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

In every case, the depositor expects the bank to treat his account with the utmost
fidelity, whether such account consists only of a few hundred pesos or of millions.
The bank must record every single transaction accurately, down to the last
centavo, and as promptly as possible. This has to be done if the account is to
reflect at any given time the amount of money the depositor can dispose of as he
sees fit, confident that the bank will deliver it as and to whomever he directs. A
blunder on the part of the bank, such as the dishonor of a check without good
reason, can cause the depositor not a little embarrassment if not also financial
loss and perhaps even civil and criminal litigation.
3 - BANKING LAWS
 FIRST DIVISION
[G.R. No. 127469. January 15, 2004]
PHILIPPINE BANKING CORPORATION, petitioner, vs. COURT OF
APPEALS and LEONILO MARCOS, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision[1] of the Court of
Appeals in CA-G.R. CV No. 34382 dated 10 December 1996 modifying the
Decision[2] of the Regional Trial Court, Fourth Judicial Region, Assisting
Court, Bian, Laguna in Civil Case No. B-3148 entitled Leonilo Marcos v.
Philippine Banking Corporation.
The Antecedent Facts
On 30 August 1989, Leonilo Marcos (Marcos) filed with the trial court a
Complaint for Sum of Money with Damages[3] against petitioner Philippine
Banking Corporation (BANK).[4]
Marcos alleged that sometime in 1982, the BANK through Florencio B.
Pagsaligan (Pagsaligan), one of the officials of the BANK and a close friend
of Marcos, persuaded him to deposit money with the BANK. Marcos yielded
to Pagsaligans persuasion and claimed he made a time deposit with the
BANK on two occasions. The first was on 11 March 1982 for P664,897.67.
The BANK issued Receipt No. 635734 for this time deposit. On 12 March
1982, Marcos claimed he again made a time deposit with the BANK
for P764,897.67. The BANK did not issue an official receipt for this time
deposit but it acknowledged a deposit of this amount through a letter-
certification Pagsaligan issued. The time deposits earned interest at 17% per
annum and had a maturity period of 90 days.
Marcos alleged that Pagsaligan kept the various time deposit certificates
on the assurance that the BANK would take care of the certificates, interests
and renewals. Marcos claimed that from the time of the deposit, he had not
received the principal amount or its interest.
Sometime in March 1983, Marcos wanted to withdraw from the BANK
his time deposits and the accumulated interests to buy materials for his
construction business.However, the BANK through Pagsaligan convinced
Marcos to keep his time deposits intact and instead to open several domestic
letters of credit. The BANK required Marcos to give a marginal deposit of
30% of the total amount of the letters of credit. The time deposits of Marcos
would secure 70% of the letters of credit. Since Marcos trusted the BANK
and Pagsaligan, he signed blank printed forms of the application for the
domestic letters of credit, trust receipt agreements and promissory notes.
4 - BANKING LAWS
Marcos executed three Trust Receipt Agreements totalling P851,250,
broken down as follows: (1) Trust Receipt No. CD 83.7 dated 8 March 1983
for P300,000; (2) Trust Receipt No. CD 83.9 dated 15 March 1983
for P300,000; and (3) Trust Receipt No. CD 83.10 dated 15 March 1983
for P251,250. Marcos deposited the required 30% marginal deposit for the
trust receipt agreements. Marcos claimed that his obligation to the BANK
was therefore only P595,875 representing 70% of the letters of credit.
Marcos believed that he and the BANK became creditors and debtors of
each other. Marcos expected the BANK to offset automatically a portion of
his time deposits and the accumulated interest with the amount covered by
the three trust receipts totalling P851,250 less the 30% marginal deposit that
he had paid. Marcos argued that if only the BANK applied his time deposits
and the accumulated interest to his remaining obligation, which is 70% of the
total amount of the letters of credit, he would have paid completely his debt.
Marcos further pointed out that since he did not apply for a renewal of the
trust receipt agreements, the BANK had no right to renew the same.
Marcos accused the BANK of unjustly demanding payment for the total
amount of the trust receipt agreements without deducting the 30% marginal
deposit that he had already made. He decried the BANKs unlawful charging
of accumulated interest because he claimed there was no agreement as to
the payment of interest. The interest arose from numerous alleged
extensions and penalties. Marcos reiterated that there was no agreement to
this effect because his time deposits served as the collateral for his
remaining obligation.
Marcos also denied that he obtained another loan from the BANK
for P500,000 with interest at 25% per annum supposedly covered by
Promissory Note No. 20-979-83 dated 24 October 1983. Marcos bewailed
the BANKs belated claim that his time deposits were applied to this void
promissory note on 12 March 1985.
In sum, Marcos claimed that:
(1) his time deposit with the BANK in the total sum
of P1,428,795.34[5] has earned accumulated interest since March 1982 up to
the present in the total amount of P1,727,305.45 at the rate of 17% per
annum so his total money with defendant (the BANK) is P3,156,100.79 less
the amount of P595,875 representing the 70% balance of the marginal
deposit and/or balance of the trust agreements; and
(2) his indebtedness was only P851,250 less the 30% paid as marginal
deposit or a balance of P595,875, which the BANK should have
automatically deducted from his time deposits and accumulated interest,
leaving the BANKs indebtedness to him at P2,560,025.79.
 Marcos prayed the trial court to declare Promissory Note No. 20-979-83
void and to order the BANK to pay the amount of his time deposits with
interest. He also sought the award of moral and exemplary damages as well
as attorneys fees for P200,000 plus 25% of the amount due.
On 18 September 1989, summons and a copy of the complaint were
served on the BANK.[6]
On 9 October 1989, the BANK filed its Answer with Counterclaim. The
BANK denied the allegations in the complaint. The BANK believed that the
suit was Marcos desperate attempt to avoid liability under several trust
receipt agreements that were the subject of a criminal complaint.
The BANK alleged that as of 12 March 1982, the total amount of the
various time deposits of Marcos was only P764,897.67 and
not P1,428,795.35[7] as alleged in the complaint. The P764,897.67 included
the P664,897.67 that Marcos deposited on 11 March 1982.
The BANK pointed out that Marcos delivered to the BANK the time
deposit certificates by virtue of the Deed of Assignment dated 2 June
1989. Marcos executed the Deed of Assignment to secure his various loan
obligations. The BANK claimed that these loans are covered by Promissory
Note No. 20-756-82 dated 2 June 1982 for P420,000 and Promissory Note
No. 20-979-83 dated 24 October 1983 for P500,000. The BANK stressed that
these obligations are separate and distinct from the trust receipt agreements.
When Marcos defaulted in the payment of Promissory Note No. 20-979-
83, the BANK debited his time deposits and applied the same to the
obligation that is now considered fully paid.[8] The BANK insisted that the
Deed of Assignment authorized it to apply the time deposits in payment of
Promissory Note No. 20-979-83.
In March 1982, the wife of Marcos, Consolacion Marcos, sought the
advice of Pagsaligan. Consolacion informed Pagsaligan that she and her
husband needed to finance the purchase of construction materials for their
business, L.A. Marcos Construction Company. Pagsaligan suggested the
opening of the letters of credit and the execution of trust receipts, whereby
the BANK would agree to purchase the goods needed by the client through
the letters of credit. The BANK would then entrust the goods to the client, as
entrustee, who would undertake to deliver the proceeds of the sale or the
goods themselves to the entrustor within a specified time.
The BANK claimed that Marcos freely entered into the trust receipt
agreements. When Marcos failed to account for the goods delivered or for
the proceeds of the sale, the BANK filed a complaint for violation of
Presidential Decree No. 115 or the Trust Receipts Law. Instead of initiating
negotiations for the settlement of the account, Marcos filed this suit.
5 - BANKING LAWS
The BANK denied falsifying Promissory Note No. 20-979-83. The BANK
claimed that the promissory note is supported by documentary evidence
such as Marcos application for this loan and the microfilm of the cashiers
check issued for the loan. The BANK insisted that Marcos could not deny the
agreement for the payment of interest and penalties under the trust receipt
agreements. The BANK prayed for the dismissal of the complaint, payment
of damages, attorneys fees and cost of suit.
On 15 December 1989, the trial court on motion of Marcos counsel
issued an order declaring the BANK in default for filing its answer five days
after the 15-day period to file the answer had lapsed.[9] The trial court also
held that the answer is a mere scrap of paper because a copy was not
furnished to Marcos. In the same order, the trial court allowed Marcos to
present his evidence ex parte on 18 December 1989. On that date, Marcos
testified and presented documentary evidence. The case was then submitted
for decision.
On 19 December 1989, Marcos received a copy of the BANKs Answer
with Compulsory Counterclaim.
On 29 December 1989, the BANK filed an opposition to Marcos motion
to declare the BANK in default. On 9 January 1990, the BANK filed a motion
to lift the order of default claiming that it had only then learned of the order of
default. The BANK explained that its delayed filing of the Answer with
Counterclaim and failure to serve a copy of the answer on Marcos was due
to excusable negligence. The BANK asked the trial court to set aside the
order of default because it had a valid and meritorious defense.
On 7 February 1990, the trial court issued an order setting aside the
default order and admitting the BANKs Answer with Compulsory
Counterclaim. The trial court ordered the BANK to present its evidence on 12
March 1990.
On 5 March 1990, the BANK filed a motion praying to cross-examine
Marcos who had testified during the ex-parte hearing of 18 December
1989. On 12 March 1990, the trial court denied the BANKs motion and
directed the BANK to present its evidence. Trial then ensued.
The BANK presented two witnesses, Rodolfo Sales, the Branch
Manager of the BANKs Cubao Branch since 1987, and Pagsaligan, the
Branch Manager of the same branch from 1982 to 1986.
On 24 April 1990, the counsel of Marcos cross-examined
Pagsaligan. Due to lack of material time, the trial court reset the continuation
of the cross-examination and presentation of other evidence. The succeeding
hearings were postponed, specifically on 24, 27 and 28 of August 1990,
because of the BANKs failure to produce its witness, Pagsaligan. The BANK
on these scheduled hearings also failed to present other evidence.
 On 7 September 1990, the BANK moved to postpone the hearing on the
ground that Pagsaligan could not attend the hearing because of illness. The
trial court denied the motion to postpone and on motion of Marcos counsel
ruled that the BANK had waived its right to present further evidence. The trial
court considered the case submitted for decision. The BANK moved for
reconsideration, which the trial court denied.
On 8 October 1990, the trial court rendered its decision in favor of
Marcos. Aggrieved, the BANK appealed to the Court of Appeals.
On 10 December 1996, the Court of Appeals modified the decision of
the trial court by reducing the amount of actual damages and deleting the
attorneys fees awarded to Marcos.
The Ruling of the Trial Court
The trial court ruled that the total amount of time deposits of Marcos
was P1,429,795.34 and not only P764,897.67 as claimed by the BANK. The
trial court found that Marcos made a time deposit on two occasions. The first
time deposit was made on 11 March 1982 for P664,897.67 as shown by
Receipt No. 635743. On 12 March 1982, Marcos again made a time deposit
for P764,897.67 as acknowledged by Pagsaligan in a letter of
certification. The two time deposits thus amounted to P1,429,795.34.
The trial court pointed out that no receipt was issued for the 12 March
1982 time deposit because the letter of certification was sufficient. The trial
court made a finding that the certification letter did not include the time
deposit made on 11 March 1982. The 12 March 1982 deposit was in cash
while the 11 March 1982 deposit was in checks which still had to clear. The
checks were not included in the certification letter since the BANK could not
credit the amounts of the checks prior to clearing. The trial court declared
that even the Deed of Assignment acknowledged that Marcos made several
time deposits as the Deed stated that the assigment was charged against
various time deposits.
The trial court recognized the existence of the Deed of Assignment and
the two loans that Marcos supposedly obtained from the BANK on 28 May
1982 for P340,000 and on 2 June 1982 for P420,000. The two loans
amounted to P760,000. On 2 June 1982, the same day that he secured the
second loan, Marcos executed a Deed of Assignment assigning to the
BANK P760,000 of his time deposits. The trial court concluded that obviously
the two loans were immediately paid by virtue of the Deed of Assignment.
The trial court found it strange that Marcos borrowed money from the
BANK at a higher rate of interest instead of just withdrawing his time
6 - BANKING LAWS
deposits. The trial court saw no rhyme or reason why Marcos had to secure
the loans from the BANK. The trial court was convinced that Marcos did not
know that what he had signed were loan applications and a Deed of
Assignment in payment for his loans. Nonetheless, the trial court recognized
the said loan of P760,000 and its corresponding payment by virtue of the
Deed of Assignment for the equal sum.[10]
If the BANKs claim is true that the time deposits of Marcos amounted
only to P764,897.67 and he had already assigned P760,000 of this amount,
the trial court pointed out that what would be left as of 3 June 1982 would
only be P4,867.67.[11] Yet, after the time deposits had matured, the BANK
allowed Marcos to open letters of credit three times. The three letters of
credit were all secured by the time deposits of Marcos after he had paid the
30% marginal deposit. The trial court opined that if Marcos time deposit was
only P764,897.67, then the letters of credit totalling P595,875 (less 30%
marginal deposit) was guaranteed by only P4,867.67,[12] the remaining time
deposits after Marcos had executed the Deed of Assignment for P760,000.
According to the trial court, a security of only P4,867.67[13] for a loan
worth P595,875 (less 30% marginal deposit) is not only preposterous, it is
also comical. Worse, aside from allowing Marcos to have unsecured trust
receipts, the BANK still claimed to have granted Marcos another loan
for P500,000 on 25 October 1983 covered by Promissory Note No. 20-979-
83. The BANK is a commercial bank engaged in the business of lending
money. Allowing a loan of more than a million pesos without collateral is in
the words of the trial court, an impossibility and a gross violation of Central
Bank Rules and Regulations, which no Bank Manager has such authority to
grant.[14] Thus, the trial court held that the BANK could not have granted
Marcos the loan covered by Promissory Note No. 20-979-83 because it was
unsecured by any collateral.
The trial court required the BANK to produce the original copies of the
loan application and Promissory Note No. 20-979-83 so that it could
determine who applied for this loan. However, the BANK presented to the
trial court only the machine copies of the duplicate of these documents.
Based on the machine copies of the duplicate of the two documents, the
trial court noticed the following discrepancies: (1) Marcos signature on the
two documents are merely initials unlike in the other documents submitted by
the BANK; (2) it is highly unnatural for the BANK to only have duplicate
copies of the two documents in its custody; (3) the address of Marcos in the
documents is different from the place of residence as stated by Marcos in the
other documents annexed by the BANK in its Answer; (4) Pagsaligan made it
appear that a check for the loan proceeds of P470,588 less bank charges
was issued to Marcos but the checks payee was one ATTY. LEONILO
MARCOS and, as the trial court noted, Marcos is not a lawyer; and (5)
Pagsaligan was not sure what branch of the BANK issued the check for the
loan proceeds. The trial court was convinced that Marcos did not execute the
questionable documents covering the P500,000 loan and Pagsaligan used
these documents as a means to justify his inability to explain and account for
the time deposits of Marcos.
The trial court noted the BANKs defective documentation of its
transaction with Marcos. First, the BANK was not in possession of the
original copies of the documents like the loan applications. Second, the
BANK did not have a ledger of the accounts of Marcos or of his various
transactions with the BANK. Last, the BANK did not issue a certificate of time
deposit to Marcos. Again, the trial court attributed the BANKs lapses to
Pagsaligans scheme to defraud Marcos of his time deposits.
The trial court also took note of Pagsaligans demeanor on the witness
stand. Pagsaligan evaded the questions by giving unresponsive or
inconsistent answers compelling the trial court to admonish him. When the
trial court ordered Pagsaligan to produce the documents, he conveniently
became sick[15] and thus failed to attend the hearings without presenting
proof of his physical condition.
The trial court disregarded the BANKs assertion that the time deposits
were converted into a savings account at 14% or 10% per annum upon
maturity. The BANK never informed Marcos that his time deposits had
already matured and these were converted into a savings account. As to the
interest due on the trust receipts, the trial court ruled that there is no basis for
such a charge because the documents do not stipulate any interest.
In computing the amount due to Marcos, the trial court took into account
the marginal deposit that Marcos had already paid which is equivalent to
30% of the total amount of the three trust receipts. The three trust receipts
totalling P851,250 would then have a balance of P595,875. The balance
became due in March 1987 and on the same date, Marcos time deposits
of P669,932.30 had already earned interest from 1983 to 1987
totalling P569,323.21 at 17% per annum. Thus, the trial court ruled that the
time deposits in 1987 totalled P1,239,115. From this amount, the trial court
deducted P595,875, the amount of the trust receipts, leaving a balance on
the time deposits of P643,240 as of March 1987. However, since the BANK
failed to return the time deposits of Marcos, which again matured in March
1990, the time deposits with interest, less the amount of trust receipts paid in
1987, amounted to P971,292.49 as of March 1990.
In the alternative, the trial court ruled that even if Marcos had only one
time deposit of P764,897.67 as claimed by the BANK, the time deposit would
have still earned interest at the rate of 17% per annum. The time deposit
of P650,163 would have increased to P1,415,060 in 1987 after earning
interest. Deducting the amount of the three trust receipts, Marcos time
deposits still totalled P1,236,969.30 plus interest.
7 - BANKING LAWS
The dispositive portion of the decision of the trial court reads:
WHEREFORE, under the foregoing circumstances, judgment is hereby
rendered in favor of Plaintiff, directing Defendant Bank as follows:
1) to return to Plaintiff his time deposit in the sum
of P971,292.49 with interest thereon at the legal rate,
until fully restituted;
2) to pay attorneys fees of P200,000.00; [and]
3) [to pay the] cost of these proceedings.
IT IS SO ORDERED.[16]
The Ruling of the Court of Appeals
The Court of Appeals addressed the procedural and substantive issues
that the BANK raised.
The appellate court ruled that the trial court committed a reversible error
when it denied the BANKs motion to cross-examine Marcos. The appellate
court ruled that the right to cross-examine is a fundamental right that the
BANK did not waive because the BANK vigorously asserted this right. The
BANKs failure to serve a notice of the motion to Marcos is not a valid ground
to deny the motion to cross-examine. The appellate court held that the
motion to cross-examine is one of those non-litigated motions that do not
require the movant to provide a notice of hearing to the other party.
The Court of Appeals pointed out that when the trial court lifted the order
of default, it had the duty to afford the BANK its right to cross-examine
Marcos. This duty assumed greater importance because the only evidence
supporting the complaint is Marcos ex-parte testimony. The trial court should
have tested the veracity of Marcos testimony through the distilling process of
cross-examination. The Court of Appeals, however, believed that the case
should not be remanded to the trial court because Marcos testimony on the
time deposits is supported by evidence on record from which the appellate
court could make an intelligent judgment.
On the second procedural issue, the Court of Appeals held that the trial
court did not err when it declared that the BANK had waived its right to
present its evidence and had submitted the case for decision. The appellate
court agreed with the grounds relied upon by the trial court in its Order dated
7 September 1990.
The Court of Appeals, however, differed with the finding of the trial court
as to the total amount of the time deposits. The appellate court ruled that the
total amount of the time deposits of Marcos is only P764,897.67 and
not P1,429,795.34 as found by the trial court. The certification letter issued
by Pagsaligan showed that Marcos made a time deposit on 12 March 1982
for P764,897.67. The certification letter shows that the amount mentioned in
the letter was the aggregate or total amount of the time deposits of Marcos
as of that date. Therefore, the P764,897.67 already included
the P664,897.67 time deposit made by Marcos on 11 March 1982.
The Court of Appeals further explained:
Besides, the Official Receipt (Exh. B, p. 32, Records) dated March 11, 1982
covering the sum of P664,987.67 time deposit did not provide for a maturity
date implying clearly that the amount covered by said receipt forms part of
the total sum shown in the letter-certification which contained a maturity
date. Moreover, it taxes ones credulity to believe that appellee would make a
time deposit on March 12, 1982 in the sum of P764,897.67 which except for
the additional sum of P100,000.00 is practically identical (see underlined
figures) to the sum of P664,897.67 deposited the day before March 11, 1982.
Additionally, We agree with the contention of the appellant that the lower
court wrongly appreciated the testimony of Mr. Pagsaligan. Our finding is
strengthened when we consider the alleged application for loan by the
appellee with the appellant in the sum of P500,000.00 dated October 24,
1983. (Exh. J, p. 40, Records), wherein it was stated that the loan is for
additional working capital versus the various time deposit amounting
to P760,000.00.[17] (Emphasis supplied)
The Court of Appeals sustained the factual findings of the trial court in
ruling that Promissory Note No. 20-979-83 is void. There is no evidence of a
bank ledger or computation of interest of the loan. The appellate court
blamed the BANK for failing to comply with the orders of the trial court to
produce the documents on the loan. The BANK also made inconsistent
statements. In its Answer to the Complaint, the BANK alleged that the loan
was fully paid when it debited the time deposits of Marcos with the
loan.However, in its discussion of the assigned errors, the BANK claimed
that Marcos had yet to pay the loan.
The appellate court deleted the award of attorneys fees. It noted that the
trial court failed to justify the award of attorneys fees in the text of its
decision. The dispositive portion of the decision of the Court of Appeals
reads:
WHEREFORE, premises considered, the appealed decision is SET
ASIDE. A new judgment is hereby rendered ordering the appellant bank to
return to the appellee his time deposit in the sum of P764,897.67 with
17% interest within 90 days from March 11, 1982 in accordance with the
8 - BANKING LAWS
letter-certification and with legal interest thereafter until fully
paid. Costs against the appellant.
SO ORDERED.[18] (Emphasis supplied)
The Issues
The BANK anchors this petition on the following issues:
1) WHETHER OR NOT THE PETITIONER [sic] ABLE TO PROVE THE
PRIVATE RESPONDENTS OUTSTANDING OBLIGATIONS SECURED BY
THE ASSIGNMENT OF TIME DEPOSITS?
1.1) COROLLARILY, WHETHER OR NOT THE PROVISIONS OF SECTION
8 RULE 10 OF [sic] THEN REVISED RULES OF COURT BE APPLIED [sic]
SO AS TO CREATE A JUDICIAL ADMISSION ON THE GENUINENESS
AND DUE EXECUTION OF THE ACTIONABLE DOCUMENTS APPENDED
TO THE PETITIONERS ANSWER?
2) WHETHER OR NOT PETITIONER [sic] DEPRIVED OF DUE PROCESS
WHEN THE LOWER COURT HAS [sic] DECLARED PETITIONER TO
HAVE WAIVED PRESENTATION OF FURTHER EVIDENCE AND
CONSIDERED THE CASE SUBMITTED FOR RESOLUTION?[19]
The Ruling of the Court
The petition is without merit.
Procedural Issues
There was no violation of the BANKs right to procedural due process
when the trial court denied the BANKs motion to cross-examine
Marcos. Prior to the denial of the motion, the trial court had properly declared
the BANK in default. Since the BANK was in default, Marcos was able to
present his evidence ex-parte including his own testimony.When the trial
court lifted the order of default, the BANK was restored to its standing and
rights in the action. However, as a rule, the proceedings already taken should
not be disturbed.[20] Nevertheless, it is within the trial courts discretion to
reopen the evidence submitted by the plaintiff and allow the defendant to
challenge the same, by cross-examining the plaintiffs witnesses or
introducing countervailing evidence.[21] The 1964 Rules of Court, the rules
then in effect at the time of the hearing of this case, recognized the trial
courts exercise of this discretion. The 1997 Rules of Court retained this
discretion.[22] Section 3, Rule 18 of the 1964 Rules of Court reads:
Sec. 3. Relief from order of default. A party declared in default may any time
after discovery thereof and before judgment file a motion under oath to set
aside the order of default upon proper showing that his failure to answer was
due to fraud, accident, mistake or excusable neglect and that he has a
meritorious defense. In such case the order of default may be set aside on
such terms and conditions as the judge may impose in the interest of
justice. (Emphasis supplied)
The records show that the BANK did not ask the trial court to restore its
right to cross-examine Marcos when it sought the lifting of the default order
on 9 January 1990.Thus, the order dated 7 February 1990 setting aside the
order of default did not confer on the BANK the right to cross-examine
Marcos. It was only on 2 March 1990 that the BANK filed the motion to cross-
examine Marcos. During the 12 March 1990 hearing, the trial court denied
the BANKs oral manifestation to grant its motion to cross-examine Marcos
because there was no proof of service on Marcos. The BANKs counsel
pleaded for reconsideration but the trial court denied the plea and ordered
the BANK to present its evidence. Instead of presenting its evidence, the
BANK moved for the resetting of the hearing and when the trial court denied
the same, the BANK informed the trial court that it was elevating the denial to
the upper court.[23]
To repeat, the trial court had previously declared the BANK in default.
The trial court therefore had the right to decide whether or not to disturb the
testimony of Marcos that had already been terminated even before the trial
court lifted the order of default.
We do not agree with the appellate courts ruling that a motion to cross-
examine is a non-litigated motion and that the trial court gravely abused its
discretion when it denied the motion to cross-examine. A motion to cross-
examine is adversarial. The adverse party in this case had the right to resist
the motion to cross-examine because the movant had previously forfeited its
right to cross-examine the witness. The purpose of a notice of a motion is to
avoid surprises on the opposite party and to give him time to study and meet
the arguments.[24] In a motion to cross-examine, the adverse party has the
right not only to prepare a meaningful opposition to the motion but also to be
informed that his witness is being recalled for cross-examination. The proof
of service was therefore indispensable and the trial court was correct in
denying the oral manifestation to grant the motion for cross-examination.
We find no justifiable reason to relax the application of the rule on notice
of motions[25] to this case. The BANK could have easily re-filed the motion to
cross-examine with the requisite notice to Marcos. It did not do so. The
BANK did not make good its threat to elevate the denial to a higher court.
The BANK waited until the trial court rendered a judgment on the merits
before questioning the interlocutory order of denial.
9 - BANKING LAWS
While the right to cross-examine is a vital element of procedural due
process, the right does not necessarily require an actual cross-examination,
but merely an opportunity to exercise this right if desired by the party entitled
to it.[26] Clearly, the BANKs failure to cross-examine is imputable to the BANK
when it lost this right[27] as it was in default and failed thereafter to exhaust
the remedies to secure the exercise of this right at the earliest opportunity.
The two other procedural lapses that the BANK attributes to the
appellate and trial courts deserve scant consideration.
The BANK raises for the very first time the issue of judicial admission on
the part of Marcos. The BANK even has the audacity to fault the Court of
Appeals for not ruling on this issue when it never raised this matter before
the appellate court or before the trial court. Obviously, this issue is only an
afterthought. An issue raised for the first time on appeal and not raised timely
in the proceedings in the lower court is barred by estoppel. [28]
The BANK cannot claim that Marcos had admitted the due execution of
the documents attached to its answer because the BANK filed its answer late
and even failed to serve it on Marcos. The BANKs answer, including the
actionable documents it pleaded and attached to its answer, was a mere
scrap of paper. There was nothing that Marcos could specifically deny under
oath. Marcos had already completed the presentation of his evidence when
the trial court lifted the order of default and admitted the BANKs answer. The
provision of the Rules of Court governing admission of actionable documents
was not enacted to reward a party in default. We will not allow a party to gain
an advantage from its disregard of the rules.
As to the issue of its right to present additional evidence, we agree with
the Court of Appeals that the trial court correctly ruled that the BANK had
waived this right. The BANK cannot now claim that it was deprived of its right
to conduct a re-direct examination of Pagsaligan. The BANK postponed the
hearings three times[29] because of its inability to secure Pagsaligans
presence during the hearings. The BANK could have presented another
witness or its other evidence but it obstinately insisted on the resetting of the
hearing because of Pagsaligans absence allegedly due to illness.
The BANKs propensity for postponements had long delayed the
case. Its motion for postponement based on Pagsaligans illness was not
even supported by documentary evidence such as a medical
certificate. Documentary evidence of the illness is necessary before the trial
court could rule that there is a sufficient basis to grant the postponement. [30]
The BANKs Fiduciary Duty to its Depositor
 The BANK is liable to Marcos for offsetting his time deposits with a
fictitious promissory note. The existence of Promissory Note No. 20-979-83
could have been easily proven had the BANK presented the original copies
of the promissory note and its supporting evidence. In lieu of the original
copies, the BANK presented the machine copies of the duplicate of the
documents. These substitute documents have no evidentiary value. The
BANKs failure to explain the absence of the original documents and to
maintain a record of the offsetting of this loan with the time deposits bring to
fore the BANKs dismal failure to fulfill its fiduciary duty to Marcos.
Section 2 of Republic Act No. 8791 (General Banking Law of 2000)
expressly imposes this fiduciary duty on banks when it declares that the
State recognizes the fiduciary nature of banking that requires high standards
of integrity and performance. This statutory declaration merely echoes the
earlier pronouncement of the Supreme Court in Simex International
(Manila) Inc. v. Court of Appeals[31] requiring banks to treat the accounts of
its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship.[32] The Court reiterated this fiduciary duty of
banks in subsequent cases.[33]
Although RA No. 8791 took effect only in the year 2000,[34] at the time
that the BANK transacted with Marcos, jurisprudence had already imposed
on banks the same high standard of diligence required under RA No.
8791.[35] This fiduciary relationship means that the banks obligation to
observe high standards of integrity and performance is deemed written into
every deposit agreement between a bank and its depositor.
The fiduciary nature of banking requires banks to assume a degree of
diligence higher than that of a good father of a family. Thus, the BANKs
fiduciary duty imposes upon it a higher level of accountability than that
expected of Marcos, a businessman, who negligently signed blank forms and
entrusted his certificates of time deposits to Pagsaligan without retaining
copies of the certificates.
The business of banking is imbued with public interest. The stability of
banks largely depends on the confidence of the people in the honesty and
efficiency of banks. InSimex International (Manila) Inc. v. Court of
Appeals[36] we pointed out the depositors reasonable expectations from a
bank and the banks corresponding duty to its depositor, as follows:
In every case, the depositor expects the bank to treat his account with the
utmost fidelity, whether such account consists only of a few hundred pesos
or of millions. The bank must record every single transaction accurately,
down to the last centavo, and as promptly as possible. This has to be done if
the account is to reflect at any given time the amount of money the depositor
can dispose of as he sees fit, confident that the bank will deliver it as and to
whomever he directs.
10 - BANKING LAWS
As the BANKs depositor, Marcos had the right to expect that the BANK
was accurately recording his transactions with it. Upon the maturity of his
time deposits, Marcos also had the right to withdraw the amount due him
after the BANK had correctly debited his outstanding obligations from his
time deposits.
By the very nature of its business, the BANK should have had in its
possession the original copies of the disputed promissory note and the
records and ledgers evidencing the offsetting of the loan with the time
deposits of Marcos. The BANK inexplicably failed to produce the original
copies of these documents. Clearly, the BANK failed to treat the account of
Marcos with meticulous care.
The BANK claims that it is a reputable banking institution and that it has
no reason to forge Promissory Note No. 20-979-83. The trial court and
appellate court did not rule that it was the bank that forged the promissory
note. It was Pagsaligan, the BANKs branch manager and a close friend of
Marcos, whom the trial court categorically blamed for the fictitious loan
agreements. The trial court held that Pagsaligan made up the loan
agreement to cover up his inability to account for the time deposits of
Marcos.
Whether it was the BANKs negligence and inefficiency or Pagsaligans
misdeed that deprived Marcos of the amount due him will not excuse the
BANK from its obligation to return to Marcos the correct amount of his time
deposits with interest. The duty to observe high standards of integrity and
performance imposes on the BANK that obligation. The BANK cannot also
unjustly enrich itself by keeping Marcos money.
Assuming Pagsaligan was behind the spurious promissory note, the
BANK would still be accountable to Marcos. We have held that a bank is
liable for the wrongful acts of its officers done in the interest of the bank or in
their dealings as bank representatives but not for acts outside the scope of
their authority.[37] Thus, we held:
A bank holding out its officers and agents as worthy of confidence will not be
permitted to profit by the frauds they may thus be enabled to perpetrate in
the apparent scope of their employment; nor will it be permitted to shirk its
responsibility for such frauds, even though no benefit may accrue to the bank
therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable
to innocent third persons where the representation is made in the course of
its business by an agent acting within the general scope of his authority even
though, in the particular case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other person, for
his own ultimate benefit.[38]
 The Existence of Promissory Note No. 20-979-83 was not Proven
The BANK failed to produce the best evidence the original copies of the
loan application and promissory note. The Best Evidence Rule provides that
the court shall not receive any evidence that is merely substitutionary in its
nature, such as photocopies, as long as the original evidence can be
had.[39] Absent a clear showing that the original writing has been lost,
destroyed or cannot be produced in court, the photocopy must be
disregarded, being unworthy of any probative value and being an
inadmissible piece of evidence.[40]
What the BANK presented were merely the machine copies of the
duplicate of the loan application and promissory note. No explanation was
ever offered by the BANK for its inability to produce the original copies of the
documentary evidence. The BANK also did not comply with the orders of the
trial court to submit the originals.
The purpose of the rule requiring the production of the best evidence is
the prevention of fraud.[41] If a party is in possession of evidence and
withholds it, and seeks to substitute inferior evidence in its place, the
presumption naturally arises that the better evidence is withheld for
fraudulent purposes, which its production would expose and defeat.[42]
The absence of the original of the documentary evidence casts
suspicion on the existence of Promissory Note No. 20-979-83 considering
the BANKs fiduciary duty to keep efficiently a record of its transactions with
its depositors. Moreover, the circumstances enumerated by the trial court
bolster the conclusion that Promissory Note No. 20-979-83 is bogus. The
BANK has only itself to blame for the dearth of competent proof to establish
the existence of Promissory Note No. 20-979-83.
Total Amount Due to Marcos
The BANK and Marcos do not now dispute the ruling of the Court of
Appeals that the total amount of time deposits that Marcos placed with the
BANK is only P764,897.67 and not P1,429,795.34 as found by the trial court.
The BANK has always argued that Marcos time deposits only
totalled P764,897.67.[43] What the BANK insists on in this petition is the trial
courts violation of its right to procedural due process and the absence of any
obligation to pay or return anything to Marcos. Marcos, on the other hand,
merely prays for the affirmation of either the trial court or appellate court
decision.[44] We uphold the finding of the Court of Appeals as to the amount
of the time deposits as such finding is in accord with the evidence on record.
11 - BANKING LAWS
Marcos claimed that the certificates of time deposit were with
Pagsaligan for safekeeping. Marcos was only able to present the receipt
dated 11 March 1982 and the letter-certification dated 12 March 1982 to
prove the total amount of his time deposits with the BANK. The letter-
certification issued by Pagsaligan reads:
March 12, 1982
Dear Mr. Marcos:
This is to certify that we are taking care in your behalf various Time Deposit
Certificates with an aggregate value of PESOS: SEVEN HUNDRED SIXTY
FOUR THOUSAND EIGHT HUNDRED NINETY SEVEN AND 67/100
(P764,897.67) ONLY, issued today for 90 days at 17% p.a. with the interest
payable at maturity on June 10, 1982.
Thank you.
Sgd. FLORENCIO B. PAGSALIGAN
Branch Manager[45]
The foregoing certification is clear. The total amount of time deposits of
Marcos as of 12 March 1982 is P764,897.67, inclusive of the sum
of P664,987.67 that Marcos placed on time deposit on 11 March 1982. This
is plainly seen from the use of the word aggregate.
We are not swayed by Marcos testimony that the certification is actually
for the first time deposit that he placed on 11 March 1982. The letter-
certification speaks of various Time Deposits Certificates with an aggregate
value of P764,897.67. If the amount stated in the letter-certification is for a
single time deposit only, and did not include the 11 March 1982 time deposit,
then Marcos should have demanded a new letter of certification from
Pagsaligan. Marcos is a businessman. While he already made an error in
judgment in entrusting to Pagsaligan the certificates of time deposits, Marcos
should have known the importance of making the letter-certification reflect
the true nature of the transaction. Marcos is bound by the letter-certification
since he was the one who prodded Pagsaligan to issue it.
We modify the amount that the Court of Appeals ordered the BANK to
return to Marcos. The appellate court did not offset Marcos outstanding debt
with the BANK covered by the three trust receipt agreements even though
Marcos admits his obligation under the three trust receipt agreements. The
total amount of the trust receipts is P851,250 less the 30% marginal deposit
of P255,375 that Marcos had already paid the BANK. This reduced Marcos
total debt with the BANK to P595,875 under the trust receipts.
 The trial and appellate courts found that the parties did not agree on the
imposition of interest on the loan covered by the trust receipts and thus no
interest is due on this loan. However, the records show that the three trust
receipt agreements contained stipulations for the payment of interest but the
parties failed to fill up the blank spaces on the rate of interest. Put differently,
the BANK and Marcos expressly agreed in writing on the payment of
interest[46] without, however, specifying the rate of interest. We, therefore,
impose the legal interest of 12% per annum, the legal interest for the
forbearance of money,[47] on each of the three trust receipts.
Based on Marcos testimony[48] and the BANKs letter of demand,[49] the
trust receipt agreements became due in March 1987. The records do not
show exactly when in March 1987 the obligation became due. In accordance
with Article 2212 of the Civil Code, in such a case the court shall fix the
period of the duration of the obligation.[50] The BANKs letter of demand is
dated 6 March 1989. We hold that the trust receipts became due on 6 March
1987.
Marcos payment of the marginal deposit of P255,375 for the trust
receipts resulted in the proportionate reduction of the three trust
receipts. The reduced value of the trust receipts and their respective interest
as of 6 March 1987 are as follows:
1. Trust Receipt No. CD 83.7 issued on 8 March 1983 originally
for P300,000 was reduced to P210,618.75 with interest
of P101,027.76.[51]
2. Trust Receipt No. CD 83.9 issued on 15 March 1983 originally
for P300,000 was reduced to P210,618.75 with interest
of P100,543.04.[52]
3. Trust Receipt No. CD 83.10 issued on 15 March 1983 originally
for P251,250 was reduced to P174,637.5 with interest
of P83,366.68. [53]
When the trust receipts became due on 6 March 1987, Marcos owed the
BANK P880,812.48. This amount included P595,875, the principal value of
the three trust receipts after payment of the marginal deposit,
and P284,937.48, the interest then due on the three trust receipts.
Upon maturity of the three trust receipts, the BANK should have
automatically deducted, by way of offsetting, Marcos outstanding debt to the
BANK from his time deposits and its accumulated interest. Marcos time
deposits of P764,897.67 had already earned interest[54] of P616,318.92 as of
6 March 1987.[55] Thus, Marcos total funds with the BANK amounted
to P1,381,216.59 as of the maturity of the trust receipts. After
12 - BANKING LAWS
deducting P880,812.48, the amount Marcos owed the BANK, from Marcos
funds with the BANK of P1,381,216.59, Marcos remaining time deposits as of
6 March 1987 is only P500,404.11. The accumulated interest on
this P500,404.11 as of 30 August 1989, the date of filing of Marcos complaint
with the trial court, is P211,622.96.[56] From 30 August 1989, the interest due
on the accumulated interest of P211,622.96 should earn legal interest at
12% per annum pursuant to Article 2212[57] of the Civil Code.
The BANKs dismal failure to account for Marcos money justifies the
award of moral[58] and exemplary damages.[59] Certainly, the BANK, as
employer, is liable for the negligence or the misdeed of its branch manager
which caused Marcos mental anguish and serious anxiety. [60] Moral damages
of P100,000 is reasonable and is in accord with our rulings in similar cases
involving banks negligence with regard to the accounts of their depositors. [61]
We also award P20,000 to Marcos as exemplary damages. The law
allows the grant of exemplary damages by way of example for the public
good.[62] The public relies on the banks fiduciary duty to observe the highest
degree of diligence. The banking sector is expected to maintain at all times
this high level of meticulousness.[63]
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with
MODIFICATION. Petitioner Philippine Banking Corporation is ordered to return to private
respondent Leonilo Marcos P500,404.11, the remaining principal amount of his time
deposits, with interest at 17% per annum from 30 August 1989 until full payment. Petitioner
Philippine Banking Corporation is also ordered to pay to private respondent Leonilo
Marcos P211,622.96, the accumulated interest as of 30 August 1989, plus 12% legal
interest per annum from 30 August 1989 until full payment. Petitioner Philippine Banking
Corporation is further ordered to pay P100,000 by way of moral damages and P20,000 as
exemplary damages to private respondent Leonilo Marcos.
Costs against petitioner.
SO ODERED.
 SECOND DIVISION until his demise in 1916. It remained unregistered until 8 October 1976 when
OCT No. P-153(M) was issued in the name of Eduardo pursuant to a free
G.R. No. 125585, June 8, 2005 patent issued in Eduardos name[3] that was entered in the Registry of Deeds
of Meycauayan, Bulacan.[4] The subject lot is adjacent to a fishpond owned
HEIRS OF EDUARDO MANLAPAT,
represented by GLORIA MANLAPAT- by one
BANAAG and LEON M. BANAAG, JR.,

