THE INTERNATIONAL CORPORATE BANK, INC.

, petitioner, After 24 hours from submission of the checks to respondent for clearing, petitioner
vs.
COURT OF APPEALS and PHILIPPINE NATIONAL BANK, respondents.
The Case
Before the Court is a petition for review1 assailing the 9 August 1994 Amended
Decision2 and the 16 July 1997 Resolution3 of the Court of Appeals in CA-G.R. CV
No. 25209.
The Antecedent Facts
The case originated from an action for collection of sum of money filed on 16 March
1982 by the International Corporate Bank, Inc.4 ("petitioner") against the Philippine
National Bank ("respondent"). The case was raffled to the then Court of First Instance
(CFI) of Manila, Branch 6. The complaint was amended on 19 March 1982. The case
was eventually re-raffled to the Regional Trial Court of Manila, Branch 52 ("trial
court").
The Ministry of Education and Culture issued 15 checks5 drawn against respondent
which petitioner accepted for deposit on various dates. The checks are as follows:
paid the value of the checks and allowed the withdrawals of the deposits. However,
on 14 October 1981, respondent returned all the checks to petitioner without clearing
them on the ground that they were materially altered. Thus, petitioner instituted an
action for collection of sums of money against respondent to recover the value of the
checks.
The Ruling of the Trial Court
The trial court ruled that respondent is expected to use reasonable business practices
in accepting and paying the checks presented to it. Thus, respondent cannot be
faulted for the delay in clearing the checks considering the ingenuity in which the
alterations were effected. The trial court observed that there was no attempt from
petitioner to verify the status of the checks before petitioner paid the value of the
checks or allowed withdrawal of the deposits. According to the trial court, petitioner,
as collecting bank, could have inquired by telephone from respondent, as drawee
bank, about the status of the checks before paying their value. Since the immediate
cause of petitioner’s loss was the lack of caution of its personnel, the trial court held
that petitioner is not entitled to recover the value of the checks from respondent.
The dispositive portion of the trial court’s Decision reads:

Check Number Date Payee Amount WHEREFORE, judgment is hereby rendered dismissing both the complaint and the
counterclaim. Costs shall, however be assessed against the plaintiff.
7-3694621-4 7-20-81 Trade Factors, P 97,500.00
Inc. SO ORDERED.7
7-3694609-6 7-27-81 Romero D. 98,500.50
Palmares Petitioner appealed the trial court’s Decision before the Court of Appeals.
7-3666224-4 8-03-81 Trade Factors, 99,800.00
Inc. The Ruling of the Court of Appeals
7-3528348-4 8-07-81 Trade Factors, 98,600.00
Inc. In its 10 October 1991 Decision,8 the Court of Appeals reversed the trial court’s
7-3666225-5 8-10-81 Antonio Lisan 98,900.00 Decision. Applying Section 4(c) of Central Bank Circular No. 580, series of 1977,9 the
Court of Appeals held that checks that have been materially altered shall be returned
7-3688945-6 8-10-81 Antonio Lisan 97,700.00 within 24 hours after discovery of the alteration. However, the Court of Appeals ruled
that even if the drawee bank returns a check with material alterations after discovery
7-4535674-1 8-21-81 Golden City 95,300.00
of the alteration, the return would not relieve the drawee bank from any liability for its
Trading
failure to return the checks within the 24-hour clearing period. The Court of Appeals
7-4535675-2 8-21-81 Red Arrow 96,400.00
explained:
Trading
7-4535699-5 8-24-81 Antonio Lisan 94,200.00 Does this mean that, as long as the drawee bank returns a check with material
7-4535700-6 8-24-81 Antonio Lisan 95,100.00 alteration within 24 hour[s] after discovery of such alteration, such return would have
the effect of relieving the bank of any liability whatsoever despite its failure to return
7-4697902-2 9-18-81 Ace Enterprises, 96,000.00 the check within the 24- hour clearing house rule?
Inc.
7-4697925-6 9-18-81 Golden City 93,030.00 We do not think so.
