civil Code. However, We do not fully subscribe to its view that the
1989, 15 petitioner took this recourse under Rule 45 of the Rules of Court and urges Us to review and set aside the same is a contract of deposit that is to be strictly governed by the provisions in the Civil Code on deposit; 19 the
respondent Court's ruling. Petitioner avers that both the respondent Court and the trial court (a) did not properly and contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of lease
legally apply the correct law in this case, (b) acted with grave abuse of discretion or in excess of jurisdiction under Article 1643 because the full and absolute possession and control of the safety deposit box was not given to
amounting to lack thereof and (c) set a precedent that is contrary to, or is a departure from precedents adhered to the joint renters — the petitioner and the Pugaos. The guard key of the box remained with the respondent Bank;
and affirmed by decisions of this Court and precepts in American jurisprudence adopted in the Philippines. It without this key, neither of the renters could open the box. On the other hand, the respondent Bank could not
reiterates the arguments it had raised in its motion to reconsider the trial court's decision, the brief submitted to the likewise open the box without the renter's key. In this case, the said key had a duplicate which was made so that
respondent Court and the motion to reconsider the latter's decision. In a nutshell, petitioner maintains that regardless both renters could have access to the box.
of nomenclature, the contract for the rent of the safety deposit box (Exhibit "2") is actually a contract of deposit
governed by Title XII, Book IV of the Civil Code of the
Hence, the authorities cited by the respondent Court 20 on this point do not apply. Neither could Article 1975, also
Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the loss of the certificates of title
relied upon by the respondent Court, be invoked as an argument against the deposit theory. Obviously, the first
pursuant to Article 1972 of the said Code which provides:
paragraph of such provision cannot apply to a depositary of certificates, bonds, securities or instruments which earn
interest if such documents are kept in a rented safety deposit box. It is clear that the depositary cannot open the box
Art. 1972. The depositary is obliged to keep the thing safely and to return it, when required, to the without the renter being present.
depositor, or to his heirs and successors, or to the person who may have been designated in the
contract. His responsibility, with regard to the safekeeping and the loss of the thing, shall be governed
We observe, however, that the deposit theory itself does not altogether find unanimous support even in American
by the provisions of Title I of this Book.
jurisprudence. We agree with the petitioner that under the latter, the prevailing rule is that the relation between a
bank renting out safe-deposit boxes and its customer with respect to the contents of the box is that of a bail or and
If the deposit is gratuitous, this fact shall be taken into account in determining the degree of care that the bailee, the bailment being for hire and mutual benefit. 21 This is just the prevailing view because:
depositary must observe.
There is, however, some support for the view that the relationship in question might be more properly
Petitioner then quotes a passage from American Jurisprudence 17 which is supposed to expound on the characterized as that of landlord and tenant, or lessor and lessee. It has also been suggested that it should
prevailing rule in the United States, to wit: be characterized as that of licensor and licensee. The relation between a bank, safe-deposit company, or
storage company, and the renter of a safe-deposit box therein, is often described as contractual, express
or implied, oral or written, in whole or in part. But there is apparently no jurisdiction in which any rule other
The prevailing rule appears to be that where a safe-deposit company leases a safe-deposit box or safe
than that applicable to bailments governs questions of the liability and rights of the parties in respect of
and the lessee takes possession of the box or safe and places therein his securities or other valuables,
loss of the contents of safe-deposit boxes. 22 (citations omitted)
the relation of bailee and bail or is created between the parties to the transaction as to such securities or
other valuables; the fact that the
safe-deposit company does not know, and that it is not expected that it shall know, the character or In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this
description of the property which is deposited in such safe-deposit box or safe does not change that jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the General Banking
relation. That access to the contents of the safe-deposit box can be had only by the use of a key Act 23 pertinently provides:
retained by the lessee ( whether it is the sole key or one to be used in connection with one retained by
the lessor) does not operate to alter the foregoing rule. The argument that there is not, in such a case, a
Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions
delivery of exclusive possession and control to the deposit company, and that therefore the situation is
other than building and loan associations may perform the following services:
entirely different from that of ordinary bailment, has been generally rejected by the courts, usually on the
ground that as possession must be either in the depositor or in the company, it should reasonably be
considered as in the latter rather than in the former, since the company is, by the nature of the contract, (a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for
given absolute control of access to the property, and the depositor cannot gain access thereto without the safeguarding of such effects.
the consent and active participation of the company. . . . (citations omitted).
xxx xxx xxx
and a segment from Words and Phrases 18 which states that a contract for the rental of a bank safety
deposit box in consideration of a fixed amount at stated periods is a bailment for hire.
The banks shall perform the services permitted under subsections (a), (b) and (c) of this section
as depositories or as agents. . . . 24 (emphasis supplied)
Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law and public policy
and should be declared null and void. In support thereof, it cites Article 1306 of the Civil Code which provides that
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in
parties to a contract may establish such stipulations, clauses, terms and conditions as they may deem convenient,
custody of funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes
provided they are not contrary to law, morals, good customs, public order or public policy.
is not independent from, but related to or in conjunction with, this principal function. A contract of deposit may be
entered into orally or in writing 25 and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish
After the respondent Bank filed its comment, this Court gave due course to the petition and required the parties to such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law,
simultaneously submit their respective Memoranda. morals, good customs, public order or public policy. The depositary's responsibility for the safekeeping of the objects
BANKING Batch 1 Page 1 Page 2 of 34
deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be or negligence of the respondent Bank. This in turn flows from this Court's determination that the contract involved
liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the was one of deposit. Since both the petitioner and the Pugaos agreed that each should have one (1) renter's key, it
agreement. 26 In the absence of any stipulation prescribing the degree of diligence required, that of a good father of a was obvious that either of them could ask the Bank for access to the safety deposit box and, with the use of such key
family is to be observed. 27 Hence, any stipulation exempting the depositary from any liability arising from the loss of and the Bank's own guard key, could open the said box, without the other renter being present.
the thing deposited on account of fraud, negligence or delay would be void for being contrary to law and public
policy. In the instant case, petitioner maintains that conditions 13 and 14 of the questioned contract of lease of the
Since, however, the petitioner cannot be blamed for the filing of the complaint and no bad faith on its part had been
safety deposit box, which read:
established, the trial court erred in condemning the petitioner to pay the respondent Bank attorney's fees. To this
extent, the Decision (dispositive portion) of public respondent Court of Appeals must be modified.
13. The bank is not a depositary of the contents of the safe and it has neither the possession nor
control of the same.
WHEREFORE, the Petition for Review is partially GRANTED by deleting the award for attorney's fees from the 4
July 1989 Decision of the respondent Court of Appeals in CA-G.R. CV No. 15150. As modified, and subject to the
14. The bank has no interest whatsoever in said contents, except herein expressly provided, and pronouncement We made above on the nature of the relationship between the parties in a contract of lease of safety
it assumes absolutely no liability in connection therewith. 28 deposit boxes, the dispositive portion of the said Decision is hereby AFFIRMED and the instant Petition for Review is
otherwise DENIED for lack of merit.
are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition
for indeed, said provisions are inconsistent with the respondent Bank's responsibility as a depositary under No pronouncement as to costs. SO ORDERED.
Section 72(a) of the General Banking Act. Both exempt the latter from any liability except as contemplated
in condition 8 thereof which limits its duty to exercise reasonable diligence only with respect to who shall
be admitted to any rented safe, to wit:

8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented
safe and beyond this, the Bank will not be responsible for the contents of any safe rented from
it. 29

Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It
is not correct to assert that the Bank has neither the possession nor control of the contents of the box
since in fact, the safety deposit box itself is located in its premises and is under its absolute control;
moreover, the respondent Bank keeps the guard key to the said box. As stated earlier, renters cannot
open their respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly
then, to the extent above stated, the foregoing conditions in the contract in question are void and
ineffective. It has been said:

With respect to property deposited in a safe-deposit box by a customer of a safe-deposit

G.R. No. 102970 May 13, 1993
company, the parties, since the relation is a contractual one, may by special contract define their
respective duties or provide for increasing or limiting the liability of the deposit company,
provided such contract is not in violation of law or public policy. It must clearly appear that there LUZAN SIA, petitioner,
actually was such a special contract, however, in order to vary the ordinary obligations implied vs.
by law from the relationship of the parties; liability of the deposit company will not be enlarged or COURT OF APPEALS and SECURITY BANK and TRUST COMPANY, respondents.
restricted by words of doubtful meaning. The company, in renting
safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or
Asuncion Law Offices for petitioner.
negligence or that of its agents or servants, and if a provision of the contract may be construed
as an attempt to do so, it will be held ineffective for the purpose. Although it has been held that
the lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through its Cauton, Banares, Carpio & Associates for private respondent. DAVIDE, JR., J.:
own negligence, the view has been taken that such a lessor may limits its liability to some extent
by agreement or stipulation. 30 (citations omitted)
The Decision of public respondent Court of Appeals in CA-G.R. CV No. 26737, promulgated on 21 August
1991,1 reversing and setting aside the Decision, dated 19 February 1990, 2 of Branch 47 of the Regional Trial Court
Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the petition should be (RTC) of Manila in Civil Case No. 87-42601, entitled "LUZAN SIA vs. SECURITY BANK and TRUST CO.," is
dismissed, but on grounds quite different from those relied upon by the Court of Appeals. In the instant case, the challenged in this petition for review on certiorari under Rule 45 of the Rules Court.
respondent Bank's exoneration cannot, contrary to the holding of the Court of Appeals, be based on or proceed from
a characterization of the impugned contract as a contract of lease, but rather on the fact that no competent proof was
presented to show that respondent Bank was aware of the agreement between the petitioner and the Pugaos to the Civil Case No. 87-42601 is an action for damages arising out of the destruction or loss of the stamp collection of the
effect that the certificates of title were withdrawable from the safety deposit box only upon both parties' joint plaintiff (petitioner herein) contained in Safety Deposit Box No. 54 which had been rented from the defendant
signatures, and that no evidence was submitted to reveal that the loss of the certificates of title was due to the fraud pursuant to a contract denominated as a Lease Agreement. 3 Judgment therein was rendered in favor of the
dispositive portion of which reads:
BANKING Batch 1 Page 1 Page 3 of 34
 WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and floodwaters that inundated its premises at Binondo branch which allegedly seeped into the
against the defendant, Security Bank & Trust Company, ordering the defendant bank to pay the safety deposit box leased to the plaintiff.
plaintiff the sum of —
The trial court then directed that an ocular inspection on (sic) the contents of the safety deposit
a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as actual damages; box be conducted, which was done on December 8, 1988 by its clerk of court in the presence of
the parties and their counsels. A report thereon was then submitted on December 12, 1988
(Records, p. 98-A) and confirmed in open court by both parties thru counsel during the hearing
b) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as moral damages; and
on the same date (Ibid., p. 102) stating:

c) Five Thousand Pesos (P5,000.00), Philippine Currency, as attorney's fees and legal
"That the Safety Box Deposit No. 54 was opened by both plaintiff Luzan Sia
expenses.
and the Acting Branch Manager Jimmy B. Ynion in the presence of the
undersigned, plaintiff's and defendant's counsel. Said Safety Box when
The counterclaim set up by the defendant are hereby dismissed for lack of merit. opened contains two albums of different sizes and thickness, length and
width and a tin box with printed word 'Tai Ping Shiang Roast Pork in pieces
with Chinese designs and character."
No costs.

Condition of the above-stated Items —

SO ORDERED.4

"Both albums are wet, moldy and badly damaged.

The antecedent facts of the present controversy are summarized by the public respondent in its challenged decision
as follows:
1. The first album measures 10 1/8 inches in length, 8 inches in width and 3/4 in thick. The
leaves of the album are attached to every page and cannot be lifted without destroying it, hence
The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the defendant bank at the stamps contained therein are no longer visible.
its Binondo Branch located at the Fookien Times Building, Soler St., Binondo, Manila wherein he
placed his collection of stamps. The said safety deposit box leased by the plaintiff was at the
bottom or at the lowest level of the safety deposit boxes of the defendant bank at its aforesaid 2. The second album measure 12 1/2 inches in length, 9 3/4 in width 1 inch thick. Some of its
Binondo Branch. pages can still be lifted. The stamps therein can still be distinguished but beyond restoration.
Others have lost its original form.
During the floods that took place in 1985 and 1986, floodwater entered into the defendant bank's
premises, seeped into the safety deposit box leased by the plaintiff and caused, according to the 3. The tin box is rusty inside. It contains an album with several pieces of papers stuck up to the
plaintiff, damage to his stamps collection. The defendant bank rejected the plaintiff's claim for cover of the box. The condition of the album is the second abovementioned album." 5
compensation for his damaged stamps collection, so, the plaintiff instituted an action for
damages against the defendant bank.
The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as SBTC, appealed the trial court's decision
to the public respondent Court of Appeals. The appeal was docketed as CA-G.R. CV No. 26737.
The defendant bank denied liability for the damaged stamps collection of the plaintiff on the
basis of the "Rules and Regulations Governing the Lease of Safe Deposit Boxes" (Exhs. "A-1",
In urging the public respondent to reverse the decision of the trial court, SBTC contended that the latter erred in (a)
"1-A"), particularly paragraphs 9 and 13, which reads (sic):
holding that the lease agreement is a contract of adhesion; (b) finding that the defendant had failed to exercise the
required diligence expected of a bank in maintaining the safety deposit box; (c) awarding to the plaintiff actual
"9. The liability of the Bank by reason of the lease, is limited to the exercise of the diligence to damages in the amount of P20,000.00, moral damages in the amount of P100,000.00 and attorney's fees and legal
prevent the opening of the safe by any person other than the Renter, his authorized agent or expenses in the amount of P5,000.00; and (d) dismissing the counterclaim.
legal representative;
On 21 August 1991, the respondent promulgated its decision the dispositive portion of which reads:
xxx xxx xxx
WHEREFORE, the decision appealed from is hereby REVERSED and instead the appellee's
"13. The Bank is not a depository of the contents of the safe and it has neither the possession complaint is hereby DISMISSED. The appellant bank's counterclaim is likewise DISMISSED. No
nor the control of the same. The Bank has no interest whatsoever in said contents, except as costs.6
herein provided, and it assumes absolutely no liability in connection therewith."
In reversing the trial court's decision and absolving SBTC from liability, the public respondent found and ruled that:
The defendant bank also contended that its contract with the plaintiff over safety deposit box No.
54 was one of lease and not of deposit and, therefore, governed by the lease agreement (Exhs.
a) the fine print in the "Lease Agreement " (Exhibits "A" and "1" ) constitutes the terms and conditions of the contract
"A", "L") which should be the applicable law; that the destruction of the plaintiff's stamps
of lease which the appellee (now petitioner) had voluntarily and knowingly executed with SBTC;
collection was due to a calamity beyond obligation on its part to notify the plaintiff about the
BANKING Batch 1 Page 1 Page 4 of 34
b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was not a contract of deposit wherein Petitioner insists that the trial court correctly ruled that SBTC had failed "to exercise the required diligence expected
the bank became a depositary of the subject stamp collection; hence, as contended by SBTC, the provisions of Book of a bank maintaining such safety deposit box . . . in the light of the environmental circumstance of said safety
IV, Title XII of the Civil Code on deposits do not apply; deposit box after the floods of 1985 and 1986." He argues that such a conclusion is supported by the evidence on
record, to wit: SBTC was fully cognizant of the exact location of the safety deposit box in question; it knew that the
premises were inundated by floodwaters in 1985 and 1986 and considering that the bank is guarded twenty-four (24)
c) The following provisions of the questioned lease agreement of the safety deposit box limiting SBTC's liability:
hours a day , it is safe to conclude that it was also aware of the inundation of the premises where the safety deposit
box was located; despite such knowledge, however, it never bothered to inform the petitioner of the flooding or take
9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to any appropriate measures to insure the safety and good maintenance of the safety deposit box in question.
prevent the opening of the Safe by any person other than the Renter, his authorized agent or
legal representative.
SBTC does not squarely dispute these facts; rather, it relies on the rule that findings of facts of the Court of Appeals,
when supported by substantial exidence, are not reviewable on appeal by certiorari. 10
xxx xxx xxx
The foregoing rule is, of course, subject to certain exceptions such as when there exists a disparity between the
13. The bank is not a depository of the contents of the Safe and it has neither the possession factual findings and conclusions of the Court of Appeals and the trial court. 11 Such a disparity obtains in the present
nor the control of the same. The Bank has no interest whatsoever in said contents, except as case.
herein provided, and it assumes absolutely no liability in connection therewith.
As We see it, SBTC's theory, which was upheld by the public respondent, is that the "Lease Agreement " covering
are valid since said stipulations are not contrary to law, morals, good customs, public order or public policy; and Safe Deposit Box No. 54 (Exhibit "A and "1") is just that — a contract of lease — and not a contract of deposit, and
that paragraphs 9 and 13 thereof, which expressly limit the bank's liability as follows:
d) there is no concrete evidence to show that SBTC failed to exercise the required diligence in maintaining the safety
deposit box; what was proven was that the floods of 1985 and 1986, which were beyond the control of SBTC, 9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to
caused the damage to the stamp collection; said floods were fortuitous events which SBTC should not be held liable prevent the opening of the Safe by any person other than the Renter, his autliorized agent or
for since it was not shown to have participated in the aggravation of the damage to the stamp collection; on the legal representative;
contrary, it offered its services to secure the assistance of an expert in order to save most of the stamps, but the
appellee refused; appellee must then bear the lose under the principle of "res perit domino."
xxx xxx xxx