Petitioners, Present:
Ricardo Cruz (Ricardo), predecessor-in-interest of respondents Consuelo
PUNO, J.,* Chairman, Cruz and Rosalina Cruz-Bautista (Cruzes).[5]
- versus –
On 19 December 1954, before the subject lot was titled, Eduardo
AUSTRIA-MARTINEZ, sold a portion thereof with an area of 553 square meters to Ricardo. The sale
Acting Chairman, is evidenced by a deed of sale entitled Kasulatan ng Bilihang Tuluyan ng
Lupang Walang Titulo (Kasulatan)[6] which was signed by Eduardo himself as
CALLEJO, SR., TINGA, and HON. COURT OF APPEALS, vendor and his wife Engracia Aniceto with a certain Santiago Enriquez
RURAL BANK OF SAN PASCUAL, signing as witness. The deed was notarized by Notary Public Manolo
INC., and JOSE B. SALAZAR,
Cruz.[7] On 4 April 1963, the Kasulatan was registered with the Register of
CONSUELO CRUZ and Promulgated:
ROSALINA CRUZ-BAUTISTA, Deeds of Bulacan.[8]
and the REGISTER OF DEEDS of
Meycauayan, Bulacan, Respondents. On 18 March 1981, another Deed of Sale[9] conveying another
portion of the subject lot consisting of 50 square meters as right of way was
x-------------------------------------------------------------------x executed by Eduardo in favor of Ricardo in order to reach the portion
covered by the first sale executed in 1954 and to have access to his fishpond
DECISION
from the provincial road.[10] The deed was signed by Eduardo himself and his
TINGA, J.: wife Engracia Aniceto, together with Eduardo Manlapat, Jr. and Patricio
Manlapat. The same was also duly notarized on 18 July 1981 by Notary
Before this Court is a Rule 45 petition assailing the Decision[1] dated Public Arsenio Guevarra.[11]
29 September 1994 of the Court of Appeals that reversed
the Decision[2] dated 30 April 1991 of the Regional Trial Court (RTC) of In December 1981, Leon Banaag, Jr. (Banaag), as attorney-in-fact of
Bulacan, Branch 6, Malolos. The trial court declared Transfer Certificates of his father-in-law Eduardo, executed a mortgage with the Rural Bank of San
Title (TCTs) No. T-9326-P(M) and No. T-9327-P(M) as void ab initio and Pascual, Obando Branch (RBSP), for P100,000.00 with the subject lot as
ordered the restoration of Original Certificate of Title (OCT) No. P-153(M) in collateral. Banaag deposited the owners duplicate certificate of OCT No. P-
the name of Eduardo Manlapat (Eduardo), petitioners predecessor-in- 153(M) with the bank.
interest.
On 31 August 1986, Ricardo died without learning of the prior
The controversy involves Lot No. 2204, a parcel of land with an area issuance of OCT No. P-153(M) in the name of Eduardo.[12] His heirs, the
of 1,058 square meters, located at Panghulo, Obando, Bulacan. The property Cruzes, were not immediately aware of the consummated sale between
had been originally in the possession of Jose Alvarez, Eduardos grandfather, Eduardo and Ricardo.

13 - BANKING LAWS

Eduardo himself died on 4 April 1987. He was survived by his heirs,
Engracia Aniceto, his spouse; and children, Patricio, Bonifacio, Eduardo,
Corazon, Anselmo, Teresita and Gloria, all surnamed Manlapat. [13] Neither
did the heirs of Eduardo (petitioners) inform the Cruzes of the prior sale in
favor of their predecessor-in-interest, Ricardo. Yet subsequently, the Cruzes
came to learn about the sale and the issuance of the OCT in the name of
Eduardo.
Upon learning of their right to the subject lot, the Cruzes immediately
tried to confront petitioners on the mortgage and obtain the surrender of the
OCT. The Cruzes, however, were thwarted in their bid to see the heirs. On
the advice of the Bureau of Lands, NCR Office, they brought the matter to
the barangay captain of Barangay Panghulo, Obando, Bulacan. During the
hearing, petitioners were informed that the Cruzes had a legal right to the
property covered by OCT and needed the OCT for the purpose of securing a
separate title to cover the interest of Ricardo. Petitioners, however, were
unwilling to surrender the OCT.[14]
Having failed to physically obtain the title from petitioners, in July
1989, the Cruzes instead went to RBSP which had custody of the owners
duplicate certificate of the OCT, earlier surrendered as a consequence of the
mortgage. Transacting with RBSPs manager, Jose Salazar (Salazar), the
Cruzes sought to borrow the owners duplicate certificate for the purpose of
photocopying the same and thereafter showing a copy thereof to the Register
of Deeds. Salazar allowed the Cruzes to bring the owners duplicate
certificate outside the bank premises when the latter showed
the Kasulatan.[15] The Cruzes returned the owners duplicate certificate on the
same day after having copied the same. They then brought the copy of the
OCT to Register of Deeds Jose Flores (Flores) of Meycauayan and showed
the same to him to secure his legal opinion as to how the Cruzes could
legally protect their interest in the property and register the same. [16] Flores
suggested the preparation of a subdivision plan to be able to segregate the
area purchased by Ricardo from Eduardo and have the same covered by a
separate title.[17]
Thereafter, the Cruzes solicited the opinion of Ricardo Arandilla
(Arandilla), Land Registration Officer, Director III, Legal Affairs Department,
Land Registration Authority at Quezon City, who agreed with the advice
14 - BANKING LAWS
given by Flores.[18] Relying on the suggestions of Flores and Arandilla, the
Cruzes hired two geodetic engineers to prepare the corresponding
subdivision plan. The subdivision plan was presented to the Land
Management Bureau, Region III, and there it was approved by a certain Mr.
Pambid of said office on 21 July 1989.
After securing the approval of the subdivision plan, the Cruzes went
back to RBSP and again asked for the owners duplicate certificate from
Salazar. The Cruzes informed him that the presentation of the owners
duplicate certificate was necessary, per advise of the Register of Deeds, for
the cancellation of the OCT and the issuance in lieu thereof of two separate
titles in the names of Ricardo and Eduardo in accordance with the approved
subdivision plan.[19] Before giving the owners duplicate certificate, Salazar
required the Cruzes to see Atty. Renato Santiago (Atty. Santiago), legal
counsel of RBSP, to secure from the latter a clearance to borrow the title.
Atty. Santiago would give the clearance on the condition that only Cruzes put
up a substitute collateral, which they did.[20] As a result, the Cruzes got hold
again of the owners duplicate certificate.
After the Cruzes presented the owners duplicate certificate, along
with the deeds of sale and the subdivision plan, the Register of Deeds
cancelled the OCT and issued in lieu thereof TCT No. T-9326-P(M) covering
603 square meters of Lot No. 2204 in the name of Ricardo and TCT No. T-
9327-P(M) covering the remaining 455 square meters in the name of
Eduardo.[21]
On 9 August 1989, the Cruzes went back to the bank and
surrendered to Salazar TCT No. 9327-P(M) in the name of Eduardo and
retrieved the title they had earlier given as substitute collateral. After securing
the new separate titles, the Cruzes furnished petitioners with a copy of TCT
No. 9327-P(M) through the barangay captain and paid the real property tax
for 1989.[22]
The Cruzes also sent a formal letter to Guillermo Reyes, Jr.,
Director, Supervision Sector, Department III of the Central Bank of the
Philippines, inquiring whether they committed any violation of existing bank
laws under the circumstances. A certain Zosimo Topacio, Jr. of the
Supervision Sector sent a reply letter advising the Cruzes, since the matter is
between them and the bank, to get in touch with the bank for the final
settlement of the case.[23]
In October of 1989, Banaag went to RBSP, intending to tender full
payment of the mortgage obligation. It was only then that he learned of the
dealings of the Cruzes with the bank which eventually led to the subdivision
of the subject lot and the issuance of two separate titles thereon. In
exchange for the full payment of the loan, RBSP tried to persuade petitioners
to accept TCT No. T-9327-P(M) in the name of Eduardo.[24]
As a result, three (3) cases were lodged, later consolidated, with the
trial court, all involving the issuance of the TCTs, to wit:
(1) Civil Case No. 650-M-89, for reconveyance with
damages filed by the heirs of Eduardo Manlapat against
Consuelo Cruz, Rosalina Cruz-Bautista, Rural Bank of San
Pascual, Jose Salazar and Jose Flores, in his capacity as
Deputy Registrar, Meycauayan Branch of the Registry of
Deeds of Bulacan;
(2) Civil Case No. 141-M-90 for damages filed by
Jose Salazar against Consuelo Cruz, et. [sic] al.; and
(3) Civil Case No. 644-M-89, for declaration of nullity
of title with damages filed by Rural Bank of San Pascual, Inc.
against the spouses Ricardo Cruz and Consuelo Cruz, et
al.[25]
After trial of the consolidated cases, the RTC of Malolos rendered a
decision in favor of the heirs of Eduardo, the dispositive portion of which
reads:
WHEREFORE, premised from the foregoing,
judgment is hereby rendered:
1.Declaring Transfer Certificates of Title
Nos. T-9326-P(M) and T-9327-P(M) as void ab
initio and ordering the Register of Deeds,
Meycauayan Branch to cancel said titles and to
15 - BANKING LAWS
restore Original Certificate of Title No. P-153(M) in
the name of plaintiffs predecessor-in-interest
Eduardo Manlapat;
2.-Ordering the defendants Rural Bank of
San Pascual, Jose Salazar, Consuelo Cruz and
Rosalina Cruz-Bautista, to pay the plaintiffs Heirs
of Eduardo Manlapat, jointly and severally, the
following:
a)P200,000.00 as moral damages;
b)P50,000.00 as exemplary damages;
c)P20,000.00 as attorneys fees; and
d)the costs of the suit.
3.Dismissing the counterclaims.
SO ORDERED.[26]
The trial court found that petitioners were entitled to the reliefs of
reconveyance and damages. On this matter, it ruled that petitioners
were bona fide mortgagors of an unclouded title bearing no annotation of any
lien and/or encumbrance. This fact, according to the trial court, was
confirmed by the bank when it accepted the mortgage unconditionally on 25
November 1981. It found that petitioners were complacent and unperturbed,
believing that the title to their property, while serving as security for a loan,
was safely vaulted in the impermeable confines of RBSP. To their surprise
and prejudice, said title was subdivided into two portions, leaving them a
portion of 455 square meters from the original total area of 1,058 square
meters, all because of the fraudulent and negligent acts of respondents and
RBSP. The trial court ratiocinated that even assuming that a portion of the
subject lot was sold by Eduardo to Ricardo, petitioners were still not privy to
the transaction between the bank and the Cruzes which eventually led to the
subdivision of the OCT into TCTs No. T-9326-P(M) and No. T-9327-P(M),
clearly to the damage and prejudice of petitioners.[27]
Concerning the claims for damages, the trial court found the same to
be bereft of merit. It ruled that although the act of the Cruzes could be
deemed fraudulent, still it would not constitute intrinsic fraud. Salazar,
nonetheless, was clearly guilty of negligence in letting the Cruzes borrow the
owners duplicate certificate of the OCT. Neither the bank nor its manager
had business entrusting to strangers titles mortgaged to it by other persons
for whatever reason. It was a clear violation of the mortgage and banking
laws, the trial court concluded.
The trial court also ruled that although Salazar was personally
responsible for allowing the title to be borrowed, the bank could not escape
liability for it was guilty of contributory negligence. The evidence showed that
RBSPs legal counsel was sought for advice regarding respondents request.
This could only mean that RBSP through its lawyer if not through its manager
had known in advance of the Cruzes intention and still it did nothing to
prevent the eventuality. Salazar was not even summarily dismissed by the
bank if he was indeed the sole person to blame. Hence, the banks claim for
damages must necessarily fail.[28]
The trial court granted the prayer for the annulment of the TCTs as a
necessary consequence of its declaration that reconveyance was in order.
As to Flores, his work being ministerial as Deputy Register of the Bulacan
Registry of Deeds, the trial court absolved him of any liability with a stern
warning that he should deal with his future transactions more carefully and in
the strictest sense as a responsible government official.[29]
Aggrieved by the decision of the trial court, RBSP, Salazar and the
Cruzes appealed to the Court of Appeals. The appellate court, however,
reversed the decision of the RTC. The decretal text of the decision reads:
THE FOREGOING CONSIDERED, the appealed
decision is hereby reversed and set aside, with costs against
the appellees.
SO ORDERED.[30]
The appellate court ruled that petitioners were not bona
fide mortgagors since as early as 1954 or before the 1981 mortgage,
Eduardo already sold to Ricardo a portion of the subject lot with an area of
553 square meters. This fact, the Court of Appeals noted, is even supported
by a document of sale signed by Eduardo Jr. and Engracia Aniceto, the
16 - BANKING LAWS
surviving spouse of Eduardo, and registered with the Register of Deeds of
Bulacan. The appellate court also found that on 18 March 1981, for the
second time, Eduardo sold to Ricardo a separate area containing 50 square
meters, as a road right-of-way.[31] Clearly, the OCT was issued only after the
first sale. It also noted that the title was given to the Cruzes by RBSP
voluntarily, with knowledge even of the banks counsel.[32] Hence, the
imposition of damages cannot be justified, the Cruzes themselves being the
owners of the property. Certainly, Eduardo misled the bank into accepting the
entire area as a collateral since the 603-square meter portion did not
anymore belong to him. The appellate court, however, concluded that there
was no conspiracy between the bank and Salazar.[33]
Hence, this petition for review on certiorari.
Petitioners ascribe errors to the appellate court by asking the
following questions, to wit: (a) can a mortgagor be compelled to receive from
the mortgagee a smaller portion of the originally encumbered title partitioned
during the subsistence of the mortgage, without the knowledge of, or
authority derived from, the registered owner; (b) can the mortgagee question
the veracity of the registered title of the mortgagor, as noted in the owners
duplicate certificate, and thus, deliver the certificate to such third persons,
invoking an adverse, prior, and unregistered claim against the registered title
of the mortgagor; (c) can an adverse prior claim against a registered title be
noted, registered and entered without a competent court order; and (d) can
belief of ownership justify the taking of property without due process of
law?[34]
The kernel of the controversy boils down to the issue of whether the
cancellation of the OCT in the name of the petitioners predecessor-in-interest
and its splitting into two separate titles, one for the petitioners and the other
for the Cruzes, may be accorded legal recognition given the peculiar factual
backdrop of the case. We rule in the affirmative.
Private respondents (Cruzes) own
the portion titled in their names
 Consonant with law and justice, the ultimate denouement of the
property dispute lies in the determination of the respective bases of the Petitioners had no right to constitute
warring claims. Here, as in other legal disputes, what is written generally mortgage over disputed portion
deserves credence.
The requirements of a valid mortgage are clearly laid down in Article
A careful perusal of the evidence on record reveals that the Cruzes 2085 of the New Civil Code, viz:
have sufficiently proven their claim of ownership over the portion of Lot No.
2204 with an area of 553 square meters. The duly notarized instrument of ART. 2085. The following requisites are essential
conveyance was executed in 1954 to which no less than Eduardo was a to the contracts of pledge and mortgage:
signatory. The execution of the deed of sale was rendered beyond doubt by
Eduardos admission in his Sinumpaang Salaysay dated 24 April (1) That they be constituted to secure the
1963.[35] These documents make the affirmance of the right of the Cruzes fulfillment of a principal obligation;
ineluctable. The apparent irregularity, however, in the obtention of the (2) That the pledgor or mortgagor be
owners duplicate certificate from the bank, later to be presented to the the absolute owner of the thing pledged or
Register of Deeds to secure the issuance of two new TCTs in place of the mortgaged;
OCT, is another matter. (3) That the persons constituting the pledge
or mortgage have the free disposal of
Petitioners argue that the 1954 deed of sale was not annotated on their property, and in the absence
the OCT which was issued in 1976 in favor of Eduardo; thus, the Cruzes thereof, that they be legally authorized
claim of ownership based on the sale would not hold water. The Court is not for the purpose.
persuaded.
Third persons who are not parties to the principal
Registration is not a requirement for validity of the contract as obligation may secure the latter by pledging or
between the parties, for the effect of registration serves chiefly to bind third mortgaging their own property. (emphasis
persons.[36] The principal purpose of registration is merely to notify other supplied)
persons not parties to a contract that a transaction involving the property had
been entered into. Where the party has knowledge of a prior existing interest
which is unregistered at the time he acquired a right to the same land, his For a person to validly constitute a valid mortgage on real estate, he must be
knowledge of that prior unregistered interest has the effect of registration as the absolute owner thereof as required by Article 2085 of the New Civil
to him.[37] Code.[39] The mortgagor must be the owner, otherwise the mortgage is
void.[40] In a contract of mortgage, the mortgagor remains to be the owner of
Further, the heirs of Eduardo cannot be considered third persons for the property although the property is subjected to a lien.[41] A mortgage is
purposes of applying the rule. The conveyance shall not be valid against any regarded as nothing more than a mere lien, encumbrance, or security for a
person unless registered, except (1) the grantor, (2) his heirs and devisees, debt, and passes no title or estate to the mortgagee and gives him no right or
and (3) third persons having actual notice or knowledge thereof.[38] Not only claim to the possession of the property.[42] In this kind of contract, the
are petitioners the heirs of Eduardo, some of them were actually parties to property mortgaged is merely delivered to the mortgagee to secure the
the Kasulatan executed in favor of Ricardo. Thus, the annotation of the fulfillment of the principal obligation.[43] Such delivery does not empower the
adverse claim of the Cruzes on the OCT is no longer required to bind the mortgagee to convey any portion thereof in favor of another person as the
heirs of Eduardo, petitioners herein. right to dispose is an attribute of ownership.[44] The right to dispose includes