Trading
7-4697011-6 10-02-81 Wintrade 90,960.00 Obviously, such bank cannot be held liable for its failure to return the check in
Marketing question not later than the next regular clearing. However, this Court is of the opinion
7-4697909-4 10-02-81 ABC Trading, Inc. 99,300.00 and so holds that it could still be held liable if it fails to exercise due diligence in
verifying the alterations made. In other words, such bank would still be expected, nay
7-4697922-3 10-05-81 Golden 96,630.00 required, to make the proper verification before the 24-hour regular clearing period
Enterprises lapses, or in cases where such lapses may be deemed inevitable, that the required
The checks were deposited on the following dates for the following accounts: verification should be made within a reasonable time.

Check Number Date Account Deposited The implication of the rule that a check shall be returned within the 24-hour clearing
Deposited period is that if the collecting bank paid the check before the end of the aforesaid 24-
7-3694621-4 7-23-81 CA 0060 02360 3 hour clearing period, it would be responsible therefor such that if the said check is
dishonored and returned within the 24-hour clearing period, the drawee bank cannot
7-3694609-6 7-28-81 CA 0060 02360 3 be held liable. Would such an implication apply in the case of materially altered
7-3666224-4 8-4-81 CA 0060 02360 3 checks returned within 24 hours after discovery? This Court finds nothing in the letter
of the above-cited C.B. Circular that would justify a negative answer. Nonetheless, the
7-3528348-4 8-11-81 CA 0060 02360 3 drawee bank could still be held liable in certain instances. Even if the return of the
check/s in question is done within 24 hours after discovery, if it can be shown that the
7-3666225-5 8-11-81 SA 0061 32331 7
drawee bank had been patently negligent in the performance of its verification
7-3688945-6 8-17-81 CA 0060 30982 5 function, this Court finds no reason why the said bank should be relieved of liability.

7-4535674-1 8-26-81 CA 0060 02360 3

Although banking practice has it that the presumption of clearance is conclusive when
7-4535675-2 8-27-81 CA 0060 02360 3 it comes to the application of the 24-hour clearing period, the same principle may not
be applied to the 24-hour period vis-a-vis material alterations in the sense that the
7-4535699-5 8-31-81 CA 0060 30982 5 drawee bank which returns materially altered checks within 24 hours after discovery
7-4535700-6 8-24-81 SA 0061 32331 7 would be conclusively relieved of any liability thereon. This is because there could
well be various intervening events or factors that could affect the rights and
7-4697902-2 9-23-81 CA 0060 02360 3 obligations of the parties in cases such as the instant one including patent negligence
on the part of the drawee bank resulting in an unreasonable delay in detecting the
7-4697925-6 9-23-81 CA 0060 30982 5
alterations. While it is true that the pertinent proviso in C.B. Circular No. 580 allows
7-4697011-6 10-7-81 CA 0060 02360 3 the drawee bank to return the altered check within the period "provided by law for
filing a legal action", this does not mean that this would entitle or allow the drawee
7-4697909-4 10-7-81 CA 0060 30982 56 bank to be grossly negligent and, inspite thereof, avail itself of the maximum period
allowed by the above-cited Circular. The discovery must be made within a reasonable
time taking into consideration the facts and circumstances of the case. In other words,
the aforementioned C.B. Circular does not provide the drawee bank the license to be
grossly negligent on the one hand nor does it preclude the collecting bank from
raising available defenses even if the check is properly returned within the 24-hour
period after discovery of the material alteration.10
The Court of Appeals rejected the trial court’s opinion that petitioner could have
verified the status of the checks by telephone call since such imposition is not
required under Central Bank rules. The dispositive portion of the 10 October 1991
Decision reads:
PREMISES CONSIDERED, the decision appealed from is hereby REVERSED and
the defendant-appellee Philippine National Bank is declared liable for the value of the
fifteen checks specified and enumerated in the decision of the trial court (page 3) in
the amount of P1,447,920.00
SO ORDERED.11
Respondent filed a motion for reconsideration of the 10 October 1991 Decision. In its
9 August 1994 Amended Decision, the Court of Appeals reversed itself and affirmed
the Decision of the trial court dismissing the complaint.