Unsuccessful in his bid to have the above decision reconsidered by the public respondent, 7 petitioner filed the
13. The bank is not a depository of the contents of the Safe and it has neither the possession
instant petition wherein he contends that:
nor the control of the same. The Bank has no interest whatsoever said contents, except as
herein provided, and it assumes absolutely no liability in connection therewith. 12
I
are valid and binding upon the parties. In the challenged decision, the public respondent further avers that even
IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION ON THE PART OF THE without such a limitation of liability, SBTC should still be absolved from any responsibility for the damage sustained
RESPONDENT COURT WHEN IT RULED THAT RESPONDENT SBTC DID NOT FAIL TO by the petitioner as it appears that such damage was occasioned by a fortuitous event and that the respondent bank
EXERCISE THE REQUIRED DILIGENCE IN MAINTAINING THE SAFETY DEPOSIT BOX OF was free from any participation in the aggravation of the injury.
THE PETITIONER CONSIDERING THAT SUBSTANTIAL EVIDENCE EXIST (sic) PROVING
THE CONTRARY.
We cannot accept this theory and ratiocination. Consequently, this Court finds the petition to be impressed with
merit.
II
In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, 13 this Court explicitly rejected the
THE RESPONDENT COURT SERIOUSLY ERRED IN EXCULPATING PRIVATE contention that a contract for the use of a safety deposit box is a contract of lease governed by Title VII, Book IV of
RESPONDENT FROM ANY LIABILITY WHATSOEVER BY REASON OF THE PROVISIONS the Civil Code. Nor did We fully subscribe to the view that it is a contract of deposit to be strictly governed by the Civil
OF PARAGRAPHS 9 AND 13 OF THE AGREEMENT (EXHS. "A" AND "A-1"). Code provision on deposit; 14 it is, as We declared, a special kind of deposit. The prevailing rule in American
jurisprudence — that the relation between a bank renting out safe deposit boxes and its customer with respect to the
contents of the box is that of a bailor and bailee, the bailment for hire and mutual benefit 15 — has been adopted in
III this jurisdiction, thus:

THE RESPONDENT COURT SERIOUSLY ERRED IN NOT UPHOLDING THE AWARDS OF

In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it
THE TRIAL COURT FOR ACTUAL AND MORAL DAMAGES, INCLUDING ATTORNEY'S FEES is clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section
AND LEGAL EXPENSES, IN FAVOR OF THE PETITIONER. 8 72 of the General Banking Act [R.A. 337, as amended] pertinently provides:

We subsequently gave due course the petition and required both parties to submit their respective memoranda,
which they complied with.9
BANKING Batch 1 Page 1 Page 5 of 34
"Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions not in violation of law or public policy. It must clearly appear that there actually was such a special
other than building and loan associations may perform the following services: contract, however, in order to vary the ordinary obligations implied by law from the relationship of the
parties; liability of the deposit company will not be enlarged or restricted by words of doubtful meaning.
The company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the contents
(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the
by its own fraud or negligence or that, of its agents or servants, and if a provision of the contract may
safequarding of such effects.
be construed as an attempt to do so, it will be held ineffective for the purpose. Although it has been
held that the lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through
xxx xxx xxx its own negligence, the view has been taken that such a lessor may limit its liability to some extent by
agreement or stipulation ."[10 AM JUR 2d., 466]. (citations omitted) 16
The banks shall perform the services permitted under subsections (a), (b) and (c) of this section
as depositories or as agents. . . ."(emphasis supplied) It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposit Box in CA Agro-
Industrial Development Corp. are strikingly similar to condition No. 13 in the instant case. On the other hand, both
condition No. 8 in CA Agro-Industrial Development Corp. and condition No. 9 in the present case limit the scope of
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving the exercise of due diligence by the banks involved to merely seeing to it that only the renter, his authorized agent or
in custody of funds, documents and other valuable objects for safekeeping. The renting out of the safety his legal representative should open or have access to the safety deposit box. In short, in all other situations, it would
deposit boxes is not independent from, but related to or in conjunction with, this principal function. A seem that SBTC is not bound to exercise diligence of any kind at all. Assayed in the light of Our aforementioned
contract of deposit may be entered into orally or in writing (Art. 1969, Civil Code] and, pursuant to Article pronouncements in CA Agro-lndustrial Development Corp., it is not at all difficult to conclude that both conditions No.
1306 of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and conditions 9 and No. 13 of the "Lease Agreement" covering the safety deposit box in question (Exhibits "A" and "1") must be
as they may deem convenient, provided they are not contrary to law, morals, good customs, public order stricken down for being contrary to law and public policy as they are meant to exempt SBTC from any liability for
or public policy. The depositary's responsibility for the safekeeping of the objects deposited in the case at damage, loss or destruction of the contents of the safety deposit box which may arise from its own or its agents'
bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in fraud, negligence or delay. Accordingly, SBTC cannot take refuge under the said conditions.
performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the
agreement [Art. 1170, id.]. In the absence of any stipulation prescribing the degree of diligence required,
that of a good father of a family is to be observed [Art. 1173, id.]. Hence, any stipulation exempting the Public respondent further postulates that SBTC cannot be held responsible for the destruction or loss of the stamp
depositary from any liability arising from the loss of the thing deposited on account of fraud, negligence or collection because the flooding was a fortuitous event and there was no showing of SBTC's participation in the
delay would be void for being contrary to law and public policy. In the instant case, petitioner maintains aggravation of the loss or injury. It states:
that conditions 13 and l4 of the questioned contract of lease of the safety deposit box, which read:
Article 1174 of the Civil Code provides:
"13. The bank is a depositary of the contents of the safe and it has neither the possession nor control of
the same.
"Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no
"14. The bank has no interest whatsoever in said contents, except as herein expressly provided, and it person shall be responsible for those events which could not be foreseen, or which,
assumes absolutely no liability in connection therewith." though foreseen, were inevitable.'

are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition In its dissertation of the phrase "caso fortuito" the Enciclopedia Jurisdicada Española  17 says: "In a legal
for indeed, said provisions are inconsistent with the respondent Bank's responsibility as a depositary under sense and, consequently, also in relation to contracts, a "caso fortuito" prevents (sic) 18 the following
Section 72 (a) of the General Banking Act. Both exempt the latter from any liability except as contemplated essential characteristics: (1) the cause of the unforeseen ands unexpected occurrence, or of the failure of
in condition 8 thereof which limits its duty to exercise reasonable diligence only with respect to who shall the debtor to comply with his obligation, must be independent of the human will; (2) it must be impossible
be admitted to any rented safe, to wit: to foresee the event which constitutes the "caso fortuito," or if it can be foreseen, it must be impossible to
avoid; (3) the occurrence must be such as to render it impossible for one debtor to fulfill his obligation in a
normal manner; and (4) the obligor must be free from any participation in the aggravation of the injury
"8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and resulting to the creditor." (cited in Servando vs. Phil., Steam Navigation Co., supra). 19
beyond this, the Bank will not be responsible for the contents of any safe rented from it."

Here, the unforeseen or unexpected inundating floods were independent of the will of the appellant bank
Furthermore condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It and the latter was not shown to have participated in aggravating damage (sic) to the stamps collection of
is not correct to assert that the Bank has neither the possession nor control of the contents of the box the appellee. In fact, the appellant bank offered its services to secure the assistance of an expert to save
since in fact, the safety deposit box itself is located in its premises and is under its absolute control; most of the then good stamps but the appelle refused and let (sic) these recoverable stamps inside the
moreover, the respondent Bank keeps the guard key to the said box. As stated earlier, renters cannot safety deposit box until they were ruined. 20
open their respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly
then, to the extent above stated, the foregoing conditions in the contract in question are void and
ineffective. It has been said: Both the law and authority cited are clear enough and require no further elucidation. Unfortunately, however, the
public respondent failed to consider that in the instant case, as correctly held by the trial court, SBTC was guilty of
negligence. The facts constituting negligence are enumerated in the petition and have been summarized in
"With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, this ponencia. SBTC's negligence aggravated the injury or damage to the stamp collection. SBTC was aware of the
the parties, since the relation is a contractual one, may by special contract define their respective floods of 1985 and 1986; it also knew that the floodwaters inundated the room where Safe Deposit Box No. 54 was
duties or provide for increasing or limiting the liability of the deposit company, provided such contract is
BANKING Batch 1 Page 1 Page 6 of 34
located. In view thereof, it should have lost no time in notifying the petitioner in order that the box could have been G.R. No. 88013 March 19, 1990
opened to retrieve the stamps, thus saving the same from further deterioration and loss. In this respect, it failed to
exercise the reasonable care and prudence expected of a good father of a family, thereby becoming a party to the
SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,
aggravation of the injury or loss. Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent
vs.
Article 1170 of the Civil Code, which reads:
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents.

Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and
Don P. Porcuincula for petitioner.
those who in any manner contravene the tenor thereof, are liable for damages,

San Juan, Gonzalez, San Agustin & Sinense for private respondent.
thus comes to the succor of the petitioner. The destruction or loss of the stamp collection which was, in the language
of the trial court, the "product of 27 years of patience and diligence" 21 caused the petitioner pecuniary loss; hence,
he must be compensated therefor.

We cannot, however, place Our imprimatur on the trial court's award of moral damages. Since the relationship CRUZ, J.:
between the petitioner and SBTC is based on a contract, either of them may be held liable for moral damages for
breach thereof only if said party had acted fraudulently or in bad faith. 22 There is here no proof of fraud or bad faith
on the part of SBTC. 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.
WHEREFORE, the instant petition is hereby GRANTED. The challenged Decision and Resolution of the public
respondent Court of Appeals of 21 August 1991 and 21 November 1991, respectively, in CA-G.R. CV No. 26737, are
hereby SET ASIDE and the Decision of 19 February 1990 of Branch 47 of the Regional Trial Court of Manila in Civil The parties agree on the basic facts. The petitioner is a private corporation engaged in the exportation of food
Case No. 87-42601 is hereby REINSTATED in full, except as to the award of moral damages which is hereby set products. It buys these products from various local suppliers and then sells them abroad, particularly in the United
aside. States, Canada and the Middle East. Most of its exports are purchased by the petitioner on credit.

Costs against the private respondent. 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
SO ORDERED. 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.

BANKING Batch 1 Page 1 Page 7 of 34

The petitioner complained to the respondent bank on June 10, 1981. 3 Investigation disclosed that the sum of We agree that moral damages are not awarded to penalize the defendant but to compensate the plaintiff for the
P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it. The error was rectified on injuries he may have suffered. 8 In the case at bar, the petitioner is seeking such damages for the prejudice
June 17, 1981, and the dishonored checks were paid after they were re-deposited. 4 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
In its letter dated June 20, 1981, the petitioner demanded reparation from the respondent bank for its "gross and
of pecuniary estimation. Article 2216 of the Civil Code specifically provides that "no proof of pecuniary loss is
wanton negligence." This demand was not met. The petitioner then filed a complaint in the then Court of First
necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated." That is
Instance of Rizal claiming from the private respondent moral damages in the sum of P1,000,000.00 and exemplary
why the determination of the amount to be awarded (except liquidated damages) is left to the sound discretion of the
damages in the sum of P500,000.00, plus 25% attorney's fees, and costs.
court, according to "the circumstances of each case."

After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and exemplary damages were not
From every viewpoint except that of the petitioner's, its claim of moral damages in the amount of P1,000,000.00 is
called for under the circumstances. However, observing that the plaintiff's right had been violated, he ordered the
nothing short of preposterous. Its business certainly is not that big, or its name that prestigious, to sustain such an
defendant to pay nominal damages in the amount of P20,000.00 plus P5,000.00 attorney's fees and costs. 5 This
extravagant pretense. Moreover, a corporation is not as a rule entitled to moral damages because, not being a
decision was affirmed in toto by the respondent court. 6
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
The respondent court found with the trial court that the private respondent was guilty of negligence but agreed that is debased, resulting in its social humiliation. 9
the petitioner was nevertheless not entitled to moral damages. It said:
We shall recognize that the petitioner did suffer injury because of the private respondent's negligence that caused
The essential ingredient of moral damages is proof of bad faith (De Aparicio vs. Parogurga, 150 the dishonor of the checks issued by it. The immediate consequence was that its prestige was impaired because of
SCRA 280). Indeed, there was the omission by the defendant-appellee bank to credit appellant's the bouncing checks and confidence in it as a reliable debtor was diminished. The private respondent makes much
deposit of P100,000.00 on May 25, 1981. But the bank rectified its records. It credited the said of the one instance when the petitioner was sued in a collection case, but that did not prove that it did not have a
amount in favor of plaintiff-appellant in less than a month. The dishonored checks were good reputation that could not be marred, more so since that case was ultimately settled. 10 It does not appear that,
eventually paid. These circumstances negate any imputation or insinuation of malicious, as the private respondent would portray it, the petitioner is an unsavory and disreputable entity that has no good
fraudulent, wanton and gross bad faith and negligence on the part of the defendant-appellant. name to protect.

It is this ruling that is faulted in the petition now before us. 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,
This Court has carefully examined the facts of this case and finds that it cannot share some of the conclusions of the and not for the purpose of indemnifying the plaintiff for any loss suffered by him." As we have found that the
lower courts. It seems to us that the negligence of the private respondent had been brushed off rather lightly as if it petitioner has indeed incurred loss through the fault of the private respondent, the proper remedy is the award to it of
were a minor infraction requiring no more than a slap on the wrist. We feel it is not enough to say that the private moral damages, which we impose, in our discretion, in the same amount of P20,000.00.
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. Now for the exemplary damages.
However, this took almost a month when, properly, the checks should have been paid immediately upon
presentment.
The pertinent provisions of the Civil Code are the following:

As the Court sees it, the initial carelessness of the respondent bank, aggravated by the lack of promptitude in
Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for
repairing its error, justifies the grant of moral damages. This rather lackadaisical attitude toward the complaining
the public good, in addition to the moral, temperate, liquidated or compensatory damages.
depositor constituted the gross negligence, if not wanton bad faith, that the respondent court said had not been
established by the petitioner.
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.
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 The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of
suppliers. Its business declined. Its reputation was tarnished. Its standing was reduced in the business community. every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active
All this was due to the fault of the respondent bank which was undeniably remiss in its duty to the petitioner. 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
Article 2205 of the Civil Code provides that actual or compensatory damages may be received "(2) for injury to the
custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest
plaintiff s business standing or commercial credit." There is no question that the petitioner did sustain actual injury as
checking account for security and convenience in the settling of his monthly bills and the payment of ordinary
a result of the dishonored checks and that the existence of the loss having been established "absolute certainty as to
expenses. As for business entities like the petitioner, the bank is a trusted and active associate that can help in the
its amount is not required." 7 Such injury should bolster all the more the demand of the petitioner for moral damages
running of their affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day
and justifies the examination by this Court of the validity and reasonableness of the said claim.
transactions like the issuance or encashment of checks.

BANKING Batch 1 Page 1 Page 8 of 34

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 [G.R. No. 138569. September 11, 2003.]
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
THE CONSOLIDATED BANK and TRUST CORPORATION, Petitioner, v. COURT OF APPEALS
cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation.
and L.C. DIAZ and COMPANY, CPA’s, Respondents.

The point is that as a business affected with public interest and because of the nature of its functions, the bank is DECISION
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 CARPIO, J.:
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 The Case
imposition of exemplary damages.

After deliberating on this particular matter, the Court, in the exercise of its discretion, hereby imposes upon the Before us is a petition for review of the Decision 1 of the Court of Appeals dated 27 October 1998 and
respondent bank exemplary damages in the amount of P50,000.00, "by way of example or correction for the public its Resolution dated 11 May 1999. The assailed decision reversed the Decision 2 of the Regional Trial
good," in the words of the law. It is expected that this ruling will serve as a warning and deterrent against the Court of Manila, Branch 8, absolving petitioner Consolidated. Bank and Trust Corporation, now known
repetition of the ineptness and indefference that has been displayed here, lest the confidence of the public in the as Solidbank Corporation ("Solidbank"), of any liability. The questioned resolution of the appellate
banking system be further impaired. court denied the motion for reconsideration of Solidbank but modified the decision by deleting the
award of exemplary damages, attorney’s fees, expenses of litigation and cost of suit.chanrob1es
ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is ordered to pay the virtua1 1aw 1ibrary
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. The Facts

SO ORDERED.
Solidbank is a domestic banking corporation organized and existing under Philippine laws. Private
respondent L.C. Diaz and Company, CPA’s ("L.C. Diaz"), is a professional partnership engaged in the
practice of accounting.

Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank, designated as Savings
Account No. S/A 200-16872-6.

On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya ("Macaraya"), filled up a
savings (cash) deposit slip for P990 and a savings (checks) deposit slip for P50. Macaraya instructed
the messenger of L.C. Diaz, Ismael Calapre ("Calapre"), to deposit the money with Solidbank.
Macaraya also gave Calapre the Solidbank passbook.

Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The
teller acknowledged receipt of the deposit by returning to Calapre the duplicate copies of the two
deposit slips. Teller No. 6 stamped the deposit slips with the words "DUPLICATE" and "SAVING
TELLER 6 SOLIDBANK HEAD OFFICE." Since the transaction took time and Calapre had to make
another deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre then went
to Allied Bank. When Calapre returned to Solidbank to retrieve the passbook, Teller No. 6 informed
him that "somebody got the passbook. 3 Calapre went back to L.C. Diaz and reported the incident to
Macaraya.

Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000.
Macaraya, together with Calapre, went to Solidbank and presented to Teller No. 6 the deposit slip and
check. The teller stamped the words "DUPLICATE" and "SAVING TELLER 6 SOLIDBANK HEAD OFFICE"
on the duplicate copy of the deposit slip. When Macaraya asked for the passbook, Teller No. 6 told
Macaraya that someone got the passbook but she could not remember to whom she gave the
BANKING Batch 1 Page 1 Page 9 of 34
passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove that the
someone shorter than Calapre got the passbook. Calapre was then standing beside Macaraya. 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
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check for the withdrawal slip for P300,000. The trial court believed that L.C. Diaz did not offer this evidence
P90,000 drawn on Philippine Banking Corporation ("PBC"). This PBC check of L.C. Diaz was a check because it is derogatory to its action.
that it had "long closed." 4 PBC subsequently dishonored the check because of insufficient funds and
because the signature in the check differed from PBC’s specimen signature. Failing to get back the Another provision of the rules on savings account states that the depositor must keep the passbook
passbook, Macaraya went back to her office and reported the matter to the Personnel Manager of L.C. "under lock and key." 10 When another person presents the passbook for withdrawal prior to
Diaz, Emmanuel Alvarez. Solidbank’s 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
The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz ("Diaz"), "now out of the lock and key and presumptively ready for a business transaction." 11
called up Solidbank to stop any transaction using the same passbook until L.C. Diaz could open a new
account. 5 On the same day, Diaz formally wrote Solidbank to make the same request. It was also on Solidbank did not have any participation in the custody and care of the passbook. The trial court
the same day that L.C. Diaz learned of the unauthorized withdrawal the day before, 14 August 1991, believed that Solidbank’s act of allowing the withdrawal of P300,000 was not the direct and proximate
of P300,000 from its savings account. The withdrawal slip for the P300,000 bore the signatures of the cause of the loss. The trial court held that L.C. Diaz’s negligence caused the unauthorized withdrawal.
authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories, however, Three facts establish L.C. Diaz’s negligence: (1) the possession of the passbook by a person other
denied signing the withdrawal slip. A certain Noel Tamayo received the P300,000.cralaw : red 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,
In an Information 6 dated 5 September 1991, L.C. Diaz charged its messenger, Emerano Ilagan which check was deposited on the day of the fraudulent withdrawal.
("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 The trial court debunked L.C. Diaz’s contention that Solidbank did not follow the precautionary
Dismiss on 4 August 1992. 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
On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its money. letter must request Solidbank to allow the withdrawal and convert the amount to a manager’s check.
Solidbank refused. 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
On 25 August 1992, L.C. Diaz filed a Complaint 7 for Recovery of a Sum of Money against Solidbank making the withdrawal. The trial court pointed out that L.C. Diaz disregarded these precautions in its
with the Regional Trial Court of Manila, Branch 8. After trial, the trial court rendered on 28 December past withdrawal. On 16 July 1991, L.C. Diaz withdrew P82,554 without any separate letter of
1994 a decision absolving Solidbank and dismissing the complaint. authorization or any communication with Solidbank that the money be converted into a manager’s
check.
L.C. Diaz then appealed 8 to the Court of Appeals. On 27 October 1998, the Court of Appeals issued
its Decision reversing the decision of the trial court. 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.
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 The dispositive portion of the decision of the trial court reads:chanrob1es virtual 1aw library
damages and attorney’s fees.
IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the complaint.
The Ruling of the Trial Court
The Court further renders judgment in favor of defendant bank pursuant to its counterclaim the
In absolving Solidbank, the trial court applied the rules on savings account written on the passbook. amount of Thirty Thousand Pesos (P30,000.00) as attorney’s fees.
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 With costs against plaintiff.
the withdrawal shall have the same effect as if made to the depositor personally." 9
SO ORDERED. 12
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 The Ruling of the Court of Appeals
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 The Court of Appeals ruled that Solidbank’s negligence was the proximate cause of the unauthorized
Manuel ("Manuel") for authentication. Manuel verified the signatures on the withdrawal slip. The withdrawal of P300,000 from the savings account of L.C. Diaz. The appellate court reached this
withdrawal slip was then given to another officer who compared the signatures on the withdrawal slip conclusion after applying the provision of the Civil Code on quasi-delict, to wit:chanrob1es virtual 1aw
with the specimen on the signature cards. The trial court concluded that Solidbank acted with care library
and observed the rules on savings account when it allowed the withdrawal of P300,000 from the
savings account of L.C. Diaz. 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
BANKING Batch 1 Page 1 Page 10 of 34
relation between the parties, is called a quasi-delict and is governed by the provisions of this chapter.
SO ORDERED. 15
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 Hence, this petition.
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 Issues

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 Solidbank seeks the review of the decision and resolution of the Court of Appeals on these
that the teller, who was not presented by Solidbank during trial, should have called up the depositor grounds:chanrob1es virtual 1aw library
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 I. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD SUFFER THE LOSS
identity of the impostor who made the withdrawal. Thus, the appellate court found Solidbank liable for BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT BY TELEPHONE BEFORE
its negligence in the selection and supervision of its employees. IT ALLOWED THE WITHDRAWAL OF P300,000.00 TO RESPONDENT’S MESSENGER EMERANO ILAGAN,
SINCE THERE IS NO AGREEMENT BETWEEN THE PARTIES IN THE OPERATION OF THE SAVINGS
The appellate court ruled that while L.C. Diaz was also negligent in entrusting its deposits to its ACCOUNT, NOR IS THERE ANY BANKING LAW, WHICH MANDATES THAT A BANK TELLER SHOULD
messenger and its messenger in leaving the passbook with the teller, Solidbank could not escape FIRST CALL UP THE DEPOSITOR BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A
liability because of the doctrine of "last clear chance." Solidbank could have averted the injury SAVINGS ACCOUNT.
suffered by L.C. Diaz had it called up L.C. Diaz to verify the withdrawal.
II. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST CLEAR CHANCE AND IN
The appellate court ruled that the degree of diligence required from Solidbank is more than that of a HOLDING THAT PETITIONER BANK’S TELLER HAD THE LAST OPPORTUNITY TO WITHHOLD THE
good father of a family. The business and functions of banks are affected with public interest. Banks WITHDRAWAL WHEN IT IS UNDISPUTED THAT THE TWO SIGNATURES OF RESPONDENT ON THE
are obligated to treat the accounts of their depositors with meticulous care, always having in mind the WITHDRAWAL SLIP ARE GENUINE AND PRIVATE RESPONDENT’S PASSBOOK WAS DULY PRESENTED,
fiduciary nature of their relationship with their clients. The Court of Appeals found Solidbank remiss in AND CONTRARIWISE RESPONDENT WAS NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS
its duty, violating its fiduciary relationship with L.C. Diaz. MESSENGER EMERANO ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS AND OTHER FINANCIAL
DOCUMENTS.
The dispositive portion of the decision of the Court of Appeals reads:chanrob1es virtual 1aw library
III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE IS A LAST DITCH
WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and a new one EFFORT OF PRIVATE RESPONDENT TO RECOVER ITS P300,000.00 AFTER FAILING IN ITS EFFORTS TO
entered. RECOVER THE SAME FROM ITS EMPLOYEE EMERANO ILAGAN.

1. Ordering defendant-appellee Consolidated Bank and Trust Corporation. to pay plaintiff-appellant IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES AWARDED AGAINST
the sum of Three Hundred Thousand Pesos (P300,000.00), with interest thereon at the rate of 12% PETITIONER UNDER ARTICLE 2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS FINDING THAT
per annum from the date of filing of the complaint until paid, the sum of P20,000.00 as exemplary PETITIONER BANK’S NEGLIGENCE WAS ONLY CONTRIBUTORY. 16
damages, and P20,000.00 as attorney’s fees and expenses of litigation as well as the cost of suit; and
The Ruling of the Court
2. Ordering the dismissal of defendant-appellee’s counterclaim in the amount of P30,000.00 as
attorney’s fees. The petition is partly meritorious.

SO ORDERED. 13 Solidbank’s Fiduciary Duty under the Law

Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its decision but The rulings of the trial court and the Court of Appeals conflict on the application of the law. The trial
modified the award of damages. The appellate court deleted the award of exemplary damages and court pinned the liability on L.C. Diaz based on the provisions of the rules on savings account, a
attorney’s fees. Invoking Article 2231 14 of the Civil Code, the appellate court ruled that exemplary recognition of the contractual relationship between Solidbank and L.C. Diaz, the latter being a
damages could be granted if the defendant acted with gross negligence. Since Solidbank was guilty of depositor of the former. On the other hand, the Court of Appeals applied the law on quasi-delict to
simple negligence only, the award of exemplary damages was not justified. Consequently, the award determine who between the two parties was ultimately negligent. The law on quasi-delict or culpa
of attorney’s fees was also disallowed pursuant to Article 2208 of the Civil Code. The expenses of aquiliana is generally applicable when there is no pre-existing contractual relationship between the
litigation and cost of suit were also not imposed on Solidbank. parties.

The dispositive portion of the Resolution reads as follows:chanrob1es virtual 1aw library We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual.

WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed with modification The contract between the bank and its depositor is governed by the provisions of the Civil Code on
by deleting the award of exemplary damages and attorney’s fees, expenses of litigation and cost of simple loan. 17 Article 1980 of the Civil Code expressly provides that." . . savings . . . deposits of
suit.chanrob1es virtua1 1aw 1ibrary money in banks and similar institutions shall be governed by the provisions concerning simple loan."
BANKING Batch 1 Page 1 Page 11 of 34
There is a debtor-creditor relationship between the bank and its depositor. The bank is the debtor and passbook only to the depositor or his authorized representative. The tellers know, or should know,
the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the that the rules on savings account provide that any person in possession of the passbook is
depositor on demand. The savings deposit agreement between the bank and the depositor is the presumptively its owner. If the tellers give the passbook to the wrong person, they would be clothing
contract that determines the rights and obligations of the parties. 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,
The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Solidbank and Teller No. 6 presumptively failed to observe such high degree of diligence in
Republic Act No. 8791 ("RA 8791"), 18 which took effect on 13 June 2000, declares that the State safeguarding the passbook, and in insuring its return to the party authorized to receive the same.
recognizes the "fiduciary nature of banking that requires high standards of integrity and
performance." 19 This new provision in the general banking law, introduced in 2000, is a statutory In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the
affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of defendant was at fault or negligent. The burden is on the defendant to prove that he was not at fault
Appeals, 20 holding that "the bank is under obligation to treat the accounts of its depositors with or negligent. In contrast, in culpa aquiliana the plaintiff has the burden of proving that the defendant
meticulous care, always having in mind the fiduciary nature of their relationship. 21 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
This fiduciary relationship means that the bank’s obligation to observe "high standards of integrity presumption that Solidbank was at fault and its teller was negligent in not returning the passbook to
and performance" is deemed written into every deposit agreement between a bank and its depositor. Calapre. The burden was on Solidbank to prove that there was no negligence on its part or its
The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a employees.
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 Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6, the
good father of a family. 22 Section 2 of RA 8791 prescribes the statutory diligence required from teller with whom Calapre left the passbook and who was supposed to return the passbook to him. The
banks — that banks must observe "high standards of integrity and performance" in servicing their record does not indicate that Teller No. 6 verified the identity of the person who retrieved the
depositors. Although RA 8791 took effect almost nine years after the unauthorized withdrawal of the passbook. Solidbank also failed to adduce in evidence its standard procedure in verifying the identity
P300,000 from L.C. Diaz’s savings account, jurisprudence 23 at the time of the withdrawal already of the person retrieving the passbook, if there is such a procedure, and that Teller No. 6 implemented
imposed on banks the same high standard of diligence required under RA No. 8791. this procedure in the present case.

However, the fiduciary nature of a bank-depositor relationship does not convert the contract between Solidbank is bound by the negligence of its employees under the principle of respondeat superior or
the bank and its depositors from a simple loan to a trust agreement, whether express or implied. command responsibility. The defense of exercising the required diligence in the selection and
Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust. 24 supervision of employees is not a complete defense in culpa contractual, unlike in culpa
The law simply imposes on the bank a higher standard of integrity and performance in complying with aquiliana.25cralaw:red
its obligations under the contract of simple loan, beyond those required of non-bank debtors under a
similar contract of simple loan. 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
The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks fiduciary duty. Solidbank failed to present the teller who had the duty to return to Calapre the
do not accept deposits to enrich depositors but to earn money for themselves. The law allows banks passbook, and thus failed to prove that this teller exercised the "high standards of integrity and
to offer the lowest possible interest rate to depositors while charging the highest possible interest rate performance" required of Solidbank’s employees.chanrob1es virtua1 1aw 1ibrary
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 Proximate Cause of the Unauthorized Withdrawal
interest spread or income belongs to the depositors, a situation that Congress certainly did not intend
in enacting Section 2 of RA 8791. 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. Diaz’s negligence in not securing its
Solidbank’s Breach of its Contractual Obligation 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 teller’s negligence in processing the
Article 1172 of the Civil Code provides that "responsibility arising from negligence in the performance withdrawal without first verifying with L.C. Diaz. We do not agree with either court.
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. Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury and without which the result would not have occurred. 26
Calapre left the passbook with Solidbank because the "transaction took time" and he had to go to Proximate cause is determined by the facts of each case upon mixed considerations of logic, common
Allied Bank for another transaction. The passbook was still in the hands of the employees of Solidbank sense, policy and precedent. 27
for the processing of the deposit when Calapre left Solidbank. Solidbank’s rules on savings account
require that the "deposit book should be carefully guarded by the depositor and kept under lock and L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was in
key, if possible." When the passbook is in the possession of Solidbank’s tellers during withdrawals, possession of the passbook while it was processing the deposit. After completion of the transaction,
the law imposes on Solidbank and its tellers an even higher degree of diligence in safeguarding the Solidbank had the contractual obligation to return the passbook only to Calapre, the authorized
passbook. representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation because it gave the
passbook to another person.
Likewise, Solidbank’s tellers must exercise a high degree of diligence in insuring that they return the
BANKING Batch 1 Page 1 Page 12 of 34
Solidbank’s failure to return the passbook to Calapre made possible the withdrawal of the P300,000 The doctrine of last clear chance states that where both parties are negligent but the negligent act of
by the impostor who took possession of the passbook. Under Solidbank’s rules on savings account, one is appreciably later than that of the other, or where it is impossible to determine whose fault or
mere possession of the passbook raises the presumption of ownership. It was the negligent act of negligence caused the loss, the one who had the last clear opportunity to avoid the loss but failed to
Solidbank’s Teller No. 6 that gave the impostor presumptive ownership of the passbook. Had the do so, is chargeable with the loss. 29 Stated differently, the antecedent negligence of the plaintiff
passbook not fallen into the hands of the impostor, the loss of P300,000 would not have happened. does not preclude him from recovering damages caused by the supervening negligence of the
Thus, the proximate cause of the unauthorized withdrawal was Solidbank’s negligence in not returning defendant, who had the last fair chance to prevent the impending harm by the exercise of due
the passbook to Calapre. diligence. 30

We do not subscribe to the appellate court’s theory that the proximate cause of the unauthorized We do not apply the doctrine of last clear chance to the present case. Solidbank is liable for breach of
withdrawal was the teller’s failure to call up L.C. Diaz to verify the withdrawal. Solidbank did not have contract due to negligence in the performance of its contractual obligation to L.C. Diaz. This is a case
the duty to call up L.C. Diaz to confirm the withdrawal. There is no arrangement between Solidbank of culpa contractual, where neither the contributory negligence of the plaintiff nor his last clear
and L.C. Diaz to this effect. Even the agreement between Solidbank and L.C. Diaz pertaining to chance to avoid the loss, would exonerate the defendant from liability. 31 Such contributory
measures that the parties must observe whenever withdrawals of large amounts are made does not negligence or last clear chance by the plaintiff merely serves to reduce the recovery of damages by
direct Solidbank to call up L.C. Diaz. the plaintiff but does not exculpate the defendant from his breach of contract. 32

There is no law mandating banks to call up their clients whenever their representatives withdraw Mitigated Damages
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. Under Article 1172, "liability (for culpa contractual) may be regulated by the courts, according to the
L.C. Diaz failed to do so. 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
Teller No. 5 who processed the withdrawal could not have been put on guard to verify the withdrawal. may reduce the award of damages. In this case, L.C. Diaz was guilty of contributory negligence in
Prior to the withdrawal of P300,000, the impostor deposited with Teller No. 6 the P90,000 PBC check, allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an impostor.
which later bounced. The impostor apparently deposited a large amount of money to deflect suspicion Thus, the liability of Solidbank should be reduced.
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 In Philippine Bank of Commerce v. Court of Appeals, 33 where the Court held the depositor guilty of
this from banks and when the teller had no reason to be suspicious of the transaction. 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
Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank claims that since damages awarded by the appellate court. Solidbank must pay he other 60% of the actual damages.
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 WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner
Booking and Information Sheet of Emerano Ilagan:chanrob1es virtual 1aw library Solidbank Corporation shall pay private respondent L.C. Diaz and Company, CPA’s only 60% of the
actual damages awarded by the Court of Appeals. The remaining 40% of the actual damages shall be
. . . Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount borne by private respondent L.C. Diaz and Company, CPA’s. Proportionate costs.chanrob1es virtua1
of P90,000 which he deposited in favor of L.C. Diaz and Company. After successfully withdrawing this 1aw 1ibrary
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, SO ORDERED.
Batangas. Ilagan extravagantly and lavishly spent his money but a big part of his loot was wasted in
cockfight and horse racing. Ilagan was apprehended and meekly admitted his guilt. 28 (Emphasis
supplied.)

L.C. Diaz refutes Solidbank’s 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 Solidbank’s
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

BANKING Batch 1 Page 1 Page 13 of 34

 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.
G.R. No. 154469             December 6, 2006

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

DECISION 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
CHICO-NAZARIO, J.: 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
Before this Court is a Petition for Review on Certiorari, filed by petitioner Metropolitan Bank and Trust Company stated that, "all prior indorsements and lack of indorsement guaranteed," Metrobank cleared the check. 10
(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: 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
WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED with modifications (sic) that and in all respect what it purports to be.
the awards for exemplary damages and attorney’s fees are hereby deleted.