17 - BANKING LAWS
the right to donate, to sell, to pledge or mortgage. Thus, the mortgagee, not
being the owner of the property, cannot dispose of the whole or part thereof
nor cause the impairment of the security in any manner without violating the
foregoing rule.[45] The mortgagee only owns the mortgage credit, not the
property itself.[46]
Petitioners submit as an issue whether a mortgagor may be
compelled to receive from the mortgagee a smaller portion of the lot covered
by the originally encumbered title, which lot was partitioned during the
subsistence of the mortgage without the knowledge or authority of the
mortgagor as registered owner. This formulation is disingenuous, baselessly
assuming, as it does, as an admitted fact that the mortgagor is the owner of
the mortgaged property in its entirety. Indeed, it has not become a salient
issue in this case since the mortgagor was not the owner of the entire
mortgaged property in the first place.
Issuance of OCT No. P-153(M), improper
It is a glaring fact that OCT No. P-153(M) covering the property
mortgaged was in the name of Eduardo, without any annotation of any prior
disposition or encumbrance. However, the property was sufficiently shown to
be not entirely owned by Eduardo as evidenced by the Kasulatan. Readily
apparent upon perusal of the records is that the OCT was issued in 1976,
long after the Kasulatan was executed way back in 1954. Thus, a portion of
the property registered in Eduardos name arising from the grant of free
patent did not actually belong to him. The utilization of the Torrens system to
perpetrate fraud cannot be accorded judicial sanction.
Time and again, this Court has ruled that the principle of
indefeasibility of a Torrens title does not apply where fraud attended the
issuance of the title, as was conclusively established in this case. The
Torrens title does not furnish a shied for fraud.[47] Registration does not vest
title. It is not a mode of acquiring ownership but is merely evidence of such
title over a particular property. It does not give the holder any better right than
what he actually has, especially if the registration was done in bad faith. The
effect is that it is as if no registration was made at all. [48] In fact, this Court
has ruled that a decree of registration cut off or extinguished a right acquired
by a person when such right refers to a lien or encumbrance on the landnot
18 - BANKING LAWS
to the right of ownership thereofwhich was not annotated on the certificate of
title issued thereon.[49]
Issuance of TCT Nos. T-9326-P(M)
and T-9327-P(M), Valid
The validity of the issuance of two TCTs, one for the portion sold to
the predecessor-in-interest of the Cruzes and the other for the portion
retained by petitioners, is readily apparent from Section 53 of the Presidential
Decree (P.D.) No. 1529 or the Property Registration Decree. It provides:
SEC 53. Presentation of owners duplicate upon
entry of new certificate. No voluntary instrument shall be
registered by the Register of Deeds, unless the owners
duplicate certificate is presented with such instrument,
except in cases expressly provided for in this Decree or
upon order of the court, for cause shown.
The production of the owners duplicate
certificate, whenever any voluntary instrument is
presented for registration, shall be conclusive authority
from the registered owner to the Register of Deeds to
enter a new certificate or to make a memorandum of
registration in accordance with such instrument, and the
new certificate or memorandum shall be binding upon the
registered owner and upon all persons claiming under him,
in favor of every purchaser for value and in good faith.
In all cases of registration procured by fraud, the
owner may pursue all his legal and equitable remedies
against the parties to such fraud without prejudice, however,
to the rights of any innocent holder of the decree of
registration on the original petition or application, any
subsequent registration procured by the presentation of a
forged duplicate certificate of title, or a forged deed or
instrument, shall be null and void. (emphasis supplied)
 Petitioners argue that the issuance of the TCTs violated the third
paragraph of Section 53 of P.D. No. 1529. The argument is baseless. It must
be noted that the provision speaks of forged duplicate certificate of
title and forged deed or instrument. Neither instance obtains in this case.
What the Cruzes presented before the Register of Deeds was the very
genuine owners duplicate certificate earlier deposited by Banaag, Eduardos
attorney-in-fact, with RBSP. Likewise, the instruments of conveyance are
authentic, not forged. Section 53 has never been clearer on the point that as
long as the owners duplicate certificate is presented to the Register of Deeds
together with the instrument of conveyance, such presentation serves as
conclusive authority to the Register of Deeds to issue a transfer certificate or
make a memorandum of registration in accordance with the instrument.
The records of the case show that despite the efforts made by the
Cruzes in persuading the heirs of Eduardo to allow them to secure a
separate TCT on the claimed portion, their ownership being amply evidenced
by the Kasulatan and Sinumpaang Salaysaywhere Eduardo himself
acknowledged the sales in favor of Ricardo, the heirs adamantly rejected the
notion of separate titling. This prompted the Cruzes to approach the bank
manager of RBSP for the purpose of protecting their property right. They
succeeded in persuading the latter to lend the owners duplicate certificate.
Despite the apparent irregularity in allowing the Cruzes to get hold of the
owners duplicate certificate, the bank officers consented to the Cruzes plan
to register the deeds of sale and secure two new separate titles, without
notifying the heirs of Eduardo about it.
Further, the law on the matter, specifically P.D. No. 1529, has no
explicit requirement as to the manner of acquiring the owners duplicate for
purposes of issuing a TCT. This led the Register of Deeds of Meycauayan as
well as the Central Bank officer, in rendering an opinion on the legal
feasibility of the process resorted to by the Cruzes. Section 53 of P.D. No.
1529 simply requires the production of the owners duplicate certificate,
whenever any voluntary instrument is presented for registration, and the
same shall be conclusive authority from the registered owner to the Register
of Deeds to enter a new certificate or to make a memorandum of registration
in accordance with such instrument, and the new certificate or memorandum
shall be binding upon the registered owner and upon all persons claiming
under him, in favor of every purchaser for value and in good faith.
19 - BANKING LAWS
Quite interesting, however, is the contention of the heirs of Eduardo
that the surreptitious lending of the owners duplicate certificate constitutes
fraud within the ambit of the third paragraph of Section 53 which could nullify
the eventual issuance of the TCTs. Yet we cannot subscribe to their position.
Impelled by the inaction of the heirs of Eduardo as to their claim, the
Cruzes went to the bank where the property was mortgaged. Through its
manager and legal officer, they were assured of recovery of the claimed
parcel of land since they are the successors-in-interest of the real owner
thereof. Relying on the bank officers opinion as to the legality of the means
sought to be employed by them and the suggestion of the Central Bank
officer that the matter could be best settled between them and the bank, the
Cruzes pursued the titling of the claimed portion in the name of Ricardo. The
Register of Deeds eventually issued the disputed TCTs.
The Cruzes resorted to such means to protect their interest in the
property that rightfully belongs to them only because of the bank officers
acquiescence thereto. The Cruzes could not have secured a separate TCT in
the name of Ricardo without the banks approval. Banks, their business being
impressed with public interest, are expected to exercise more care and
prudence than private individuals in their dealings, even those involving
registered lands.[50] The highest degree of diligence is expected, and high
standards of integrity and performance are even required of it.[51]
Indeed, petitioners contend that the mortgagee cannot question the
veracity of the registered title of the mortgagor as noted in the owners
duplicate certificate, and, thus, he cannot deliver the certificate to such third
persons invoking an adverse, prior, and unregistered claim against the
registered title of the mortgagor. The strength of this argument is diluted by
the peculiar factual milieu of the case.
A mortgagee can rely on what appears on the certificate of title
presented by the mortgagor and an innocent mortgagee is not expected to
conduct an exhaustive investigation on the history of the mortgagors title.
This rule is strictly applied to banking institutions. A mortgagee-bank must
exercise due diligence before entering into said contract. Judicial notice is
taken of the standard practice for banks, before approving a loan, to send
representatives to the premises of the land offered as collateral and to
investigate who the real owners thereof are.[52]
 Banks, indeed, should exercise more care and prudence in dealing
even with registered lands, than private individuals, as their business is one
affected with public interest. Banks keep in trust money belonging to their
depositors, which they should guard against loss by not committing any act
of negligence that amounts to lack of good faith. Absent good faith, banks
would be denied the protective mantle of the land registration statute, Act
496, which extends only to purchasers for value and good faith, as well as to
mortgagees of the same character and description.[53] Thus, this Court
clarified that the rule that persons dealing with registered lands can rely
solely on the certificate of title does not apply to banks.[54]
Bank Liable for Nominal Damages
Of deep concern to this Court, however, is the fact that the bank lent
the owners duplicate of the OCT to the Cruzes when the latter presented the
instruments of conveyance as basis of their claim of ownership over a portion
of land covered by the title. Simple rationalization would dictate that a
mortgagee-bank has no right to deliver to any stranger any property
entrusted to it other than to those contractually and legally entitled to its
possession. Although we cannot dismiss the banks acknowledgment of the
Cruzes claim as legitimized by instruments of conveyance in their
possession, we nonetheless cannot sanction how the bank was inveigled to
do the bidding of virtual strangers. Undoubtedly, the banks cooperative
stance facilitated the issuance of the TCTs. To make matters worse, the
bank did not even notify the heirs of Eduardo. The conduct of the bank is as
dangerous as it is unthinkably negligent. However, the aspect does not
impair the right of the Cruzes to be recognized as legitimate owners of their
portion of the property.
Undoubtedly, in the absence of the banks participation, the Register
of Deeds could not have issued the disputed TCTs. We cannot find fault on
the part of the Register of Deeds in issuing the TCTs as his authority to issue
the same is clearly sanctioned by law. It is thus ministerial on the part of the
Register of Deeds to issue TCT if the deed of conveyance and the original
owners duplicate are presented to him as there appears on theface of the
instruments no badge of irregularity or
20 - BANKING LAWS
nullity.[55] If there is someone to blame for the shortcut resorted to by the
Cruzes, it would be the bank itself whose manager and legal officer helped
the Cruzes to facilitate the issuance of the TCTs.
The bank should not have allowed complete strangers to take
possession of the owners duplicate certificate even if the purpose is merely
for photocopying for a danger of losing the same is more than imminent.
They should be aware of the conclusive presumption in
Section 53. Such act constitutes manifest negligence on the part of the bank
which would necessarily hold it liable for damages under Article 1170 and
other relevant provisions of the Civil Code.[56]
In the absence of evidence, the damages that may be awarded may
be in the form of nominal damages. Nominal damages are adjudicated in
order that a right of the plaintiff, which has been violated or invaded by the
defendant, may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him. [57] This award rests on
the mortgagors right to rely on the banks observance of the highest diligence
in the conduct of its business. The act of RBSP of entrusting to respondents
the owners duplicate certificate entrusted to it by the mortgagor without even
notifying the mortgagor and absent any prior investigation on the veracity of
respondents claim and
character is a patent failure to foresee the risk created by the act in view of
the provisions of Section 53 of P.D. No. 1529. This act runs afoul of every
banks mandate to observe the highest degree of diligence in dealing with its
clients. Moreover, a mortgagor has also the right to be afforded due process
before deprivation or diminution of his property is effected as the OCT was
still in the name of Eduardo. Notice and hearing are indispensable elements
of this right which the bank miserably ignored.
Under the circumstances, the Court believes the award
of P50,000.00 as nominal damages is appropriate.
Five-Year Prohibition against alienation
or encumbrance under the Public Land Act

One vital point. Apparently glossed over by the courts below and the
parties is an aspect which is essential, spread as it is all over the record and
intertwined with the crux of the controversy, relating as it does to the validity
of the dispositions of the subject property and the mortgage thereon.
Eduardo was issued a title in 1976 on the basis of his free patent application.
Such application implies the recognition of the public dominion character of
the land and, hence, the five (5)-year prohibition imposed by the Public Land
Act against alienation or encumbrance of the land covered by a free patent or
homestead[58] should have been considered.
The deed of sale covering the fifty (50)-square meter right of way
executed by Eduardo on 18 March 1981 is obviously covered by the
proscription, the free patent having been issued on 8 October 1976.
However, petitioners may recover the portion sold since the prohibition was
imposed in favor of the free patent holder. In Philippine National Bank v. De
los Reyes,[59] this Court ruled squarely on the point, thus:
While the law bars recovery in a case where the object of the
contract is contrary to law and one or both parties acted in
bad faith, we cannot here apply the doctrine of in pari
delicto which admits of an exception, namely, that when the
contract is merely prohibited by law, not illegal per se, and
the prohibition is designed for the protection of the party
seeking to recover, he is entitled to the relief prayed for
whenever public policy is enhanced thereby. Under the
Public Land Act, the prohibition to alienate is predicated on
the fundamental policy of the State to preserve and keep in
the family of the homesteader that portion of public land
which the State has gratuitously given to him, and recovery
is allowed even where the land acquired under the Public
Land Act was sold and not merely encumbered, within the
prohibited period.[60]
filing of the free patent application, whether by the vendor or the vendee, the
prohibition should not be applied. In such situation, neither the prohibition nor
the rationale therefor which is
to keep in the family of the patentee that portion of the public land which the
government has gratuitously given him, by shielding him from the temptation
to dispose of his landholding, could be relevant. Precisely, he had disposed
of his rights to the lot even before the government could give the title to him.
The mortgage executed in favor of RBSP is also beyond the pale of
the prohibition, as it was forged in December 1981 a few months past the
period of prohibition.
WHEREFORE, the Decision of the Court of Appeals is AFFIRMED, subject
to the modifications herein. Respondent Rural Bank of San Pascual is hereby
ORDERED to PAY petitioners Fifty Thousand Pesos (P50,000.00) by way of
nominal damages. Respondents Consuelo Cruz and Rosalina Cruz-Bautista
are hereby DIVESTED of title to, and respondent Register of Deeds of
Meycauayan, Bulacan is accordingly ORDERED to segregate, the portion of
fifty (50) square meters of the subject Lot No. 2204, as depicted in the
approved plan covering the lot, marked as Exhibit A, and to issue a new title
covering the said portion in the name of the petitioners at the expense of the
petitioners. No costs.
SO ORDERED.

The sale of the 553 square meter portion is a different story. It was
executed in 1954, twenty-two (22) years before the issuance of the patent in
1976. Apparently, Eduardo disposed of the portion even before he thought of
applying for a free patent. Where the sale or transfer took place before the

21 - BANKING LAWS
 THIRD DIVISION

Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her

LILLIAN N. MERCADO, CYNTHIA M. G.R. No. 171460 lifetime, owned several pieces of real property situated in different provinces
FEKARIS, and JULIAN MERCADO, JR., of thePhilippines.
represented by their Attorney-In-Fact, Present:
ALFREDO M. PEREZ, Respondent, on the other hand, is a banking institution duly
Petitioners, YNARES-SANTIAGO, J.,
authorized as such under the Philippine laws.
Chairperson,
AUSTRIA-MARTINEZ,
On 28 May 1992, Perla executed a Special Power of Attorney (SPA)
- versus - CHICO-NAZARIO, and
NACHURA, JJ. in favor of her husband, Julian D. Mercado (Julian) over several pieces of
real property registered under her name, authorizing the latter to perform the
ALLIED BANKING CORPORATION, following acts:
Respondent. Promulgated:
1. To act in my behalf, to sell, alienate, mortgage,
July 24, 2007 lease and deal otherwise over the different parcels of land
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x described hereinafter, to wit:

a) Calapan, Oriental Mindoro

DECISION
Properties covered by Transfer
Certificates of Title Nos. T-53618 -
CHICO-NAZARIO, J.: 3,522 Square Meters, T-46810
3,953 Square Meters, T-53140 177
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Square Meters, T-21403 263 square
Revised Rules of Court, filed by petitioners Lillian N. Mercado, Cynthia M. Meters, T- 46807 39 Square Meters
Fekaris and Julian Mercado, Jr., represented by their Attorney-In-Fact, of the Registry of Deeds of Oriental
Alfredo M. Perez, seeking to reverse and set aside the Decision [1] of the Mindoro;
Court of Appeals dated 12 October 2005, and its Resolution [2] dated 15
February 2006 in CA-G.R. CV No. 82636. The Court of Appeals, in its b) Susana Heights, Muntinlupa
assailed Decision and Resolution, reversed the Decision[3] of the Regional covered by Transfer Certificates of
Trial Court (RTC) of Quezon City, Branch 220 dated 23 September 2003, Title Nos. T-108954 600 Square
declaring the deeds of real estate mortgage constituted on TCT No. RT- Meters and RT-106338 805 Square
18206 (106338) null and void. The dispositive portion of the assailed Court of Meters of the Registry of Deeds
Appeals Decision thus reads: of Pasig (now Makati);

WHEREFORE, the appealed decision is REVERSED and SET c) Personal property 1983 Car
ASIDE, and a new judgment is hereby entered dismissing with Vehicle Registration No. R-
the [petitioners] complaint.[4] 16381; Model 1983; Make Toyota;
Engine No. T- 2464

22 - BANKING LAWS
 2. To sign for and in my behalf any act of strict
dominion or ownership any sale, disposition,
mortgage, lease or any other transactions including
quit-claims, waiver and relinquishment of rights in
and over the parcels of land situated in General
Trias, Cavite, covered by Transfer Certificates of
Title Nos. T-112254 and T-112255 of the Registry of
Deeds of Cavite, in conjunction with his co-owner
and in the person ATTY. AUGUSTO
F. DEL ROSARIO;
3. To exercise any or all acts of strict dominion or
ownership over the above-mentioned properties,
rights and interest therein. (Emphasis supplied.)
On the strength of the aforesaid SPA, Julian, on 12 December 1996,
obtained a loan from the respondent in the amount
of P3,000,000.00, secured by real estate mortgage constituted on TCT No.
RT-18206 (106338) which covers a parcel of land with an area of 805 square
meters, registered with the Registry of Deeds of Quezon City (subject
property).[5]
Still using the subject property as security, Julian obtained an
additional loan from the respondent in the sum of P5,000,000.00, evidenced
by a Promissory Note[6] he executed on 5 February 1997 as another real
estate mortgage (REM).
It appears, however, that there was no property identified in the SPA
as TCT No. RT 18206 (106338) and registered with the Registry of Deeds
of Quezon City. What was identified in the SPA instead was the property
covered by TCT No. RT-106338 registered with the Registry of Deeds of
Pasig.
Subsequently, Julian defaulted on the payment of his loan
obligations. Thus, respondent initiated extra-judicial foreclosure proceedings
over the subject property which was subsequently sold at public auction
wherein the respondent was declared as the highest bidder as shown in the
Sheriffs Certificate of Sale dated 15 January 1998.[7]
On 23 March 1999, petitioners initiated with the RTC an action for
the annulment of REM constituted over the subject property on the ground
23 - BANKING LAWS
that the same was not covered by the SPA and that the said SPA, at the time
the loan obligations were contracted, no longer had force and effect since it
was previously revoked by Perla on 10 March 1993, as evidenced by the
Revocation of SPA signed by the latter.[8]
Petitioners likewise alleged that together with the copy of the
Revocation of SPA, Perla, in a Letter dated 23 January 1996, notified the
Registry of Deeds of Quezon City that any attempt to mortgage or sell the
subject property must be with her full consent documented in the form of an
SPA duly authenticated before the Philippine Consulate General in New
York. [9]
In the absence of authority to do so, the REM constituted by Julian
over the subject property was null and void; thus, petitioners likewise prayed
that the subsequent extra-judicial foreclosure proceedings and the auction
sale of the subject property be also nullified.
In its Answer with Compulsory Counterclaim,[10] respondent averred
that, contrary to petitioners allegations, the SPA in favor of Julian included
the subject property, covered by one of the titles specified in paragraph 1(b)
thereof, TCT No. RT- 106338 registered with the Registry of Deeds
of Pasig (now Makati). The subject property was purportedly registered
previously under TCT No. T-106338, and was only subsequently
reconstituted as TCT RT-18206 (106338). Moreover,TCT No. T-106338 was
actually registered with the Registry of Deeds of Quezon City and not
before the Registry of Deeds of Pasig (now Makati). Respondent
explained that the discrepancy in the designation of the Registry of Deeds in
the SPA was merely an error that must not prevail over the clear intention of
Perla to include the subject property in the said SPA. In sum, the property
referred to in the SPA Perla executed in favor of Julian as covered by TCT
No. 106338 of theRegistry of Deeds of Pasig (now Makati) and the subject
property in the case at bar, covered by RT 18206 (106338) of the Registry
of Deeds of Quezon City, are one and the same.
On 23 September 2003, the RTC rendered a Decision declaring the
REM constituted over the subject property null and void, for Julian was not
authorized by the terms of the SPA to mortgage the same. The court a
quo likewise ordered that the foreclosure proceedings and the auction sale
conducted pursuant to the void REM, be nullified. The dispositive portion of
the Decision reads:

WHEREFORE, premises considered, judgment is
hereby rendered in favor of the [herein petitioners] and
against the [herein respondent] Bank:
1. Declaring the Real Estate Mortgages constituted
and registered under Entry Nos. PE-4543/RT-18206 and
2012/RT-18206 annotated on TCT No. RT-18206 (106338)
of the Registry of Deeds of Quezon City as NULL and VOID;
2. Declaring the Sheriffs Sale and Certificate of Sale
under FRE No. 2217 dated January 15, 1998 over the
property covered by TCT No. RT-18206 (106338) of the
Registry of Deeds of Quezon City as NULL and VOID;
3. Ordering the defendant Registry of Deeds of
Quezon City to cancel the annotation of Real Estate
Mortgages appearing on Entry Nos. PE-4543/RT-18206 and
2012/RT-18206 on TCT No. RT-18206 (106338) of the
Registry of Deeds of Quezon City;
4. Ordering the [respondent] Bank to deliver/return
to the [petitioners] represented by their attorney-in-fact
Alfredo M. Perez, the original Owners Duplicate Copy of
TCT No. RT-18206 (106338) free from the encumbrances
referred to above; and
5. Ordering the [respondent] Bank to pay the
[petitioners] the amount of P100,000.00 as for attorneys fees
plus cost of the suit.
The other claim for damages and counterclaim are
hereby DENIED for lack of merit.[11]
Aggrieved, respondent appealed the adverse Decision before the
Court of Appeals.
In a Decision dated 12 October 2005, the Court of Appeals reversed
the RTC Decision and upheld the validity of the REM constituted over the
subject property on the strength of the SPA. The appellate court declared
that Perla intended the subject property to be included in the SPA she
24 - BANKING LAWS
executed in favor of Julian, and that her subsequent revocation of the said
SPA, not being contained in a public instrument, cannot bind third persons.
The Motion for Reconsideration interposed by the petitioners was
denied by the Court of Appeals in its Resolution dated 15 February 2006.
Petitioners are now before us assailing the Decision and Resolution
rendered by the Court of Appeals raising several issues, which are
summarized as follows:
I WHETHER OR NOT THERE WAS A VALID MORTGAGE
CONSTITUTED OVER SUBJECT PROPERTY.
II WHETHER OR NOT THERE WAS A VALID
REVOCATION OF THE SPA.
III WHETHER OR NOT THE RESPONDENT WAS A
MORTGAGEE-IN- GOOD FAITH.
For a mortgage to be valid, Article 2085 of the Civil Code
enumerates the following essential requisites:
Art. 2085. The following requisites are essential to
the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment
of a principal obligation;
(2) That the pledgor or mortgagor be the absolute
owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or
mortgage have the free disposal of their property, and in the
absence thereof, that they be legally authorized for the
purpose.
Third persons who are not parties to the principal
obligation may secure the latter by pledging or mortgaging
their own property.
 In the case at bar, it was Julian who obtained the loan obligations
from respondent which he secured with the mortgage of the subject
property. The property mortgaged was owned by his wife, Perla, considered
a third party to the loan obligations between Julian and respondent. It was,
thus, a situation recognized by the last paragraph of Article 2085 of the Civil
Code afore-quoted. However, since it was not Perla who personally
mortgaged her own property to secure Julians loan obligations with
respondent, we proceed to determining if she duly authorized Julian to do so
on her behalf.
Under Article 1878 of the Civil Code, a special power of attorney is
necessary in cases where real rights over immovable property are created or
conveyed.[12]In the SPA executed by Perla in favor of Julian on 28 May 1992,
the latter was conferred with the authority to sell, alienate, mortgage, lease
and deal otherwise the different pieces of real and personal property
registered in Perlas name. The SPA likewise authorized Julian [t]o exercise
any or all acts of strict dominion or ownership over the identified
properties, and rights and interest therein. The existence and due execution
of this SPA by Perla was not denied or challenged by petitioners.
There is no question therefore that Julian was vested with the power
to mortgage the pieces of property identified in the SPA. However, as to
whether the subject property was among those identified in the SPA, so as to
render Julians mortgage of the same valid, is a question we still must
resolve.
Petitioners insist that the subject property was not included in the
SPA, considering that it contained an exclusive enumeration of the pieces of
property over which Julian had authority, and these include only: (1) TCT
No. T-53618, with an area of 3,522 square meters, located at Calapan,
Oriental Mindoro, and registered with the Registry of Deeds of Oriental
Mindoro; (2) TCT No. T-46810, with an area of 3,953 square meters, located
at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of
Oriental Mindoro; (3) TCT No. T-53140, with an area of 177 square meters,
located at Calapan, Oriental Mindoro, and registered with the Registry of
Deeds of Oriental Mindoro; (4) TCT No. T-21403, with an area of 263 square
25 - BANKING LAWS
meters, located at Calapan, Oriental Mindoro, and registered with the
Registry of Deeds of Oriental Mindoro; (5) TCT No. T- 46807, with an area of
39 square meters, located at Calapan, Oriental Mindoro, and registered with
the Registry of Deeds of Oriental Mindoro; (6) TCT No. T-108954, with an
area of 690 square meters and located at Susana Heights,
Muntinlupa; (7) RT-106338 805 Square Meters registered with the Registry
of Deeds of Pasig (now Makati); and (8) Personal Property consisting of a
1983 Car with Vehicle Registration No. R-16381, Model 1983, Make Toyota,
and Engine No. T- 2464. Nowhere is it stated in the SPA that Julians
authority extends to the subject property covered by TCT No. RT 18206
(106338) registered with the Registry of Deeds of Quezon
City. Consequently, the act of Julian of constituting a mortgage over the
subject property is unenforceable for having been done without authority.
Respondent, on the other hand, mainly hinges its argument on the
declarations made by the Court of Appeals that there was no property
covered by TCT No. 106338 registered with the Registry of Deeds of
Pasig (now Makati); but there exists a property, the subject property
herein, covered by TCT No. RT-18206 (106338) registered with the Registry
of Deeds of Quezon City. Further verification would reveal that TCT No.
RT-18206 is merely a reconstitution of TCT No. 106338, and the property
covered by both certificates of title is actually situated in Quezon City and
not Pasig. From the foregoing circumstances, respondent argues that Perla
intended to include the subject property in the SPA, and the failure of the
instrument to reflect the recent TCT Number or the exact designation of the
Registry of Deeds, should not defeat Perlas clear intention.
After an examination of the literal terms of the SPA, we find that the subject
property was not among those enumerated therein. There is no obvious
reference to the subject property covered by TCT No. RT-18206 (106338)
registered with the Registry of Deeds of Quezon City.
There was also nothing in the language of the SPA from which we
could deduce the intention of Perla to include the subject property
therein. We cannot attribute such alleged intention to Perla who executed the
SPA when the language of the instrument is bare of any indication
suggestive of such intention.Contrariwise, to adopt the intent theory
advanced by the respondent, in the absence of clear and convincing
evidence to that effect, would run afoul of the express tenor of the SPA and
thus defeat Perlas true intention.
In cases where the terms of the contract are clear as to leave no room for
interpretation, resort to circumstantial evidence to ascertain the true intent of
the parties, is not countenanced. As aptly stated in the case of JMA House,
Incorporated v. Sta. Monica Industrial and Development Corporation,[13] thus:
[T]he law is that if the terms of a contract are clear and leave
no doubt upon the intention of the contracting parties, the
literal meaning of its stipulation shall control.When the
language of the contract is explicit, leaving no doubt as to
the intention of the drafters, the courts may not read into it
[in] any other intention that would contradict its main
import. The clear terms of the contract should never be the
subject matter of interpretation. Neither abstract justice nor
the rule on liberal interpretation justifies the creation of a
contract for the parties which they did not make themselves
or the imposition upon one party to a contract or obligation
not assumed simply or merely to avoid seeming
hardships. The true meaning must be enforced, as it is to be
presumed that the contracting parties know their scope and
effects.[14]
Equally relevant is the rule that a power of attorney must be strictly construed
and pursued. The instrument will be held to grant only those powers which
are specified therein, and the agent may neither go beyond nor deviate from
the power of attorney.[15] Where powers and duties are specified and defined
in an instrument, all such powers and duties are limited and are confined to
those which are specified and defined, and all other powers and duties are
excluded.[16] This is but in accord with the disinclination of courts to enlarge
the authority granted beyond the powers expressly given and those which
incidentally flow or derive therefrom as being usual and reasonably
necessary and proper for the performance of such express powers.[17]
Even the commentaries of renowned Civilist Manresa[18] supports a strict and
limited construction of the terms of a power of attorney:
The law, which must look after the interests of all,
cannot permit a man to express himself in a vague and
26 - BANKING LAWS
general way with reference to the right he confers upon
another for the purpose of alienation or hypothecation,
whereby he might be despoiled of all he possessed and be
brought to ruin, such excessive authority must be set down
in the most formal and explicit terms, and when this is not
done, the law reasonably presumes that the principal did not
mean to confer it.
In this case, we are not convinced that the property covered by TCT No.
106338 registered with the Registry of Deeds of Pasig (now Makati) is the
same as the subject property covered by TCT No. RT-18206
(106338) registered with the Registry of Deeds of Quezon City. The records
of the case are stripped of supporting proofs to verify the respondents claim
that the two titles cover the same property. It failed to present any
certification from the Registries of Deeds concerned to support its
assertion. Neither did respondent take the effort of submitting and making
part of the records of this case copies of TCTs No. RT-106338 of the
Registry of Deeds of Pasig (now Makati) and RT-18206 (106338) of the
Registry of Deeds of Quezon City, and closely comparing the technical
descriptions of the properties covered by the said TCTs. The bare and
sweeping statement of respondent that the properties covered by the two
certificates of title are one and the same contains nothing but empty
imputation of a fact that could hardly be given any evidentiary weight by this
Court.
Having arrived at the conclusion that Julian was not conferred by Perla with
the authority to mortgage the subject property under the terms of the SPA,
the real estate mortgages Julian executed over the said property are
therefore unenforceable.
Assuming arguendo that the subject property was indeed included in
the SPA executed by Perla in favor of Julian, the said SPA was revoked by
virtue of a public instrument executed by Perla on 10 March 1993. To
address respondents assertion that the said revocation was unenforceable
against it as a third party to the SPA and as one who relied on the same in
good faith, we quote with approval the following ruling of the RTC on this
matter:
Moreover, an agency is extinguished, among others, by its
revocation (Article 1999, New Civil Code of the Philippines). The
 principal may revoke the agency at will, and compel the agent to
return the document evidencing the agency. Such revocation may be
express or implied (Article 1920, supra).
In this case, the revocation of the agency or Special
Power of Attorney is expressed and by a public document
executed on March 10, 1993.
The Register of Deeds of Quezon City was even
notified that any attempt to mortgage or sell the property
covered by TCT No. [RT-18206] 106338 located atNo. 21
Hillside Drive, Blue Ridge, Quezon City must have the full
consent documented in the form of a special power of
attorney duly authenticated at the Philippine Consulate
General, New York City, N.Y., U.S.A.
The non-annotation of the revocation of the Special
Power of Attorney on TCT No. RT-18206 is of no
consequence as far as the revocations existence and legal
effect is concerned since actual notice is always superior to
constructive notice. The actual notice of the revocation
relayed to defendant Registry of Deeds of Quezon City is not
denied by either the Registry of Deeds of Quezon City or the
defendant Bank. In which case, there appears no reason
why Section 52 of the Property Registration Decree (P.D.
No. 1529) should not apply to the situation. Said Section 52
of P.D. No. 1529 provides:
Section 52. Constructive notice
upon registration. Every conveyance,
mortgage, lease, lien, attachment, order,
judgment, instrument or entry affecting
registered land shall, if registered, filed or
entered in the Office of the Register of
Deeds for the province or city where the
land to which it relates lies, beconstructive
notice to all persons from the time of
such registering, filing or entering. (Pres.
Decree No. 1529, Section 53) (emphasis
ours)
27 - BANKING LAWS
It thus developed that at the time the first loan
transaction with defendant Bank was effected on December
12, 1996, there was on record at the Office of the Register of
Deeds of Quezon City that the special power of attorney
granted Julian, Sr. by Perla had been revoked. That notice,
works as constructive notice to third parties of its being filed,
effectively rendering Julian, Sr. without authority to act for
and in behalf of Perla as of the date the revocation letter was
received by the Register of Deeds of Quezon City on
February 7, 1996.[19]
Given that Perla revoked the SPA as early as 10 March 1993, and that she
informed the Registry of Deeds of Quezon City of such revocation in a letter
dated 23 January 1996 and received by the latter on 7 February 1996, then
third parties to the SPA are constructively notified that the same had been
revoked and Julian no longer had any authority to mortgage the subject
property. Although the revocation may not be annotated on TCT No. RT-
18206 (106338), as the RTC pointed out, neither the Registry of Deeds of
Quezon City nor respondent denied that Perlas 23 January 1996 letter was
received by and filed with the Registry of Deeds of Quezon City. Respondent
would have undoubtedly come across said letter if it indeed diligently
investigated the subject property and the circumstances surrounding its
mortgage.
The final issue to be threshed out by this Court is whether the
respondent is a mortgagee-in-good faith. Respondent fervently asserts that it
exercised reasonable diligence required of a prudent man in dealing with the
subject property.
Elaborating, respondent claims to have carefully verified Julians
authority over the subject property which was validly contained in the SPA. It
stresses that the SPA was annotated at the back of the TCT of the subject
property. Finally, after conducting an investigation, it found that the property
covered by TCT No. 106338,registered with the Registry of Deeds of Pasig
(now Makati) referred to in the SPA, and the subject property, covered
by TCT No. 18206 (106338) registered with the Registry of Deeds of Quezon
City, are one and the same property. From the foregoing, respondent
concluded that Julian was indeed authorized to constitute a mortgage over
the subject property.
We are unconvinced. The property listed in the real estate mortgages Julian
executed in favor of PNB is the one covered by TCT#RT-18206(106338). On
the other hand, the Special Power of Attorney referred to TCT No. RT-
106338 805 Square Meters of the Registry of Deeds
of Pasig now Makati. The palpable difference between the TCT numbers
referred to in the real estate mortgages and Julians SPA, coupled with the
fact that the said TCTs are registered in the Registries of Deeds of different
cities, should have put respondent on guard. Respondents claim of prudence
is debunked by the fact that it had conveniently or otherwise overlooked the
inconsistent details appearing on the face of the documents, which it was
relying on for its rights as mortgagee, and which significantly affected the
identification of the property being mortgaged. In Arrofo v. Quio,[20] we have
elucidated that:
[Settled is the rule that] a person dealing with
registered lands [is not required] to inquire further than what
the Torrens title on its face indicates. This rule, however, is
not absolute but admits of exceptions. Thus, while its is
true, x x x that a person dealing with registered lands
need not go beyond the certificate of title, it is likewise a
well-settled rule that a purchaser or mortgagee cannot
close his eyes to facts which should put a reasonable
man on his guard, and then claim that he acted in good
faith under the belief that there was no defect in the title
of the vendor or mortgagor. His mere refusal to face up
the fact that such defect exists, or his willful closing of his
eyes to the possibility of the existence of a defect in the
vendors or mortgagors title, will not make him an innocent
purchaser for value, if it afterwards develops that the title
was in fact defective, and it appears that he had such notice
of the defect as would have led to its discovery had he acted
with the measure of precaution which may be required of a
prudent man in a like situation.
By putting blinders on its eyes, and by refusing to see the patent
defect in the scope of Julians authority, easily discernable from the plain
terms of the SPA, respondent cannot now claim to be an innocent
mortgagee.
28 - BANKING LAWS
Further, in the case of Abad v. Guimba,[21] we laid down the principle
that where the mortgagee does not directly deal with the registered owner of
real property, the law requires that a higher degree of prudence be exercised
by the mortgagee, thus:
While [the] one who buys from the registered owner does not
need to look behind the certificate of title, one who buys from
[the] one who is not [the] registered owner is expected to
examine not only the certificate of title but all factual
circumstances necessary for [one] to determine if there are
any flaws in the title of the transferor, or in [the] capacity to
transfer the land. Although the instant case does not involve
a sale but only a mortgage, the same rule applies inasmuch
as the law itself includes a mortgagee in the term
purchaser.[22]
This principle is applied more strenuously when the mortgagee is a
bank or a banking institution. Thus, in the case of Cruz v. Bancom
Finance Corporation,[23]we ruled:
Respondent, however, is not an ordinary mortgagee;
it is a mortgagee-bank. As such, unlike private individuals, it
is expected to exercise greater care and prudence in its
dealings, including those involving registered lands. A
banking institution is expected to exercise due diligence
before entering into a mortgage contract. The ascertainment
of the status or condition of a property offered to it as
security for a loan must be a standard and indispensable
part of its operations.[24]
Hence, considering that the property being mortgaged by Julian was
not his, and there are additional doubts or suspicions as to the real identity of
the same, the respondent bank should have proceeded with its transactions
with Julian only with utmost caution. As a bank, respondent must subject all
its transactions to the most rigid scrutiny, since its business is impressed with
public interest and its fiduciary character requires high standards of integrity
and performance.[25] Where respondent acted in undue haste in granting the
mortgage loans in favor of Julian and disregarding the apparent defects in
the latters authority as agent, it failed to discharge the degree of diligence
required of it as a banking corporation.
 Thus, even granting for the sake of argument that the subject
property and the one identified in the SPA are one and the same, it would not
elevate respondents status to that of an innocent mortgagee. As a banking
institution, jurisprudence stringently requires that respondent should take
more precautions than an ordinary prudent man should, to ascertain the
status and condition of the properties offered as collateral and to verify the
scope of the authority of the agents dealing with these.Had respondent acted
with the required degree of diligence, it could have acquired knowledge of
the letter dated 23 January 1996 sent by Perla to the Registry of Deeds of
Quezon City which recorded the same. The failure of the respondent to
investigate into the circumstances surrounding the mortgage of the subject
property belies its contention of good faith.
WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition
is GRANTED. The Decision dated 12 October 2005 and its Resolution
dated 15 February 2006 rendered by the Court of Appeals in CA-G.R. CV
No. 82636, are hereby REVERSED. The Decision dated 23 September
2003 of the Regional Trial Court of Quezon City, Branch 220, in Civil Case
No. Q-99-37145, is hereby REINSTATED and AFFIRMED with modification
that the real estate mortgages constituted over TCT No. RT 18206
(106338) are not null and void but UNENFORCEABLE. No costs.
SO ORDERED.