In reversing itself, the Court of Appeals held that its 10 October 1991 Decision failed
to appreciate that the rule on the return of altered checks within 24 hours from the
discovery of the alteration had been duly passed by the Central Bank and accepted
by the members of the banking system. Until the rule is repealed or amended, the rule
has to be applied.
Petitioner moved for the reconsideration of the Amended Decision. In its 16 July 1997
Resolution, the Court of Appeals denied the motion for lack of merit.
Hence, the recourse to this Court.
The Issues
Petitioner raises the following issues in its Memorandum:
1. Whether the checks were materially altered;
2. Whether respondent was negligent in failing to recognize within a reasonable
period the altered checks and in not returning the checks within the period; and
3. Whether the motion for reconsideration filed by respondent was out of time thus
making the 10 October 1991 Decision final and executory.12
The Ruling of This Court
Filing of the Petition under both Rules 45 and 65
Respondent asserts that the petition should be dismissed outright since petitioner
availed of a wrong mode of appeal. Respondent cites Ybañez v. Court of
Appeals13 where the Court ruled that "a petition cannot be subsumed simultaneously
under Rule 45 and Rule 65 of the Rules of Court, and neither may petitioners
delegate upon the court the task of determining under which rule the petition should
fall."
The remedies of appeal and certiorari are mutually exclusive and not alternative or
successive.14 However, this Court may set aside technicality for justifiable reasons.
The petition before the Court is clearly meritorious. Further, the petition was filed on
time both under Rules 45 and 65.15 Hence, in accordance with the liberal spirit which
pervades the Rules of Court and in the interest of justice,16 we will treat the petition as
having been filed under Rule 45.
Alteration of Serial Number Not Material
The alterations in the checks were made on their serial numbers.
Sections 124 and 125 of Act No. 2031, otherwise known as the Negotiable
Instruments Law, provide:
SEC. 124. Alteration of instrument; effect of. ― Where a negotiable instrument is
materially altered without the assent of all parties liable thereon, it is avoided, except
as against a party who has himself made, authorized, or assented to the alteration
and subsequent indorsers.
But when an instrument has been materially altered and is in the hands of a holder in
due course, not a party to the alteration, he may enforce payment thereof according
to its original tenor.
SEC. 125. What constitutes a material alteration. ― Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
or which adds a place of payment where no place of payment is specified, or any
other change or addition which alters the effect of the instrument in any respect, is a
material alteration.
The question on whether an alteration of the serial number of a check is a material
alteration under the Negotiable Instruments Law is already a settled matter.
In Philippine National Bank v. Court of Appeals, this Court ruled that the alteration on
the serial number of a check is not a material alteration. Thus:
An alteration is said to be material if it alters the effect of the instrument. It means an
unauthorized change in an instrument that purports to modify in any respect the
obligation of a party or an unauthorized addition of words or numbers or other change
to an incomplete instrument relating to the obligation of a party. In other words, a
material alteration is one which changes the items which are required to be stated
under Section 1 of the Negotiable Instrument[s] Law.
Section 1 of the Negotiable Instruments Law provides:
Section 1. ― Form of negotiable instruments. An instrument to be negotiable must
conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
In his book entitled "Pandect of Commercial Law and Jurisprudence," Justice Jose C.
Vitug opines that "an innocent alteration (generally, changes on items other than
those required to be stated under Sec. 1, N.I.L.) and spoliation (alterations done by a
stranger) will not avoid the instrument, but the holder may enforce it only according to
its original tenor.
xxxx
The case at the bench is unique in the sense that what was altered is the serial
number of the check in question, an item which, it can readily be observed, is not an
essential requisite for negotiability under Section 1 of the Negotiable Instruments Law.
The aforementioned alteration did not change the relations between the parties. The
name of the drawer and the drawee were not altered. The intended payee was the
same. The sum of money due to the payee remained the same. x x x
xxxx
The check’s serial number is not the sole indication of its origin. As succinctly found
by the Court of Appeals, the name of the government agency which issued the
subject check was prominently printed therein. The check’s issuer was therefore
sufficiently identified, rendering the referral to the serial number redundant and
inconsequential. x x x
xxxx
Petitioner, thus cannot refuse to accept the check in question on the ground that the
serial number was altered, the same being an immaterial or innocent one.17
Likewise, in the present case the alterations of the serial numbers do not constitute
material alterations on the checks.