In addition, Metrobank, in turn, claimed that Cabilzo was partly responsible in leaving spaces on the check, which,
Petitioner Metrobank is a banking institution duly organized and existing as such under Philippine laws. 2 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
Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobank’s clients who maintained a current account with cannot thereafter claim indemnity by virtue of the doctrine of equitable estoppel.
Metrobank Pasong Tamo Branch.3
Thus, Metrobank demanded from Cabilzo, for payment in the amount of P100,000.00 which represents the cost of
On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable to "CASH" and postdated on 24 litigation and attorney’s fees, for allegedly bringing a frivolous and baseless suit. 11
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 On 19 April 1996, Metrobank filed a Third-Party Complaint12 against Westmont Bank on account of its unqualified
a certain Mr. Marquez, as his sales commission.4 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, 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 Subsequently, a Motion to Dismiss13 the Third-Party Complaint was then filed by Westmont bank because another
the authenticity of the signature of the drawer, Metrobank cleared the check for encashment in accordance with the case involving the same cause of action was pending before a different court. The said case arose from an action for
Philippine Clearing House Corporation (PCHC) Rules. 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.
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 In an Order14 dated 4 February 1997, the trial court granted the Motion to Dismiss the Third-Party Complaint on the
former replied in the negative. On the afternoon of the same date, Cabilzo himself called Metrobank to reiterate that ground of litis pendentia.
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
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
Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988 which he issued on 12 November and its clients and the negligence of the drawee bank in failing to detect an apparent alteration on the check, the trial
1994 in the amount of P1,000.00 was altered to P91,000.00 and the date 24 November 1994 was changed to 14 court ordered for the payment of exemplary damages, attorney’s fees and cost of litigation. The dispositive portion of
November 1994.6 the Decision reads:

Hence, Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to his account. Metrobank, however, WHEREFORE, judgment is rendered ordering defendant Metropolitan Bank and Trust Company to pay
refused reasoning that it has to refer the matter first to its Legal Division for appropriate action. Repeated verbal plaintiff Renato Cabilzo the sum of P90,000 with legal interest of 6 percent per annum from November 16,
demands followed but Metrobank still failed to re-credit the amount of P91,000.00 to Cabilzo’s account.7 1994 until payment is made plus P20,000 attorney’s fees, exemplary damages of P50,000, and costs of
the suit.16

BANKING Batch 1 Page 1 Page 14 of 34

Aggrieved, Metrobank appealed the adverse decision to the Court of Appeals reiterating its previous argument that (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
as the last indorser, Westmont Bank shall bear the loss occasioned by the fraudulent alteration of the check. reasonable certainty.
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
Also pertinent is the following provision in the Negotiable Instrument Law which states:
to its tenor.

Section 125. What constitutes material alteration. – Any alteration which changes:
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 (a) The date;
be determined even upon close examination.
(b) The sum payable, either for principal or interest;
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
(c) The time or place of payment;
case between Metrobank and Westmont Bank which was pending before another tribunal. The decretal portion of
the Decision reads:
(d) The number or the relation of the parties;
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 (e) The medium or currency in which payment is to be made;

Similarly ill-fated was Metrobank’s Motion for Reconsideration which was also denied by the appellate court in its Or which adds a place of payment where no place of payment is specified, or any other change or addition
Resolution19 issued on 26 July 2002, for lack of merit. which alters the effect of the instrument in any respect is a material alteration.

Metrobank now poses before this Court this sole issue: 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
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING METROBANK, AS DRAWEE
instant controversy therefore squarely falls within the purview of material alteration.
BANK, LIABLE FOR THE ALTERATIONS ON THE SUBJECT CHECK BEARING THE AUTHENTIC
SIGNATURE OF THE DRAWER THEREOF.
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.
We resolve to deny the petition.
The following provision of the Negotiable Instrument Law will shed us some light in threshing out this issue:

An alteration is said to be material if it changes the effect of the instrument. It means that an unauthorized change in
Section 124. Alteration of instrument; effect of. – Where a negotiable instrument is materially altered
an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or
without the assent of all parties liable thereon, it is avoided, except as against a party who has
numbers or other change to an incomplete instrument relating to the obligation of a party. 20 In other words, a material
himself made, authorized, and assented to the alteration and subsequent indorsers.
alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable
Instruments Law.
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.)
Section 1 of the Negotiable Instruments Law provides:

Indubitably, Cabilzo was not the one who made nor authorized the alteration. Neither did he assent to the alteration
Section 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the following
by his express or implied acts. There is no showing that he failed to exercise such reasonable degree of diligence
requirements:
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
(a) It must be in writing and signed by the maker or drawer; 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.
(b) Must contain an unconditional promise or order to pay a sum certain in money;

The degree of diligence required of a reasonable man in the exercise of his tasks and the performance of his duties
(c) Must be payable on demand or at a fixed determinable future time;
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
(d) Must be payable to order or to bearer; and 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.
BANKING Batch 1 Page 1 Page 15 of 34
Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is therefore prevented from asserting his ONLY." The letters of the word "NINETY" are likewise a little bigger when compared with the letters of the
rights under the doctrine of equitable estoppel when the facts on record are bare of evidence to support such words "ONE THOUSAND PESOS ONLY".28
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
Surprisingly, however, Metrobank failed to detect the above alterations which could not escape the attention of even
omission or commission, was the cause of injury.21 Metrobank’s reliance on this dictum, is misplaced. For one,
an ordinary person. This negligence was exacerbated by the fact that, as found by the trial court, the check in
Metrobank’s representation that it is an innocent party is flimsy and evidently, misleading. At the same time,
question was examined by the cash custodian whose functions do not include the examinations of checks indorsed
Metrobank cannot asseverate that Cabilzo was negligent and this negligence was the proximate cause 22 of the loss
for payment against drawer’s accounts.29 Obviously, the employee allowed by Metrobank to examine the check was
in the absence of even a scintilla proof to buttress such claim. Negligence is not presumed but must be proven by
not verse and competent to handle such duty. These factual findings of the trial court is conclusive upon this court
the one who alleges it.23
especially when such findings was affirmed the appellate court.30

Undoubtedly, Cabilzo was an innocent party in this instant controversy. He was just an ordinary businessman who, in
Apropos thereto, we need to reiterate that by the very nature of their work the degree of responsibility, care and
order to facilitate his business transactions, entrusted his money with a bank, not knowing that the latter would yield
trustworthiness expected of their employees and officials is far better than those of ordinary clerks and employees.
a substantial amount of his deposit to fraud, for which Cabilzo can never be faulted.
Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees. 31

We never fail to stress the remarkable significance of a banking institution to commercial transactions, in particular,
In addition, the bank on which the check is drawn, known as the drawee bank, is under strict liability to pay to the
and to the country’s economy in general. The banking system is an indispensable institution in the modern world and
order of the payee in accordance with the drawer’s instructions as reflected on the face and by the terms of the
plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping
check. Payment made under materially altered instrument is not payment done in accordance with the instruction of
and saving of money or as active instruments of business and commerce, banks have become an ubiquitous
the drawer.
presence among the people, who have come to regard them with respect and even gratitude and, most of all,
confidence.24
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
Thus, even the humble wage-earner does not hesitate to entrust his life's savings to the bank of his choice, knowing
case, did not pay according to the original tenor of the instrument, as directed by the drawer, then it has no right to
that they will be safe in its custody and will even earn some interest for him. The ordinary person, with equal faith,
claim reimbursement from the drawer, much less, the right to deduct the erroneous payment it made from the
usually maintains a modest checking account for security and convenience in the settling of his monthly bills and the
drawer’s account which it was expected to treat with utmost fidelity.
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 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
In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account
degree of diligence required of a bank owing to the fiduciary nature of its relationship with its client. Article 1173 of
consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down
the Civil Code provides:
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 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.
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 Beyond question, Metrobank failed to comply with the degree required by the nature of its business as provided by
diligence, if not the utmost diligence.27 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
In the present case, it is obvious that Metrobank was remiss in that duty and violated that relationship. As observed
detect forgeries, insertions, intercalations, superimpositions and alterations in checks and other negotiable
by the Court of Appeals, there are material alterations on the check that are visible to the naked eye. Thus:
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.
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
Metrobank argues that Westmont Bank, as the collecting bank and the last indorser, shall bear the loss. Without
the end of the amount in words, i.e., after the word "ONLY", there are 4 asterisks, while at the beginning of
ruling on the matter between the drawee bank and the collecting bank, which is already under the jurisdiction of
the line or before said phrase, there is none, even as 4 asterisks have been placed before and after the
another tribunal, we find that Metrobank cannot rely on such indorsement, in clearing the questioned check. The
word "CASH" in the space for payee. In addition, the 4 asterisks before the words "ONE THOUSAND
corollary liability of such indorsement, if any, is separate and independent from the liability of Metrobank to Cabilzo.
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 The reliance made by Metrobank on Westmont Bank’s indorsement is clearly inconsistent, if not totally offensive to
to insert the said figure. The appellant’s employees should have again noticed why only 2 asterisks were the dictum that being impressed with public interest, banks should exercise the highest degree of diligence, if not
placed before the amount in figures, while 3 asterisks were placed after such amount. The word "NINETY" utmost diligence in dealing with the accounts of its own clients. It owes the highest degree fidelity to its clients and
is also typed differently and with a lighter ink, when compared with the words "ONE THOUSAND PESOS

BANKING Batch 1 Page 1 Page 16 of 34

should not therefore lightly rely on the judgment of other banks on occasions where its clients money were involve, PHILIPPINE NATIONAL BANK, Petitioners,
no matter how small or substantial the amount at stake. vs.
NORMAN Y. PIKE, Respondent.
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 DECISION
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.
CHICO-NAZARIO, J.:

What is even more deplorable is that, having been informed of the alteration, Metrobank did not immediately re-credit
This petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, seeks to
the amount that was erroneously debited from Cabilzo’s account but permitted a full blown litigation to push through,
reverse the Decision1 dated 19 December 2002, and the Resolution2 dated 02 April 2003, both of the Court of
to the prejudice of its client. Anyway, Metrobank is not left with no recourse for it can still run after the one who made
Appeals, in CA-G.R. CV No. 59389, which affirmed with modification the Decision 3 rendered by the Regional Trial
the alteration or with the collecting bank, which it had already done. It bears repeating that the records are bare of
Court (RTC), Branch 07 of Manila, dated 10 January 1997, in Civil Case No. 94-68821 in favor of herein respondent
evidence to prove that Cabilzo was negligent. We find no justifiable reason therefore why Metrobank did not
Norman Pike (Pike).
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 The case stemmed from a complaint4 filed by herein respondent Pike for damages5 against Philippine National Bank
repetition of similar acts of negligence, lest the confidence of the public in the banking system be further eroded. 32 (PNB) on 04 January 1994.

WHEREFORE, premises considered, the instant Petition is DENIED. The Decision dated 8 March 2002 and the Complainant Pike often traveled to and from Japan as a gay entertainer in said country. Sometime in 1991, he
Resolution dated 26 July 2002 of the Court of Appeals are AFFIRMED with modification that exemplary damages in opened U.S. Dollar Savings Account No. 0265-704591-0 with herein petitioner PNB Buendia branch for which he
the amount of P50,000.00 be awarded. Costs against the petitioner. 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 discovered 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 PNB’s Buendia branch and verbally protested the
unauthorized withdrawals and likewise demanded the return of the total withdrawn amount of U.S. $7,500.00, on the
ground that he never authorized anybody to withdraw from his account as the signatures appearing on the subject
withdrawal slips were clearly forgeries; that defendant PNB refused to credit said amount back to complainant’s U.S.
Dollar Savings Account without justifiable reason, and instead, defendant bank wrote him that it exercised due
diligence in the handling of said account; and that on 06 May 1993, complainant Pike wrote defendant PNB simply to
request that the hold-account be lifted so that he may withdraw the remaining balance left in his U.S.$ Savings
Account and nothing else.

On the other hand, defendant PNB alleged, in its Motion to Dismiss6 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 informed
AVP Val that he is leaving for abroad (Japan) and made verbal instruction to honor all withdrawals to be transmitted
G.R. No. 157845 September 20, 2005 by his Talent Manager and Choreographer, Joy Davasol who shall present pre-signed withdrawal slips bearing his
(Pike’s) signature. . .

BANKING Batch 1 Page 1 Page 17 of 34

On April 19, 1993, a certain Josephine Balmaceda, who claimed to be plaintiff’s sister executed an affidavit . . . . A letter dated July 29, 1993 … was sent to Plaintiff’s counsel by VP Suquila stating that plaintiff’s withdrawal of the
stating therein that they discovered today (April 19, 1993) the lost (sic) of her brother’s passbook issued by PNB on remaining balance of his account with the Bank effectively estops him from claiming on the alleged unauthorized
account of robbery, committed in the residence/office of her brother, promptly reporting the matter to the police withdrawals.
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 brother’s passbook.
The trial court, in its decision dated 10 January 1997, made the following findings of fact:

But a copy of an alarm (Police) Report dated April 19, 1993. . . stated that plaintiff (who was the one who reported
. . . [T]hat the bank is responsible for such unauthorized withdrawals. The court is not impressed with the defense put
the matter) after one month in Japan, he (complainant) arrived yesterday. . .
up by the bank. Its contention that the withdrawals 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.
On April 26, 1993, Atty. Nathaniel Ifurung who claims to be plaintiff’s counsel sent a demand letter to VP Violeta T. Pike to the effect that pre-signed withdrawal slips, that is, withdrawal slip signed by the depositor in the presence of
Suquila (then VP and Manager of PNB Buendia Branch) demanding the bank to credit back the amount of Mr. Bal whereby it would be made to appear that it was the depositor himself who presented the same to the bank
US$7,500.00 which were withdrawn on March 31, 1993 and April 5, 1993, because his client’s signatures were despite the fact that it was another person who presented the same should be honored by the bank cannot be
forged and the withdrawal made thereon were unauthorized. . . sanctioned by the court. Firstly, the court is not satisfied that there was indeed such an arrangement. . . It is Mr. Bal’s
contention that such an arrangement although not ordinarily entered into is still a legal procedure of the bank and is
resorted to accommodate the depositors’ specially honored and valued depositor at that.
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, Buendia Branch the The court compared the signatures in the questioned withdrawal slips with the known signatures of the depositor and
full contents of said letter hereto quoted as follows: is convinced that the signatures in the unauthorized withdrawal slips do not correspond to the true signatures of the
depositor.
May 6, 1993
The Manager From the evidence that it received, the court is convinced that the bank was negligent in the performance of its duties
Philippine National Bank such that unauthorized withdrawals were made in the deposit of plaintiff Norman Y. Pike. 7
Buendia Branch
Paseo de Roxas cor. Gil Puyat Street The dispositive portion of the trial court’s decision reads:
Makati, Metro Manila
Sir: WHEREFORE and considering the foregoing, judgment is hereby rendered in favor of the plaintiff and against the
In connection with the request of my sister, Mrs. Josephine P. Balmaceda for the hold-order on my dollar savings defendant and ordering the defendant to pay the following:
passbook No. 265-704591-0, I am now requesting your good office to lift the same so I can withdraw the remaining
balance of my 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 my dollar savings 1. US$7,500.00 plus interest thereon at the rate of 12% per annum until the full amount is paid;
passbook on March 19 and April 5, 1993 respectively as a result of the lost (sic) of my passbook.
Sgd. NORMAN Y. PIKE 2. P25,000.00 for and as attorney’s fees;
Depositor
Philippine Passport 3. P50,000.00 as moral damages and P50,000.00 as exemplary damages; and
No. H918022
Issued at Manila on
Sept. 6, 1990 4. Plus the costs of suit.8

Place of Issuance Defendant PNB’s motion for reconsideration was subsequently denied by the court a quo.9

On the same day May 6, 1993 Plaintiff Norman Y. Pike was allowed by defendant bank to withdraw the remaining On appeal, the Court of Appeals issued the assailed decision dated 19 December 2002, affirming the findings of the
balance from his passbook … . 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:
A letter dated May 18, 1993 was sent to Plaintiff’s 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 … . 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:

On July 2, 1993, Plaintiff’s 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 … .
BANKING Batch 1 Page 1 Page 18 of 34
1. Ordering appellant, the Philippine National Bank, Buendia Branch, to refund appellee the amount of $7,500.00 II.
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;
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
2. The award for moral damages is reduced to P20,000.00; and ACCORDANCE WITH SECTION 22, RULE 132 OF THE REVISED RULES OF COURT; and

3. The award for exemplary damages is likewise reduced to P20,000.00. III.

Costs against appellant.10 WHETHER OR NOT MORAL AND EXEMPLARY DAMAGES CAN BE AWARDED AGAINST A PARTY IN GOOD
FAITH.
The appellate court held that:
Petitioner PNB contends that due to the verbal instructions12 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
Appellant claims that appellee personally talked to its officers to allow Joy Manuel Davasol to make withdrawals.
Account and executed a waiver releasing petitioner PNB from any liability due to the loss of the funds should rightly
Appellee even left pre-signed withdrawal slips before he went to Japan. However, appellant could have told appellee
negate a finding of negligence on its part. Accordingly, petitioner PNB claims that the appellate court, as well as the
to authorize the withdrawal by a representative by indicating the same at the space provided at the back portion of
trial court erred in holding that the withdrawals in question were unauthorized as the signatures appearing on the
the withdrawal slip. This operational flaw was observed by the trial court, when it ruled:
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
The court cannot also understand why the bank did not require the correct, proper and the usual procedure of damages.
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 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:
A perusal of the records discloses that appellee had previously authorized withdrawals by a representative.
However, these withdrawals were properly accompanied by a "withdrawal by a representative" form aside from a
1) respondent Pike’s signatures appearing on the pertinent withdrawal slips used by Joy Manuel Davasol 13 to
handwritten request by appellee to allow such withdrawals by his representative, or a typewritten letter-request for
withdraw the amount of $7,500.00, were forgeries, as found by the trial court and affirmed by the Court of Appeals,
withdrawal by a representative. Certainly, appellant lacked the due care and caution required of managers and
or were authentic as claimed by petitioner bank; and
employees of a firm engaged in so sensitive and demanding business as banking. …

2) respondent Pike in fact executed a waiver absolving petitioner bank from any legal responsibility due to the
In its desire to be exonerated from liability, appellant advances the argument that, granting negligence on its part,
unauthorized withdrawals, as maintained by petitioner bank, or the paragraph containing said waiver was
appellee condoned this negligence as shown in his letter dated May 6, 1993, wherein appellee purportedly
intercalated by some other person, thus, amounting no waiver at all, as held by the courts a quo.
undertook, not to hold the bank and its officers responsible for the unauthorized withdrawals from his account.

are questions of fact and not of law. Inexorably, these issues call for an inquiry into the facts and evidence on record.
We do not agree. It should be emphasized that while the appellee admitted signing the letter dated May 6, 1993, he,
This, as we have so often held, we cannot do.
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 Elementary is the rule that this Court is not the appropriate venue to consider anew the factual issues as it is not a
clearly manifests his desire to do so. … In the instant case, appellee’s filing of the instant action is inconsistent with trier of facts, and, it generally does not weigh anew the evidence already passed upon by the Court of
appellant’s contention that he had waived his right to question appellant’s negligent act of allowing the unauthorized Appeals.14 When this Court is tasked to go over once more the evidence presented by both parties, and analyze,
withdrawals from his account. 11 assess and weigh them to ascertain if the 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. 15 Such task is
foreclosed by the rule enunciated under Section 1 of Rule 4516 of the Rules of Court:
Defendant-appellant PNB filed a motion for reconsideration. In a Resolution dated 02 April 2003, the Court of
Appeals denied said motion.
SECTION 1. Filing of petition with Supreme Court. - . . . The petition shall raise only questions of law17 which must
be distinctly set forth.
Hence, this petition.