On a last note, we find that the real estate mortgages constituted

over the subject property are unenforceable and not null and void, as ruled
by the RTC. It is best to reiterate that the said mortgage was entered into by
Julian on behalf of Perla without the latters authority and consequently,
unenforceable under Article 1403(1) of the Civil Code. Unenforceable
contracts are those which cannot be enforced by a proper action in court,
unless they are ratified, because either they are entered into without or in
excess of authority or they do not comply with the statute of frauds or both of
the contracting parties do not possess the required legal capacity. [26] An
unenforceable contract may be ratified, expressly or impliedly, by the person
in whose behalf it has been executed, before it is revoked by the other
contracting party.[27] Without Perlas ratification of the same, the real estate
mortgages constituted by Julian over the subject property cannot be enforced
by any action in court against Perla and/or her successors in interest.

In sum, we rule that the contracts of real estate mortgage constituted

over the subject property covered by TCT No. RT 18206 (106338) registered
with the Registry of Deeds of Quezon City are unenforceable. Consequently,
the foreclosure proceedings and the auction sale of the subject property
conducted in pursuance of these unenforceable contracts are null and
void. This, however, is without prejudice to the right of the respondent to
proceed against Julian, in his personal capacity, for the amount of the loans.

29 - BANKING LAWS
 SECOND DIVISION
[G.R. No. 118492. August 15, 2001]
GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners,
vs. THE HON. COURT OF APPEALS and FAR EAST BANK AND
TRUST COMPANY, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review of the Decision[1] dated July 22, 1994
and Resolution[2] dated December 29, 1994 of the Court of
Appeals[3] affirming with modification the Decision[4]dated November 12, 1992
of the Regional Trial Court of Makati, Metro Manila, Branch 64, which
dismissed the complaint for damages of petitioners spouses Gregorio H.
Reyes and Consuelo Puyat-Reyes against respondent Far East Bank and
Trust Company.
The undisputed facts of the case are as follows:
In view of the 20th Asian Racing Conference then scheduled to be held
in September, 1988 in Sydney, Australia, the Philippine Racing Club, Inc.
(PRCI, for brevity) sent four (4) delegates to the said conference. Petitioner
Gregorio H. Reyes, as vice-president for finance, racing manager, treasurer,
and director of PRCI, sent Godofredo Reyes, the clubs chief cashier, to the
respondent bank to apply for a foreign exchange demand draft in Australian
dollars.
Godofredo went to respondent banks Buendia Branch in Makati City to
apply for a demand draft in the amount One Thousand Six Hundred Ten
Australian Dollars (AU$1,610.00) payable to the order of the 20 th Asian
Racing Conference Secretariat of Sydney, Australia. He was attended to by
respondent banks assistant cashier, Mr. Yasis, who at first denied the
application for the reason that respondent bank did not have an Australian
dollar account in any bank in Sydney. Godofredo asked if there could be a
way for respondent bank to accommodate PRCIs urgent need to remit
Australian dollars to Sydney. Yasis of respondent bank then informed
Godofredo of a roundabout way of effecting the requested remittance to
Sydney thus: the respondent bank would draw a demand draft against
Westpac Bank in Sydney, Australia (Westpac-Sydney for brevity) and have
30 - BANKING LAWS
the latter reimburse itself from the U.S. dollar account of the respondent in
Westpac Bank in New York, U.S.A (Westpac-New York for brevity). This
arrangement has been customarily resorted to since the 1960s and the
procedure has proven to be problem-free. PRCI and the petitioner Gregorio
H. Reyes, acting through Godofredo, agreed to this arrangement or approach
in order to effect the urgent transfer of Australian dollars payable to the
Secretariat of the 20th Asian Racing Conference.
On July 28, 1988, the respondent bank approved the said application of
PRCI and issued Foreign Exchange Demand Draft (FXDD) No. 209968 in
the sum applied for, that is, One Thousand Six Hundred Ten Australian
Dollars (AU$1,610.00), payable to the order of the 20th Asian Racing
Conference Secretariat of Sydney, Australia, and addressed to Westpac-
Sydney as the drawee bank.
On August 10, 1988, upon due presentment of the foreign exchange
demand draft, denominated as FXDD No. 209968, the same was
dishonored, with the notice of dishonor stating the following: xxx No account
held with Westpac. Meanwhile, on August 16, 1988, Westpac-New York sent
a cable to respondent bank informing the latter that its dollar account in the
sum of One Thousand Six Hundred Ten Australian Dollars (AU$1,610.00)
was debited. On August 19, 1988, in response to PRCIs complaint about the
dishonor of the said foreign exchange demand draft, respondent bank
informed Westpac-Sydney of the issuance of the said demand draft FXDD
No. 209968, drawn against the Westpac-Sydney and informing the latter to
be reimbursed from the respondent banks dollar account in Westpac-New
York. The respondent bank on the same day likewise informed Westpac-New
York requesting the latter to honor the reimbursement claim of Westpac-
Sydney. On September 14, 1988, upon its second presentment for payment,
FXDD No. 209968 was again dishonored by Westpac-Sydney for the same
reason, that is, that the respondent bank has no deposit dollar account with
the drawee Westpac-Sydney.
On September 17, 1988 and September 18, 1988, respectively,
petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes left for
Australia to attend the said racing conference. When petitioner Gregorio H.
Reyes arrived in Sydney in the morning of September 18, 1988, he went
directly to the lobby of Hotel Regent Sydney to register as a conference
delegate. At the registration desk, in the presence of other delegates from
various member countries, he was told by a lady member of the conference
secretariat that he could not register because the foreign exchange demand
draft for his registration fee had been dishonored for the second time. A
discussion ensued in the presence and within the hearing of many delegates
who were also registering.Feeling terribly embarrassed and humiliated,
petitioner Gregorio H. Reyes asked the lady member of the conference
secretariat that he be shown the subject foreign exchange demand draft that
had been dishonored as well as the covering letter after which he promised
that he would pay the registration fees in cash. In the meantime he
demanded that he be given his name plate and conference kit. The lady
member of the conference secretariat relented and gave him his name plate
and conference kit. It was only two (2) days later, or on September 20, 1988,
that he was given the dishonored demand draft and a covering letter. It was
then that he actually paid in cash the registration fees as he had earlier
promised.
Meanwhile, on September 19, 1988, petitioner Consuelo Puyat-Reyes
arrived in Sydney. She too was embarrassed and humiliated at the
registration desk of the conference secretariat when she was told in the
presence and within the hearing of other delegates that she could not be
registered due to the dishonor of the subject foreign exchange demand
draft. She felt herself trembling and unable to look at the people around
her. Fortunately, she saw her husband coming toward her. He saved the
situation for her by telling the secretariat member that he had already
arranged for the payment of the registration fees in cash once he was shown
the dishonored demand draft. Only then was petitioner Puyat-Reyes given
her name plate and conference kit.
At the time the incident took place, petitioner Consuelo Puyat-Reyes
was a member of the House of Representatives representing the lone
Congressional District of Makati, Metro Manila.She has been an officer of the
Manila Banking Corporation and was cited by Archbishop Jaime Cardinal Sin
as the top lady banker of the year in connection with her conferment of the
Pro-Ecclesia et Pontifice Award. She has also been awarded a plaque of
appreciation from the Philippine Tuberculosis Society for her extraordinary
service as the Societys campaign chairman for the ninth (9th) consecutive
year.
On November 23, 1988, the petitioners filed in the Regional Trial Court
of Makati, Metro Manila, a complaint for damages, docketed as Civil Case
No. 88-2468, against the respondent bank due to the dishonor of the said
foreign exchange demand draft issued by the respondent bank. The
petitioners claim that as a result of the dishonor of the said demand draft,
they were exposed to unnecessary shock, social humiliation, and deep
mental anguish in a foreign country, and in the presence of an international
audience.
On November 12, 1992, the trial court rendered judgment in favor of the
defendant (respondent bank) and against the plaintiffs (herein petitioners),
the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered in favor of the defendant,
dismissing plaintiffs complaint, and ordering plaintiffs to pay to defendant, on
31 - BANKING LAWS
its counterclaim, the amount of P50,000.00, as reasonable attorneys
fees. Costs against the plaintiff.
SO ORDERED.[5]
The petitioners appealed the decision of the trial court to the Court of
Appeals. On July 22, 1994, the appellate court affirmed the decision of the
trial court but in effect deleted the award of attorneys fees to the defendant
(herein respondent bank) and the pronouncement as to the costs. The
decretal portion of the decision of the appellate court states:
WHEREFORE, the judgment appealed from, insofar as it dismisses plaintiffs
complaint, is hereby AFFIRMED, but is hereby REVERSED and SET ASIDE
in all other respect. No special pronouncement as to costs.
SO ORDERED.[6]
According to the appellate court, there is no basis to hold the
respondent bank liable for damages for the reason that it exerted every effort
for the subject foreign exchange demand draft to be honored. The appellate
court found and declared that:
xxx xxx xxx
Thus, the Bank had every reason to believe that the transaction finally went
through smoothly, considering that its New York account had been debited
and that there was no miscommunication between it and Westpac-New
York. SWIFT is a world wide association used by almost all banks and is
known to be the most reliable mode of communication in the international
banking business. Besides, the above procedure, with the Bank as drawer
and Westpac-Sydney as drawee, and with Westpac-New York as the
reimbursement Bank had been in place since 1960s and there was no
reason for the Bank to suspect that this particular demand draft would not be
honored by Westpac-Sydney.
From the evidence, it appears that the root cause of the miscommunications
of the Banks SWIFT message is the erroneous decoding on the part of
Westpac-Sydney of the Banks SWIFT message as an MT799
format. However, a closer look at the Banks Exhs. 6 and 7 would show that
despite what appears to be an asterisk written over the figure before 99, the
figure can still be distinctly seen as a number 1 and not number 7, to the
effect that Westpac-Sydney was responsible for the dishonor and not the
Bank.
Moreover, it is not said asterisk that caused the misleading on the part of the
Westpac-Sydney of the numbers 1 to 7, since Exhs. 6 and 7 are just
documentary copies of the cable message sent to Westpac-Sydney. Hence,
if there was mistake committed by Westpac-Sydney in decoding the cable
message which caused the Banks message to be sent to the wrong
department, the mistake was Westpacs, not the Banks. The Bank had done
what an ordinary prudent person is required to do in the particular situation,
although appellants expect the Bank to have done more. The Bank having
done everything necessary or usual in the ordinary course of banking
transaction, it cannot be held liable for any embarrassment and
corresponding damage that appellants may have incurred.[7]
xxx xxx xxx
Hence, this petition, anchored on the following assignment of errors:
I The courts a quo found that respondent bank did not misrepresent that it
THE HONORABLE COURT OF APPEALS ERRED IN FINDING
PRIVATE RESPONDENT NOT NEGLIGENT BY ERRONEOUSLY
APPLYING THE STANDARD OF DILIGENCE OF AN ORDINARY
PRUDENT PERSON WHEN IN TRUTH A HIGHER DEGREE OF
DILIGENCE IS IMPOSED BY LAW UPON THE BANKS.
II
THE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING
PRIVATE RESPONDENT FROM LIABILITY BY OVERLOOKING THE
FACT THAT THE DISHONOR OF THE DEMAND DRAFT WAS A
BREACH OF PRIVATE RESPONDENTS WARRANTY AS THE
DRAWER THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING
THAT AS SHOWN OVERWHELMINGLY BY THE EVIDENCE, THE
DISHONOR OF THE DEMAND DRAFT WAS DUE TO PRIVATE
RESPONDENTS NEGLIGENCE AND NOT THE DRAWEE BANK.[8]
The petitioners contend that due to the fiduciary nature of the
relationship between the respondent bank and its clients, the respondent
bank should have exercised a higher degree of diligence than that expected
of an ordinary prudent person in the handling of its affairs as in the case at
bar. The appellate court, according to petitioners, erred in applying the
standard of diligence of an ordinary prudent person only. Petitioners also
32 - BANKING LAWS
claim that the respondent bank violated Section 61 of the Negotiable
Instruments Law[9] which provides the warranty of a drawer that xxx on due
presentment, the instrument will be accepted or paid, or both, according to its
tenor xxx. Thus, the petitioners argue that respondent bank should be held
liable for damages for violation of this warranty. The petitioners pray this
Court to re-examine the facts to cite certain instances of negligence.
It is our view and we hold that there is no reversible error in the decision
of the appellate court.
Section 1 of Rule 45 of the Revised Rules of Court provides that (T)he
petition (for review) shall raise only questions of law which must be distinctly
set forth. Thus, we have ruled that factual findings of the Court of Appeals
are conclusive on the parties and not reviewable by this Court and they carry
even more weight when the Court of Appeals affirms the factual findings of
the trial court.[10]
was maintaining a deposit account with Westpac-Sydney. Respondent banks
assistant cashier explained to Godofredo Reyes, representating PRCI and
petitioner Gregorio H. Reyes, how the transfer of Australian dollars would be
effected through Westpac-New York where the respondent bank has a dollar
account to Westpac-Sydney where the subject foreign exchange demand
draft (FXDD No. 209968) could be encashed by the payee, the 20 th Asian
Racing Conference Secretatriat. PRCI and its Vice-President for finance,
petitioner Gregorio H. Reyes, through their said representative, agreed to
that arrangement or procedure. In other words, the petitioners are estopped
from denying the said arrangement or procedure. Similar arrangements have
been a long standing practice in banking to facilitate international commercial
transactions. In fact, the SWIFT cable message sent by respondent bank to
the drawee bank, Westpac-Sydney, stated that it may claim reimbursement
from its New York branch, Westpac-New York where respondent bank has a
deposit dollar account.
The facts as found by the courts a quo show that respondent bank did
not cause an erroneous transmittal of its SWIFT cable message to Westpac-
Sydney. It was the erroneous decoding of the cable message on the part of
Westpac-Sydney that caused the dishonor of the subject foreign exchange
demand draft. An employee of Westpac-Sydney in Sydney, Australia
mistakenly read the printed figures in the SWIFT cable message of
respondent bank as MT799 instead of as MT199. As a result, Westpac-
Sydney construed the said cable message as a format for a letter of credit,
and not for a demand draft. The appellate court correctly found that the figure
before 99 can still be distinctly seen as a number 1 and not number 7.
Indeed, the line of a 7 is in a slanting position while the line of a 1 is in a
horizontal position. Thus, the number 1 in MT199 cannot be construed as
7.[11]
 The evidence also shows that the respondent bank exercised that demand draft. Thus, the respondent bank had the impression that Westpac-
degree of diligence expected of an ordinary prudent person under the New York had not yet made available the amount for reimbursement to
circumstances obtaining. Prior to the first dishonor of the subject foreign Westpac-Sydney despite the fact that respondent bank has a sufficient
exchange demand draft, the respondent bank advised Westpac-New York to deposit dollar account with Westpac-New York. That was the reason why the
honor the reimbursement claim of Westpac-Sydney and to debit the dollar respondent bank had to re-confirm and repeatedly notify Westpac-New York
account[12] of respondent bank with the former. As soon as the demand draft to debit its (respondent banks) deposit dollar account with it and to transfer or
was dishonored, the respondent bank, thinking that the problem was with the credit the corresponding amount to Westpac-Sydney to cover the amount
reimbursement and without any idea that it was due to miscommunication, of the said demand draft.
re-confirmed the authority of Westpac-New York to debit its dollar account for
the purpose of reimbursing Westpac-Sydney.[13] Respondent bank also sent In view of all the foregoing, and considering that the dishonor of the
two (2) more cable messages to Westpac-New York inquiring why the subject foreign exchange demand draft is not attributable to any fault of the
demand draft was not honored.[14] respondent bank, whereas the petitioners appeared to be under estoppel as
earlier mentioned, it is no longer necessary to discuss the alleged application
With these established facts, we now determine the degree of diligence of Section 61 of the Negotiable Instruments Law to the case at bar. In any
that banks are required to exert in their commercial dealings. In Philippine event, it was established that the respondent bank acted in good faith and
Bank of Commerce v. Court of Appeals[15]upholding a long standing doctrine, that it did not cause the embarrassment of the petitioners in Sydney,
we ruled that the degree of diligence required of banks, is more than that of Australia. Hence, the Court of Appeals did not commit any reversable error in
a good father of a family where the fiduciary nature of their relationship with its challenged decision.
their depositors is concerned. In other words banks are duty bound to treat
the deposit accounts of their depositors with the highest degree of care. But WHEREFORE, the petition is hereby DENIED, and the assailed
the said ruling applies only to cases where banks act under their fiduciary decision of the Court of Appeals is AFFIRMED. Costs against the
capacity, that is, as depositary of the deposits of their depositors. But the petitioners.
same higher degree of diligence is not expected to be exerted by banks in SO ORDERED.
commercial transactions that do not involve their fiduciary relationship with
their depositors.
Considering the foregoing, the respondent bank was not required to
exert more than the diligence of a good father of a family in regard to the sale
and issuance of the subject foreign exchange demand draft. The case at bar
does not involve the handling of petitioners deposit, if any, with the
respondent bank. Instead, the relationship involved was that of a buyer and
seller, that is, between the respondent bank as the seller of the subject
foreign exchange demand draft, and PRCI as the buyer of the same, with the
20th Asian Racing Conference Secretariat in Sydney, Australia as the payee
thereof. As earlier mentioned, the said foreign exchange demand draft was
intended for the payment of the registration fees of the petitioners as
delegates of the PRCI to the 20th Asian Racing Conference in Sydney.
The evidence shows that the respondent bank did everything within its
power to prevent the dishonor of the subject foreign exchange demand
draft. The erroneous reading of its cable message to Westpac-Sydney by an
employee of the latter could not have been foreseen by the respondent
bank. Being unaware that its employee erroneously read the said cable
message, Westpac-Sydney merely stated that the respondent bank has no
deposit account with it to cover for the amount of One Thousand Six Hundred
Ten Australian Dollar (AU$1610.00) indicated in the foreign exchange

33 - BANKING LAWS
 Republic of the Philippines G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27,
SUPREME COURT 1995 Decision1 of the Court of Appeals in CA-G.R. CV No. 25017, entitled
Manila "Ford Philippines, Inc. vs. Citibank, N.A. and Insular Bank of Asia and
America (now Philipppine Commercial International Bank), and the August 8,
SECOND DIVISION 1995 Resolution,2 ordering the collecting bank, Philippine Commercial
International Bank, to pay the amount of Citibank Check No. SN-04867.
G.R. No. 121413 January 29, 2001
In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR Decision3 of the Court of Appeals and its March 5, 1997 Resolution4 in CA-
BANK OF ASIA AND AMERICA),petitioner, G.R. No. 28430 entitled "Ford Philippines, Inc. vs. Citibank, N.A. and
Philippine Commercial International Bank," affirming in toto the judgment of
vs.
COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, the trial court holding the defendant drawee bank, Citibank, N.A., solely liable
N.A., respondents. to pay the amount of P12,163,298.10 as damages for the misapplied
proceeds of the plaintiff's Citibanl Check Numbers SN-10597 and 16508.

I. G.R. Nos. 121413 and 121479

G.R. No. 121479 January 29, 2001
The stipulated facts submitted by the parties as accepted by the Court of
Appeals are as follows:
FORD PHILIPPINES, INC., petitioner-plaintiff,
vs.
COURT OF APPEALS and CITIBANK, N.A. and PHILIPPINE "On October 19, 1977, the plaintiff Ford drew and issued its Citibank
COMMERCIAL INTERNATIONAL BANK,respondents. Check No. SN-04867 in the amount of P4,746,114.41, in favor of the
Commissioner of Internal Revenue as payment of plaintiff;s
percentage or manufacturer's sales taxes for the third quarter of
1977.

G.R. No. 128604 January 29, 2001 The aforesaid check was deposited with the degendant IBAA (now
PCIBank) and was subsequently cleared at the Central Bank. Upon
FORD PHILIPPINES, INC., petitioner, presentment with the defendant Citibank, the proceeds of the check
vs. was paid to IBAA as collecting or depository bank.
CITIBANK, N.A., PHILIPPINE COMMERCIAL INTERNATIONAL BANK
and COURT OF APPEALS, respondents. The proceeds of the same Citibank check of the plaintiff was never
paid to or received by the payee thereof, the Commissioner of
QUISUMBING, J.: Internal Revenue.

These consolidated petitions involve several fraudulently negotiated checks.
The original actions a quo were instituted by Ford Philippines to recover from
the drawee bank, CITIBANK, N.A. (Citibank) and collecting bank, Philippine
Commercial International Bank (PCIBank) [formerly Insular Bank of Asia and
America], the value of several checks payable to the Commissioner of
Internal Revenue, which were embezzled allegedly by an organized
syndicate.1âwphi1.nêt
34 - BANKING LAWS
As a consequence, upon demand of the Bureau and/or
Commissioner of Internal Revenue, the plaintiff was compelled to
make a second payment to the Bureau of Internal Revenue of its
percentage/manufacturers' sales taxes for the third quarter of 1977
and that said second payment of plaintiff in the amount of
P4,746,114.41 was duly received by the Bureau of Internal Revenue.
It is further admitted by defendant Citibank that during the time of the
transactions in question, plaintiff had been maintaining a checking
 account with defendant Citibank; that Citibank Check No. SN-04867
which was drawn and issued by the plaintiff in favor of the
Commissioner of Internal Revenue was a crossed check in that, on
its face were two parallel lines and written in between said lines was
the phrase "Payee's Account Only"; and that defendant Citibank paid
the full face value of the check in the amount of P4,746,114.41 to the
defendant IBAA.
It has been duly established that for the payment of plaintiff's
percentage tax for the last quarter of 1977, the Bureau of Internal
Revenue issued Revenue Tax Receipt No. 18747002, dated October
20, 1977, designating therein in Muntinlupa, Metro Manila, as the
authorized agent bank of Metrobanl, Alabang branch to receive the
tax payment of the plaintiff.
On December 19, 1977, plaintiff's Citibank Check No. SN-04867,
together with the Revenue Tax Receipt No. 18747002, was
deposited with defendant IBAA, through its Ermita Branch. The latter
accepted the check and sent it to the Central Clearing House for
clearing on the samd day, with the indorsement at the back "all prior
indorsements and/or lack of indorsements guaranteed." Thereafter,
defendant IBAA presented the check for payment to defendant
Citibank on same date, December 19, 1977, and the latter paid the
face value of the check in the amount of P4,746,114.41.
Consequently, the amount of P4,746,114.41 was debited in plaintiff's
account with the defendant Citibank and the check was returned to
the plaintiff.
Upon verification, plaintiff discovered that its Citibank Check No. SN-
04867 in the amount of P4,746,114.41 was not paid to the
Commissioner of Internal Revenue. Hence, in separate letters dated
October 26, 1979, addressed to the defendants, the plaintiff notified
the latter that in case it will be re-assessed by the BIR for the
payment of the taxes covered by the said checks, then plaintiff shall
hold the defendants liable for reimbursement of the face value of the
same. Both defendants denied liability and refused to pay.
In a letter dated February 28, 1980 by the Acting Commissioner of
Internal Revenue addressed to the plaintiff - supposed to be Exhibit
"D", the latter was officially informed, among others, that its check in
the amount of P4, 746,114.41 was not paid to the government or its
authorized agent and instead encashed by unauthorized persons,
hence, plaintiff has to pay the said amount within fifteen days from
receipt of the letter. Upon advice of the plaintiff's lawyers, plaintiff on
35 - BANKING LAWS
March 11, 1982, paid to the Bureau of Internal Revenue, the amount
of P4,746,114.41, representing payment of plaintiff's percentage tax
for the third quarter of 1977.
As a consequence of defendant's refusal to reimburse plaintiff of the
payment it had made for the second time to the BIR of its percentage
taxes, plaintiff filed on January 20, 1983 its original complaint before
this Court.
On December 24, 1985, defendant IBAA was merged with the
Philippine Commercial International Bank (PCI Bank) with the latter
as the surviving entity.
Defendant Citibank maintains that; the payment it made of plaintiff's
Citibank Check No. SN-04867 in the amount of P4,746,114.41 "was
in due course"; it merely relied on the clearing stamp of the
depository/collecting bank, the defendant IBAA that "all prior
indorsements and/or lack of indorsements guaranteed"; and the
proximate cause of plaintiff's injury is the gross negligence of
defendant IBAA in indorsing the plaintiff's Citibank check in question.
It is admitted that on December 19, 1977 when the proceeds of
plaintiff's Citibank Check No. SN-048867 was paid to defendant
IBAA as collecting bank, plaintiff was maintaining a checking account
with defendant Citibank."5
Although it was not among the stipulated facts, an investigation by the
National Bureau of Investigation (NBI) revealed that Citibank Check No. SN-
04867 was recalled by Godofredo Rivera, the General Ledger Accountant of
Ford. He purportedly needed to hold back the check because there was an
error in the computation of the tax due to the Bureau of Internal Revenue
(BIR). With Rivera's instruction, PCIBank replaced the check with two of its
own Manager's Checks (MCs). Alleged members of a syndicate later
deposited the two MCs with the Pacific Banking Corporation.
Ford, with leave of court, filed a third-party complaint before the trial court
impleading Pacific Banking Corporation (PBC) and Godofredo Rivera, as
third party defendants. But the court dismissed the complaint against PBC for
lack of cause of action. The course likewise dismissed the third-party
complaint against Godofredo Rivera because he could not be served with
summons as the NBI declared him as a "fugitive from justice".
On June 15, 1989, the trial court rendered its decision, as follows:
 "Premises considered, judgment is hereby rendered as follows:
"1. Ordering the defendants Citibank and IBAA (now PCI
Bank), jointly and severally, to pay the plaintiff the amount of
P4,746,114.41 representing the face value of plaintiff's
Citibank Check No. SN-04867, with interest thereon at the
legal rate starting January 20, 1983, the date when the
original complaint was filed until the amount is fully paid, plus
costs;
"2. On defendant Citibank's cross-claim: ordering the cross-
defendant IBAA (now PCI Bank) to reimburse defendant
Citibank for whatever amount the latter has paid or may pay
to the plaintiff in accordance with next preceding paragraph;
"3. The counterclaims asserted by the defendants against
the plaintiff, as well as that asserted by the cross-defendant
against the cross-claimant are dismissed, for lack of merits;
and
"4. With costs against the defendants.
SO ORDERED."6
Not satisfied with the said decision, both defendants, Citibank and PCIBank,
elevated their respective petitions for review on certiorari to the Courts of
Appeals. On March 27, 1995, the appellate court issued its judgment as
follows:
"WHEREFORE, in view of the foregoing, the court AFFIRMS the
appealed decision with modifications.
The court hereby renderes judgment:
1. Dismissing the complaint in Civil Case No. 49287 insofar
as defendant Citibank N.A. is concerned;
2. Ordering the defendant IBAA now PCI Bank to pay the
plaintiff the amount of P4,746,114.41 representing the face
value of plaintiff's Citibank Check No. SN-04867, with
interest thereon at the legal rate starting January 20, 1983,
the date when the original complaint was filed until the
amount is fully paid;
36 - BANKING LAWS
3. Dismissing the counterclaims asserted by the defendants
against the plaintiff as well as that asserted by the cross-
defendant against the cross-claimant, for lack of merits.
Costs against the defendant IBAA (now PCI Bank).
IT IS SO ORDERED."7
PCI Bank moved to reconsider the above-quoted decision of the Court of
Appeals, while Ford filed a "Motion for Partial Reconsideration." Both motions
were denied for lack of merit.
Separately, PCIBank and Ford filed before this Court, petitions for review by
certiorari under Rule 45.
In G.R. No. 121413, PCIBank seeks the reversal of the decision and
resolution of the Twelfth Division of the Court of Appeals contending that it
merely acted on the instruction of Ford and such casue of action had already
prescribed.
PCIBank sets forth the following issues for consideration:
I. Did the respondent court err when, after finding that the petitioner
acted on the check drawn by respondent Ford on the said
respondent's instructions, it nevertheless found the petitioner liable to
the said respondent for the full amount of the said check.
II. Did the respondent court err when it did not find prescription in
favor of the petitioner.8
In a counter move, Ford filed its petition docketed as G.R. No. 121479,
questioning the same decision and resolution of the Court of Appeals, and
praying for the reinstatement in toto of the decision of the trial court which
found both PCIBank and Citibank jointly and severally liable for the loss.
In G.R. No. 121479, appellant Ford presents the following propositions for
consideration:
I. Respondent Citibank is liable to petitioner Ford considering that:
1. As drawee bank, respondent Citibank owes to petitioner
Ford, as the drawer of the subject check and a depositor of
respondent Citibank, an absolute and contractual duty to pay
 the proceeds of the subject check only to the payee thereof,
the Commissioner of Internal Revenue.
2. Respondent Citibank failed to observe its duty as banker
with respect to the subject check, which was crossed and
payable to "Payee's Account Only."
3. Respondent Citibank raises an issue for the first time on
appeal; thus the same should not be considered by the
Honorable Court.
4. As correctly held by the trial court, there is no evidence of
gross negligence on the part of petitioner Ford.9
II. PCI Bank is liable to petitioner Ford considering that:
1. There were no instructions from petitioner Ford to deliver
the proceeds of the subject check to a person other than the
payee named therein, the Commissioner of the Bureau of
Internal Revenue; thus, PCIBank's only obligation is to
deliver the proceeds to the Commissioner of the Bureau of
Internal Revenue.10
2. PCIBank which affixed its indorsement on the subject
check ("All prior indorsement and/or lack of indorsement
guaranteed"), is liable as collecting bank.11
3. PCIBank is barred from raising issues of fact in the instant
proceedings.12
4. Petitioner Ford's cause of action had not prescribed. 13
II. G.R. No. 128604
The same sysndicate apparently embezzled the proceeds of checks
intended, this time, to settle Ford's percentage taxes appertaining to the
second quarter of 1978 and the first quarter of 1979.
The facts as narrated by the Court of Appeals are as follows:
Ford drew Citibank Check No. SN-10597 on July 19, 1978 in the amount of
P5,851,706.37 representing the percentage tax due for the second quarter of
37 - BANKING LAWS
1978 payable to the Commissioner of Internal Revenue. A BIR Revenue Tax
Receipt No. 28645385 was issued for the said purpose.
On April 20, 1979, Ford drew another Citibank Check No. SN-16508 in the
amount of P6,311,591.73, representing the payment of percentage tax for
the first quarter of 1979 and payable to the Commissioner of Internal
Revenue. Again a BIR Revenue Tax Receipt No. A-1697160 was issued for
the said purpose.
Both checks were "crossed checks" and contain two diagonal lines on its
upper corner between, which were written the words "payable to the payee's
account only."
The checks never reached the payee, CIR. Thus, in a letter dated February
28, 1980, the BIR, Region 4-B, demanded for the said tax payments the
corresponding periods above-mentioned.
As far as the BIR is concernced, the said two BIR Revenue Tax Receipts
were considered "fake and spurious". This anomaly was confirmed by the
NBI upon the initiative of the BIR. The findings forced Ford to pay the BIR a
new, while an action was filed against Citibank and PCIBank for the recovery
of the amount of Citibank Check Numbers SN-10597 and 16508.
The Regional Trial Court of Makati, Branch 57, which tried the case, made its
findings on the modus operandi of the syndicate, as follows:
"A certain Mr. Godofredo Rivera was employed by the plaintiff FORD
as its General Ledger Accountant. As such, he prepared the
plaintiff's check marked Ex. 'A' [Citibank Check No. Sn-10597] for
payment to the BIR. Instead, however, fo delivering the same of the
payee, he passed on the check to a co-conspirator named Remberto
Castro who was a pro-manager of the San Andres Branch of PCIB.*
In connivance with one Winston Dulay, Castro himself subsequently
opened a Checking Account in the name of a fictitious person
denominated as 'Reynaldo reyes' in the Meralco Branch of PCIBank
where Dulay works as Assistant Manager.
After an initial deposit of P100.00 to validate the account, Castro
deposited a worthless Bank of America Check in exactly the same
amount as the first FORD check (Exh. "A", P5,851,706.37) while this
worthless check was coursed through PCIB's main office enroute to
the Central Bank for clearing, replaced this worthless check with
FORD's Exhibit 'A' and accordingly tampered the accompanying
documents to cover the replacement. As a result, Exhibit 'A' was
 cleared by defendant CITIBANK, and the fictitious deposit account of
'Reynaldo Reyes' was credited at the PCIB Meralco Branch with the
total amount of the FORD check Exhibit 'A'. The same method was
again utilized by the syndicate in profiting from Exh. 'B' [Citibank
Check No. SN-16508] which was subsequently pilfered by Alexis
Marindo, Rivera's Assistant at FORD.
From this 'Reynaldo Reyes' account, Castro drew various checks
distributing the sahres of the other participating conspirators namely
(1) CRISANTO BERNABE, the mastermind who formulated the
method for the embezzlement; (2) RODOLFO R. DE LEON a
customs broker who negotiated the initial contact between Bernabe,
FORD's Godofredo Rivera and PCIB's Remberto Castro; (3) JUAN
VASTILLO who assisted de Leon in the initial arrangements; (4)
GODOFREDO RIVERA, FORD's accountant who passed on the first
check (Exhibit "A") to Castro; (5) REMERTO CASTRO, PCIB's pro-
manager at San Andres who performed the switching of checks in
the clearing process and opened the fictitious Reynaldo Reyes
account at the PCIB Meralco Branch; (6) WINSTON DULAY, PCIB's
Assistant Manager at its Meralco Branch, who assisted Castro in
switching the checks in the clearing process and facilitated the
opening of the fictitious Reynaldo Reyes' bank account; (7) ALEXIS
MARINDO, Rivera's Assistant at FORD, who gave the second check
(Exh. "B") to Castro; (8) ELEUTERIO JIMENEZ, BIR Collection
Agent who provided the fake and spurious revenue tax receipts to
make it appear that the BIR had received FORD's tax payments.
Several other persons and entities were utilized by the syndicate as
conduits in the disbursements of the proceeds of the two checks, but
like the aforementioned participants in the conspiracy, have not been
impleaded in the present case. The manner by which the said funds
were distributed among them are traceable from the record of checks
drawn against the original "Reynaldo Reyes" account and indubitably
identify the parties who illegally benefited therefrom and readily
indicate in what amounts they did so."14
On December 9, 1988, Regional Trial Court of Makati, Branch 57, held
drawee-bank, Citibank, liable for the value of the two checks while adsolving
PCIBank from any liability, disposing as follows:
"WHEREFORE, judgment is hereby rendered sentencing defendant
CITIBANK to reimburse plaintiff FORD the total amount of
P12,163,298.10 prayed for in its complaint, with 6% interest thereon
from date of first written demand until full payment, plus P300,000.00
38 - BANKING LAWS
attorney's fees and expenses litigation, and to pay the defendant,
PCIB (on its counterclaim to crossclaim) the sum of P300,000.00 as
attorney's fees and costs of litigation, and pay the costs.
SO ORDERED."15
Both Ford and Citibank appealed to the Court of Appeals which affirmed, in
toto, the decision of the trial court. Hence, this petition.
Petitioner Ford prays that judgment be rendered setting aside the portion of
the Court of Appeals decision and its resolution dated March 5, 1997, with
respect to the dismissal of the complaint against PCIBank and holding
Citibank solely responsible for the proceeds of Citibank Check Numbers SN-
10597 and 16508 for P5,851,706.73 and P6,311,591.73 respectively.
Ford avers that the Court of Appeals erred in dismissing the complaint
against defendant PCIBank considering that:
I. Defendant PCIBank was clearly negligent when it failed to exercise
the diligence required to be exercised by it as a banking insitution.
II. Defendant PCIBank clearly failed to observe the diligence required
in the selection and supervision of its officers and employees.
III. Defendant PCIBank was, due to its negligence, clearly liable for
the loss or damage resulting to the plaintiff Ford as a consequence
of the substitution of the check consistent with Section 5 of Central
Bank Circular No. 580 series of 1977.
IV. Assuming arguedo that defedant PCIBank did not accept,
endorse or negotiate in due course the subject checks, it is liable,
under Article 2154 of the Civil Code, to return the money which it
admits having received, and which was credited to it its Central bank
account.16
The main issue presented for our consideration by these petitions could be
simplified as follows: Has petitioner Ford the right to recover from the
collecting bank (PCIBank) and the drawee bank (Citibank) the value of the
checks intended as payment to the Commissioner of Internal Revenue? Or
has Ford's cause of action already prescribed?
Note that in these cases, the checks were drawn against the drawee bank,
but the title of the person negotiating the same was allegedly defective
because the instrument was obtained by fraud and unlawful means, and the
proceeds of the checks were not remitted to the payee. It was established
that instead of paying the checks to the CIR, for the settlement of the
approprite quarterly percentage taxes of Ford, the checks were diverted and
encashed for the eventual distribution among the mmbers of the syndicate.
As to the unlawful negotiation of the check the applicable law is Section 55 of
the Negotiable Instruments Law (NIL), which provides:
"When title defective -- The title of a person who negotiates an
instrument is defective within the meaning of this Act when he
obtained the instrument, or any signature thereto, by fraud, duress,
or fore and fear, or other unlawful means, or for an illegal
consideration, or when he negotiates it in breach of faith or under
such circumstances as amount to a fraud."
Pursuant to this provision, it is vital to show that the negotiation is made by
the perpetator in breach of faith amounting to fraud. The person negotiating
the checks must have gone beyond the authority given by his principal. If the
principal could prove that there was no negligence in the performance of his
duties, he may set up the personal defense to escape liability and recover
from other parties who. Though their own negligence, alowed the
commission of the crime.
In this case, we note that the direct perpetrators of the offense, namely the
embezzlers belonging to a syndicate, are now fugitives from justice. They
have, even if temporarily, escaped liability for the embezzlement of millions
of pesos. We are thus left only with the task of determining who of the
present parties before us must bear the burden of loss of these millions. It all
boils down to thequestion of liability based on the degree of negligence
among the parties concerned.
Foremost, we must resolve whether the injured party, Ford, is guilty of the
"imputed contributory negligence" that would defeat its claim for
reimbursement, bearing ing mind that its employees, Godofredo Rivera and
Alexis Marindo, were among the members of the syndicate.
Citibank points out that Ford allowed its very own employee, Godofredo
Rivera, to negotiate the checks to his co-conspirators, instead of delivering
them to the designated authorized collecting bank (Metrobank-Alabang) of
the payee, CIR. Citibank bewails the fact that Ford was remiss in the
supervision and control of its own employees, inasmuch as it only discovered
the syndicate's activities through the information given by the payee of the
checks after an unreasonable period of time.
39 - BANKING LAWS
PCIBank also blames Ford of negligence when it allegedly authorized
Godofredo Rivera to divert the proceeds of Citibank Check No. SN-04867,
instead of using it to pay the BIR. As to the subsequent run-around of unds of
Citibank Check Nos. SN-10597 and 16508, PCIBank claims that the
proximate cause of the damge to Ford lies in its own officers and employees
who carried out the fradulent schemes and the transactions. These
circumstances were not checked by other officers of the company including
its comptroller or internal auditor. PCIBank contends that the inaction of Ford
despite the enormity of the amount involved was a sheer negligence and
stated that, as between two innocent persons, one of whom must suffer the
consequences of a breach of trust, the one who made it possible, by his act
of negligence, must bear the loss.
For its part, Ford denies any negligence in the performance of its duties. It
avers that there was no evidence presented before the trial court showing
lack of diligence on the part of Ford. And, citing the case of Gempesaw vs.
Court of Appeals,17 Ford argues that even if there was a finding therein that
the drawer was negligent, the drawee bank was still ordered to pay
damages.
Furthermore, Ford contends the Godofredo rivera was not authorized to
make any representation in its behalf, specifically, to divert the proceeds of
the checks. It adds that Citibank raised the issue of imputed negligence
against Ford for the first time on appeal. Thus, it should not be considered by
this Court.
On this point, jurisprudence regarding the imputed negligence of employer in
a master-servant relationship is instructive. Since a master may be held for
his servant's wrongful act, the law imputes to the master the act of the
servant, and if that act is negligent or wrongful and proximately results in
injury to a third person, the negligence or wrongful conduct is the negligence
or wrongful conduct of the master, for which he is liable.18 The general rule is
that if the master is injured by the negligence of a third person and by the
concuring contributory negligence of his own servant or agent, the latter's
negligence is imputed to his superior and will defeat the superior's action
against the third person, asuming, of course that the contributory negligence
was the proximate cause of the injury of which complaint is made.19
Accordingly, we need to determine whether or not the action of Godofredo
Rivera, Ford's General Ledger Accountant, and/or Alexis Marindo, his
assistant, was the proximate cause of the loss or damage. AS defined,
proximate cause is that which, in the natural and continuous sequence,
unbroken by any efficient, intervening cause produces the injury and without
the result would not have occurred.20
It appears that although the employees of Ford initiated the transactions
attributable to an organized syndicate, in our view, their actions were not the
proximate cause of encashing the checks payable to the CIR. The degree of
Ford's negligence, if any, could not be characterized as the proximate cause
of the injury to the parties.
The Board of Directors of Ford, we note, did not confirm the request of
Godofredo Rivera to recall Citibank Check No. SN-04867. Rivera's
instruction to replace the said check with PCIBank's Manager's Check was
not in theordinary course of business which could have prompted PCIBank to
validate the same.
As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was
established that these checks were made payable to the CIR. Both were
crossed checks. These checks were apparently turned around by Ford's
emploees, who were acting on their own personal capacity.
Given these circumstances, the mere fact that the forgery was committed by
a drawer-payor's confidential employee or agent, who by virtue of his position
had unusual facilities for perpertrating the fraud and imposing the forged
paper upon the bank, does notentitle the bank toshift the loss to the drawer-
payor, in the absence of some circumstance raising estoppel against the
drawer.21 This rule likewise applies to the checks fraudulently negotiated or
diverted by the confidential employees who hold them in their possession.
With respect to the negligence of PCIBank in the payment of the three
checks involved, separately, the trial courts found variations between the
negotiation of Citibank Check No. SN-04867 and the misapplication of total
proceeds of Checks SN-10597 and 16508. Therefore, we have to scrutinize,
separately, PCIBank's share of negligence when the syndicate achieved its
ultimate agenda of stealing the proceeds of these checks.
G.R. Nos. 121413 and 121479
Citibank Check No. SN-04867 was deposited at PCIBank through its Ermita
Branch. It was coursed through the ordinary banking transaction, sent to
Central Clearing with the indorsement at the back "all prior indorsements
and/or lack of indorsements guaranteed," and was presented to Citibank for
payment. Thereafter PCIBank, instead of remitting the proceeds to the CIR,
prepared two of its Manager's checks and enabled the syndicate to encash
the same.
On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate
the checks. The neglect of PCIBank employees to verify whether his letter
40 - BANKING LAWS
requesting for the replacement of the Citibank Check No. SN-04867 was duly
authorized, showed lack of care and prudence required in the circumstances.
Furthermore, it was admitted that PCIBank is authorized to collect the
payment of taxpayers in behalf of the BIR. As an agent of BIR, PCIBank is
duty bound to consult its principal regarding the unwarranted instructions
given by the payor or its agent. As aptly stated by the trial court, to wit:
"xxx. Since the questioned crossed check was deposited with IBAA
[now PCIBank], which claimed to be a depository/collecting bank of
BIR, it has the responsibility to make sure that the check in question
is deposited in Payee's account only.
xxx xxx xxx
As agent of the BIR (the payee of the check), defendant IBAA should
receive instructions only from its principal BIR and not from any other
person especially so when that person is not known to the
defendant. It is very imprudent on the part of the defendant IBAA to
just rely on the alleged telephone call of the one Godofredo Rivera
and in his signature considering that the plaintiff is not a client of the
defendant IBAA."
It is a well-settled rule that the relationship between the payee or holder of
commercial paper and the bank to which it is sent for collection is, in the
absence of an argreement to the contrary, that of principal and agent.22 A
bank which receives such paper for collection is the agent of the payee or
holder.23
Even considering arguendo, that the diversion of the amount of a check
payable to the collecting bank in behalf of the designated payee may be
allowed, still such diversion must be properly authorized by the payor.
Otherwise stated, the diversion can be justified only by proof of authority from
the drawer, or that the drawer has clothed his agent with apparent authority
to receive the proceeds of such check.
Citibank further argues that PCI Bank's clearing stamp appearing at the back
of the questioned checks stating that ALL PRIOR INDORSEMENTS
AND/OR LACK OF INDORSEMENTS GURANTEED should render PCIBank
liable because it made it pass through the clearing house and therefore
Citibank had no other option but to pay it. Thus, Citibank had no other option
but to pay it. Thus, Citibank assets that the proximate cause of Ford's injury
is the gross negligence of PCIBank. Since the questione dcrossed check was
deposited with PCIBank, which claimed to be a depository/collecting bank of
the BIR, it had the responsibility to make sure that the check in questions is
deposited in Payee's account only.
Indeed, the crossing of the check with the phrase "Payee's Account Only," is
a warning that the check should be deposited only in the account of the CIR.
Thus, it is the duty of the collecting bank PCIBank to ascertain that the check
be deposited in payee's account only. Therefore, it is the collecting bank
(PCIBank) which is bound to scruninize the check and to know its depositors
before it could make the clearing indorsement "all prior indorsements and/or
lack of indorsement guaranteed".
In Banco de Oro Savings and Mortgage Bank vs. Equitable Banking
Corporation,24 we ruled:
"Anent petitioner's liability on said instruments, this court is in full
accord with the ruling of the PCHC's Board of Directors that:
'In presenting the checks for clearing and for payment, the defendant
made an express guarantee on the validity of "all prior
endorsements." Thus, stamped at the back of the checks are the
defedant's clear warranty: ALL PRIOR ENDORSEMENTS AND/OR
LACK OF ENDORSEMENTS GUARANTEED. Without such
warranty, plaintiff would not have paid on the checks.'
No amount of legal jargon can reverse the clear meaning of
defendant's warranty. As the warranty has proven to be false and
inaccurate, the defendant is liable for any damage arising out of the
falsity of its representation."25
Lastly, banking business requires that the one who first cashes and
negotiates the check must take some percautions to learn whether or not it is
genuine. And if the one cashing the check through indifference or othe
circumstance assists the forger in committing the fraud, he should not be
permitted to retain the proceeds of the check from the drawee whose sole
fault was that it did not discover the forgery or the defect in the title of the
person negotiating the instrument before paying the check. For this reason, a
bank which cashes a check drawn upon another bank, without requiring
proof as to the identity of persons presenting it, or making inquiries with
regard to them, cannot hold the proceeds against the drawee when the
proceeds of the checks were afterwards diverted to the hands of a third
party. In such cases the drawee bank has a right to believe that the cashing
bank (or the collecting bank) had, by the usual proper investigation, satisfied
itself of the authenticity of the negotiation of the checks. Thus, one who
encashed a check which had been forged or diverted and in turn received
41 - BANKING LAWS
payment thereon from the drawee, is guilty of negligence which proximately
contributed to the success of the fraud practiced on the drawee bank. The
latter may recover from the holder the money paid on the check.26
Having established that the collecting bank's negligence is the proximate
cause of the loss, we conclude that PCIBank is liable in the amount
corresponding to the proceeds of Citibank Check No. SN-04867.
G.R. No. 128604
The trial court and the Court of Appeals found that PCIBank had no official
act in the ordinary course of business that would attribute to it the case of the
embezzlement of Citibank Check Numbers SN-10597 and 16508, because
PCIBank did not actually receive nor hold the two Ford checks at all. The trial
court held, thus:
"Neither is there any proof that defendant PCIBank contributed any
official or conscious participation in the process of the
embezzlement. This Court is convinced that the switching operation
(involving the checks while in transit for "clearing") were the
clandestine or hidden actuations performed by the members of the
syndicate in their own personl, covert and private capacity and done
without the knowledge of the defendant PCIBank…"27
In this case, there was no evidence presented confirming the conscious
particiapation of PCIBank in the embezzlement. As a general rule, however,
a banking corporation is liable for the wrongful or tortuous acts and
declarations of its officers or agents within the course and scope of their
employment.28 A bank will be held liable for the negligence of its officers or
agents when acting within the course and scope of their employment. It may
be liable for the tortuous acts of its officers even as regards that species of
tort of which malice is an essential element. In this case, we find a situation
where the PCIBank appears also to be the victim of the scheme hatched by a
syndicate in which its own management employees had particiapted.
The pro-manager of San Andres Branch of PCIBank, Remberto Castro,
received Citibank Check Numbers SN-10597 and 16508. He passed the
checks to a co-conspirator, an Assistant Manager of PCIBank's Meralco
Branch, who helped Castro open a Checking account of a fictitious person
named "Reynaldo Reyes." Castro deposited a worthless Bank of America
Check in exactly the same amount of Ford checks. The syndicate tampered
with the checks and succeeded in replacing the worthless checks and the
eventual encashment of Citibank Check Nos. SN 10597 and 16508. The
PCIBank Ptro-manager, Castro, and his co-conspirator Assistant Manager
apparently performed their activities using facilities in their official capacity or
authority but for their personal and private gain or benefit.
A bank holding out its officers and agents as worthy of confidence will not be
permitted to profit by the frauds these officers or agents were enabled to
perpetrate in the apparent course of their employment; nor will t be permitted
to shirk its responsibility for such frauds, even though no benefit may accrue
to the bank therefrom. For the general rule is that a bank is liable for the
fraudulent acts or representations of an officer or agent acting within the
course and apparent scope of his employment or authority. 29 And if an officer
or employee of a bank, in his official capacity, receives money to satisfy an
evidence of indebetedness lodged with his bank for collection, the bank is
liable for his misappropriation of such sum.30
Moreover, as correctly pointed out by Ford, Section 531 of Central Bank
Circular No. 580, Series of 1977 provides that any theft affecting items in
transit for clearing, shall be for the account of sending bank, which in this
case is PCIBank.
But in this case, responsibility for negligence does not lie on PCIBank's
shoulders alone.
The evidence on record shows that Citibank as drawee bank was likewise
negligent in the performance of its duties. Citibank failed to establish that its
payment of Ford's checjs were made in due course and legally in order. In its
defense, Citibank claims the genuineness and due execution of said checks,
considering that Citibank (1) has no knowledge of any informity in the
issuance of the checks in question (2) coupled by the fact that said checks
were sufficiently funded and (3) the endorsement of the Payee or lack thereof
was guaranteed by PCI Bank (formerly IBAA), thus, it has the obligation to
honor and pay the same.
For its part, Ford contends that Citibank as the drawee bank owes to Ford an
absolute and contractual duty to pay the proceeds of the subject check only
to the payee thereof, the CIR. Citing Section 6232 of the Negotiable
Instruments Law, Ford argues that by accepting the instrument, the acceptro
which is Citibank engages that it will pay according to the tenor of its
acceptance, and that it will pay only to the payee, (the CIR), considering the
fact that here the check was crossed with annotation "Payees Account Only."
As ruled by the Court of Appeals, Citibank must likewise answer for the
damages incurred by Ford on Citibank Checks Numbers SN 10597 and
16508, because of the contractual relationship existing between the two.
Citibank, as the drawee bank breached its contractual obligation with Ford
42 - BANKING LAWS
and such degree of culpability contributed to the damage caused to the latter.
On this score, we agree with the respondent court's ruling.
Citibank should have scrutinized Citibank Check Numbers SN 10597 and
16508 before paying the amount of the proceeds thereof to the collecting
bank of the BIR. One thing is clear from the record: the clearing stamps at
the back of Citibank Check Nos. SN 10597 and 16508 do not bear any
initials. Citibank failed to notice and verify the absence of the clearing
stamps. Had this been duly examined, the switching of the worthless checks
to Citibank Check Nos. 10597 and 16508 would have been discovered in
time. For this reason, Citibank had indeed failed to perform what was
incumbent upon it, which is to ensure that the amount of the checks should
be paid only to its designated payee. The fact that the drawee bank did not
discover the irregularity seasonably, in our view, consitutes negligence in
carrying out the bank's duty to its depositors. The point is that as a business
affected with public interest and because of the nature of its functions, the
bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their
relationship.33
Thus, invoking the doctrine of comparative negligence, we are of the view
that both PCIBank and Citibank failed in their respective obligations and both
were negligent in the selection and supervision of their employees resulting
in the encashment of Citibank Check Nos. SN 10597 AND 16508. Thus, we
are constrained to hold them equally liable for the loss of the proceeds of
said checks issued by Ford in favor of the CIR.
Time and again, we have stressed that banking business is so impressed
with public interest where the trust and confidence of the public in general is
of paramount umportance such that the appropriate standard of diligence
must be very high, if not the highest, degree of diligence.34 A bank's liability
as obligor is not merely vicarious but primary, wherein the defense of
exercise of due diligence in the selection and supervision of its employees is
of no moment.35
Banks handle daily transactions involving millions of pesos.36 By the very
nature of their work the degree of responsibility, care and trustworthiness
expected of their employees and officials is far greater than those of ordinary
clerks and employees.37 Banks are expected to exercise the highest degree
of diligence in the selection and supervision of their employees. 38
On the issue of prescription, PCIBank claims that the action of Ford had
prescribed because of its inability to seek judicial relief seasonably,
considering that the alleged negligent act took place prior to December 19, However, the Decision and Resolution of the Court of Appeals in CA-G.R.
1977 but the relief was sought only in 1983, or seven years thereafter. No. 28430 are MODIFIED as follows: PCIBank and Citibank are adjudged
liable for and must share the loss, (concerning the proceeds of Citibank
The statute of limitations begins to run when the bank gives the depositor Check Numbers SN 10597 and 16508 totalling P12,163,298.10) on a fifty-
notice of the payment, which is ordinarily when the check is returned to the fifty ratio, and each bank is ORDERED to pay Ford Philippines Inc.
alleged drawer as a voucher with a statement of his account,39 and an action P6,081,649.05, with six percent (6%) interest thereon, from the date the
upon a check is ordinarily governed by the statutory period applicable to complaint was filed until full payment of said amount.1âwphi1.nêt
instruments in writing.40
Costs against Philippine Commercial International Bank and Citibank N.A.
Our laws on the matter provide that the action upon a written contract must
be brought within ten year from the time the right of action accrues. 41 hence, SO ORDERED.
the reckoning time for the prescriptive period begins when the instrument
was issued and the corresponding check was returned by the bank to its
depositor (normally a month thereafter). Applying the same rule, the cause of
action for the recovery of the proceeds of Citibank Check No. SN 04867
would normally be a month after December 19, 1977, when Citibank paid the
face value of the check in the amount of P4,746,114.41. Since the original
complaint for the cause of action was filed on January 20, 1984, barely six
years had lapsed. Thus, we conclude that Ford's cause of action to recover
the amount of Citibank Check No. SN 04867 was seasonably filed within the
period provided by law.

Finally, we also find thet Ford is not completely blameless in its failure to
detect the fraud. Failure on the part of the depositor to examine its passbook,
statements of account, and cancelled checks and to give notice within a
reasonable time (or as required by statute) of any discrepancy which it may
in the exercise of due care and diligence find therein, serves to mitigate the
banks' liability by reducing the award of interest from twelve percent (12%) to
six percent (6%) per annum. As provided in Article 1172 of the Civil Code of
the Philippines, respondibility arising from negligence in the performance of
every kind of obligation is also demandable, but such liability may be
regulated by the courts, according to the circumstances. In quasi-delicts, the
contributory negligence of the plaintiff shall reduce the damages that he may
recover.42

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals

in CA-G.R. CV No. 25017 are AFFIRMED. PCIBank, know formerly as
Insular Bank of Asia and America, id declared solely responsible for the loss
of the proceeds of Citibank Check No SN 04867 in the amount
P4,746,114.41, which shall be paid together with six percent (6%) interest
thereon to Ford Philippines Inc. from the date when the original complaint
was filed until said amount is fully paid.