We have oft "ruled that factual findings of the Court of Appeals are conclusive on the parties and not reviewable by
Petitioner PNB now seeks the review of the aforequoted decision and resolution of the Court of Appeals predicated
this Court – and they carry even more weight when the Court of Appeals affirms the factual findings of the trial
on the following issues:
court,"18 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 findings
I. must stand. The courts a quo are in a much better position to evaluate properly the evidence.

WHETHER OR NOT THE PRINCIPLE OF ESTOPPEL WAS NOT PROPERLY APPLIED IN THIS CASE;
BANKING Batch 1 Page 1 Page 19 of 34
Finding no other alternative but to affirm their finding that petitioner PNB negligently allowed the unauthorized by signing on the space provided particularly for such transactions, usually found at the back of withdrawal slips. As
withdrawals subject of the case at bar, the instant petition for review must necessarily fail. fittingly found by the courts a quo, if indeed, respondent Pike signed the withdrawal slips in the presence of Mr.
Lorenzo Bal, petitioner PNB’s AVP at its Buendia branch, why did he not call respondent Pike’s attention and refer
him to the space provided for authorizing representatives to withdraw from and receive the proceeds of such
At this juncture, it bears emphasizing that negligence of banking institutions should never be countenanced. The
withdrawal? Or, at the very least, sign or initial the same so that he could identify the pre-signed withdrawal slips
negligence here lies in the lackadaisical attitude exhibited by employees of petitioner PNB in their treatment of
made by Mr. Pike?
respondent Pike’s US Dollar Savings Account that resulted in the unauthorized withdrawal of $7,500.00.
Nevertheless, though its employees may be the ones negligent, a bank’s 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 Q: You are also saying that on March 15, 1993, you likewise met Joy Manuel Dabasol?
their employees,19 and having such obligation, this Court cannot ignore the circumstances surrounding the case at A: Yes, sir.
bar – how the employees of petitioner PNB turned their heads, nay, closed their eyes to the suspicious Q: And you (sic) also saying on March 15, 1993, you also met Norman Pike, the depositor,
circumstances enfolding the two withdrawals subject of the case at bar. It may even be said that they went out of A: Yes, sir.
their ways to disregard standard operating procedures formulated to ensure the security of each and every account Q: And when did you first met (sic) Norman Pike?
that they are handling. Petitioner PNB does not deny that the withdrawal slips used were in breach of standard
A: March 15 when he withdrew $2,000.00.
operating procedures 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 PNB’s Buendia branch, on cross- Q: That was the first time?
examination20 he stated thus: 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?
Q: Mr. Witness, when the original of Exhibit "B"21  was presented to you for approval, how many signatures of
A: That was my first time.
depositor appears thereon?
Q: That was the first time. What I mean is, that he was transacting with the PNB, Buendia Branch long before you
A: Two (2) signatures appears (sic) on the face of the withdrawal slip.
met him?
Q: When it (sic) was (sic) presented to you immediately?
A: Maybe.
A: Yes, sir.
…
Q: Are you sure of that?
Q: And the withdrawal made on April 5, 1993 which you approved, you did not look at Exhibit "C", the Savings
A: Yes, sir. Because it was pre signed withdrawal slip. Signature Card Individual?
Q: What does the signature appear, the word recipient means? A: We do not look at that, that is kept in the vault.
A: Received. Q: Yes or no?
Q: So, what you are saying is that, the depositor here signed this even before receiving the amount? A: No, sir.
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 Mr. witness, Exhibit "C-1"22 which is being kept at your vault, also contains a picture?
Q: And this is a regular procedure?
A: Yes, sir.
A: Yes, sir.
Q: And the picture of the depositor?
Q: Are you sure of that?
A: Yes, sir.
A: Yes, sir.
Q: And are you familiar with the identity of the depositor Norman Pike?
Q: Do you have written manual on this particular procedure, Mr. Witness?
A: What particular identity?
A: Of course, that includes in the Rules and regulations of the bank.
Q: His appearance?
Q: Are you are (sic) are very sure of that?
A: He is gay looking fellow.
A: And banking is a fast transaction between the depositor and the bank.
COURT: Answer. You are familiar with his physical appearance?
Q: And then, is the use of the back portion of the withdrawal slip … with a heading of authorization?
A: Not so much. Because there are so much depositor  (sic)  in the bank.23 [Emphasis ours.]
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. By his own testimony, the witness negated the very reason for the bank’s bizarre "accommodation" of the alleged
Q: You are very sure of that? verbal request of respondent Pike – that he was a "valued client." From the aforequoted, it appears that the witness,
A: Yes, sir. Lorenzo Bal, was not even reasonably 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
Q: And that has been done with the other withdrawal slip of Norman Pike as stated or as shown in the Statement of
without asking for any proof of identification for the reason that: 1) Davasol was in possession of a pre-signed
Account?
withdrawal slip; and 2) the witness "recognized" the signature of respondent Pike – even after admitting that he did
A: Yes, sir. not bother to counter check the signature on the slip with the specimen signature card of respondent Pike and that
Q: That withdrawal made by representative? he met respondent Pike just once so that he cannot seem to recall what the latter looks like. The ensuing quoted
A: Yes, sir. testimony of the same witness will justify a finding of negligence amounting to bad faith, to wit:

From the foregoing, petitioner PNB’s witness was utterly remiss in protecting the bank’s client, as well as the bank Q: And you also met Joy Manuel Dabasol on March 15?
itself, when he allowed an account holder to make it appear as if he was the one actually withdrawing from an A: Yes, sir.
account and actually receiving the withdrawn amount. Ordinarily, banks allow withdrawal by someone who is not the Q: And can you describe Joy Manuel Dabasol?
account holder so long as the account holder authorizes his representative to withdraw and receive from his account
BANKING Batch 1 Page 1 Page 20 of 34
A: I cannot recall his face but then he is a Talent manager, because there are so many depositors in the bank. From the foregoing, the evidence clearly showed that the petitioner bank did not exercise the degree of diligence that
... it ought to have exercised in dealing with their clients.
Q: Mr. witness, you are saying that Mr. Pike, the depositor gave you verbal authority to honor withdrawal by Joy
Manuel Dabasol? With banks, the degree of diligence required, contrary to the position of petitioner PNB, is more than that of a good
A: Yes, sir. father of a family considering that the business of banking is imbued with public interest due to the nature of their
Q: Why did you not require then that Mr. Pike instead sign the authorization portion and that the name of Joy Manuel functions. The stability of banks largely depends on the confidence of the people in the honesty and efficiency of
Dabasol appear thereon with his signature? 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, 25 which
A: I required Mr. Norman Pike to sign the withdrawal slip on the face of the withdrawal slip. took effect on 13 June 2000, makes a categorical declaration that the State recognizes the "fiduciary nature of
Q: But not the authorization portion of the said withdrawal slip? banking that requires high standards of integrity and performance."26
...
A: No, because that is sufficient already. Though passed long after the unauthorized withdrawals in this case, the aforequoted provision is a statutory
Q: And is this your normal procedure, Mr. witness? This particular procedure that you conducted? affirmation of Supreme Court decisions already in esse at the time of such withdrawals. We elucidated in the 1990
A: I don’t think so. case of Simex International, Inc. v. Court of Appeals,27 that "the bank is under obligation to treat the accounts of its
Q: Mr. witness, when – on April 5, 1993, when Joy Dabasol came to the office and according to you, you do not depositors with meticulous care, always having in mind the fiduciary nature of their relationship." 28
remember him, is that correct?
A: I cannot recall his face. Likewise, in the case of The Consolidated Bank and Trust Corporation v. Court of Appeals,29 we clarified that said
... fiduciary relationship means that the bank’s obligation to observe "highest standards of integrity and performance" is
Q: And he just showed you a withdrawal slip, is this correct? deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking
A: Yes, on April 5. requires banks to assume a degree of diligence higher than that of a good father of a family. Article 1172 of the New
Q: Did you require him to produce any Identification Card, yes or no? Civil Code states that the degree of diligence required of an obligor 30 is that prescribed by law or contract, and absent
A: No. such stipulation then the diligence of a family. 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
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? Anent the issue of the propriety of the award of damages in this case, petitioner PNB asseverates that there was no
A: Yes, sir. Because his signature appears. evidence to prove that respondent Pike "suffered anguish, embarrassment and mental sufferings" 32 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.
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. Petitioner PNB’s assertions fail to impress us.
Q: And that is SPO (sic) of PNB, Buendia Branch to accept verbal authorities?
A: Yes. The award of moral and exemplary damages is left to the sound discretion of the court, and if such discretion is well
Q: Is that Standard Operating Procedure? exercised, as in this case, it will not be disturbed on appeal.33 In the case of Philippine Telegraph & Telephone
A: It is not SPO, but when you knew the client, Your Honor, you have to honor also the trust and confidence. Let us Corporation v. Court of Appeals,34 we had the occasion to reiterate the conditions to be met in order that moral
say if you… damages may be recovered. In said case we stated:
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? An award of moral damages would require, firstly, evidence of besmirched reputation, or physical, mental or
A: Yes, Your Honor. Because a depositor requested you to honor his signature, you have to do that or else will…and psychological suffering sustained by the claimant; secondly, a culpable act or omission factually established; thirdly,
besides the request is for purpose of expediency, Your Honor. Because most often than that, he is out of the country, proof that the wrongful act or omission of the defendant is the proximate cause of the damages sustained by the
in Japan. And his Talent Manager is the one managing the recruiting agency. The money will be used in the claimant; and fourthly, that the case is predicated on any of the instances expressed or envisioned by Articles
operating expenses. 221935 and 222036 of the Civil Code.
...
Q: You did not even bother to look at the Savings Signature Card Individual, yes or no?
Specifically, in culpa contractual or breach of contract, as here, moral damages are recoverable only if the defendant
A: No, sir.24 [Emphases supplied.]
has acted fraudulently or in bad faith, 37 or is found guilty of gross negligence amounting to bad faith, 38 or in wanton
disregard of his contractual obligations.39 Verily, the breach must be wanton, reckless, malicious, or in bad faith,
Having admitted that pre-signed withdrawal slips do not constitute the normal procedure with respect to withdrawals oppressive or abusive.40
by representatives should have already put petitioner PNB’s employees on guard. Rather than readily validating and
permitting said withdrawals, they should have proceeded more cautiously. Clearly, petitioner bank’s employee,
There is no reason to disturb the trial court’s finding of petitioner bank’s employees’ negligence in their treatment of
Lorenzo T. Bal, an Assistant Vice President at that, was exceedingly careless in his treatment of respondent Pike’s
respondent Pike’s account. In the case on hand, the Court of Appeals sustained, and rightly so, that an award of
savings account.
moral damages is warranted. For, as found by said appellate court, citing the case of Prudential Bank v. Court of
Appeals,41 "the bank’s negligence is a result of lack of due care and caution required of managers and employees of

BANKING Batch 1 Page 1 Page 21 of 34

a firm engaged in so sensitive and demanding business, as banking, hence, the award of ₱20,000.00 as moral TINGA, J.:
damages, is proper.
The Bank of the Philippine Islands (BPI) seeks the reversal of the Decision1 of the Court of Appeals dated 31 July
The award of exemplary damages is also proper as a warning to petitioner PNB and all concerned not to recklessly 2006 in CA-G.R. CV No. 62769 which ordered it to pay Lifetime Marketing Corporation (LMC) actual damages in the
disregard their obligation to exercise the highest and strictest diligence in serving their depositors. amount of P2,075,695.50 on account of its gross negligence in handling LMC's account.

Finally, the aforestated grant of exemplary damages entitles respondent Pike the award of attorney's fees in the The following facts, quoted from the decision of the Court of Appeals, are undisputed:
amount of P20,000.00 and the award of P10,000.00 for litigation expenses.42
On October 22, 1981, Lifetime Marketing Corporation (LMC, for brevity), opened a current account with the
WHEREFORE, the instant petition is DENIED. The assailed Decision dated 19 December 2002, and the Resolution Bank of the Philippine Islands (BPI, for brevity), Greenhills-Edsa branch, denominated as Account No.
dated 02 April 2003, both of the Court of Appeals, in CA-G.R. CV No. 59389, which affirmed with modification the 3101-0680-63. In this account, the "sales agents" of LMC would have to deposit their collections or
Decision rendered by the Regional Trial Court (RTC), Branch 07 of Manila, dated 10 January 1997, in Civil Case No. payments to the latter. As a result, LMC and BPI, made a special arrangement that the former's agents will
94-68821, are hereby AFFIRMED with the modification that petitioner PNB is directed to pay respondent Pike accomplish three (3) copies of the deposit slips, the third copy to be retained and held by the teller until
additional 1) ₱20,000.00 representing attorney’s fees; and 2) ₱10,000.00 representing expenses of litigation. Costs LMC's authorized representatives, Mrs. Virginia Mongon and Mrs. Violeta Ancajas, shall retrieve them on
against petitioner PNB. the following banking day.

SO ORDERED. Sometime in 1986, LMC availed of the BPI's inter-branch banking network services in Metro Manila,
whereby the former's agents could make [a] deposit to any BPI branch in Metro Manila under the same
account. Under this system, BPI's 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 LMC's 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 LMC's 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 LMC's "Educational Consultants" or agents. On various dates covering the period
from May, [sic] 1991 up to August, 1992, Alice Laurel deposited checks to LMC's 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.
G.R. No. 176434             June 25, 2008
A verification with BPI by LMC showed that Alice Laurel made check deposits with the named BPI
BANK OF THE PHILIPPINE ISLANDS, petitioner, branches and, after the check deposit slips were machine-validated, requested the teller to reverse the
vs. transactions. Based on general banking practices, however, the cancellation of deposit or payment
LIFETIME MARKETING CORPORATION, respondent. 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
DECISION

BANKING Batch 1 Page 1 Page 22 of 34

 person. Notwithstanding this, the verbal requests of Alice Laurel and her husband to reverse the deposits award of actual damages. Moreover, the actual damages should not have been increased because the decision of
even after the deposit slips were already received and consummated were accommodated by BPI tellers. the trial court became conclusive as regards LMC when it did not appeal the said decision.

Alice Laurel presented the machine-validated deposit slips to LMC which, on the strength thereof, BPI further avers that LMC's negligence in considering the machine-validated check deposit slips as evidence of
considered her account paid. LMC even granted her certain privileges or prizes based on the deposits she Alice Laurel's payment was the proximate cause of its own loss. Allegedly, by allowing its agents to make deposits
made. with other BPI branches, LMC violated its own special arrangement with BPI's Greenhills-EDSA branch for the latter
to hold on to an extra copy of the deposit slip for pick up by LMC's 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
The total aggregate amount covered by Alice Laurel's deposit slips was Two Million Seven Hundred Sixty
deposit slips is still subject to the sufficiency of the funds in the drawers' account. Furthermore, LMC allegedly
Seven Thousand, Five Hundred Ninety Four Pesos (P2,767,594.00) and, for which, LMC paid Laurel the
ignored the express notice indicated in its monthly bank statements and consequently failed to check the accuracy of
total sum of Five Hundred Sixty Thousand Seven Hundred Twenty Six Pesos (P560,726.00) by way of
the transactions reflected therein.
"sales discount and promo prizes."