43 - BANKING LAWS
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-30511 February 14, 1980
MANUEL M. SERRANO, petitioner,
vs.
CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA;
EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR.,
JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA, ANTONIO B.
RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA, VICTORIA
RAMOS TANJUATCO, and TEOFILO TANJUATCO, respondents.
Rene Diokno for petitioner.
F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the
Philippines.
Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent
Overseas Bank of Manila.
Josefina G. Salonga for all other respondents.
CONCEPCION, JR., J.:
Petition for mandamus and prohibition, with preliminary injunction, that seeks the
establishment of joint and solidary liability to the amount of Three Hundred Fifty
Thousand Pesos, with interest, against respondent Central Bank of the
Philippines and Overseas Bank of Manila and its stockholders, on the alleged
failure of the Overseas Bank of Manila to return the time deposits made by
petitioner and assigned to him, on the ground that respondent Central Bank
failed in its duty to exercise strict supervision over respondent Overseas Bank of
Manila to protect depositors and the general public. 1 Petitioner also prays that
both respondent banks be ordered to execute the proper and necessary
documents to constitute all properties fisted in Annex "7" of the Answer of
respondent Central Bank of the Philippines in G.R. No. L-29352, entitled "Emerita
M. Ramos, et al vs. Central Bank of the Philippines," into a trust fund in favor of
petitioner and all other depositors of respondent Overseas Bank of Manila. It is
also prayed that the respondents be prohibited permanently from honoring,
implementing, or doing any act predicated upon the validity or efficacy of the
44 - BANKING LAWS
deeds of mortgage, assignment. and/or conveyance or transfer of whatever
nature of the properties listed in Annex "7" of the Answer of respondent Central
Bank in G.R. No. 29352. 2
A sought for ex-parte preliminary injunction against both respondent banks was
not given by this Court.
Undisputed pertinent facts are:
On October 13, 1966 and December 12, 1966, petitioner made a time deposit,
for one year with 6% interest, of One Hundred Fifty Thousand Pesos
(P150,000.00) with the respondent Overseas Bank of Manila. 3 Concepcion
Maneja also made a time deposit, for one year with 6-½% interest, on March 6,
1967, of Two Hundred Thousand Pesos (P200,000.00) with the same
respondent Overseas Bank of Manila. 4
On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano,
assigned and conveyed to petitioner Manuel M. Serrano, her time deposit of
P200,000.00 with respondent Overseas Bank of Manila. 5
Notwithstanding series of demands for encashment of the aforementioned time
deposits from the respondent Overseas Bank of Manila, dating from December 6,
1967 up to March 4, 1968, not a single one of the time deposit certificates was
honored by respondent Overseas Bank of Manila. 6
Respondent Central Bank admits that it is charged with the duty of administering
the banking system of the Republic and it exercises supervision over all doing
business in the Philippines, but denies the petitioner's allegation that the Central
Bank has the duty to exercise a most rigid and stringent supervision of banks,
implying that respondent Central Bank has to watch every move or activity of all
banks, including respondent Overseas Bank of Manila. Respondent Central Bank
claims that as of March 12, 1965, the Overseas Bank of Manila, while operating,
was only on a limited degree of banking operations since the Monetary Board
decided in its Resolution No. 322, dated March 12, 1965, to prohibit the
Overseas Bank of Manila from making new loans and investments in view of its
chronic reserve deficiencies against its deposit liabilities. This limited operation of
respondent Overseas Bank of Manila continued up to 1968. 7
Respondent Central Bank also denied that it is guarantor of the permanent
solvency of any banking institution as claimed by petitioner. It claims that neither
the law nor sound banking supervision requires respondent Central Bank to
advertise or represent to the public any remedial measures it may impose upon
chronic delinquent banks as such action may inevitably result to panic or bank
"runs". In the years 1966-1967, there were no findings to declare the respondent
Overseas Bank of Manila as insolvent. 8
Respondent Central Bank likewise denied that a constructive trust was created in
favor of petitioner and his predecessor in interest Concepcion Maneja when their
time deposits were made in 1966 and 1967 with the respondent Overseas Bank
of Manila as during that time the latter was not an insolvent bank and its
operation as a banking institution was being salvaged by the respondent Central
Bank. 9
Respondent Central Bank avers no knowledge of petitioner's claim that the
properties given by respondent Overseas Bank of Manila as additional collaterals
to respondent Central Bank of the Philippines for the former's overdrafts and
emergency loans were acquired through the use of depositors' money, including
that of the petitioner and Concepcion Maneja. 10
In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the
Philippines," a case was filed by the petitioner Ramos, wherein respondent
Overseas Bank of Manila sought to prevent respondent Central Bank from
closing, declaring the former insolvent, and liquidating its assets. Petitioner
Manuel Serrano in this case, filed on September 6, 1968, a motion to intervene in
G.R. No. L-29352, on the ground that Serrano had a real and legal interest as
depositor of the Overseas Bank of Manila in the matter in litigation in that case.
Respondent Central Bank in G.R. No. L-29352 opposed petitioner Manuel
Serrano's motion to intervene in that case, on the ground that his claim as
depositor of the Overseas Bank of Manila should properly be ventilated in the
Court of First Instance, and if this Court were to allow Serrano to intervene as
depositor in G.R. No. L-29352, thousands of other depositors would follow and
thus cause an avalanche of cases in this Court. In the resolution dated October
4, 1968, this Court denied Serrano's, motion to intervene. The contents of said
motion to intervene are substantially the same as those of the present petition. 11
This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which
became final and executory on March 3, 1972, favorable to the respondent
Overseas Bank of Manila, with the dispositive portion to wit:
WHEREFORE, the writs prayed for in the petition are hereby
granted and respondent Central Bank's resolution Nos. 1263,
1290 and 1333 (that prohibit the Overseas Bank of Manila to
participate in clearing, direct the suspension of its operation,
and ordering the liquidation of said bank) are hereby annulled
and set aside; and said respondent Central Bank of the
Philippines is directed to comply with its obligations under the
Voting Trust Agreement, and to desist from taking action in
violation therefor. Costs against respondent Central Bank of the
Philippines. 12
Because of the above decision, petitioner in this case filed a motion for judgment
in this case, praying for a decision on the merits, adjudging respondent Central
45 - BANKING LAWS
Bank jointly and severally liable with respondent Overseas Bank of Manila to the
petitioner for the P350,000 time deposit made with the latter bank, with all
interests due therein; and declaring all assets assigned or mortgaged by the
respondents Overseas Bank of Manila and the Ramos groups in favor of the
Central Bank as trust funds for the benefit of petitioner and other depositors. 13
By the very nature of the claims and causes of action against respondents, they
in reality are recovery of time deposits plus interest from respondent Overseas
Bank of Manila, and recovery of damages against respondent Central Bank for
its alleged failure to strictly supervise the acts of the other respondent Bank and
protect the interests of its depositors by virtue of the constructive trust created
when respondent Central Bank required the other respondent to increase its
collaterals for its overdrafts said emergency loans, said collaterals allegedly
acquired through the use of depositors money. These claims shoud be ventilated
in the Court of First Instance of proper jurisdiction as We already pointed out
when this Court denied petitioner's motion to intervene in G.R. No. L-29352.
Claims of these nature are not proper in actions for mandamus and prohibition as
there is no shown clear abuse of discretion by the Central Bank in its exercise of
supervision over the other respondent Overseas Bank of Manila, and if there
was, petitioner here is not the proper party to raise that question, but rather the
Overseas Bank of Manila, as it did in G.R. No. L-29352. Neither is there anything
to prohibit in this case, since the questioned acts of the respondent Central Bank
(the acts of dissolving and liquidating the Overseas Bank of Manila), which
petitioner here intends to use as his basis for claims of damages against
respondent Central Bank, had been accomplished a long time ago.
Furthermore, both parties overlooked one fundamental principle in the nature of
bank deposits when the petitioner claimed that there should be created a
constructive trust in his favor when the respondent Overseas Bank of Manila
increased its collaterals in favor of respondent Central Bank for the former's
overdrafts and emergency loans, since these collaterals were acquired by the
use of depositors' money.
Bank deposits are in the nature of irregular deposits. They are really loans
because they earn interest. All kinds of bank deposits, whether fixed, savings, or
current are to be treated as loans and are to be covered by the law on
loans. 14 Current and savings deposit are loans to a bank because it can use the
same. The petitioner here in making time deposits that earn interests with
respondent Overseas Bank of Manila was in reality a creditor of the respondent
Bank and not a depositor. The respondent Bank was in turn a debtor of
petitioner. Failure of he respondent Bank to honor the time deposit is failure to
pay s obligation as a debtor and not a breach of trust arising from depositary's
failure to return the subject matter of the deposit
WHEREFORE, the petition is dismissed for lack of merit, with costs against petitioner.
SO ORDERED.
 THIRD DIVISION
[G.R. No. 128122. March 18, 2005]
PREMIERE DEVELOPMENT BANK, petitioner, vs. HON. COURT OF
APPEALS, LIBERATO G. YAMBAO, JESUS B. RODRIGUEZ and
JESUS D. MORALES, respondents.
[G.R. No. 128184. March 18, 2005]
LILIAN M. TOUNDJIS, petitioner, vs. HON. COURT OF APPEALS,
LIBERATO G.YAMBAO, et al., and JOSELITO GARAYGAY, ET
AL., respondents.
[G.R. No. 128229. March 18, 2005]
JOSELITO P. GARAYGAY, CENTURY REALTY and DEVELOPMENT
CORPORATION, petitioners, vs. HON. COURT OF APPEALS,
LIBERATO G. YAMBAO, JESUS B. RODRIGUEZ and JESUS D.
MORALES, respondents.
DECISION
GARCIA, J.:
Before the Court are these three (3) separate petitions for review
on certiorari under Rule 45 of the Rules of Court to nullify and set aside
the Decision[1] dated November 29, 1995 and Resolution[2] dated
February 6, 1997 of the Court of Appeals in CA-G.R. CV 42121.
The first assailed issuance affirmed an earlier decision [3] dated January
28, 1993 of the Regional Trial Court at Quezon City, Branch 88 in its Civil
Case No. Q-92-8455, declaring, inter alia, herein private respondents, as
plaintiffs therein, Liberato G. Yambao, Jesus B. Rodriquez and Jesus D.
Morales (Yambao, Rodriquez and Morales, respectively), as rightful
owners of the land subject of this case. The second assailed issuance, on
the other hand, denied reconsideration of the first.
At the core of the controversy is a 2,660-square meter parcel of land,
denominated as Lot 23 of the subdivision plan Fls-2804-D of SWO-17514,
registered under TCT No. 9780 of the Manila Registry, located as it were in
Matandang Balara, which used to be a part of the then district of Caloocan,
City of Manila. The creation of Quezon City which found Lot 23 within its
borders saw the transfer of the corresponding property records to the new
political unit and the generation of new certificates of title to reflect territorial
changes. As thus transferred, TCT No. 9780 was assigned title number TCT
No. 9780 (693).
The evidence on record disclose the following factual antecedents:
46 - BANKING LAWS
Two (2) different persons with exactly the same name, i.e., Vicente T.
Garaygay, each claimed exclusive ownership of Lot 23 by virtue of an
owners duplicate certificate each had possession of during the period
material covering said lot. One held TCT No. 9780, supra, and the
other, TCT No. 9780 (693), supra. The technical description of the land
appearing in one copy corresponds exactly with that in the other. The
date June 14, 1944 appears on the face of both copies as a common date of
entry. One, however, contained certain features, markings, and/or entries not
found in the other and vice versa.
On April 17, 1979, one of the two Vicente T. Garaygays, a resident of
Cebu City (hereinafter referred to as Garaygay of Cebu), executed a deed
of sale[4] over the lot described in and covered by his TCT No. 9780 (693) in
favor of his nephew, Joselito P. Garaygay (Joselito, hereinafter). The sale
notwithstanding, the owners duplicate certificate remained for some time in
the sellers possession.
In another transaction, the other Vicente T. Garaygay, a resident of
Rizal (hereinafter referred to as Garaygay of Rizal), sold to Liberto G.
Yambao and Jesus B. Rodriguez the same property described in TCT
9780. YCM Compound, Angono, Rizal is set out in the February 11, 1986
conveying deed[5] as the sellers residence. Buyers Yambao and Rodriquez
would later sell a portion of their undivided interests on the land to Jesus D.
Morales.[6]
Then came the June 11, 1988 fire that gutted a portion of the Quezon
City hall and destroyed in the process the original copy of TCT No. 9780
(693) on file with the Registry of Deeds of Quezon City. Barely a month later,
a certain Engr. Hobre filed an application, signed by Garaygay of Cebu, for
the reconstitution of the burned original on the basis of the latters owners
duplicate certificate. One Engr. Felino Cortez of the Land Registration
Authority (LRA) did the follow-up on the application. After due proceedings,
the LRA issued an order of reconstitution,[7] by virtue of
which Garaygay of Cebu acquired reconstituted TCT No. RT-1764 (9780)
(693).[8]
Meanwhile, or on May 26, 1989, the deed of sale executed
by Garaygay of Cebu in favor of his nephew Joselito was registered,
paving the issuance in the latters name of TCT No. 12183.[9] Thereafter, thru
the efforts of same Engr. Cortez,[10] Lot 23 was subdivided into three (3) lots,
namely: Lot 23-A, Lot 23-B and Lot 23-C for which TCT Nos. 14414, 14415
and 14416, respectively,[11] were issued. Joselito posthaste sold Lot 23-
A to Lilian Toundjis who, pursuant to a Contract to Sell executed on March
23, 1990,[12] undertook to pay Joselito the P.5 Million balance of the P2.5
Million purchase price once she is placed in possession of a fenced-off
property. And, for shares of stock, Joselito assigned on February 26, 1991,
the other two (2) lots, i.e., Lot 23-B and Lot 23-C to Century Realty and
Development Corporation (Century Realty) which, after securing TCT
Nos. 34390 and 34391 therefor, mortgaged[13] the same to Premiere
Development Bank, Inc. (Premiere Bank) to secure a P2.5 Million loan.
Clashing claims of ownership first came to a head when, sometime in
May 1990, Liberato G. Yambao and his agents forcibly prevented Joselitos
hired hands from concrete-fencing the subject property. The police and
eventually the National Bureau of Investigation (NBI) entered into the picture.
In the meantime, Yambao, Rodriquez and
Morales as pro indiviso buyers of Lot No. 23, caused the annotation on
December 17, 1990, January 16, 1991 and February 15, 1991 of their
respective adverse claims on Joselitos TCT Nos. 14414, 14415 and 14416.
They then filed with the Regional Trial Court at Quezon City suit
against Joselito, Century Realty and Premiere Bank for quieting of title
and annulment of said defendants fake titles with prayer for damages.
In their amended complaint,[14] docketed as Civil Case No. Q-92-
8455 and raffled to Branch 88 of the court, Yambao, Rodriguez and Morales
alleged, inter alia, the following:
1. That Joselito, taking advantage of the 1988 burning of the Quezon
City Hall, and using an impostor, who pretended to be Vicente Garaygay, by
means of fraud, deceit, and unlawful manipulation succeeded in
administratively reconstituting the aforesaid property (sic) in 1990 on the
basis of an alleged owners copy, which on its face is patently fake and
spurious and fake title bearing [TCT] No. 9780 (693).
2. That a reconstituted title secured by means of fraud, deceit, or other
machinations is void ab initio under Section 11 of Republic Act (R.A.) 6732;
3. That after causing the reconstitution of the title, Joselito acted fast to
consummate his scheme of depriving the plaintiffs of their ownership . . . of
the [disputed] land by the following successive acts, referring to Joselitos act
of securing title in his name, subdividing Lot No. 23 and securing titles to and
disposing of the subdivided lots;
4. That they (Yambao, Rodriguez and Morales) filed their separate
adverse claims and caused the same to be annotated at the back of Joselitos
TCT Nos. 14414, 14415 and 14416; that while the adverse claim of
Rodriquez was still valid, Joselito executed on February 26, 1991 a Deed of
Assignment in favor of Century Realty, which thus made the latter
a transferee in bad faith; that on March 26, 1991, Century Realty executed a
mortgage contract in favor of Premiere Bank, a mortgagee in bad faith; and
5. That at the time the mortgage was executed, the houses of plaintiffs
caretaker and a chapel belonging to them were standing on the two lots in
question.
47 - BANKING LAWS
Answering, principal defendants Joselito and Century Realty denied
plaintiffs material allegations and asserted, by way of affirmative defense, the
validity of (a) the reconstitution of TCT No. 9780 (693); (b) the assignment of
real property in favor of Century Realty; and (c) the mortgage made by
Century Realty in favor of Premiere Bank.
In their separate answers, also with crossclaim and counterclaim, Lilian
Toundjis, who was allowed to intervene to oppose the action thus filed,
and Premiere Bankvirtually adopted Joselitos position and pleaded, in
addition, their right as bona fide purchaser or mortgagee for value, as the
case may be, of the subject property.
Issues having been joined, trial ensued with plaintiffs Yambao,
Rodriguez and Morales offering in evidence several documents. Foremost of
these was Exhibit B[15] which is the owners duplicate copy of TCT No. 9780
of the Registry of Manila once in the possession of Garaygay of Rizal. On
the other hand, the principal defendants presented no less than 38 pieces of
marked and sub-marked documentary evidence, among which was Exhibit.
1,[16] identical to Exhibit D, which is the duplicate copy of TCT No. 9780
(693) that pertained to Garaygay of Cebu and used in the reconstitution of
the burned original thereof.
In his testimony, Yambao stated having noticed, when Garaygay of
Rizal offered to sell Lot 23, that the corners and the portion of Exhibit
B containing the owners personal circumstances were torn and related the
owners explanation as to how these oddities came about. Yambao related
that owing to the physical appearance of Exhibit B, the recording of
the Garaygay of Rizal - Yambao/Rodriguez deed of sale (Exh. A) was
refused since the more crucial document, i.e., the torn owners copy was itself
not registrable unless it is first reconstituted. He also testified that, to assure
himself of the genuineness of the sellers owners duplicate certificate, he
and Garaygay of Rizalrepaired to the Quezon City Registry to compare his
(Garaygay of Rizals) copy with the original copy on file with the registry, and
discovered that the only difference was that the owners duplicate bears the
title number 9780, while the original had 9780 (693) typewritten on a straight
line.[17] As told by Yambao, Garaygay of Rizals explanation for the figure
difference is that 693 was not affixed on his (Garaygay of Rizals) title
because he never, in first place, presented the same to the Quezon City
Registry for correction or affixture.
Yambao also testified that Garaygay of Rizal, when asked to show
proof of his identity, presented a voters ID with his picture,[18] a Commission
of Elections (COMELEC) certification attesting to his being a registered voter
in Precinct No. 21 in Angono, Rizal[19] and a certification of residence issued
by the barangay captain of the place.[20]Yambao added that before
concluding the sale, he, together with the prospective seller, proceeded to
the land site where the residents and/or caretakers thereat assured him that
his companion, Garaygay of Rizal, was actually the landowner.
For their part, defendants presented Garaygay of Cebu who alleged,
among other things, having acquired Lot 23 from one Macaria Lim vda.
Arambulo sometime in 1944, having paid taxes thereon for the period 1949-
1990[21] and mortgaging in 1949 the titled property with Meralco Employees
Savings & Loan Association, with the mortgage deed and later the discharge
of mortgage being annotated on his title.[22] Joselito also took the witness
stand in defense of his ownership of Lot 23 and the transactions he entered
into involving the lot.
Eventually, the trial court rendered judgment finding for the plaintiffs and
against the defendants, declaring Joselitos TCT No. 9780 (693) and all
subsequent titles traceable to it and transactions involving its derivatives as
null and void. To the trial court, plaintiffs evidence preponderated over those
of the defendants whose main witness, Garaygay of Cebu, gave
inconsistent testimony, while Joselito hedged on his answer regarding a
cousin connected with LRA. Going against the defendants cause, the trial
court further observed dubious circumstances surrounding the reconstitution
of TCT 9780 (693), the more disturbing of which is the admitted participation
of LRA personnel in the reconstitution process.
Dated January 28, 1993, the trial courts decision[23] dispositively reads:
WHEREFORE, in view of the foregoing, the Court renders the following
judgment to wit:
1. Plaintiffs Liberato G.Yambao, Jesus B. Rodriguez and Jesus D. Morales
are hereby declared the rightful owners and possessors of the land described
in TCT No. 9780 marked as Exh. B;
2. Defendants title, TCT No. 9780 (693), marked as Exh. 1 (p. 349, Rollo,
identical to Exh. D, p. 493 Rollo); the LRA Order of Reconstitution . . .;
defendants reconstituted title No. RT-1764 (9780) (693) marked as Exh. 4 . .
.; the cancelled title TCT No. 12183 and its derivative titles, TCT Nos. 14414,
14415, and 14416, all in the name of defendant Joselito P. Garaygay and
intervenor Lilian M. Toundjis involving TCT 14414; the Deed of Assignment
and Transfer between Joselito P. Garaygay and Century Realty involving
TCT Nos. 14415 and 14416; [the derivative] titles of defendant Century
Realty . . . namely TCT Nos. 34390 . . . and 34391 . . .; and the Deed of Real
Estate Mortgage executed by Century Realty . . . in favor of defendant
Premiere Bank, Inc. are all declared null and void and without force and
effect;
48 - BANKING LAWS
3. The Register of Deeds of Quezon City to strike out the reconstituted title
[but already cancelled] No. 1764 (9780) (693) and TCT No. 12183, . . . ; to
cancel TCT 14414 . . .; to cancel the Deed of Assignment and Transfer
between Joselito P. Garaygay and Century Realty . . . covered by TCT Nos.
14415 and 14416, and necessarily cancel TCT Nos. 34390 and 34391 . . .; to
cancel the Deed of Real Estate Mortgage over TCT Nos. 34390 and 34390 .
. .; and thereafter, to enter and register the Deeds of Sale, dated February
11, 1986 (Exh. A) and July 10, 1988 (Exh. C) and forthwith issue
corresponding new title/s in the names of the plaintiffs, free from all
encumbrances, except those entered into by them, upon payment of all taxes
and fees prescribed by law;
4. Defendant Joselito P. Garaygay is sentenced to pay each of the [three]
plaintiffs . . ., the sum of P100,000. 00 as moral damages;
5. Defendants Joselito P. Garaygay, Century Realty . . . and Premiere Bank,
Inc. are sentenced to pay jointly and severally each of the two plaintiffs,
namely Liberato Yambao and Jesus Morales, the sum of P25,000.00 as
exemplary damages and to plaintiff Jesus B. Rodriquez the sum of
P25,000.00 as nominal damages The defendants are also sentenced to pay
jointly and severally the sum of P20,000.00 as attorneys fees and the cost of
suit;
6. Defendant Joselito P. Garaygay is further sentenced to reimburse Lilian M.
Toundjis the sum of P2,000,000.00 with interest thereon at 6% per annum
from the date of judgment;
7. With the annulment of the [aforementioned] Deed of Assignment and
Transfer between defendant Joselito P. Garaygay and defendant Century
Realty . . . and the Deed of Real Estate Mortgage . . . between defendant
Century Realty . . . and defendant Premiere Bank, Inc., all aforementioned
defendants who are respective parties to the named deeds are hereby
ordered to make a full return and restitution to each other of all monies,
things and objects they have received thereunder without interest within
fifteen days from finality of this judgment;
8. All other claims are dismissed.
SO ORDERED. [Words in bracket added]
In time, herein petitioners appealed to the Court of Appeals whereat
their recourse was docketed as CA- G.R. CV No. 42121.
 In its Decision of November 29, 1995,[24] the Court of Appeals affirmed
in toto the appealed decision of the trial court, the affirmance being
predicated on the following main justifications:
All in all, the Court agrees with the trial court in giving low rating to both
Vicente Garaygay of Cebu and appellant JOSELITO as witnesses. The court
notes that Vicente T. Garaygay of Cebu has no explanation why the deed of
sale between him and Arambulo was not adduced in evidence x x x
In view of the foregoing questionable actuations of Vicente T. Garaygay of
Cebu and his nephew . . . and their cohorts, the trial court (sic) is constrained
to declare that the defendants mother title TCT No. 9780 (693) marked as
Exhibit 1, which served as the basis of the reconstitution is a fake and
spurious title. x x x Thus, all titles in the name of Vicente T. Garaygay of
Cebu and Joselito Garaygay are null and void. x x x .
On the other hand, the claim of appellees that their certificate of title is a
genuine title is supported with credible and sufficient evidence. The
contention of the appellants that the appellees title should not be accepted as
genuine because it is not authenticated lacks merit. The owners copy of the
title of appellees is a public document (Broce vs. Broce, 4 Phil. 611). Unlike a
private document which must be authenticated before its admission . . .,
there is no need to authenticate a public document to make it admissible in
evidence (Rule 132, Sec 24). The rule that a document must be
authenticated before it is admissible in evidence does not apply to public
documents which are admissible without further proof of their due execution
or genuineness x x x. Public documents are already authenticated by the
official signature and seal which they bear, of which this Court takes judicial
notice (Apostol, Essentials of Evidence, 1991, ed., p. 430) (Underscoring
added).
Their motion for reconsideration having been denied by the appellate
court in its Resolution of February 6, 1997,[25] petitioners have separately
come to this Court. That of petitioner Premier Bank was docketed as G.R.
No. 128122; that of Toundjis as G.R. No. 128184; and that of Joselito
Garaygay and Century Realty as G.R. No. 128229.
Per this Courts Resolution dated June 18, 1997,[26] the three (3)
separate petitions were, upon private respondents motion, ordered
consolidated.
The principal issue tendered in the separate petitions, albeit formulated
a bit differently, comes down to the following: whether or not the Court of
Appeals erred in holding Garaygay of Rizal, instead of Garaygay of Cebu,
as the real owner of Lot 23. Behind this issue is the corollary question of
49 - BANKING LAWS
whether or not the same court erred in finding Garaygay of Rizals owners
copy, TCT No. 9780, instead of the Garaygay of Cebus copy, TCT No. 9780
(693), as the authentic title covering Lot 23.
Petitioners urge reversal on the submission that, unlike Garaygay of
Cebu who came forward and took the witness stand, the identity
of Garaygay of Rizal - who they stressed at every turn had not been
presented to testify - has not been established. Albeit they do not say so, the
inference of their posture is that an impostor has taken the identity of Vicente
T. Garaygay. Corollarily, they also contend that the authenticity of the
impostor Garaygays adverted owners copy of TCT No. 9780 has remained
unproven.
The desired reversal cannot be granted.
Both defining documents, Exhibit 1 and Exhibit B, appear to have been
issued by the appropriate Registry of Deeds and as such would ordinarily
enjoy the guarantees flowing from the legal presumption of regularity of
issuance.[27] But how and precisely when the legal aberration occurred where
two (2) owners duplicate certificates ended up in the hands of two (2) distinct
persons, complete strangers to each other, are questions which the records
do not provide clear answer. It may not be idle to speculate, though, that
fraud or other improper manipulations had been employed along the way,
with likely the willing assistance of land registry official/s, to secure what for
the nonce may be tagged as the other title. Consistent with the presumption
of regularity of issuance, however, the authenticity of one copy has to be
recognized. And necessarily, one of the two (2) outstanding owners copies
has to be struck down as wrongly issued, if not plainly spurious, under the
governing Torrens system of land registration. For, a piece of land cannot
plausibly be covered at the same time, under the same concept of
ownership, by two (2) outstanding certificates of title, each having the same
validity, force and effect. One has to be spurious, or at least one has to
prevail over the other.[28] Else, the ideal sought to be achieved by the Torrens
system would be illusory. As it were, the Torrens system of land registration
aims to obviate possible conflicts of title by giving the public the right to rely
upon the face of the Torrens certificate and to dispense, as a rule, with the
necessity of inquiring further;[29] on the part of the registered owner, the
system gives him complete peace of mind that he would be secured in his
ownership as long as he has not voluntarily disposed of any right over the
covered property.[30]
The categorical conclusion of the Court of Appeals confirmatory of that
of the trial court is that Exhibit B is genuine and that Garaygay of Rizal is a
real person. On the other hand, Exhibit 1 was adjudged spurious. These
factual determinations as a matter of long and sound appellate practice must
be accorded great weight, and, as rule, should not be disturbed on
appeal,[31] save for the most compelling and cogent reasons, [32] like when
such factual findings were drawn from a vacuum, or, in fine, reached
arbitrarily.[33]
To be sure, arbitrariness cannot contextually be imputed on the
appellate court. Its finding that Garaygay of Rizal is an authentic person,
once residing in and a registered voter of Angono, Rizal has adequate
evidentiary support in his voters ID, the COMELEC and barangay
certifications aforementioned and the testimony of an occupant of Lot 23.
And for whatever it is worth, Garaygay of Cebu no less testified that there
are three (3) Vicente T. Garaygay in the Philippines.[34] The reality that the
private respondents failed to put Garaygay of Rizal on the witness box to
identify his copy of the title and defend his erstwhile ownership of Lot 23 may
perhaps support petitioners claim about his being fictitious if his whereabouts
during the trial, if still alive then, was known. But, as found by the appellate
court, Yambao never heard from or about Garaygay of Rizal after they have
executed the Deed of Absolute Sale (Exh. A, supra) on February 11, 1986.
Petitioners attribution of error on the part of the appellate courts
declaring Garaygay of Rizal as owner of the disputed parcel of land is
untenable. It cannot be overemphasized that the possessor-owner of the
authentic copy of TCT No. 9780 was necessary the real owner of Lot 23.
That possessory distinction happened to belong to Garaygay of Rizal.
Moreover, facts and reasonable inferences drawn therefrom point
to Exhibit 1 as being spurious, necessarily leaving Exhibit B as the
authentic duplicate copy. For starters, there is the appearance and physical
condition of the owners copies in question which, if properly evaluated in the
light of attendant circumstances, would help in determining which is genuine
and which is sham.[35] For, the condition and physical appearance of a
document would, to borrow from Junquera, reveal, albeit silently, the naked
truth, hiding nothing, forgetting nothing and exaggerating nothing. As aptly
observed by the appellate court, rationalizing its conclusion adverted to
above, Exhibit B has no defect, except for its partly being torn. Respondents
explanation for the defective state of Exhibit B, as related to them
by Garaygay of Rizal, i.e., it was due to exposure of the document to the
elements, like rain, following his evacuation from Manila to a small nipa hut in
Angono, Rizal during the Japanese occupation,[36] merited approval from the
trial court and the Court of Appeals. Both courts, being in a better position to
pass upon the credibility of petitioners witness and appreciate his testimony
respecting the less than usual appearance of Exhibit B, their findings
command the respect of this Court.
Lest it be overlooked, what might be considered as defects in Garaygay
of Cebus copy are, at bottom, the combined effects thereon of the passage
of time and the elements. Standing alone, these defects do not, in our view,
undermine the integrity of the document.
50 - BANKING LAWS
However, unlike Exhibit B, Exhibit 1 contained entries and other
uncommon markings or features which could not have existed without human
intervention. Although any one of them may perhaps not be appreciable in
isolation, these features and/or markings, taken together, indeed put the
integrity of Exhibit 1 under heavy cloud and indeed cast doubt on its
genuineness.
The irregularities listed in the appealed decision may be summed up in
the following wise:
1. Two (2) Victory stamps issued after liberation were strangely pasted
on the seal of Garaygay of Cebus title Exhibit 1 - when such stamps were
not yet in existence when such title was entered in the Registry of Deeds of
Manila on June 14, 1944;
2. Exhibit 1 was prepared on Judicial Form No. 109-D Revised June
1945, which came into circulation after June 14, 1944;
3. Exhibit 1 bears the handwritten figure 9780 in ink above the
typewritten number 693. There is no initial to suggest that the handwritten
number 9780 over the typewritten title number 693 was officially authorized;
4. The first letter Y in the surname Garaygay in Exhibit 1 was inserted in
ink. In contrast, there is no such insertion in Exhibit B; and
5. Exhibit 1 carries the annotation subject to further disposition by the
government with respect to real estate transactions consummated during the
Japanese regime, and subject to the provisions of Sec. 4, Rule 74 of the New
Rules of Court.[37] Such annotation is supposed to have been
contemporaneously made on the date of the issuance of the title in 1944.
Yet, in what appears to be an anomalous instance, advertence is made
to transactions consummated during the Japanese regime and to Rule 74 of
the Rules of Court, logically implying, as aptly observed by the Court of
Appeals, that the annotation was entered after liberation and also after 1964
when the New Rules of Court came into effect.
Almost as if it were an afterthought, petitioners explained that
the Victory stamps could have been pasted, the 1945 revised judicial form
utilized, and the annotations referred to in item # (5) entered when the TCT
of Garaygay of Cebu was reissued. Anent the number 9780 appearing in
ink, the proffered explanation was that the handwritten 9780 was a mere
provisional marking.
The foregoing explanations are, at best speculative, thus correctly
struck down by the appellate court. And unfortunately, Garaygay of Cebu,
the best person to shed light on the foregoing unusual situations and help the
limping case of the petitioners, could not himself offer an explanation.
 Petitioners insistence that the inscription on Garaygay of Cebus copy
of the deed of mortgage and the discharge of mortgage he constituted over
Lot 23 in favor of Meralco Employees Savings and Loan Association proves
the authenticity of the latters owner duplicate is valid to a point. But, to
suggest that such inscription could not have been possible were his title
spurious is altogether a different matter. We need not cite cases
memorialized in books of jurisprudence where land dealings are annotated
on reconstituted certificates secured thru fraud or otherwise issued
irregularly. Stated a little differently, an annotation of what is otherwise a
bona-fide land transaction is not a peremptory argument against the spurious
character, if that be the case, of the document on which it is annotated.
In the same token, the payment by Garaygay of Cebu of land taxes on
Lot 23 does not also necessary detract from the spurious nature of his title,
Exhibit 1. After all, any one can pay real estate taxes on a given property
without being quizzed by the local treasury whether or not the payor owns
the real property in question. This is not to say of course that tax receipts are
evidence of ownership, since they are not, albeit they are good indicia of
possession in the concept of owner, for no one would ordinarily be paying
taxes for a property not in his actual or at least constructive possession. [38]
Other than paying taxes from 1949 to 1990[39] (mistakenly stated by
respondent court as from 1949 to 1960), however, Garaygay of Cebu and
this holds true for his nephew Joselito - did not appear before the current
stand-off to have exercised dominion over Lot 23. For one, it has not been
shown that Garaygay of Cebu was at any time in possession of the property
in question, unlike his namesake from Rizal who managed to place the
property under the care of certain individuals who built semi-permanent
structure-dwelling houses thereon without so much of a protest from
Garaygay of Cebu or his nephew Joselito after the latter purportedly bought
the property. For another, neither Garaygay of Cebu nor his nephew Joselito
ever instituted any action to eject or recover possession from the occupants
of Lot 23. This passivity bespeaks strongly against their claim of ownership. It
has been said that a partys failure to raise a restraining arm or a shout of
dissent to anothers possession for an unreasonably long period is simply
contrary to his claim of ownership.[40] Not lost on this Court are
circumstances noted by the trial court which negatively reflect on Garaygay
of Cebus and his nephews claim of ownership. Some excerpts of what the
trial court wrote:
On its face, Exh. 5 [the original copy of the deed of sale between Garaygay
and his nephew] was notarized by one Armando Pulgado. However, there
are certifications by both the Bureau of National Archives that no Notarial
records of Armando Pulgado exist in Manila. (Exh. KK) or in Quezon City
(Exh. LL), and by the Clerk of Court that Atty. Armando Pulgado was not
51 - BANKING LAWS
appointed as notary public for and in the City of Manila for the year 1979
(Exh. MM)
Exh. 5 dated April 17, 1979 was registered only on May 26, 1989, over 10
years from the sale. JOSELITO could not explain how thereafter his own title
(TCT 12183) was issued in his name since it was not he who registered the
Deed of Sale, Exh. 5. In other words, someone else registered it for him.
Neither JOSELITO nor his uncle . . .followed up the petition for reconstitution
which was prepared, filed and processed by interested persons in Manila,
which scenario prompted plaintiffs counsel to observe that the reconstitution
was among the first of all applicants in Quezon City to be approved (p. 32,
TSN August 17, 1992). Of these interested persons, the most unthinkable
was Engr. Felino Cortez of the LRA who did the follow-ups on the application
in Manila. It is remarkable why Cortez, who is neither a friend nor relative,
took special interest in not only following up the application for reconstitution
but in effecting the subdivision of TCT 12183 into [3 lots], for which three
derivative titles of TCT 12183 were issued . . . . Again JOSELITO had no
knowledge of this fact of subdivision until his uncle, . . . telephoned him with
the information that the land was already subdivided.
In short, it appears to the Court that without doing anything, Vicente T.
Garaygay of Cebu has his title (Exh. 1) reconstituted. On the other hand,
without knowing anything, JOSELITO obtained TCT 12183 in his name and
had the land subdivided and sold.
These circumstances demonstrate that neither JOSELITO nor his uncle,
Vicente T. Garaygay of Cebu acted ante litem motam like the true owners
they claim to be in their respective times. xxx
Several questions confound the Courts curiosity. Why were some LRA
officials so interested in the speedy reconstitution and in the subdivision of
the land in excess of their bureaucratic duties? Where did Vicente T.
Garaygay of Cebu get his owners copy, Exh. 1. Did some conniving LRA
officers supply the judicial form and Victory stamps? Why was JOSELITO so
evasive about his cousin in the LRA as shown in his examination?
xxx xxx xxx
As the Court sees it, the Deed of Sale (Exh. 5 was a simulated
transaction because both JOSELITO and his uncle admit this was a joint
venture to sell the property in question. However, the facts suggest that the
joint venture was not limited to the two of them. The persons who prepared
and filed the application for reconstitution, and those officers in the LRA who
followed it up and who thereafter subdivided the land into three lots for easier
sale, those at the NBI who tried to persuade Yambao and Morales to settle
the dispute . . . are apparently part of the joint venture or stand to profit from
it
This brings us to the core of Toundjis and Premiere Banks petitions.
The first asserts the rights of a purchaser and the other, that of a mortgagee,
in good faith and for value of Lot 23, a status respectively denied them by the
appellate court.
The rule that a subsequent declaration of a title as null and void is not a
ground for nullifying the contractual right of a purchaser, rmortgagee or other
transferees in good faith, with the exceptions thereto, is well-settled. Where
the certificate of title is in the name of the seller or mortgagor, the innocent
purchaser or mortgagee for value has the right to rely on what appears on
the certificate without inquiring further.[41] In the absence of anything to excite
or arouse suspicion, or except when the party concerned had actual
knowledge of facts or circumstances that should impel a reasonably cautious
person to make such further inquiry, said purchaser or mortgagee is without
obligation to look beyond the certificate and investigate the title of the seller
or mortgagor. Thus, where innocent third persons, relying on the correctness
of the certificate, acquire rights over the property as buyer or mortgagee, the
subsequent declaration of nullity of title is not a ground for nullifying the right
of such buyer or mortgagee.[42]
Tested by the above norm, may Toundjis be considered, as she has
claimed, an innocent purchaser for value, meaning one who buys or
acquires, for valuable consideration, a piece of land of another without notice
that some other person has a right to, or interest in, such property at the time
of purchase, or before he has notice of the claim or interest of some other
persons in the property.[43]
The Court of Appeals rejected the claim of Toundjis, and rightly so.
A study of the record shows that TCT 14414 covering Lot. 23-A that
Toundjis contracted to buy from Joselito carried an annotation that it
was administratively reconstituted. Records also indicate that Toundjis
knew at the time of the sale that Joselito did not have possession of the lot
inasmuch as she agreed to pay the balance of the purchase price as soon as
the seller can fence off the property and surrender physical possession
thereof to her.
Even for these two (2) reasons alone, which should have placed
Toundjis on guard respecting Joselitos title, her claim of being a bona
fide purchaser for value must fail. The rejection, therefore, by the Court of
Appeals of such claim is correct. Likewise acceptable is the appellate courts
holding, citing Republic vs. Court of Appeals,[44] that a purchaser of a
52 - BANKING LAWS
property cannot be in good faith where the title thereof shows that it was
reconstituted. Noted with approval, too, is the appellate courts observation
that the contract to sell (Exh. 44) which is unregistered and not annotated at
the back of the title of the property [cannot adversely affect appellees] for the
reason that under Sec. 51 of PD 1529 (Property Registration Act), the act of
registration shall be the operative act to convey or affect the land in so far
(sic) as third parties are concerned.[45]
Premiere Bank cannot also be accorded the status of an innocent
mortgagee for value vis--vis the mortgage of the lots covered by TCT Nos.
34390 and 34391 constituted in its favor by Century Realty. Apart from the
annotations that said titles are only administratively reconstituted,[46] the
appellate court provided the ensuing compelling reasons:
Premiere inspected the property to be mortgaged xxx on March 6, and 11,
1991 as can be seen in its Real Estate Appraisal Report (Exhs. EE, EE-1).
The adverse claim of Jesus Rodriguez was cancelled on March 26, 1991 xxx
Hence, when Premiere inspected the property xxx, it was aware of the
existence of Rodriquez adverse claim. This is admitted by Premieres witness
xxx. The adverse claim of Rodriquez annotated at the back of TCT No.
14415 and marked as Exhibit I-3 and also at the back of TCT No. 14416
(Exh. J) marked as Exhibit J-3 declares that he is the vendee of the land
described.
There are buildings of strong material on the land in dispute xxx.
Premiere is aware of the existence of these structures as can be seen in its
real estate report (Exh. EE). Said report states that there are shanties
erected in the property in dispute.
But despite the existence of alleged shanties which are in fact and in truth big
structures, two of them being concrete buildings (Exhs. 0 to O-3), Premiere
Bank proceeded in the execution of the mortgage contract. xxx.
If the land mortgaged is in the possession of a person other than the
mortgagor, the mortgagee is required to go beyond the certificate of title and
make inquiries as to the rights of the actual possessors. Failure to do so
would make him a mortgagee in bad faith (Sunshine Finance vs. IAC, 203
SCRA 213; Conspecto vs. Fruto, 31 Phil 144).
It cannot be overemphasized that Premiere Bank, being in the business
of extending loans secured by real estate mortgage, is familiar with rules on
land registration. As such, it was, as here, expected to exercise more care
and prudence than private individuals in their dealing with registered
lands.[47] Accordingly, given inter alia the suspicion-provoking presence of Appeals of the decision of the Regional Trial Court, Branch 80, Quezon City
occupants other than the owner on the land to be mortgaged, it behooved in Civil Case No. Q-92-8455.
Premiere Bank to conduct a more exhaustive investigation on the history of
the mortgagors title. That Premiere Bank accepted in mortgage the property This Court need not belabor the effects on A.M. P-91-593 of the
in question notwithstanding the existence of structures on the property and appealed decision of the Court of Appeals, as hereby affirmed.
which were in actual, visible and public possession of a person other than the WHEREFORE, the instant petitions are DENIED and the impugned
mortgagor, constitutes gross negligence amounting to bad faith.[48] Premier Decision of the Court of Appeals AFFIRMED.
Bank is thus not entitled to have its lien annotated on the genuine title. [49]
Costs against petitioners.
A final consideration: Petitioners maintain that the appellate court erred
in annulling the LRA order of reconstitution (Exh. 3), even if such relief was SO ORDERED.
not prayed for in private respondents amended complaint and
notwithstanding the fact that the LRA was not impleaded as an indispensable
party in Civil Case No. Q-92-8455.
The contention is far from tenable. An action for quieting of title, as here,
is equivalent to an action for reconveyance of title wrongfully or erroneously
registered in anothers name. The successful outcome of such action would in
most cases necessarily entail the cancellation of existing title wrongly issued
to another, which in turn requires the action of the LRA and/or the proper
Register of Deeds. As in the past, this Court, to obviate multiplicity of suits,
had ordered the LRA or the Register of Deeds, albeit not impleaded below, to
cancel such erroneously issued titles.
Before writing finis to this ponencia, two (2) peripheral matters raised
need to be addressed.
First, petitioner Toundjis has, as an alternative prayer, asked that the
appealed decision ordering Joselito to reimburse her the sum
of P2,000,000.00 be modified, such that the reimbursable amount shall bear
interest of nineteen (19%) percent (down from the 25% she sought in her
answer-in-intervention) instead of six (6%) per annum reckoned from March
23, 1990, instead of from January 28, 1993, the date of judgment of the trial
court. Absent an explanation with cogent legal support why her plea for a
modificatory ruling should be favorably considered, this Court denies the
same.
Second, petitioners have invited attention to and made much of this
Courts per curiam Decision dated April 7, 1993[50] in A.M. P-91-593,
entitled Office of the Court Administrator vs. Atty. Liberato Yambao et al. [51] In
it, the Court dismissed herein respondent Yambao from the service as then
Clerk of Court, RTC, Quezon City, Branch 80 for, among other things, having
in his possession a forged deed of sale executed by Vicente T. Garaygay. It
should be stressed in this regard, however, that this Court, in its Resolution
of May 18, 1994,[52] resolved to SUSPEND the implementation of the effects
of the decision of April 7, 1993 pending the judicious review by the Court of

53 - BANKING LAWS
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-53194 March 14, 1988
PHILIPPINE NATIONAL BANK petitioner,
vs.
HON. ROMULO S. QUIMPO, Presiding Judge, Court of First Instance of
Rizal, Branch XIV, and FRANCISCO S. GOZON II, respondents.
GANCAYCO, J.:
On July 3, 1973, Francisco S. Gozon II, who was a depositor of the Caloocan
City Branch of the Philippine National Bank, went to the bank in his car
accompanied by his friend Ernesto Santos whom he left in the car while he
transacted business in the bank. When Santos saw that Gozon left his check
book he took a check therefrom, filled it up for the amount of P5,000.00,
forged the signature of Gozon, and thereafter he encashed the check in the
bank on the same day. The account of Gozon was debited the said amount.
Upon receipt of the statement of account from the bank, Gozon asked that
the said amount of P5,000.00 should be returned to his account as his
signature on the check was forged but the bank refused.
Upon complaint of private respondent on February 1, 1974 Ernesto Santos
was apprehended by the police authorities and upon investigation he
admitted that he stole the check of Gozon, forged his signature and
encashed the same with the Bank.
Hence Gozon filed the complaint for recovery of the amount of P5,000.00,
plus interest, damages, attorney's fees and costs against the bank in the
Court of First Instance of Rizal. After the issues were joined and the trial on
the merits ensued, a decision was rendered on February 4, 1980, the
dispositive part of which reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff. The defendant is hereby condemned to return to
plaintiff the amount of P5,000.00 which it had unlawfully
withheld from the latter, with interest at the legal rate from
54 - BANKING LAWS
September 22, 1972 until the amount is fully delivered. The
defendant is further condemned to pay plaintiff the sum of
P2,000.00 as attorney's fees and to pay the costs of this suit.
Not satisfied therewith, the bank now filed this petition for review on certiorari
in this Court raising the sole legal issue that —
THE ACT OF RESPONDENT FRANCISCO GOZON, II IN
PUTTING HIS CHECK BOOK CONTAINING THE CHECK
IN QUESTION INTO THE HANDS OF ERNESTO SANTOS
WAS INDEED THE PROXIMATE CAUSE OF THE LOSS,
THEREBY PRECLUDING HIM FROM SETTING UP THE
DEFENSE OF FORGERY OR WANT 0F AUTHORITY
UNDER SECTION 23 OF THE NEGOTIABLE
INSTRUMENTS LAW, ACT NO. 3201
The petition is devoid of merit.
This Court reproduces with approval the disquisition of the court a quo as
follows:
A bank is bound to know the signatures of its customers; and
if it pays a forged check, it must be considered as making
the payment out of its own funds, and cannot ordinarily
change the amount so paid to the account of the depositor
whose name was forged' (San Carlos Milling Co. vs. Bank of
the P.I., 59 Phil. 59).
This rule is absolutely necessary to the circulation of drafts
and checks, and is based upon the presumed negligence of
the drawee in failing to meet its obligation to know the
signature of its correspondent. ... There is nothing
inequitable in such a rule. If the paper comes to the drawee
in the regular course of business, and he, having the
opportunity ascertaining its character, pronounces it to be
valid and pays it, it is not only a question of payment under
mistake, but payment in neglect of duty which the
commercial law places upon him, and the result of his
negligence must rest upon him (12 ALR 1901, citing many
cases found in I Agbayani, supra).
Defendant, however, interposed the defense that it exercised
diligence in accordance with the accepted norms of banking
practice when it accepted and paid Exhibit "A". It presented
 evidence that the check had to pass scrutiny by a signature The act of plaintiff in leaving his checkbook in the car while
verifier as well as an officer of the bank. he went out for a short while can not be considered
negligence sufficient to excuse the defendant bank from its
A comparison of the signature (Exhibit "A-l") on the forged own negligence. It should be home in mind that when
check (Exhibit "A") with plaintiffs exemplar signatures defendant left his car, Ernesto Santos, a long time classmate
(Exhibits "5-N" and "5-B") found in the PNB Form 35-A would and friend remained in the same. Defendant could not have
immediately show the negligence of the employees of the been expected to know that the said Ernesto Santos would
defendant bank. Even a not too careful comparison would remove a check from his checkbook. Defendant had trust in
immediately arrest one's attention and direct it to the graceful his classmate and friend. He had no reason to suspect that
lines of plaintiffs exemplar signatures found in Exhibits "5-A" the latter would breach that trust .
and "5-B". The formation of the first letter "F" in the
exemplars, which could be regarded as artistic, is completely We agree.
different from the way the same letter is formed in Exhibit "A-
l". That alone should have alerted a more careful and Private respondent trustee Ernesto Santos as a classmate and a friend. He
prudent signature verifier. brought him along in his car to the bank and he left his personal belongings
in the car. Santos however removed and stole a check from his cheek book
The prime duty of a bank is to ascertain the genuineness of the signature of without the knowledge and consent of private respondent. No doubt private
the drawer or the depositor on the check being encashed. 1 It is expected to respondent cannot be considered negligent under the circumstances of the
use reasonable business prudence in accepting and cashing a check case.
presented to it.
WHEREFORE, the petition is DISMISSED for lack of merit with costs against
In this case the findings of facts of the court a quo are conclusive. The trial petitioner.
court found that a comparison of the signature on the forged check and the
sample signatures of private respondent show marked differences as the SO ORDERED.
graceful lines in the sample signature which is completely different from
those of the signature on the forged check. Indeed the NBI handwriting
expert Estelita Santiago Agnes whom the trial court considered to be an
"unbiased scientific expert" indicated the marked differences between the
signature of private respondent on the sample signatures and the questioned
signature. Notwithstanding the testimony of Col. Fernandez, witness for
petitioner, advancing the opinion that the questioned signature appears to be
genuine, the trial court by merely examining the pictorial report presented by
said witness, found a marked difference in the second "c" in Francisco as
written on the questioned signature as compared to the sample signatures,
and the separation between the "s" and the "c" in the questioned signature
while they are connected in the sample signatures. 2

Obviously, petitioner was negligent in encashing said forged check without

carefully examining the signature which shows marked variation from the
genuine signature of private respondent.

In reference to the allegation of the petitioner that it is the negligence of

private respondent that is the cause of the loss which he suffered, the trial
court held:

55 - BANKING LAWS
 FIRST DIVISION
[G.R. No. 138569. September 11, 2003]
THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs.
COURT OF APPEALS and L.C. DIAZ and COMPANY,
CPAs, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision[1] of the Court of
Appeals dated 27 October 1998 and its Resolution dated 11 May 1999. The
assailed decision reversed the Decision[2] of the Regional Trial Court of
Manila, Branch 8, absolving petitioner Consolidated Bank and Trust
Corporation, now known as Solidbank Corporation (Solidbank), of any
liability. The questioned resolution of the appellate court denied the motion
for reconsideration of Solidbank but modified the decision by deleting the
award of exemplary damages, attorneys fees, expenses of litigation and cost
of suit.
The Facts
Solidbank is a domestic banking corporation organized and existing
under Philippine laws. Private respondent L.C. Diaz and Company,
CPAs (L.C. Diaz), is a professional partnership engaged in the practice of
accounting.
Sometime in March 1976, L.C. Diaz opened a savings account with
Solidbank, designated as Savings Account No. S/A 200-16872-6.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya
(Macaraya), filled up a savings (cash) deposit slip for P990 and a savings
(checks) deposit slip for P50. Macaraya instructed the messenger of L.C.
Diaz, Ismael Calapre (Calapre), to deposit the money with Solidbank.
Macaraya also gave Calapre the Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit
slips and the passbook. The teller acknowledged receipt of the deposit by
returning to Calapre the duplicate copies of the two deposit slips. Teller No. 6
56 - BANKING LAWS
stamped the deposit slips with the words DUPLICATE and SAVING TELLER
6 SOLIDBANK HEAD OFFICE. Since the transaction took time and Calapre
had to make another deposit for L.C. Diaz with Allied Bank, he left the
passbook with Solidbank. Calapre then went to Allied Bank. When Calapre
returned to Solidbank to retrieve the passbook, Teller No. 6 informed him that
somebody got the passbook.[3] Calapre went back to L.C. Diaz and reported
the incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a
check of P200,000. Macaraya, together with Calapre, went to Solidbank and
presented to Teller No. 6 the deposit slip and check. The teller stamped the
words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE on
the duplicate copy of the deposit slip. When Macaraya asked for the
passbook, Teller No. 6 told Macaraya that someone got the passbook but
she could not remember to whom she gave the passbook. When Macaraya
asked Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that
someone shorter than Calapre got the passbook. Calapre was then standing
beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991
for the deposit of a check for P90,000 drawn on Philippine Banking
Corporation (PBC). This PBC check of L.C. Diaz was a check that it had long
closed.[4] PBC subsequently dishonored the check because of insufficient
funds and because the signature in the check differed from PBCs specimen
signature. Failing to get back the passbook, Macaraya went back to her
office and reported the matter to the Personnel Manager of L.C. Diaz,
Emmanuel Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief
Executive Officer, Luis C. Diaz (Diaz), called up Solidbank to stop any
transaction using the same passbook until L.C. Diaz could open a new
account.[5] On the same day, Diaz formally wrote Solidbank to make the
same request. It was also on the same day that L.C. Diaz learned of the
unauthorized withdrawal the day before, 14 August 1991, of P300,000 from
its savings account. The withdrawal slip for the P300,000 bore the signatures
of the authorized signatories of L.C. Diaz, namely Diaz and Rustico L.
Murillo. The signatories, however, denied signing the withdrawal slip. A
certain Noel Tamayo received the P300,000.
In an Information[6] dated 5 September 1991, L.C. Diaz charged its
messenger, Emerano Ilagan (Ilagan) and one Roscon Verdazola with Estafa
through Falsification of Commercial Document. The Regional Trial Court of
Manila dismissed the criminal case after the City Prosecutor filed a Motion to
Dismiss on 4 August 1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from
Solidbank the return of its money. Solidbank refused.
 On 25 August 1992, L.C. Diaz filed a Complaint[7] for Recovery of a Sum
of Money against Solidbank with the Regional Trial Court of Manila, Branch
8. After trial, the trial court rendered on 28 December 1994 a decision
absolving Solidbank and dismissing the complaint.
L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998,
the Court of Appeals issued its Decision reversing the decision of the trial
court.
On 11 May 1999, the Court of Appeals issued its Resolution denying the
motion for reconsideration of Solidbank. The appellate court, however,
modified its decision by deleting the award of exemplary damages and
attorneys fees.
The Ruling of the Trial Court
In absolving Solidbank, the trial court applied the rules on savings
account written on the passbook. The rules state that possession of this book
shall raise the presumption of ownership and any payment or payments
made by the bank upon the production of the said book and entry therein of
the withdrawal shall have the same effect as if made to the depositor
personally.[9]
At the time of the withdrawal, a certain Noel Tamayo was not only in
possession of the passbook, he also presented a withdrawal slip with the
signatures of the authorized signatories of L.C. Diaz. The specimen
signatures of these persons were in the signature cards. The teller stamped
the withdrawal slip with the words Saving Teller No. 5. The teller then passed
on the withdrawal slip to Genere Manuel (Manuel) for authentication. Manuel
verified the signatures on the withdrawal slip. The withdrawal slip was then
given to another officer who compared the signatures on the withdrawal slip
with the specimen on the signature cards. The trial court concluded that
Solidbank acted with care and observed the rules on savings account when it
allowed the withdrawal of P300,000 from the savings account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C.
Diaz to prove that the signatures on the withdrawal slip were forged. The trial
court admonished L.C. Diaz for not offering in evidence the National Bureau
of Investigation (NBI) report on the authenticity of the signatures on the
withdrawal slip for P300,000. The trial court believed that L.C. Diaz did not
offer this evidence because it is derogatory to its action.
Another provision of the rules on savings account states that the
depositor must keep the passbook under lock and key. [10] When another
person presents the passbook for withdrawal prior to Solidbanks receipt of
57 - BANKING LAWS
the notice of loss of the passbook, that person is considered as the owner of
the passbook. The trial court ruled that the passbook presented during the
questioned transaction was now out of the lock and key and presumptively
ready for a business transaction.[11]
Solidbank did not have any participation in the custody and care of the
passbook. The trial court believed that Solidbanks act of allowing the
withdrawal of P300,000 was not the direct and proximate cause of the loss.
The trial court held that L.C. Diazs negligence caused the unauthorized
withdrawal. Three facts establish L.C. Diazs negligence: (1) the possession
of the passbook by a person other than the depositor L.C. Diaz; (2) the
presentation of a signed withdrawal receipt by an unauthorized person; and
(3) the possession by an unauthorized person of a PBC check long closed by
L.C. Diaz, which check was deposited on the day of the fraudulent
withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank did not
follow the precautionary procedures observed by the two parties whenever
L.C. Diaz withdrew significant amounts from its account. L.C. Diaz claimed
that a letter must accompany withdrawals of more than P20,000. The letter
must request Solidbank to allow the withdrawal and convert the amount to a
managers check. The bearer must also have a letter authorizing him to
withdraw the same amount. Another person driving a car must accompany
the bearer so that he would not walk from Solidbank to the office in making
the withdrawal. The trial court pointed out that L.C. Diaz disregarded these
precautions in its past withdrawal. On 16 July 1991, L.C. Diaz
withdrew P82,554 without any separate letter of authorization or any
communication with Solidbank that the money be converted into a managers
check.
The trial court further justified the dismissal of the complaint by holding
that the case was a last ditch effort of L.C. Diaz to recover P300,000 after the
dismissal of the criminal case against Ilagan.
The dispositive portion of the decision of the trial court reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING
the complaint.
The Court further renders judgment in favor of defendant bank pursuant to its
counterclaim the amount of Thirty Thousand Pesos (P30,000.00) as
attorneys fees.
With costs against plaintiff.
SO ORDERED.[12]
 The Ruling of the Court of Appeals
The Court of Appeals ruled that Solidbanks negligence was the
proximate cause of the unauthorized withdrawal of P300,000 from the
savings account of L.C. Diaz. The appellate court reached this conclusion
after applying the provision of the Civil Code on quasi-delict, to wit:
Article 2176. Whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage done. Such fault
or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this
chapter.
The appellate court held that the three elements of a quasi-delict are present
in this case, namely: (a) damages suffered by the plaintiff; (b) fault or
negligence of the defendant, or some other person for whose acts he must
respond; and (c) the connection of cause and effect between the fault or
negligence of the defendant and the damage incurred by the plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who
received the withdrawal slip for P300,000 allowed the withdrawal without
making the necessary inquiry.The appellate court stated that the teller, who
was not presented by Solidbank during trial, should have called up the
depositor because the money to be withdrawn was a significant amount. Had
the teller called up L.C. Diaz, Solidbank would have known that the
withdrawal was unauthorized. The teller did not even verify the identity of the
impostor who made the withdrawal. Thus, the appellate court found
Solidbank liable for its negligence in the selection and supervision of its
employees.
The appellate court ruled that while L.C. Diaz was also negligent in
entrusting its deposits to its messenger and its messenger in leaving the
passbook with the teller,Solidbank could not escape liability because of the
doctrine of last clear chance. Solidbank could have averted the injury
suffered by L.C. Diaz had it called up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from
Solidbank is more than that of a good father of a family. The business and
functions of banks are affected with public interest. Banks are obligated to
treat the accounts of their depositors with meticulous care, always having in
mind the fiduciary nature of their relationship with their clients. The Court of
Appeals found Solidbank remiss in its duty, violating its fiduciary relationship
with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:
58 - BANKING LAWS
WHEREFORE, premises considered, the decision appealed from is hereby
REVERSED and a new one entered.
1. Ordering defendant-appellee Consolidated Bank and Trust
Corporation to pay plaintiff-appellant the sum of Three
Hundred Thousand Pesos (P300,000.00), with interest
thereon at the rate of 12% per annum from the date of filing
of the complaint until paid, the sum of P20,000.00 as
exemplary damages, and P20,000.00 as attorneys fees and
expenses of litigation as well as the cost of suit; and
2. Ordering the dismissal of defendant-appellees counterclaim in
the amount of P30,000.00 as attorneys fees.
SO ORDERED.[13]
Acting on the motion for reconsideration of Solidbank, the appellate court
affirmed its decision but modified the award of damages. The appellate court
deleted the award of exemplary damages and attorneys fees. Invoking Article
2231[14] of the Civil Code, the appellate court ruled that exemplary damages
could be granted if the defendant acted with gross negligence. Since
Solidbank was guilty of simple negligence only, the award of exemplary
damages was not justified. Consequently, the award of attorneys fees was
also disallowed pursuant to Article 2208 of the Civil Code. The expenses of
litigation and cost of suit were also not imposed on Solidbank.
The dispositive portion of the Resolution reads as follows:
WHEREFORE, foregoing considered, our decision dated October 27, 1998 is
affirmed with modification by deleting the award of exemplary damages and
attorneys fees, expenses of litigation and cost of suit.
SO ORDERED.[15]
Hence, this petition.
The Issues
Solidbank seeks the review of the decision and resolution of the Court of
Appeals on these grounds:
 I. THE COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONER BANK SHOULD SUFFER THE LOSS
BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED
PRIVATE RESPONDENT BY TELEPHONE BEFORE IT
ALLOWED THE WITHDRAWAL OF P300,000.00 TO
RESPONDENTS MESSENGER EMERANO ILAGAN,
SINCE THERE IS NO AGREEMENT BETWEEN THE
PARTIES IN THE OPERATION OF THE SAVINGS
ACCOUNT, NOR IS THERE ANY BANKING LAW, WHICH
MANDATES THAT A BANK TELLER SHOULD FIRST CALL
UP THE DEPOSITOR BEFORE ALLOWING A
WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS
ACCOUNT.
II. THE COURT OF APPEALS ERRED IN APPLYING THE
DOCTRINE OF LAST CLEAR CHANCE AND IN HOLDING
THAT PETITIONER BANKS TELLER HAD THE LAST
OPPORTUNITY TO WITHHOLD THE WITHDRAWAL
WHEN IT IS UNDISPUTED THAT THE TWO SIGNATURES
OF RESPONDENT ON THE WITHDRAWAL SLIP ARE
GENUINE AND PRIVATE RESPONDENTS PASSBOOK
WAS DULY PRESENTED, AND CONTRARIWISE
RESPONDENT WAS NEGLIGENT IN THE SELECTION
AND SUPERVISION OF ITS MESSENGER EMERANO
ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS
AND OTHER FINANCIAL DOCUMENTS.
III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT
THE INSTANT CASE IS A LAST DITCH EFFORT OF
PRIVATE RESPONDENT TO RECOVER ITS P300,000.00
AFTER FAILING IN ITS EFFORTS TO RECOVER THE
SAME FROM ITS EMPLOYEE EMERANO ILAGAN.
IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE
DAMAGES AWARDED AGAINST PETITIONER UNDER
ARTICLE 2197 OF THE CIVIL CODE,
NOTWITHSTANDING ITS FINDING THAT PETITIONER
BANKS NEGLIGENCE WAS ONLY CONTRIBUTORY.[16]
The Ruling of the Court
The petition is partly meritorious.
59 - BANKING LAWS
Solidbanks Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict on the
application of the law. The trial court pinned the liability on L.C. Diaz based
on the provisions of the rules on savings account, a recognition of the
contractual relationship between Solidbank and L.C. Diaz, the latter being a
depositor of the former. On the other hand, the Court of Appeals applied the
law on quasi-delict to determine who between the two parties was ultimately
negligent. The law on quasi-delict or culpa aquiliana is generally applicable
when there is no pre-existing contractual relationship between the parties.
We hold that Solidbank is liable for breach of contract due to
negligence, or culpa contractual.
The contract between the bank and its depositor is governed by the
provisions of the Civil Code on simple loan.[17] Article 1980 of the Civil Code
expressly provides that x x x savings x x x deposits of money in banks and
similar institutions shall be governed by the provisions concerning simple
loan. There is a debtor-creditor relationship between the bank and its
depositor. The bank is the debtor and the depositor is the creditor. The
depositor lends the bank money and the bank agrees to pay the depositor on
demand.The savings deposit agreement between the bank and the depositor
is the contract that determines the rights and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature
of banking. Section 2 of Republic Act No. 8791 (RA 8791), [18] which took
effect on 13 June 2000, declares that the State recognizes the fiduciary
nature of banking that requires high standards of integrity and
performance.[19] This new provision in the general banking law, introduced in
2000, is a statutory affirmation of Supreme Court decisions, starting with the
1990 case of Simex International v. Court of Appeals,[20] holding that the
bank is under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of their
relationship.[21]
This fiduciary relationship means that the banks obligation to observe
high standards of integrity and performance is deemed written into every
deposit agreement between a bank and its depositor. The fiduciary nature of
banking requires banks to assume a degree of diligence higher than that of a
good father of a family. Article 1172 of the Civil Code states that the degree
of diligence required of an obligor is that prescribed by law or contract, and
absent such stipulation then the diligence of a good father of a
family.[22]Section 2 of RA 8791 prescribes the statutory diligence required
from banks that banks must observe high standards of integrity and
performance in servicing their depositors.Although RA 8791 took effect
almost nine years after the unauthorized withdrawal of the P300,000 from
L.C. Diazs savings account, jurisprudence[23] at the time of the withdrawal
already imposed on banks the same high standard of diligence required
under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not
convert the contract between the bank and its depositors from a simple loan
to a trust agreement, whether express or implied. Failure by the bank to pay
the depositor is failure to pay a simple loan, and not a breach of trust. [24] The
law simply imposes on the bank a higher standard of integrity and
performance in complying with its obligations under the contract of simple
loan, beyond those required of non-bank debtors under a similar contract of
simple loan.
The fiduciary nature of banking does not convert a simple loan into a
trust agreement because banks do not accept deposits to enrich depositors
but to earn money for themselves. The law allows banks to offer the lowest
possible interest rate to depositors while charging the highest possible
interest rate on their own borrowers. The interest spread or differential
belongs to the bank and not to the depositors who are not cestui que trust of
banks. If depositors are cestui que trust of banks, then the interest spread or
income belongs to the depositors, a situation that Congress certainly did not
intend in enacting Section 2 of RA 8791.
Solidbanks Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that responsibility arising from
negligence in the performance of every kind of obligation is demandable. For
breach of the savings deposit agreement due to negligence, or culpa
contractual, the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the transaction took
time and he had to go to Allied Bank for another transaction. The passbook
was still in the hands of the employees of Solidbank for the processing of the
deposit when Calapre left Solidbank. Solidbanks rules on savings account
require that the deposit book should be carefully guarded by the depositor
and kept under lock and key, if possible. When the passbook is in the
possession of Solidbanks tellers during withdrawals, the law imposes on
Solidbank and its tellers an even higher degree of diligence in safeguarding
the passbook.
Likewise, Solidbanks tellers must exercise a high degree of diligence in
insuring that they return the passbook only to the depositor or his authorized
representative. The tellers know, or should know, that the rules on savings
account provide that any person in possession of the passbook is
60 - BANKING LAWS
presumptively its owner. If the tellers give the passbook to the wrong person,
they would be clothing that person presumptive ownership of the passbook,
facilitating unauthorized withdrawals by that person. For failing to return the
passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank
and Teller No. 6 presumptively failed to observe such high degree of
diligence in safeguarding the passbook, and in insuring its return to the party
authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there
is a presumption that the defendant was at fault or negligent. The burden is
on the defendant to prove that he was not at fault or negligent. In contrast,
in culpa aquiliana the plaintiff has the burden of proving that the defendant
was negligent. In the present case, L.C. Diaz has established that Solidbank
breached its contractual obligation to return the passbook only to the
authorized representative of L.C. Diaz. There is thus a presumption that
Solidbank was at fault and its teller was negligent in not returning the
passbook to Calapre. The burden was on Solidbank to prove that there was
no negligence on its part or its employees.
Solidbank failed to discharge its burden. Solidbank did not present to
the trial court Teller No. 6, the teller with whom Calapre left the passbook and
who was supposed to return the passbook to him. The record does not
indicate that Teller No. 6 verified the identity of the person who retrieved the
passbook. Solidbank also failed to adduce in evidence its standard
procedure in verifying the identity of the person retrieving the passbook, if
there is such a procedure, and that Teller No. 6 implemented this procedure
in the present case.
Solidbank is bound by the negligence of its employees under the
principle of respondeat superior or command responsibility. The defense of
exercising the required diligence in the selection and supervision of
employees is not a complete defense in culpa contractual, unlike in culpa
aquiliana.[25]
The bank must not only exercise high standards of integrity and
performance, it must also insure that its employees do likewise because this
is the only way to insure that the bank will comply with its fiduciary
duty. Solidbank failed to present the teller who had the duty to return to
Calapre the passbook, and thus failed to prove that this teller exercised the
high standards of integrity and performance required of Solidbanks
employees.
Proximate Cause of the Unauthorized Withdrawal
 Another point of disagreement between the trial and appellate courts is
the proximate cause of the unauthorized withdrawal. The trial court believed
that L.C. Diazs negligence in not securing its passbook under lock and key
was the proximate cause that allowed the impostor to withdraw
the P300,000. For the appellate court, the proximate cause was the tellers
negligence in processing the withdrawal without first verifying with L.C.
Diaz. We do not agree with either court.
Proximate cause is that cause which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces the injury
and without which the result would not have occurred.[26] Proximate cause is
determined by the facts of each case upon mixed considerations of logic,
common sense, policy and precedent.[27]
L.C. Diaz was not at fault that the passbook landed in the hands of the
impostor. Solidbank was in possession of the passbook while it was
processing the deposit. After completion of the transaction, Solidbank had
the contractual obligation to return the passbook only to Calapre, the
authorized representative of L.C. Diaz. Solidbank failed to fulfill its
contractual obligation because it gave the passbook to another person.
Solidbanks failure to return the passbook to Calapre made possible the
withdrawal of the P300,000 by the impostor who took possession of the
passbook. Under Solidbanks rules on savings account, mere possession of
the passbook raises the presumption of ownership. It was the negligent act of
Solidbanks Teller No. 6 that gave the impostor presumptive ownership of the
passbook. Had the passbook not fallen into the hands of the impostor, the
loss of P300,000 would not have happened. Thus, the proximate cause of
the unauthorized withdrawal was Solidbanks negligence in not returning the
passbook to Calapre.
We do not subscribe to the appellate courts theory that the proximate
cause of the unauthorized withdrawal was the tellers failure to call up L.C.
Diaz to verify the withdrawal. Solidbank did not have the duty to call up L.C.
Diaz to confirm the withdrawal. There is no arrangement between Solidbank
and L.C. Diaz to this effect. Even the agreement between Solidbank and L.C.
Diaz pertaining to measures that the parties must observe whenever
withdrawals of large amounts are made does not direct Solidbank to call up
L.C. Diaz.
There is no law mandating banks to call up their clients whenever their
representatives withdraw significant amounts from their accounts. L.C. Diaz
therefore had the burden to prove that it is the usual practice of Solidbank to
call up its clients to verify a withdrawal of a large amount of money. L.C. Diaz
failed to do so.
Teller No. 5 who processed the withdrawal could not have been put on
guard to verify the withdrawal. Prior to the withdrawal of P300,000, the
61 - BANKING LAWS
impostor deposited with Teller No. 6 the P90,000 PBC check, which later
bounced. The impostor apparently deposited a large amount of money to
deflect suspicion from the withdrawal of a much bigger amount of money.
The appellate court thus erred when it imposed on Solidbank the duty to call
up L.C. Diaz to confirm the withdrawal when no law requires this from banks
and when the teller had no reason to be suspicious of the transaction.
Solidbank continues to foist the defense that Ilagan made the
withdrawal. Solidbank claims that since Ilagan was also a messenger of L.C.
Diaz, he was familiar with its teller so that there was no more need for the
teller to verify the withdrawal. Solidbank relies on the following statements in
the Booking and Information Sheet of Emerano Ilagan:
xxx Ilagan also had with him (before the withdrawal) a forged check of PBC
and indicated the amount of P90,000 which he deposited in favor of L.C.
Diaz and Company. After successfully withdrawing this large sum of money,
accused Ilagan gave alias Rey (Noel Tamayo) his share of the loot. Ilagan
then hired a taxicab in the amount of P1,000 to transport him (Ilagan) to his
home province at Bauan, Batangas. Ilagan extravagantly and lavishly spent
his money but a big part of his loot was wasted in cockfight and horse
racing. Ilagan was apprehended and meekly admitted his guilt.[28] (Emphasis
supplied.)
L.C. Diaz refutes Solidbanks contention by pointing out that the person
who withdrew the P300,000 was a certain Noel Tamayo. Both the trial and
appellate courts stated that this Noel Tamayo presented the passbook with
the withdrawal slip.
We uphold the finding of the trial and appellate courts that a certain Noel
Tamayo withdrew the P300,000. The Court is not a trier of facts. We find no
justifiable reason to reverse the factual finding of the trial court and the Court
of Appeals. The tellers who processed the deposit of the P90,000 check and
the withdrawal of the P300,000 were not presented during trial to
substantiate Solidbanks claim that Ilagan deposited the check and made the
questioned withdrawal. Moreover, the entry quoted by Solidbank does not
categorically state that Ilagan presented the withdrawal slip and the
passbook.
Doctrine of Last Clear Chance
The doctrine of last clear chance states that where both parties are
negligent but the negligent act of one is appreciably later than that of the
other, or where it is impossible to determine whose fault or negligence
caused the loss, the one who had the last clear opportunity to avoid the loss
but failed to do so, is chargeable with the loss. [29] Stated differently, the
antecedent negligence of the plaintiff does not preclude him from recovering
damages caused by the supervening negligence of the defendant, who had
the last fair chance to prevent the impending harm by the exercise of due
diligence.[30]
We do not apply the doctrine of last clear chance to the present
case. Solidbank is liable for breach of contract due to negligence in the
performance of its contractual obligation to L.C. Diaz. This is a case of culpa
contractual, where neither the contributory negligence of the plaintiff nor his
last clear chance to avoid the loss, would exonerate the defendant from
liability.[31] Such contributory negligence or last clear chance by the plaintiff
merely serves to reduce the recovery of damages by the plaintiff but does not
exculpate the defendant from his breach of contract.[32]