In its Manifestation of Compliance by Respondent on the Order Dated 20 June 2007 Received on 29 July 2007 to
The above fraudulent transactions of Alice Laurel and her husband was made possible through BPI teller's
Submit Comment,6 dated 9 August 2007, LMC insists that it is indeed entitled to the actual damages awarded to it by
failure to retrieve the duplicate original copies of the deposit slips from the former, every time they ask for
the appellate court.
cancellation or reversal of the deposit or payment transaction.

BPI filed a Reply7 dated 15 January 2008, in reiteration of its submissions.

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 We have repeatedly emphasized that the banking industry is impressed with public interest. Of paramount
the latter's verbal request or representation. 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
Thereafter, LMC immediately instituted a criminal action for Estafa against Alice Laurel and her husband
nature of its relationship with them.8 The fiduciary nature of banking, previously imposed by case law, is now
Thomas Limoanco, before the Regional Trial Court of Makati, Branch 65, docketed as Criminal Case No.
enshrined in Republic Act No. 8791 or the General Banking Law of 2000. Section 2 thereof specifically says that the
93-7970 to 71, entitled People of the Philippines v. Thomas Limoanco and Alice Laurel. This case for
state recognizes the fiduciary nature of banking that requires high standards of integrity and performance. 9
estafa, however, was archived because summons could not be served upon the spouses as they have
absconded. Thus, the BPI's apparent reluctance to admit liability and settle LMC's claim for damages, and
a hopeless case of recovery from Alice Laurel and her husband, has left LMC, with no option but to Whether BPI observed the highest degree of care in handling LMC's account is the subject of the inquiry in this case.
recover damages from BPI.
LMC sought recovery from BPI on a cause of action based on tort. Article 2176 of the Civil Code provides, "Whoever
On July 24, 1995, LMC, through its representative, Miss Consolacion C. Rogacion, the President of the by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage
company, filed a Complaint for Damages against BPI, docketed as Civil Case No. 95-1106, and was done. Such fault or negligence if there is no pre-existing contractual relation between the parties, is called a quasi-
raffled to Regional Trial Court of Makati City, Branch 141. 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
After trial on the merits, the court a quo rendered a Decision in favor of LMC. The dispositive portion of
damages incurred by the plaintiff.10
which reads, as follows:

In this case, both the trial court and the Court of Appeals found that the reversal of the transactions in question was
WHEREFORE, decision is hereby rendered ordering defendant bank to pay plaintiff actual
unilaterally undertaken by BPI's tellers without following normal banking procedure which requires them to ensure
damages equitably reduced to one (1) million pesos plus attorney's fees of P100,000.00.
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 Laurel's account
No pronouncement as to costs. as already paid.

SO ORDERED.2 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
Only BPI filed an appeal. The Court of Appeals affirmed the decision of the trial court but increased the award of place and BPI's utter failure to supervise its employees. Notably, BPI's managers admitted in several
actual damages to P2,075,695.50 and deleted the award of P100,000.00 as attorney's fees.3 Citing public interest, correspondences with LMC that the deposit transactions were cancelled without LMC's knowledge and consent and
the appellate court denied reconsideration in a Resolution4 dated 30 January 2007. based only upon the request of Alice Laurel and her husband. 12

In this Petition for Review5 dated 19 March 2007, BPI insists that LMC should have presented evidence to prove not It is well to reiterate that the degree of diligence required of banks is more than that of a reasonable man or a good
only the amount of the checks that were deposited and subsequently reversed, but also the actual delivery of the father of a family. In view of the fiduciary nature of their relationship with their depositors, banks are duty-bound to
books and the payment of "sales and promo prizes" to Alice Laurel. Failing this, there was allegedly no basis for the treat the accounts of their clients with the highest degree of care.13

BANKING Batch 1 Page 1 Page 23 of 34

BPI cannot escape liability because of LMC's 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 BPI's tellers in failing to
require the surrender of the machine-validated deposit slips before reversing the deposit transactions, the loss would
not have occurred. BPI's 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 G.R. No. 149454             May 28, 2004
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 BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
Parenthetically, we find no merit in BPI's allegation that LMC should have presented evidence of delivery of the CASA MONTESSORI INTERNATIONALE LEONARDO T. YABUT, respondents.
books and payment of sales and promo prizes to Alice Laurel. The evidence presented by LMC in the form of BPI's
own admission that the deposit transactions were x ----------------------------- x

reversed at the instance of Alice Laurel and her husband, coupled with the machine-validated deposit slips16 which G.R. No. 149507             May 28, 2004
were supposed to have been deposited to LMC's 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 Laurel's account paid and in granting her monetary privileges and prizes. CASA MONTESSORI INTERNATIONALE, petitioner,
vs.
BANK OF THE PHILIPPINE ISLANDS, respondent.
Be that as it may, we find the appellate court's 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 DECISION
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 court's jurisdiction over the subject matter, (2) plain errors not specified, and PANGANIBAN, J.:
(3) clerical errors, do not apply in this case.17

By the nature of its functions, a bank is required to take meticulous care of the deposits of its clients, who have the
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 62769 dated 31 July 2006 and its Resolution right to expect high standards of integrity and performance from it.
dated January 30, 2007 are AFFIRMED with the MODIFICATION that the Bank of the Philippine Islands is ordered
to pay actual damages to Lifetime
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
Marketing Corporation in the amount of One Million Pesos (P1,000,000.00). No pronouncement as to costs. bank to them for verification.

SO ORDERED. The Case

Before us are two Petitions for Review1 under Rule 45 of the Rules of Court, assailing the March 23, 2001
Decision2 and the August 17, 2001 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 63561. The decretal
portion of the assailed Decision reads as follows:

"WHEREFORE, upon the premises, the decision appealed from is AFFIRMED with the modification that
defendant bank [Bank of the Philippine Islands (BPI)] is held liable only for one-half of the value of the
forged checks in the amount of ₱547,115.00 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:

BANKING Batch 1 Page 1 Page 24 of 34

 "On November 8, 1982, plaintiff CASA Montessori International 5 opened Current Account No. 0291-0081- Issues
01 with defendant BPI[,] with CASA’s President Ms. Ma. Carina C. Lebron as one of its authorized
signatories.
In GR No. 149454, Petitioner BPI submits the following issues for our consideration:

"In 1991, after conducting an investigation, plaintiff discovered that nine (9) of its checks had been
"I. The Honorable Court of Appeals erred in deciding this case NOT in accord with the applicable
encashed by a certain Sonny D. Santos since 1990 in the total amount of ₱782,000.00, on the following
decisions of this Honorable Court to the effect that forgery cannot be presumed; that it must be proved
dates and amounts:
by clear, positive and convincing evidence; and that the burden of proof lies on the party alleging the
forgery.
‘Check
Date Amount
No. "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,
1. 839700 April 24, 1990 ₱ 43,400.00 from asserting its forgery claim against BPI, specially taking into account the absence of any negligence
on the part of BPI."10
2. 839459 Nov. 2, 1990 110,500.00

3. 839609 Oct. 17, 1990 47,723.00 In GR No. 149507, Petitioner CASA submits the following issues:
4. 839549 April 7, 1990 90,700.00
"1. The Honorable Court of Appeals erred when it ruled that ‘there is no showing that [BPI], although
Sept. 23, negligent, acted in bad faith x x x’ thus denying the prayer for the award of attorney’s fees, moral damages
5. 839569 52,277.00
1990 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].
6. 729149 Mar. 22, 1990 148,000.00

7. 729129 Mar. 16, 1990 51,015.00 "2. The Honorable Court of Appeals erred when it declared that [CASA] was likewise negligent in the case
at bar, thus warranting its conclusion that the loss in the amount of ₱547,115.00 be ‘apportioned between
8. 839684 Dec. 1, 1990 140,000.00 [CASA] and [BPI] x x x.’"11
9. 729034 Mar. 2, 1990 98,985.00
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
Total -- ₱ 782,600.006 defense? Third, should moral and exemplary damages, attorney’s fees, and interest be awarded?

The Court’s Ruling

"It turned out that ‘Sonny D. Santos’ with account at BPI’s 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 The Petition in GR No. 149454 has no merit, while that in GR No. 149507 is partly meritorious.
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. First Issue:

"On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages against defendant bank Forged Signature Wholly Inoperative
praying that the latter be ordered to reinstate the amount of ₱782,500.007 in the current and savings
accounts of the plaintiff with interest at 6% per annum.
Section 23 of the NIL provides:
8
"On February 16, 1999, the RTC rendered the appealed decision in favor of the plaintiff."
"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
Ruling of the Court of Appeals 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
Modifying the Decision of the Regional Trial Court (RTC), the CA apportioned the loss between BPI and CASA. The authority."12
appellate court took into account CASA’s contributory negligence that resulted in the undetected forgery. It then
ordered Leonardo T. Yabut to reimburse BPI half the total amount claimed; and CASA, the other half. It also Under this provision, a forged signature is a real13 or absolute defense,14 and a person whose signature on a
disallowed attorney’s fees and moral and exemplary damages. negotiable instrument is forged is deemed to have never become a party thereto and to have never consented to the
contract that allegedly gave rise to it.15
Hence, these Petitions.9

BANKING Batch 1 Page 1 Page 25 of 34

The counterfeiting of any writing, consisting in the signing of another’s name with intent to defraud, is forgery. 16 involved. Such Affidavit may therefore be admitted without violating his constitutional rights while under custodial
investigation and against self-incrimination.
In the present case, we hold that there was forgery of the drawer’s signature on the check.
Clear, Positive and Convincing Examination and Evidence
17 18
First, both the CA  and the RTC  found that Respondent Yabut himself had voluntarily admitted, through an
Affidavit, that he had forged the drawer’s signature and encashed the checks. 19 He never refuted these The examination by the PNP, though inconclusive, was nevertheless clear, positive and convincing.
findings.20 That he had been coerced into admission was not corroborated by any evidence on record. 21
Forgery "cannot be presumed."47 It must be established by clear, positive and convincing evidence. 48 Under the best
Second, the appellate and the trial courts also ruled that the PNP Crime Laboratory, after its examination of the said evidence rule as applied to documentary evidence like the checks in question, no secondary or substitutionary
checks,22 had concluded that the handwritings thereon -- compared to the standard signature of the drawer -- were evidence may inceptively be introduced, as the original writing itself must be produced in court. 49 But when, without
not hers.23 This conclusion was the same as that in the Report24 that the PNP Crime Laboratory had earlier issued to bad faith on the part of the offeror, the original checks have already been destroyed or cannot be produced in court,
BPI -- the drawee bank -- upon the latter’s request. secondary evidence may be produced.50 Without bad faith on its part, CASA proved the loss or destruction of the
original checks through the Affidavit of the one person who knew of that fact51 -- Yabut. He clearly admitted to
discarding the paid checks to cover up his misdeed. 52 In such a situation, secondary evidence like microfilm copies
Indeed, we respect and affirm the RTC’s factual findings, especially when affirmed by the CA, since these are
may be introduced in court.
supported by substantial evidence on record.25

The drawer’s signatures on the microfilm copies were compared with the standard signature. PNP Document
Voluntary Admission Not Violative of Constitutional Rights
Examiner II Josefina de la Cruz testified on cross-examination that two different persons had written them. 53 Although
no conclusive report could be issued in the absence of the original checks, 54 she affirmed that her findings were 90
The voluntary admission of Yabut did not violate his constitutional rights (1) on custodial investigation, and (2) percent conclusive.55 According to her, even if the microfilm copies were the only basis of comparison, the
against self-incrimination. differences were evident.56 Besides, the RTC explained that although the Report was inconclusive, no conclusive
report could have been given by the PNP, anyway, in the absence of the original checks. 57 This explanation is valid;
otherwise, no such report can ever be relied upon in court.
In the first place, he was not under custodial investigation. 26 His Affidavit was executed in private and before private
individuals.27 The mantle of protection under Section 12 of Article III of the 1987 Constitution 28 covers only the period
"from the time a person is taken into custody for investigation of his possible participation in the commission of a Even with respect to documentary evidence, the best evidence rule applies only when the contents of a document --
crime or from the time he is singled out as a suspect in the commission of a crime although not yet in custody." 29 such as the drawer’s signature on a check -- is the subject of inquiry.58 As to whether the document has been
actually executed, this rule does not apply; and testimonial as well as any other secondary evidence is
admissible.59 Carina Lebron herself, the drawer’s authorized signatory, testified many times that she had never
Therefore, to fall within the ambit of Section 12, quoted above, there must be an arrest or a deprivation of freedom, signed those checks. Her testimonial evidence is admissible; the checks have not been actually executed. The
with "questions propounded on him by the police authorities for the purpose of eliciting admissions, confessions, or genuineness of her handwriting is proved, not only through the court’s comparison of the questioned handwritings
any information."30 The said constitutional provision does "not apply to spontaneous statements made in a voluntary and admittedly genuine specimens thereof,60 but above all by her.
manner"31 whereby an individual orally admits to authorship of a crime.32 "What the Constitution proscribes is the
compulsory or coercive disclosure of incriminating facts." 33
The failure of CASA to produce the original checks neither gives rise to the presumption of suppression of
34 35 evidence61 nor creates an unfavorable inference against it.62 Such failure merely authorizes the introduction of
Moreover, the right against self-incrimination  under Section 17 of Article III  of the Constitution, which is ordinarily secondary evidence63 in the form of microfilm copies. Of no consequence is the fact that CASA did not present the
available only in criminal prosecutions, extends to all other government proceedings -- including civil actions, signature card containing the signatures with which those on the checks were compared. 64 Specimens of standard
legislative investigations, 36 and administrative proceedings that possess a criminal or penal aspect37 -- but not to signatures are not limited to such a card. Considering that it was not produced in evidence, other documents that
private investigations done by private individuals. Even in such government proceedings, this right may be bear the drawer’s authentic signature may be resorted to.65 Besides, that card was in the possession of BPI -- the
waived,38 provided the waiver is certain; unequivocal; and intelligently, understandingly and willingly made. 39 adverse party.

If in these government proceedings waiver is allowed, all the more is it so in private investigations. It is of no moment We have held that without the original document containing the allegedly forged signature, one cannot make a
that no criminal case has yet been filed against Yabut. The filing thereof is entirely up to the appropriate authorities definitive comparison that would establish forgery;66 and that a comparison based on a mere reproduction of the
or to the private individuals upon whom damage has been caused. As we shall also explain later, it is not mandatory document under controversy cannot produce reliable results.67 We have also said, however, that a judge cannot
for CASA -- the plaintiff below -- to implead Yabut in the civil case before the lower court. merely rely on a handwriting expert’s testimony,68 but should also exercise independent judgment in evaluating the
authenticity of a signature under scrutiny.69 In the present case, both the RTC and the CA conducted independent
Under these two constitutional provisions, "[t]he Bill of Rights 40 does not concern itself with the relation between a examinations of the evidence presented and arrived at reasonable and similar conclusions. Not only did they admit
private individual and another individual. It governs the relationship between the individual and the secondary evidence; they also appositely considered testimonial and other documentary evidence in the form of the
State."41 Moreover, the Bill of Rights "is a charter of liberties for the individual and a limitation upon the power of the Affidavit.
[S]tate."42 These rights43 are guaranteed to preclude the slightest coercion by the State that may lead the accused "to
admit something false, not prevent him from freely and voluntarily telling the truth." 44 The best evidence rule admits of exceptions and, as we have discussed earlier, the first of these has been
met.70 The result of examining a questioned handwriting, even with the aid of experts and scientific instruments, may
Yabut is not an accused here. Besides, his mere invocation of the aforesaid rights "does not automatically entitle him be inconclusive;71 but it is a non sequitur to say that such result is not clear, positive and convincing. The
to the constitutional protection."45 When he freely and voluntarily executed46 his Affidavit, the State was not even preponderance of evidence required in this case has been satisfied. 72
BANKING Batch 1 Page 1 Page 26 of 34
 Second Issue: report x x x."93 CASA, on the other hand, could not have been a passive subject, either, because it had no obligation
to respond. It could -- as it did -- choose not to respond.
Negligence Attributable to BPI Alone
Estoppel precludes individuals from denying or asserting, by their own deed or representation, anything contrary to
that established as the truth, in legal contemplation.94 Our rules on evidence even make a juris et de
Having established the forgery of the drawer’s signature, BPI -- the drawee -- erred in making payments by virtue
jure presumption95 that whenever one has, by one’s own act or omission, intentionally and deliberately led another to
thereof. The forged signatures are wholly inoperative, and CASA -- the drawer whose authorized signatures do not
believe a particular thing to be true and to act upon that belief, one cannot -- in any litigation arising from such act or
appear on the negotiable instruments -- cannot be held liable thereon. Neither is the latter precluded from setting up
omission -- be permitted to falsify that supposed truth.96
forgery as a real defense.

In the instant case, CASA never made any deed or representation that misled BPI. The former’s omission, if any,
Clear Negligence in Allowing Payment Under a Forged Signature
may only be deemed an innocent mistake oblivious to the procedures and consequences of periodic audits. Since its
conduct was due to such ignorance founded upon an innocent mistake, estoppel will not arise. 97 A person who has
We have repeatedly emphasized that, since the banking business is impressed with public interest, of paramount no knowledge of or consent to a transaction may not be estopped by it.98 "Estoppel cannot be sustained by mere
importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of argument or doubtful inference x x x."99 CASA is not barred from questioning BPI’s error even after the lapse of the
diligence73 is expected,74 and high standards of integrity and performance are even required, of it.75 By the nature of period given in the notice.
its functions, a bank is "under obligation to treat the accounts of its depositors with meticulous care, 76 always having
in mind the fiduciary nature of their relationship."77
Loss Borne by Proximate Source of Negligence

BPI contends that it has a signature verification procedure, in which checks are honored only when the signatures
For allowing payment100 on the checks to a wrongful and fictitious payee, BPI -- the drawee bank -- becomes liable to
therein are verified to be the same with or similar to the specimen signatures on the signature cards. Nonetheless, it
its depositor-drawer. Since the encashing bank is one of its branches,101 BPI can easily go after it and hold it liable
still failed to detect the eight instances of forgery. Its negligence consisted in the omission of that degree of diligence
for reimbursement.102 It "may not debit the drawer’s account103 and is not entitled to indemnification from the
required78 of a bank. It cannot now feign ignorance, for very early on we have already ruled that a bank is "bound to
drawer."104 In both law and equity, when one of two innocent persons "must suffer by the wrongful act of a third
know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out
person, the loss must be borne by the one whose negligence was the proximate cause of the loss or who put it into
of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was
the power of the third person to perpetrate the wrong."105
forged."79 In fact, BPI was the same bank involved when we issued this ruling seventy years ago.

Proximate cause is determined by the facts of the case.106 "It is that cause which, in natural and continuous
Neither Waiver nor Estoppel Results from Failure to Report Error in Bank Statement
sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not
have occurred."107
The monthly statements issued by BPI to its clients contain a notice worded as follows: "If no error is reported in ten
(10) days, account will be correct."80 Such notice cannot be considered a waiver, even if CASA failed to report the
Pursuant to its prime duty to ascertain well the genuineness of the signatures of its client-depositors on checks being
error. Neither is it estopped from questioning the mistake after the lapse of the ten-day period.
encashed, BPI is "expected to use reasonable business prudence."108 In the performance of that obligation, it is
bound by its internal banking rules and regulations that form part of the contract it enters into with its depositors. 109
This notice is a simple confirmation81 or "circularization" -- in accounting parlance -- that requests client-depositors to
affirm the accuracy of items recorded by the banks.82 Its purpose is to obtain from the depositors a direct
Unfortunately, it failed in that regard. First, Yabut was able to open a bank account in one of its branches without
corroboration of the correctness of their account balances with their respective banks. 83 Internal or external auditors
privity;110 that is, without the proper verification of his corresponding identification papers. Second, BPI was unable to
of a bank use it as a basic audit procedure84 -- the results of which its client-depositors are neither interested in nor
discover early on not only this irregularity, but also the marked differences in the signatures on the checks and those
privy to -- to test the details of transactions and balances in the bank’s records.85 Evidential matter obtained from
on the signature card. Third, despite the examination procedures it conducted, the Central Verification Unit 111 of the
independent sources outside a bank only serves to provide greater assurance of reliability86 than that obtained solely
bank even passed off these evidently different signatures as genuine. Without exercising the required prudence on
within it for purposes of an audit of its own financial statements, not those of its client-depositors.
its part, BPI accepted and encashed the eight checks presented to it. As a result, it proximately contributed to the
fraud and should be held primarily liable 112 for the "negligence of its officers or agents when acting within the course
Furthermore, there is always the audit risk that errors would not be detected87 for various reasons. One, materiality is and scope of their employment."113 It must bear the loss.
a consideration in audit planning;88 and two, the information obtained from such a substantive test is merely
presumptive and cannot be the basis of a valid waiver.89 BPI has no right to impose a condition unilaterally and
CASA Not Negligent in Its Financial Affairs
thereafter consider failure to meet such condition a waiver. Neither may CASA renounce a right 90 it has never
possessed.91
In this jurisdiction, the negligence of the party invoking forgery is recognized as an exception 114 to the general rule
that a forged signature is wholly inoperative. 115 Contrary to BPI’s claim, however, we do not find CASA negligent in
Every right has subjects -- active and passive. While the active subject is entitled to demand its enforcement, the
handling its financial affairs. CASA, we stress, is not precluded from setting up forgery as a real defense.
passive one is duty-bound to suffer such enforcement. 92

Role of Independent Auditor

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

BANKING Batch 1 Page 1 Page 27 of 34

The major purpose of an independent audit is to investigate and determine objectively if the financial statements The missing checks were certainly reported by the bookkeeper 142 to the accountant143 -- her immediate supervisor --
submitted for audit by a corporation have been prepared in accordance with the appropriate financial reporting and by the latter to the auditor. However, both the accountant and the auditor, for reasons known only to them,
practices116 of private entities. The relationship that arises therefrom is both legal and moral.117 It begins with the assured the bookkeeper that there were no irregularities.
execution of the engagement letter118 that embodies the terms and conditions of the audit and ends with the fulfilled
expectation of the auditor’s ethical119 and competent performance in all aspects of the audit. 120
The bookkeeper 144 who had exclusive custody of the checkbooks145 did not have to go directly to CASA’s president or
to BPI. Although she rightfully reported the matter, neither an investigation was conducted nor a resolution of it was
The financial statements are representations of the client; but it is the auditor who has the responsibility for the arrived at, precisely because the person at the top of the helm was the culprit. The vouchers, invoices and check
accuracy in the recording of data that underlies their preparation, their form of presentation, and the stubs in support of all check disbursements could be concealed or fabricated -- even in collusion -- and management
opinion121 expressed therein.122 The auditor does not assume the role of employee or of management in the client’s would still have no way to verify its cash accountabilities.
conduct of operations123 and is never under the control or supervision124 of the client.
Clearly then, Yabut was able to perpetrate the wrongful act through no fault of CASA. If auditors may be held liable
Yabut was an independent auditor125 hired by CASA. He handled its monthly bank reconciliations and had access to for breach of contract and negligence, 146 with all the more reason may they be charged with the perpetration of fraud
all relevant documents and checkbooks. 126 In him was reposed the client’s127 trust and confidence128 that he would upon an unsuspecting client. CASA had the discretion to pursue BPI alone under the NIL, by reason of expediency
perform precisely those functions and apply the appropriate procedures in accordance with generally accepted or munificence or both. Money paid under a mistake may rightfully be recovered, 147 and under such terms as the
auditing standards.129 Yet he did not meet these expectations. Nothing could be more horrible to a client than to injured party may choose.
discover later on that the person tasked to detect fraud was the same one who perpetrated it.
Third Issue:
Cash Balances Open to Manipulation
Award of Monetary Claims
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
Moral Damages Denied
reasonable time. Awareness is not equipollent with discernment.

We deny CASA’s claim for moral damages.

Besides, in the internal accounting control system prudently installed by CASA, 130 it was Yabut who should examine
those documents in order to prepare the bank reconciliations.131 He owned his working papers, 132 and his output
consisted of his opinion as well as the client’s financial statements and accompanying notes thereto. CASA had In the absence of a wrongful act or omission,148 or of fraud or bad faith,149 moral damages cannot be awarded. 150 The
every right to rely solely upon his output -- based on the terms of the audit engagement -- and could thus be adverse result of an action does not per se make the action wrongful, or the party liable for it. One may err, but error
unwittingly duped into believing that everything was in order. Besides, "[g]ood faith is always presumed and it is the alone is not a ground for granting such damages. 151 While no proof of pecuniary loss is necessary therefor -- with the
burden of the party claiming otherwise to adduce clear and convincing evidence to the contrary." 133 amount to be awarded left to the court’s discretion 152 -- the claimant must nonetheless satisfactorily prove the
existence of its factual basis153 and causal relation154 to the claimant’s act or omission.155
Moreover, there was a time gap between the period covered by the bank statement and the date of its actual receipt.
Lebron personally received the December 1990 bank statement only in January 1991134 -- when she was also Regrettably, in this case CASA was unable to identify the particular instance -- enumerated in the Civil Code -- upon
informed of the forgery for the first time, after which she immediately requested a "stop payment order." She cannot which its claim for moral damages is predicated. 156 Neither bad faith nor negligence so gross that it amounts to
be faulted for the late detection of the forged December check. After all, the bank account with BPI was not personal malice157 can be imputed to BPI. Bad faith, under the law, "does not simply connote bad judgment or negligence; 158 it
but corporate, and she could not be expected to monitor closely all its finances. A preschool teacher charged with imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty
molding the minds of the youth cannot be burdened with the intricacies or complexities of corporate existence. through some motive or interest or ill will that partakes of the nature of fraud." 159

There is also a cutoff period such that checks issued during a given month, but not presented for payment within that As a general rule, a corporation -- being an artificial person without feelings, emotions and senses, and having
period, will not be reflected therein.135 An experienced auditor with intent to defraud can easily conceal any devious existence only in legal contemplation -- is not entitled to moral damages, 160 because it cannot experience physical
scheme from a client unwary of the accounting processes involved by manipulating the cash balances on record -- suffering and mental anguish.161 However, for breach of the fiduciary duty required of a bank, a corporate client may
especially when bank transactions are numerous, large and frequent. CASA could only be blamed, if at all, for its claim such damages when its good reputation is besmirched by such breach, and social humiliation results
unintelligent choice in the selection and appointment of an auditor -- a fault that is not tantamount to negligence. therefrom.162 CASA was unable to prove that BPI had debased the good reputation of,163 and consequently caused
incalculable embarrassment to, the former. CASA’s mere allegation or supposition thereof, without any sufficient
evidence on record,164 is not enough.
Negligence is not presumed, but proven by whoever alleges it.136 Its mere existence "is not sufficient without proof
that it, and no other cause,"137 has given rise to damages.138 In addition, this fault is common to, if not prevalent
among, small and medium-sized business entities, thus leading the Professional Regulation Commission (PRC), Exemplary Damages Also Denied
through the Board of Accountancy (BOA), to require today not only accreditation for the practice of public
accountancy,139 but also the registration of firms in the practice thereof. In fact, among the attachments now required
We also deny CASA’s claim for exemplary damages.
upon registration are the code of good governance140 and a sworn statement on adequate and effective training. 141

Imposed by way of correction165 for the public good,166 exemplary damages cannot be recovered as a matter of
right.167 As we have said earlier, there is no bad faith on the part of BPI for paying the checks of CASA upon forged

BANKING Batch 1 Page 1 Page 28 of 34

signatures. Therefore, the former cannot be said to have acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner.168 The latter, having no right to moral damages, cannot demand exemplary damages.169

Attorney’s Fees Granted

Although it is a sound policy not to set a premium on the right to litigate, 170 we find that CASA is entitled to
reasonable attorney’s fees based on "factual, legal, and equitable justification." 171

When the act or omission of the defendant has compelled the plaintiff to incur expenses to protect the latter’s
interest,172 or where the court deems it just and equitable, 173 attorney’s fees may be recovered. In the present case,
BPI persistently denied the claim of CASA under the NIL to recredit the latter’s account for the value of the forged
checks. This denial constrained CASA to incur expenses and exert effort for more than ten years in order to protect
its corporate interest in its bank account. Besides, we have already cautioned BPI on a similar act of negligence it
had committed seventy years ago, but it has remained unrelenting. Therefore, the Court deems it just and equitable
to grant ten percent (10%)174 of the total value adjudged to CASA as attorney’s fees.

Interest Allowed

For the failure of BPI to pay CASA upon demand and for compelling the latter to resort to the courts to obtain
G.R. No. 97626 March 14, 1997
payment, legal interest may be adjudicated at the discretion of the Court, the same to run from the filing 175 of the
Complaint.176 Since a court judgment is not a loan or a forbearance of recovery, the legal interest shall be at six
percent (6%) per annum.177 "If the obligation consists in the payment of a sum of money, and the debtor incurs in PHILIPPINE BANK OF COMMERCE, now absorbed by PHILIPPINE COMMERCIAL INTERNATIONAL BANK,
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of x x x legal ROGELIO LACSON, DIGNA DE LEON, MARIA ANGELITA PASCUAL, et al., petitioners,
interest, which is six percent per annum."178 The actual base for its computation shall be "on the amount finally vs.
adjudged,"179 compounded180 annually to make up for the cost of money 181 already lost to CASA. THE COURT OF APPEALS, ROMMEL'S MARKETING CORP., represented by ROMEO LIPANA, its President &
General Manager, respondents.
Moreover, the failure of the CA to award interest does not prevent us from granting it upon damages awarded for
breach of contract.182 Because BPI evidently breached its contract of deposit with CASA, we award interest in
addition to the total amount adjudged. Under Section 196 of the NIL, any case not provided for shall be "governed by
the provisions of existing legislation or, in default thereof, by the rules of the law merchant." 183 Damages are not
provided for in the NIL. Thus, we resort to the Code of Commerce and the Civil Code. Under Article 2 of the Code of HERMOSISIMA, JR., J.:
Commerce, acts of commerce shall be governed by its provisions and, "in their absence, by the usages of commerce
generally observed in each place; and in the absence of both rules, by those of the civil law."184 This law being silent, Challenged in this petition for review is the Decision dated February 28, 1991 1 rendered by public respondent Court
we look at Article 18 of the Civil Code, which states: "In matters which are governed by the Code of Commerce and of Appeals which affirmed the Decision dated November 15, 1985 of the Regional Trial Court, National Capital
special laws, their deficiency shall be supplied" by its provisions. A perusal of these three statutes unmistakably Judicial Region, Branch CLX (160), Pasig City, in Civil Case No. 27288 entitled "Rommel's Marketing Corporation,
shows that the award of interest under our civil law is justified. etc. v. Philippine Bank of Commerce, now absorbed by Philippine Commercial and Industrial Bank."

WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and that in GR No. 149507 PARTLY GRANTED. The case stemmed from a complaint filed by the private respondent Rommel's Marketing Corporation (RMC for
The assailed Decision of the Court of Appeals is AFFIRMED with modification: BPI is held liable for ₱547,115, the brevity), represented by its President and General Manager Romeo Lipana, to recover from the former Philippine
total value of the forged checks less the amount already recovered by CASA from Leonardo T. Yabut, plus interest at Bank of Commerce (PBC for brevity), now absorbed by the Philippine Commercial International Bank, the sum of
the legal rate of six percent (6%) per annum -- compounded annually, from the filing of the complaint until paid in full; P304,979.74 representing various deposits it had made in its current account with said bank but which were not
and attorney’s fees of ten percent (10%) thereof, subject to reimbursement from Respondent Yabut for the entire credited to its account, and were instead deposited to the account of one Bienvenido Cotas, allegedly due to the
amount, excepting attorney’s fees. Let a copy of this Decision be furnished the Board of Accountancy of the gross and inexcusable negligence of the petitioner bank.
Professional Regulation Commission for such action as it may deem appropriate against Respondent Yabut. No
costs.
RMC maintained two (2) separate current accounts, Current Account Nos. 53-01980-3 and 53-01748-7, with the
Pasig Branch of PBC in connection with its business of selling appliances.
SO ORDERED.

In the ordinary and usual course of banking operations, current account deposits are accepted by the bank on the
basis of deposit slips prepared and signed by the depositor, or the latter's agent or representative, who indicates
therein the current account number to which the deposit is to be credited, the name of the depositor or current
account holder, the date of the deposit, and the amount of the deposit either in cash or checks. The deposit slip has
an upper portion or stub, which is detached and given to the depositor or his agent; the lower portion is retained by
BANKING Batch 1 Page 1 Page 29 of 34
the bank. In some instances, however, the deposit slips are prepared in duplicate by the depositor. The original of lost deposit plus legal interest thereon from the filing of the complaint, P25,000.00 attorney's
the deposit slip is retained by the bank, while the duplicate copy is returned or given to the depositor. fees and costs in the lower court as well as in this Court.3

From May 5, 1975 to July 16, 1976, petitioner Romeo Lipana claims to have entrusted RMC funds in the form of Hence, this petition anchored on the following grounds:
cash totalling P304,979.74 to his secretary, Irene Yabut, for the purpose of depositing said funds in the current
accounts of RMC with PBC. It turned out, however, that these deposits, on all occasions, were not credited to RMC's
1) The proximate cause of the loss is the negligence of respondent Rommel Marketing
account but were instead deposited to Account No. 53-01734-7 of Yabut's husband, Bienvenido Cotas who likewise
Corporation and Romeo Lipana in entrusting cash to a dishonest employee.
maintains an account with the same bank. During this period, petitioner bank had, however, been regularly furnishing
private respondent with monthly statements showing its current accounts balances. Unfortunately, it had never been
the practice of Romeo Lipana to check these monthly statements of account reposing complete trust and confidence 2) The failure of respondent Rommel Marketing Corporation to cross-check the bank's
on petitioner bank. statements of account with its own records during the entire period of more than one (1) year is
the proximate cause of the commission of subsequent frauds and misappropriation committed
by Ms. Irene Yabut.
Irene Yabut's modus operandi is far from complicated. She would accomplish two (2) copies of the deposit slip, an
original and a duplicate. The original showed the name of her husband as depositor and his current account number.
On the duplicate copy was written the account number of her husband but the name of the account holder was left 3) The duplicate copies of the deposit slips presented by respondent Rommel Marketing
blank. PBC's teller, Azucena Mabayad, would, however, validate and stamp both the original and the duplicate of Corporation are falsified and are not proof that the amounts appearing thereon were deposited
these deposit slips retaining only the original copy despite the lack of information on the duplicate slip. The second to respondent Rommel Marketing Corporation's account with the bank,
copy was kept by Irene Yabut allegedly for record purposes. After validation, Yabut would then fill up the name of
RMC in the space left blank in the duplicate copy and change the account number written thereon, which is that of
4) The duplicate copies of the deposit slips were used by Ms. Irene Yabut to cover up her
her husband's, and make it appear to be RMC's account number, i.e., C.A. No. 53-01980-3. With the daily remittance
fraudulent acts against respondent Rommel Marketing Corporation, and not as records of
records also prepared by Ms. Yabut and submitted to private respondent RMC together with the validated duplicate
deposits she made with the bank. 4
slips with the latter's name and account number, she made her company believe that all the while the amounts she
deposited were being credited to its account when, in truth and in fact, they were being deposited by her and
credited by the petitioner bank in the account of Cotas. This went on in a span of more than one (1) year without The petition has no merit.
private respondent's knowledge.
Simply put, the main issue posited before us is: What is the proximate cause of the loss, to the tune of P304,979.74,
Upon discovery of the loss of its funds, RMC demanded from petitioner bank the return of its money, but as its suffered by the private respondent RMC — petitioner bank's negligence or that of private respondent's?
demand went unheeded, it filed a collection suit before the Regional Trial Court of Pasig, Branch 160. The trial court
found petitioner bank negligent and ruled as follows:
Petitioners submit that the proximate cause of the loss is the negligence of respondent RMC and Romeo Lipana in
entrusting cash to a dishonest employee in the person of Ms. Irene Yabut. 5 According to them, it was impossible for
WHEREFORE, judgment is hereby rendered sentencing defendant Philippine Bank of the bank to know that the money deposited by Ms. Irene Yabut belong to RMC; neither was the bank forewarned by
Commerce, now absorbed by defendant Philippine Commercial & Industrial Bank, and RMC that Yabut will be depositing cash to its account. Thus, it was impossible for the bank to know the fraudulent
defendant Azucena Mabayad to pay the plaintiff, jointly and severally, and without prejudice to design of Yabut considering that her husband, Bienvenido Cotas, also maintained an account with the bank. For the
any criminal action which may be instituted if found warranted: bank to inquire into the ownership of the cash deposited by Ms. Irene Yabut would be irregular. Otherwise stated, it
was RMC's negligence in entrusting cash to a dishonest employee which provided Ms. Irene Yabut the opportunity to
defraud RMC.6
1. The sum of P304,979.72, representing plaintiffs lost deposit, plus interest thereon at the legal
rate from the filing of the complaint;
Private respondent, on the other hand, maintains that the proximate cause of the loss was the negligent act of the
bank, thru its teller Ms. Azucena Mabayad, in validating the deposit slips, both original and duplicate, presented by
2. A sum equivalent to 14% thereof, as exemplary damages;
Ms. Yabut to Ms. Mabayad, notwithstanding the fact that one of the deposit slips was not completely accomplished.