Mitigated Damages

Under Article 1172, liability (for culpa contractual) may be regulated by

the courts, according to the circumstances. This means that if the defendant
exercised the proper diligence in the selection and supervision of its
employee, or if the plaintiff was guilty of contributory negligence, then the
courts may reduce the award of damages. In this case, L.C. Diaz was guilty
of contributory negligence in allowing a withdrawal slip signed by its
authorized signatories to fall into the hands of an impostor. Thus, the liability
of Solidbank should be reduced.
In Philippine Bank of Commerce v. Court of Appeals,[33] where the
Court held the depositor guilty of contributory negligence, we allocated the
damages between the depositor and the bank on a 40-60 ratio. Applying the
same ruling to this case, we hold that L.C. Diaz must shoulder 40% of the
actual damages awarded by the appellate court. Solidbank must pay the
other 60% of the actual damages.
WHEREFORE, the decision of the Court of Appeals
is AFFIRMED with MODIFICATION. Petitioner Solidbank Corporation shall
pay private respondent L.C. Diaz and Company, CPAs only 60% of the
actual damages awarded by the Court of Appeals. The remaining 40% of the
actual damages shall be borne by private respondent L.C. Diaz and
Company, CPAs. Proportionate costs.
SO ORDERED.

62 - BANKING LAWS
 Republic of the Philippines from respondent's account thereby leaving him with a balance of
Supreme Court only P558.87.
Manila
Meanwhile, respondent issued three checks from May 9 to May 16, 1992,
specifically, PCIB Check No. 275080 dated May 9, 1992, payable to Agusan
SECOND DIVISION del Sur Electric Cooperative Inc. (ASELCO) for the amount of P6,427.68;
PCIB Check No. 275097 dated May 10, 1992 payable to Agusan del Norte
Electric Cooperative Inc., (ANECO) for the amount of P6,472.01; and PCIB
EQUITABLE PCI BANK, G.R. No. 165339 Check No. 314104 dated May 16, 1992 payable in cash for the amount
Petitioner, Present: of P10,000.00. When presented for payment, PCIB Check Nos. 275080,
275097 and 314014 were dishonored for being drawn against insufficient
CARPIO, J., Chairperson, funds.
NACHURA,
PERALTA, As a result of the dishonor of Check Nos. 275080 and 275097 which were
- versus- ABAD, and payable to ASELCO and ANECO, respectively, the electric power supply for
MENDOZA, JJ. the two mini-sawmills owned and operated by respondent, located in
Talacogon, Agusan del Sur; and in Golden Ribbon, Butuan City, was cut off
Promulgated: on June 1, 1992 and May 28, 1992, respectively, and it was restored only on
July 20 and August 24, 1992, respectively.
ARCELITO B. TAN, August 23, 2010
Respondent. Due to the foregoing, respondent filed with the Regional Trial Court (RTC) of
x--------------------------------------------------x Cebu City a complaint against petitioner, praying for payment of losses
consisting of unrealized income in the amount of P1,864,500.00. He also
prayed for payment of moral damages, exemplary damages, attorney's fees
DECISION and litigation expenses.

Respondent claimed that Check No. 275100 was a postdated check in

PERALTA, J.:
Before this Court is a petition for review on certiorari under Rule 45 of the
Rules of Court seeking to set aside the Decision[1] and the Resolution[2] of the
Court of Appeals (CA) in CA-G.R. CV No. 41928.
The antecedents are as follows:
Respondent Arcelito B.Tan maintained a current and savings account with
Philippine Commercial International Bank (PCIB), now petitioner Equitable
PCI Bank.[3]On May 13, 1992, respondent issued PCIB Check No. 275100
postdated May 30, 1992[4] in the amount of P34,588.72 in favor of Sulpicio
Lines, Inc. As of May 14, 1992, respondent's balance with petitioner
was P35,147.59. On May 14, 1992, Sulpicio Lines, Inc. deposited the
aforesaid check to its account with Solid Bank, Carbon Branch, Cebu City.
After clearing, the amount of the check was immediately debited by petitioner
payment of Bills of Lading Nos. 15, 16 and 17, and that his account with
petitioner would have had sufficient funds to cover payment of the three other
checks were it not for the negligence of petitioner in immediately debiting
from his account Check No. 275100, in the amount of P34,588.72, even as
the said check was postdated to May 30, 1992. As a consequence of
petitioner's error, which brought about the dishonor of the two checks paid to
ASELCO and ANECO, the electric supply to his two mini-sawmills was cut
off, the business operations thereof were stopped, and purchase orders were
not duly served causing tremendous losses to him.
In its defense, petitioner denied that the questioned check was postdated
May 30, 1992 and claimed that it was a current check dated May 3, 1992. It
alleged further that the disconnection of the electric supply to respondent's
sawmills was not due to the dishonor of the checks, but for other reasons not
attributable to the bank.

63 - BANKING LAWS
After trial, the RTC, in its Decision[5] dated June 21, 1993, ruled in favor of
petitioner and dismissed the complaint.
Aggrieved by the Decision, respondent filed a Notice of Appeal. [6] In its
Decision dated May 31, 2004, the Court of Appeals reversed the decision of
the trial court and directed petitioner to pay respondent the sum
of P1,864,500.00 as actual damages, P50,000.00 by way of moral
damages, P50,000.00 as exemplary damages and attorney's fees in the
amount of P30,000.00. Petitioner filed a motion for reconsideration, which the
CA denied in a Resolution dated August 24, 2004.
Hence, the instant petition assigning the following errors:
I additional divisions, shall start on April 12, 2004.
THE FOURTH DIVISION OF THE COURT OF APPEALS
DEFIED OFFICE ORDER NO. 82-04-CG BY HOLDING ON
TO THIS CASE AND DECIDING IT INSTEAD OF
UNLOADING IT AND HAVING IT RE-RAFFLED AMONG
THE DIVISIONS IN CEBU CITY.
II
THE COURT OF APPEALS ERRED IN REVERSING THE
FINDING OF THE REGIONAL TRIAL COURT THAT CHECK
NO. 275100 WAS DATED MAY 3, 1992.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING
THAT RESPONDENT'S WAY OF WRITING THE DATE ON
CHECK NO. 275100 WAS THE PROXIMATE CAUSE OF
THE DISHONOR OF HIS THREE OTHER CHECKS.
IV
THE COURT OF APPEALS ERRED IN AWARDING
ACTUAL DAMAGES, MORAL DAMAGES, EXEMPLARY
DAMAGES AND ATTORNEY'S FEES.
Anent the first issue, petitioner submits that the CA defied Office Order No.
82-04-CG dated April 5, 2004 issued by then CA Presiding Justice Cancio C.
Garcia when it failed to unload CA-G.R. CV No. 41928 so that it may be re-
raffled among the Divisions in Cebu City.
64 - BANKING LAWS
Office Order No. 82-04-CG[7] provides:
xxxx
In view of the reorganization of the different
Divisions due to the appointment of eighteen (18) new
Justices to the additional divisions in the cities of Cebu and
Cagayan de Oro, the raffle of civil, criminal and special
cases submitted for decision and falling within the jurisdiction
of the additional divisions shall commence on April 6, 2004.
The raffle of newly-filed cases and those for
completion likewise falling within the jurisdiction of the
xxxx
Petitioner alleged that since the aforementioned Office Order directed the
raffle of civil, criminal and special cases submitted for decision and falling
within the jurisdiction of the additional divisions on April 6, 2004, CA-G.R. CV
No. 41928 should have been unloaded by the CA's Fourth Division and re-
raffled to the CA's Division in Cebu City instead of deciding the case on May
31, 2004.
Respondent argued that the CA's Fourth Division correctly acted in taking
cognizance of the case. The CA defended its jurisdiction by ruling that cases
already submitted for decision as of the effectivity of Republic Act (R.A.)
8246[8] on February 1, 1997 were no longer included for re-raffle to the
newly-created Visayas and Mindanao Divisions of the CA, conformable to
Section 5 of the said statute.
Petitioner's argument is misplaced. Under Section 3 of R.A. 8246, it is
provided that:
Section 3. Section 10 of Batas Pambansa Blg. 129,
as amended, is hereby further amended to read as follows:
Sec. 10. Place of Holding Sessions. The Court of
Appeals shall have its permanent stations as follows: The
first seventeen (17) divisions shall be stationed in the City of
Manila for cases coming from the First to the Fifth Judicial
Regions; the Eighteenth, Nineteenth, and Twentieth
Divisions shall be in Cebu City for cases coming from the
Sixth, Seventh and Eighth Judicial Regions; the Twenty-first,
Twenty-second and Twenty-third Divisions shall be in
 Cagayan de Oro City for cases coming from the Ninth,
Tenth, Eleventh, and Twelfth Judicial Regions. Whenever
demanded by public interest, or whenever justified by an
increase in case load, the Supreme Court, upon its own
initiative or upon recommendation of the Presiding Justice of
the Court of Appeals, may authorize any division of the Court
to hold sessions periodically, or for such periods and at such
places as the Supreme Court may determine, for the
purpose of hearing and deciding cases. Trials or hearings in
the Court of Appeals must be continuous and must be
completed within three (3) months unless extended by the
Chief Justice of the Supreme Court.
Further, Section 5 of the same Act provides
Upon the effectivity of this Act, all pending
cases, except those which have been submitted for
resolution, shall be referred to the proper division of the
Court of Appeals.[9]
Although CA-G.R. CV No. 41928 originated from Cebu City and is thus
referable to the CA's Divisions in Cebu City, the said case was already
submitted for decision as of July 25, 1994.[10] Hence, CA-G.R. CV No. 41928,
which was already submitted for decision as of the effectivity of R.A.
8246, i.e., February 1, 1997, can no longer be referred to the CA's Division in
Cebu City. Thus, the CA's Former Fourth Division correctly ruled that CA-
G.R. CV No. 41928 pending in its division was not among those cases that
had to be re-raffled to the newly-created CA Divisions in the Visayas Region.
Further, administrative issuances must not override, supplant or modify the
law, but must remain consistent with the law they intend to carry out. [11] Thus,
Office Order No. 82-04-CG cannot defeat the provisions of R.A. 8246.
As to the second issue, petitioner maintains that the CA erred in reversing
the finding of the RTC that Check No. 275100 was dated May 3, 1992.
Petitioner argued that in arriving at the conclusion that Check No. 275100
was postdated May 30, 1992, the CA just made a visual examination of the
check, unlike the RTC which verified the truth of respondent's testimony
relative to the issuance of Check No. 275100. Respondent argued that the
check was carefully examined by the CA which correctly found that Check
No. 275100 was postdated to May 30, 1992 and not May 3, 1992.
65 - BANKING LAWS
The principle is well established that this Court is not a trier of
facts. Therefore, in an appeal by certiorari under Rule 45 of the Rules of
Court, only questions of law may be raised. The resolution of factual issues
is the function of the lower courts whose findings on these matters are
received with respect and are, as a rule, binding on this Court. However, this
rule is subject to certain exceptions. One of these is when the findings of the
appellate court are contrary to those of the trial court.[12]Due to the
divergence of the findings of the CA and the RTC, We shall re-examine the
facts and evidence presented before the lower courts.
The RTC ruled that:
xxxx
The issue to be resolved in this case is whether or not the
date of PCIB Check No. 275100 is May 3, 1992 as
contended by the defendant, or May 30, 1992 as claimed by
the plaintiff. The date of the check is written as follows
5/3/0/92. From the manner by which the date of the check is
written, the Court cannot really make a pronouncement as to
whether the true date of the check is May 3 or May 30, 1992,
without inquiring into the background facts leading to the
issuance of said check.
According to the plaintiff, the check was issued to Sulpicio
Lines in payment of bill of lading nos. 15, 16 and 17. An
examination of bill of lading no. 15, however, shows that the
same was issued, not in favor of plaintiff but in favor of Coca
Cola Bottlers Philippines, Inc. Bill of Lading No. 16 is issued
in favor of Suson Lumber and not to plaintiff. Likewise, Bill of
Lading No. 17 shows that it was issued to Jazz Cola and not
to plaintiff. Furthermore, the receipt for the payment of the
freight for the shipments reflected in these three bills of
lading shows that the freight was paid by Coca Cola Bottlers
Philippines, Inc. and not by plaintiff.
Moreover, the said receipt shows that it was paid in cash
and not by check. From the foregoing, the evidence on
record does not support the claim of the plaintiff that Check
No. 275100 was issued in payment of bills of lading nos. 15,
16 and 17.
Hence, the conclusion of the Court is that the date of the
check was May 3, 1992 and not May 30, 1992.[13]
xxxx
In fine, the RTC concluded that the check was dated May 3, 1992 and not
May 30, 1992, because the same check was not issued to pay for Bills of
Lading Nos. 15, 16 and 17, as respondent claims. The trial court's conclusion
is preposterous and illogical. The purpose for the issuance of the check has
no logical connection with the date of the check. Besides, the trial court need
not look into the purpose for which the check was issued. A reading of Check
No. 275100[14] would readily show that it was dated May 30, 1992. As
correctly observed by the CA:
On the first issue, we agree with appellant that
appellee Bank apparently erred in misappreciating the date
of Check No. 275100. We have carefully examined the check
in question (Exh. DDDD) and we are convinced that it was
indeed postdated to May 30, 1992 and not May 3, 1992 as
urged by appellee. The date written on the check clearly
appears as 5/30/1992 (Exh. DDDD-4). The first bar (/) which
separates the numbers 5 and 30 and the second bar (/)
which further separates the number 30 from the year 1992
appear to have been done in heavy, well-defined and bold
strokes, clearly indicating the date of the check as 5/30/1992
which obviously means May 30, 1992. On the other hand,
the alleged bar (/) which appellee points out as allegedly
separating the numbers 3 and 0, thereby leading it to read
the date as May 3, 1992, is not actually a bar or a slant but
appears to be more of an unintentional marking or line done
with a very light stroke. The presence of the figure 0 after the
number 3 is quite significant. In fact, a close examination
thereof would unerringly show that the said number zero or 0
is connected to the preceeding number 3. In other words, the
drawer of the check wrote the figures 30 in one continuous
stroke, thereby contradicting appellees theory that the
number 3 is separated from the figure 0 by a bar. Besides,
appellees theory that the date of the check is May 3, 1992 is
clearly untenable considering the presence of the figure 0
after 3 and another bar before the year 1992. And if we were
to accept appellees theory that what we find to be an
unintentional mark or line between the figures 3 and 0 is a
bar separating the two numbers, the date of the check would
then appear as 5/3/0/1992, which is simply absurd. Hence,
we cannot go along with appellees theory which will lead us
to an absurd result. It is therefore our conclusion that the
check was postdated to May 30, 1992 and appellee Bank or
its personnel erred in debiting the amount of the check from
appellants account even before the checks due date.
66 - BANKING LAWS
Undoubtedly, had not appellee bank prematurely debited the
amount of the check from appellants account before its due
date, the two other checks (Exhs. LLLL and GGGG)
successively dated May 9, 1992 and May 16, 1992 which
were paid by appellant to ASELCO and ANECO,
respectively, would not have been dishonored and the said
payees would not have disconnected their supply of electric
power to appellants sawmills, and the latter would not have
suffered losses.
The law imposes on banks high standards in view of the fiduciary nature of
banking. Section 2 of R.A. 8791[15] decrees:
Declaration of Policy. The State recognizes the vital role of
banks in providing an environment conducive to the
sustained development of the national economy and the
fiduciary nature of banking that requires high standards of
integrity and performance. In furtherance thereof, the State
shall promote and maintain a stable and efficient banking
and financial system that is globally competitive, dynamic
and responsive to the demands of a developing economy.
Although R.A. 8791 took effect only in the year 2000, the Court had already
imposed on banks the same high standard of diligence required under R.A.
8791 at the time of the untimely debiting of respondent's account by
petitioner in May 1992. In Simex International (Manila), Inc. v. Court of
Appeals,[16] which was decided in 1990, the Court held 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 diligence required of banks, therefore, is more than that of a good father
of a family.[17] In every case, the depositor expects the bank to treat his
account with the utmost fidelity, whether such account consists only of a few
hundred pesos or of millions. The bank must record every single transaction
accurately, down to the last centavo, and as promptly as possible. This has
to be done if the account is to reflect at any given time the amount of money
the depositor can dispose of as he sees fit, confident that the bank will
deliver it as and to whomever he directs.[18] From the foregoing, it is clear that
petitioner bank did not exercise the degree of diligence that it ought to have
exercised in dealing with its client.
With respect to the third issue, petitioner submits that respondent's way of
writing the date on Check No. 275100 was the proximate cause of the
dishonor of his three other checks. Contrary to petitioners view, the Court
finds that its negligence is the proximate cause of respondents 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.[19] The proximate cause of the loss
is not respondent's manner of writing the date of the check, as it was very
clear that he intended Check No. 275100 to be dated May 30, 1992 and not
May 3, 1992. The proximate cause is petitioners own negligence in debiting
the account of the respondent prior to the date as appearing in the check,
which resulted in the subsequent dishonor of several checks issued by the
respondent and the disconnection by ASELCO and ANECO of his electric
supply.
The bank on which the check is drawn, known as the drawee bank, is under
strict liability to pay to the order of the payee in accordance with the drawers
instructions as reflected on the face and by the terms of the check. [20] Thus,
payment made before the date specified by the drawer is clearly against the
drawee bank's duty to its client.
In its memorandum [21] filed before the RTC, petitioner submits that
respondent caused confusion on the true date of the check by writing the
date of the check as 5/3/0/92. If, indeed, petitioner was confused on whether
the check was dated May 3 or May 30 because of the / which allegedly
separated the number 3 from the 0, petitioner should have required
respondent drawer to countersign the said / in order to ascertain the true
intent of the drawer before honoring the check. As a matter of practice, bank
tellers would not receive nor honor such checks which they believe to be
unclear, without the counter-signature of its drawer. Petitioner should have
exercised the highest degree of diligence required of it by ascertaining from
the respondent the accuracy of the entries therein, in order to settle the
confusion, instead of proceeding to honor and receive the check.
Further, petitioner's branch manager, Pedro D. Tradio, in a
letter[22] addressed to ANECO, explained the circumstances surrounding the
dishonor of PCIB Check No. 275097. Thus:
June 11, 1992
ANECO
Agusan del Norte
Gentlemen:
This refer (sic) to PCIB Check No. 275097 dated May 16, 1992 in the
amount of P6,472.01 payable to your goodselves issued by Mr. Arcelito B.
67 - BANKING LAWS
Tan (MANWOOD Industries) which was returned by PCIB Mandaue Branch
for insufficiency of funds.
Please be advised that the return of the aforesaid check was a result of an
earlier negotiation to PCIB-Mandaue Branch through a deposit made on May
14, 1992 with SOLIDBANK Carbon Branch, or through Central Bank clearing
via Philippine Clearing House Corporation facilities, of a postdated check
which ironically and without bad faith passed undetected through several
eyes from the payee of the check down to the depository bank and finally the
drawee bank (PCIB) the aforesaid Check No. 275097 issued to you would
have been honored because it would have been sufficiently funded at the
time it was negotiated. It should be emphasized, however, that Mr. Arcelito
B. Tan was in no way responsible for the dishonor of said PCIB Check No.
275097.
We hope that the foregoing will sufficiently explain the circumstances of the
dishonor of PCIB Check No. 275097 and would clear the name and credit of
Mr. Arcelito Tan from any misimpressions which may have resulted from the
dishonor of said check.
Thank you.
xxxx
Although petitioner failed to specify in the letter the other details of this
postdated check, which passed undetected from the eyes of the payee down
to the petitioner drawee bank, the Court finds that petitioner was evidently
referring to no other than Check No. 275100 which was deposited to
Solidbank, and was postdated May 30, 1992. As correctly found by the CA:
In the aforequoted letter of its Manager, appellee
Bank expressly acknowledged that Check No. 275097 (Exh.
GGGG) which appellant paid to ANECO was sufficiently
funded at the time it was negotiated, but it was dishonored
as a result of an earlier negotiation to PCIB-Mandaue
Branch through a deposit made on May 14, 1992 with
SOLIDBANK xxx xxx xxx of a postdated check which xxx
xxx passed undetected. He further admitted that Mr. Arcelito
B. Tan was in no way responsible for the dishonor of said
PCIB Check No. 275097. Needless to state, since
appellee's Manager has cleared appellant of any fault in the
dishonor of the ANECO check, it [necessarily] follows that
responsibility therefor or fault for the dishonor of the check
should fall on appellee bank. Appellee's attempt to extricate
itself from its inadvertence must therefore fail in the face of
its Manager's explicit acknowledgment of responsibility for
the inadvertent dishonor of the ANECO check.[23]
Evidently, the bank's negligence was the result of lack of due care required
of its managers and employees in handling the accounts of its
clients. Petitioner was negligent in the selection and supervision of its
employees. In Citibank, N.A. v. Cabamongan,[24] the Court ruled:
x x x respondent's two sawmills was cut off on June 1, 1992 to July 20, 1992 and
Banks handle daily transactions involving millions of pesos.
By the very nature of their works the degree
of responsibility, care and trustworthiness expected of
their employees and officials is far greater than those of
ordinary clerks and employees. Banks are expected to
exercise the highest degree of diligence in the selection and
supervision of their employees.
We now resolve the question on the award of actual, moral and exemplary
damages, as well as attorney's fees by the CA to the respondent.
The CA based the award of actual damages in the amount of P1,864,500.00
on the purchase orders[25] submitted by respondent. The CA ruled that:
x x x In the case at bar, appellant [respondent
herein] presented adequate evidence to prove losses
consisting of unrealized income that he sustained as a result
of the appellee Bank's gross negligence. Appellant identified
certain Purchase Orders from various customers which were
not met by reason of the disruption of the operation of his
sawmills when ANECO and ASELCO disconnected their
supply of electricity thereto. x x x
Actual or compensatory damages are those awarded in order to compensate
a party for an injury or loss he suffered. They arise out of a sense of natural
justice and are aimed at repairing the wrong done. Except as provided by law
or by stipulation, a party is entitled to an adequate compensation only for
such pecuniary loss as he has duly proven.[26] To recover actual damages,
not only must the amount of loss be capable of proof; it must also be actually
proven with a reasonable degree of certainty, premised upon competent
proof or the best evidence obtainable.[27]
Respondent's claim for damages was based on purchase orders from
various customers which were allegedly not met due to the disruption of the
operation of his sawmills. However, aside from the purchase orders and his
testimony, respondent failed to present competent proof on the specific
amount of actual damages he suffered during the entire period his power
was cut off. No other evidence was provided by respondent to show that the
foregoing purchase orders were not met or were canceled by his various
68 - BANKING LAWS
customers. The Court cannot simply rely on speculation, conjecture or
guesswork in determining the amount of damages.[28]
Moreover, an examination of the purchase orders and job orders reveal that
the orders were due for delivery prior to the period when the power supply of
May 28, 1992 to August 24, 1992, respectively. Purchase Order No.
9906[29] delivery date is May 4, 1992; Purchase Order No. 9269 [30] delivery
date is March 19, 1992; Purchase Order No. 147796[31] is due for delivery on
January 31, 1992; Purchase Order No. 76000[32] delivery date is February
and March 1992; and Job Order No. 1824,[33] dated March 18, 1992, has a
15 days duration of work. Clearly, the disconnection of his electricity during
the period May 28, 1992 to August 24, 1992 could not possibly affect his
sawmill operations and prior orders therefrom.
Given the dearth of respondent's evidence on the matter, the Court resolves
to delete the award of actual damages rendered by the CA in favor of
respondent for his unrealized income.
Nonetheless, in the absence of competent proof on the actual damages
suffered, respondent is entitled to temperate damages. Under Article 2224 of
the Civil Code of the Philippines, temperate or moderate damages, which are
more than nominal but less than compensatory damages, may be recovered
when the court finds that some pecuniary loss has been suffered but its
amount cannot, from the nature of the case, be proved with certainty.[34] The
allowance of temperate damages when actual damages were not adequately
proven is ultimately a rule drawn from equity, the principle affording relief to
those definitely injured who are unable to prove how definite the injury.[35]
It is apparent that respondent suffered pecuniary loss. The negligence of
petitioner triggered the disconnection of his electrical supply, which
temporarily halted his business operations and the consequent loss of
business opportunity. However, due to the insufficiency of evidence before
Us, We cannot place its amount with certainty. Article 2216[36] of
the Civil Code instructs that assessment of damages is left to the discretion
of the court according to the circumstances of each case.Under the
circumstances, the sum of P50,000.00 as temperate damages is reasonable.
Anent the award of moral damages, it is settled that moral damages are
meant to compensate the claimant for any physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation and similar injuries unjustly
caused.[37] In Philippine National Bank v. Court of Appeals,[38] the Court held
that a bank is under obligation to treat the accounts of its depositors with
meticulous care whether such account consists only of a few hundred pesos
or of millions of pesos. Responsibility arising from negligence in the
performance of every kind of obligation is demandable. While petitioner's
negligence in that case may not have been attended with malice and bad
faith, the banks' negligence caused respondent to suffer mental anguish,
serious anxiety, embarrassment and humiliation. In said case, We ruled that
respondent therein was entitled to recover reasonable moral damages.
unnecessary trouble and expense to protect his interest. The Court affirms
the appellate courts award of attorneys fees in the amount of P30,000.00.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 41928, dated May 31,
2004 and August 24, 2004, respectively, are AFFIRMED with the
following MODIFICATIONS:

In this case, the unexpected cutting off of respondent's electricity, which

resulted in the stoppage of his business operations, had caused him to suffer
humiliation, mental anguish and serious anxiety. The award of P50,000.00 is
reasonable, considering the reputation and social standing of
respondent. As found by the CA, as an accredited supplier, respondent had
been reposed with a certain degree of trust by various reputable and well-
established corporations.
1. The award of One Million Eight Hundred Sixty-Four Thousand and Five
Hundred Pesos (P1,864,500.00) as actual damages, in favor of respondent
Arcelito B. Tan,is DELETED; and
2. Petitioner Equitable PCI Bank is instead directed to pay respondent the
amount of Fifty Thousand Pesos (P50,000.00) as temperate damages.
SO ORDERED.

On the award of exemplary damages, Article 2229 of the Civil Code states:

Art. 2229. Exemplary or corrective damages are

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

The law allows the grant of exemplary damages to set an example for the
public good. The banking system has become an indispensable institution in
the modern world and plays a vital role in the economic life of every civilized
society. Whether as mere passive entities for the safekeeping and saving of
money or as active instruments of business and commerce, banks have
attained an ubiquitous presence among the people, who have come to
regard them with respect and even gratitude and most of all, confidence. For
this reason, banks should guard against injury attributable to negligence or
bad faith on its part. Without a doubt, it has been repeatedly emphasized
that since the banking business is impressed with public interest, of
paramount importance thereto is the trust and confidence of the public in
general. Consequently, the highest degree of diligence is expected, and high
standards of integrity and performance are even required of it. [39] Petitioner,
having failed in this respect, the award of exemplary damages in the
amount of P50,000.00 is in order.

As to the award of attorney's fees, Article 2208 [40] of the Civil Code provides,
among others, that attorney's fees may be recovered when
exemplary damages are awarded or when the defendant's act or omission
has compelled the plaintiff to litigate with third persons or to incur expenses
to protect his interest.[41] Respondent has been forced to undergo

69 - BANKING LAWS