3. A sum equivalent to 25% of the total amount due, as and for attorney's fees; and
We sustain the private respondent.

4. Costs.
Our law on quasi-delicts states:

Defendants' counterclaim is hereby dismissed for lack of merit.2

Art. 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-
On appeal, the appellate court affirmed the foregoing decision with modifications, viz: existing contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter.
WHEREFORE, the decision appealed from herein is MODIFIED in the sense that the awards of
exemplary damages and attorney's fees specified therein are eliminated and instead, appellants
are ordered to pay plaintiff, in addition to the principal sum of P304,979.74 representing plaintiff's

BANKING Batch 1 Page 1 Page 30 of 34

There are three elements of a quasi-delict: (a) damages suffered by the plaintiff; (b) fault or negligence of the Q: Where does the depositor's stub comes (sic) from Mrs. Mabayad, is it with the deposit slip?
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 damages incurred by the plaintiff. 7
A: The depositor's stub is connected with the deposit slip or the bank's copy. In a deposit slip, the
upper portion is the depositor's stub and the lower portion is the bank's copy, and you can detach the
In the case at bench, there is no dispute as to the damage suffered by the private respondent (plaintiff in the trial bank's copy from the depositor's stub by tearing it sir.
court) RMC in the amount of P304,979.74. It is in ascribing fault or negligence which caused the damage where the
parties point to each other as the culprit.
Q: Now what do you do upon presentment of the deposit slip by the depositor or the depositor's
authorized representative?
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
A: We see to it that the deposit slip9 is properly accomplished and then we count the money and then
reasonable man would do. The seventy-eight (78)-year-old, yet still relevant, case of Picart v. Smith,8 provides the
we tally it with the deposit slip sir.
test by which to determine the existence of negligence in a particular case which may be stated as follows: Did the
defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person
would have used in the same situation? If not, then he is guilty of negligence. The law here in effect adopts the Q: Now is the depositor's stub which you issued to your clients validated?
standard supposed to be supplied by the imaginary conduct of the discreet paterfamilias of the Roman law. The
existence of negligence in a given case is not determined by reference to the personal judgment of the actor in the
A: Yes, sir. 10 [Emphasis ours]
situation before him. The law considers what would be reckless, blameworthy, or negligent in the man of ordinary
intelligence and prudence and determines liability by that.
Clearly, Ms. Mabayad failed to observe this very important procedure. The fact that the duplicate slip was
not compulsorily required by the bank in accepting deposits should not relieve the petitioner bank of
Applying the above test, it appears that the bank's teller, Ms. Azucena Mabayad, was negligent in validating, officially
responsibility. The odd circumstance alone that such duplicate copy lacked one vital information — that of
stamping and signing all the deposit slips prepared and presented by Ms. Yabut, despite the glaring fact that the
the name of the account holder — should have already put Ms. Mabayad on guard. Rather than readily
duplicate copy was not completely accomplished contrary to the self-imposed procedure of the bank with respect to
validating the incomplete duplicate copy, she should have proceeded more cautiously by being more
the proper validation of deposit slips, original or duplicate, as testified to by Ms. Mabayad herself, thus:
probing as to the true reason why the name of the account holder in the duplicate slip was left blank while
that in the original was filled up. She should not have been so naive in accepting hook, line and sinker the
Q: Now, as teller of PCIB, Pasig Branch, will you please tell us Mrs. Mabayad your important duties too shallow excuse of Ms. Irene Yabut to the effect that since the duplicate copy was only for her personal
and functions? record, she would simply fill up the blank space later on. 11 A "reasonable man of ordinary
prudence" 12 would not have given credence to such explanation and would have insisted that the space
left blank be filled up as a condition for validation. Unfortunately, this was not how bank teller Mabayad
A: I accept current and savings deposits from depositors and encashments.
proceeded thus resulting in huge losses to the private respondent.

Q: Now in the handling of current account deposits of bank clients, could you tell us the procedure
Negligence here lies not only on the part of Ms. Mabayad but also on the part of the bank itself in its lackadaisical
you follow?
selection and supervision of Ms. Mabayad. This was exemplified in the testimony of Mr. Romeo Bonifacio, then
Manager of the Pasig Branch of the petitioner bank and now its Vice-President, to the effect that, while he ordered
A: The client or depositor or the authorized representative prepares a deposit slip by filling up the the investigation of the incident, he never came to know that blank deposit slips were validated in total disregard of
deposit slip with the name, the account number, the date, the cash breakdown, if it is deposited for the bank's validation procedures, viz:
cash, and the check number, the amount and then he signs the deposit slip.
Q: Did he ever tell you that one of your cashiers affixed the stamp mark of the bank on the deposit slips
Q: Now, how many deposit slips do you normally require in accomplishing current account deposit, and they validated the same with the machine, the fact that those deposit slips were unfilled up, is there
Mrs. Mabayad? any report similar to that?

A: The bank requires only one copy of the deposit although some of our clients prepare the deposit A: No, it was not the cashier but the teller.
slip in duplicate.
Q: The teller validated the blank deposit slip?
Q: Now in accomplishing current account deposits from your clients, what do you issue to the
depositor to evidence the deposit made?
A: No it was not reported.

A: We issue or we give to the clients the depositor's stub as a receipt of the deposit.
Q: You did not know that any one in the bank tellers or cashiers validated the blank deposit slip?

Q: And who prepares the deposit slip?

A: I am not aware of that.

A: The depositor or the authorized representative sir?

Q: It is only now that you are aware of that?
BANKING Batch 1 Page 1 Page 31 of 34
 A: Yes, sir. 13 Art. 1173. 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. When negligence shows bad faith, the provisions of
Prescinding from the above, public respondent Court of Appeals aptly observed:
articles 1171 and 2201, paragraph 2, shall apply.

xxx xxx xxx

If the law or contract does not state the diligence which is to be observed in the performance,
that which is expected of a good father of a family shall be required. (1104a)
It was in fact only when he testified in this case in February, 1983, or after the lapse of more than seven
(7) years counted from the period when the funds in question were deposited in plaintiff's accounts (May,
In the case of banks, however, the degree of diligence required is more than that of a good father of a family.
1975 to July, 1976) that bank manager Bonifacio admittedly became aware of the practice of his teller
Considering the fiduciary nature of their relationship with their depositors, banks are duty bound to treat the accounts
Mabayad of validating blank deposit slips. Undoubtedly, this is gross, wanton, and inexcusable negligence
of their clients with the highest degree of care. 21
in the appellant bank's supervision of its employees. 14

As elucidated in Simex International (Manila), Inc. v. Court of Appeals, 22 in every case, the depositor expects the
It was this negligence of Ms. Azucena Mabayad, coupled by the negligence of the petitioner bank in the selection
bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of
and supervision of its bank teller, which was the proximate cause of the loss suffered by the private respondent, and
millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as
not the latter's act of entrusting cash to a dishonest employee, as insisted by the petitioners.
possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can
dispose as he sees fit, confident that the bank will deliver it as and to whomever he directs. A blunder on the part of
Proximate cause is determined on the facts of each case upon mixed considerations of logic, common sense, policy the bank, such as the failure to duly credit him his deposits as soon as they are made, can cause the depositor not a
and precedent. 15 Vda. de Bataclan v. Medina, 16 reiterated in the case of Bank of the Phil. Islands v. Court of little embarrassment if not financial loss and perhaps even civil and criminal litigation.
Appeals, 17 defines proximate cause as "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. . . ." In this
The point is that as a business affected with public interest and because of the nature of its functions, the bank is
case, absent the act of Ms. Mabayad in negligently validating the incomplete duplicate copy of the deposit slip, Ms.
under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary
Irene Yabut would not have the facility with which to perpetrate her fraudulent scheme with impunity. Apropos, once
nature of their relationship. In the case before us, it is apparent that the petitioner bank was remiss in that duty and
again, is the pronouncement made by the respondent appellate court, to wit:
violated that relationship.

. . . . Even if Yabut had the fraudulent intention to misappropriate the funds entrusted to her by
Petitioners nevertheless aver that the failure of respondent RMC to cross-check the bank's statements of account
plaintiff, she would not have been able to deposit those funds in her husband's current account,
with its own records during the entire period of more than one (1) year is the proximate cause of the commission of
and then make plaintiff believe that it was in the latter's accounts wherein she had deposited
subsequent frauds and misappropriation committed by Ms. Irene Yabut.
them, had it not been for bank teller Mabayad's aforesaid gross and reckless negligence. The
latter's negligence was thus the proximate, immediate and efficient cause that brought about the
loss claimed by plaintiff in this case, and the failure of plaintiff to discover the same soon enough We do not agree.
by failing to scrutinize the monthly statements of account being sent to it by appellant bank could
not have prevented the fraud and misappropriation which Irene Yabut had already completed
While it is true that had private respondent checked the monthly statements of account sent by the petitioner bank to
when she deposited plaintiff's money to the account of her husband instead of to the latter's
RMC, the latter would have discovered the loss early on, such cannot be used by the petitioners to escape liability.
accounts. 18
This omission on the part of the private respondent does not change the fact that were it not for the wanton and
reckless negligence of the petitioners' employee in validating the incomplete duplicate deposit slips presented by Ms.
Furthermore, under the doctrine of "last clear chance" (also referred to, at times as "supervening negligence" or as Irene Yabut, the loss would not have occurred. Considering, however, that the fraud was committed in a span of
"discovered peril"), petitioner bank was indeed the culpable party. This doctrine, in essence, states that where both more than one (1) year covering various deposits, common human experience dictates that the same would not have
parties are negligent, but the negligent act of one is appreciably later in time than that of the other, or when it is been possible without any form of collusion between Ms. Yabut and bank teller Mabayad. Ms. Mabayad was
impossible to determine whose fault or negligence should be attributed to the incident, the one who had the last clear negligent in the performance of her duties as bank teller nonetheless. Thus, the petitioners are entitled to claim
opportunity to avoid the impending harm and failed to do so is chargeable with the consequences thereof. 19 Stated reimbursement from her for whatever they shall be ordered to pay in this case.
differently, the rule would also mean that an antecedent negligence of a person does not preclude the recovery of
damages for the supervening negligence of, or bar a defense against liability sought by another, if the latter, who had
The foregoing notwithstanding, it cannot be denied that, indeed, private respondent was likewise negligent in not
the last fair chance, could have avoided the impending harm by the exercise of due diligence. 20 Here, assuming that
checking its monthly statements of account. Had it done so, the company would have been alerted to the series of
private respondent RMC was negligent in entrusting cash to a dishonest employee, thus providing the latter with the
frauds being committed against RMC by its secretary. The damage would definitely not have ballooned to such an
opportunity to defraud the company, as advanced by the petitioner, yet it cannot be denied that the petitioner bank,
amount if only RMC, particularly Romeo Lipana, had exercised even a little vigilance in their financial affairs. This
thru its teller, had the last clear opportunity to avert the injury incurred by its client, simply by faithfully observing their
omission by RMC amounts to contributory negligence which shall mitigate the damages that may be awarded to the
self-imposed validation procedure.
private respondent 23 under Article 2179 of the New Civil Code, to wit:

At this juncture, it is worth to discuss the degree of diligence ought to be exercised by banks in dealing with their
. . . When the plaintiff's own negligence was the immediate and proximate cause of his injury, he
clients.
cannot recover damages. But if his negligence was only contributory, the immediate and
proximate cause of the injury being the defendant's lack of due care, the plaintiff may recover
The New Civil Code provides: damages, but the courts shall mitigate the damages to be awarded.

BANKING Batch 1 Page 1 Page 32 of 34

 In view of this, we believe that the demands of substantial justice are satisfied by allocating the damage on As required, Citytrust furnished petitioner with the names and corresponding signatures of five of its officers
a 60-40 ratio. Thus, 40% of the damage awarded by the respondent appellate court, except the award of authorized to sign checks and serve as drawers and indorsers for its account. And it provided petitioner with the list
P25,000.00 attorney's fees, shall be borne by private respondent RMC; only the balance of 60% needs to and corresponding signatures of its roving tellers authorized to withdraw, sign receipts and perform other
be paid by the petitioners. The award of attorney's fees shall be borne exclusively by the petitioners. transactions on its behalf. Petitioner later issued security identification cards to the roving tellers one of whom was
"Rounceval Flores" (Flores).
WHEREFORE, the decision of the respondent Court of Appeals is modified by reducing the amount of actual
damages private respondent is entitled to by 40%. Petitioners may recover from Ms. Azucena Mabayad the amount On July 15, 1977, Flores presented for payment to petitioner’s Senior Teller Iluminada dela Cruz (Iluminada) two
they would pay the private respondent. Private respondent shall have recourse against Ms. Irene Yabut. In all other Citytrust checks of even date, payable to Citytrust, one in the amount of ₱850,000 and the other in the amount of
respects, the appellate court's decision is AFFIRMED. ₱900,000, both of which were signed and indorsed by Citytrust’s authorized signatory-drawers.

Proportionate costs. SO ORDERED. After the checks were certified by petitioner’s 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.1avvphi1

Iluminada thereupon sent the cash transfer slip and checks to petitioner’s 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 ₱1,750,000 from Citytrust’s 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 Decision1 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
Decision2 dated July 16, 1999, affirmed the trial court’s 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 11724 of the Civil Code.

G.R. No. 141835               February 4, 2009 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 Citytrust’s agent authorized to receive payment.
CENTRAL BANK OF THE PHILIPPINES, Petitioner,
vs.
CITYTRUST BANKING CORPORATION, Respondent. Brushing aside petitioner’s contention that it cannot be sued, the appellate court held that petitioner’s Charter
specifically clothes it with the power to sue and be sued.
DECISION
Also brushing aside petitioner’s assertion that Citytrust’s 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
CARPIO MORALES, J.: 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."
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 Hence, the present appeal, petitioner maintaining that Flores having been an authorized roving teller, Citytrust is
Bangko Sentral ng Pilipinas. bound by his acts. Also maintaining that it was not negligent in releasing the proceeds of the checks to Flores, the

BANKING Batch 1 Page 1 Page 33 of 34

failure of its teller to properly verify his signature notwithstanding, petitioner contends that verification could be had Citytrust timely discovered the loss/theft and/or subsequent encashment, their proceeds or part thereof could
dispensed with, Flores having been known to be an authorized roving teller of Citytrust who had had numerous have been recovered.
transactions with it (petitioner) on its (Citytrust’s) behalf for five years prior to the questioned transaction.
In line with the ruling in Consolidated Bank, the Court deems it proper to allocate the loss between petitioner and
Attributing negligence solely to Citytrust, petitioner harps on Citytrust’s allowing Flores to steal the checks and failing Citytrust on a 60-40 ratio.
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
WHEREFORE, the assailed Court of Appeals Decision of July 16, 1999 is hereby AFFIRMED with MODIFICATION,
supposed theft and cancellation of the checks.
in that petitioner and Citytrust should bear the loss on a 60-40 ratio.

Drawing attention to Citytrust’s considerable delay in demanding the restoration of the proceeds of the checks,
petitioners argue that, assuming arguendo that its teller was negligent, Citytrust’s negligence, which preceded that
committed by the teller, was the proximate cause of the loss or fraud.

The petition is bereft of merit.

Petitioner’s 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 Court’s 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 bank’s obligation to observe "high standards of integrity and performance"
is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking
requires banks to assume a degree of diligence higher than that of a good father of a family. 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 ₱300,000 from
L.C. Diaz’s 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)

Citytrust’s failure to timely examine its account, cancel the checks and notify petitioner of their alleged loss/theft
should mitigate petitioner’s liability, in accordance with Article 2179 of the Civil Code which provides that if the
plaintiff’s negligence was only contributory, the immediate and proximate cause of the injury being the defendant’s
lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded. For

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