Incidentally, we agree with the petitioner’s observation that the check in the PNB case
appears to belong to the same batch of checks as in the present case. The check in
the PNB case was also issued by the Ministry of Education and Culture. It was also
drawn against PNB, respondent in this case. The serial number of the check in
the PNB case is 7-3666-223-3 and it was issued on 7 August 1981.
Timeliness of Filing of Respondent’s Motion for Reconsideration
Respondent filed its motion for reconsideration of the 10 October 1991 Decision on 6
November 1991. Respondent’s motion for reconsideration states that it received a
copy of the 10 October 1991 Decision on 22 October 1991.18 Thus, it appears that the
motion for reconsideration was filed on time. However, the Registry Return Receipt
shows that counsel for respondent or his agent received a copy of the 10 October
1991 Decision on 16 October 1991,19 not on 22 October 1991 as respondent claimed.
Hence, the Court of Appeals is correct when it noted that the motion for
reconsideration was filed late. Despite its late filing, the Court of Appeals resolved to
admit the motion for reconsideration "in the interest of substantial justice."20
There are instances when rules of procedure are relaxed in the interest of justice.
However, in this case, respondent did not proffer any explanation for the late filing of
the motion for reconsideration. Instead, there was a deliberate attempt to deceive the
Court of Appeals by claiming that the copy of the 10 October 1991 Decision was
received on 22 October 1991 instead of on 16 October 1991. We find no justification
for the posture taken by the Court of Appeals in admitting the motion for
reconsideration. Thus, the late filing of the motion for reconsideration rendered the 10
October 1991 Decision final and executory.
The 24-Hour Clearing Time
The Court will not rule on the proper application of Central Bank Circular No. 580 in
this case. Since there were no material alterations on the checks, respondent as
drawee bank has no right to dishonor them and return them to petitioner, the
collecting bank.21 Thus, respondent is liable to petitioner for the value of the checks,
with legal interest from the time of filing of the complaint on 16 March 1982 until full
payment.22 Further, considering that respondent’s motion for reconsideration was filed
late, the 10 October 1991 Decision, which held respondent liable for the value of the
checks amounting to P1,447,920, had become final and executory.
WHEREFORE, we SET ASIDE the 9 August 1994 Amended Decision and the 16 July
1997 Resolution of the Court of Appeals. We rule that respondent Philippine National
Bank is liable to petitioner International Corporate Bank, Inc. for the value of the
checks amounting to P1,447,920, with legal interest from 16 March 1982 until full
payment. Costs against respondent.
SO ORDERED.
BANK OF AMERICA vs. PHIL RACING CLUB
This is a petition for review on certiorari under Rule 45 of the Rules of Court from the
Decision[1] promulgated on July 16, 2001 by the former Second Division of the Court
of Appeals (CA), in CA-G.R. CV No. 45371 entitled Philippine Racing Club, Inc. v.
Bank of America NT & SA, affirming the Decision[2] dated March 17, 1994 of the
Regional Trial Court (RTC) of Makati, Branch 135 in Civil Case No. 89-5650, in favor
of the respondent. Likewise, the present petition assails the Resolution[3] promulgated
on September 28, 2001, denying the Motion for Reconsideration of the CA Decision.
The facts of this case as narrated in the assailed CA Decision are as follows:
Plaintiff-appellee PRCI is a domestic corporation which maintains several accounts
with different banks in the Metro Manila area. Among the accounts maintained was
Current Account No. 58891-012 with defendant-appellant BA (Paseo de Roxas
Branch). The authorized joint signatories with respect to said Current Account were
plaintiff-appellees President (Antonia Reyes) and Vice President for Finance
(Gregorio Reyes).
On or about the 2nd week of December 1988, the President and Vice President of
plaintiff-appellee corporation were scheduled to go out of the country in connection
with the corporations business. In order not to disrupt operations in their absence,
they pre-signed several checks relating to Current Account No. 58891-012. The
intention was to insure continuity of plaintiff-appellees operations by making available
cash/money especially to settle obligations that might become due. These checks
were entrusted to the accountant with instruction to make use of the same as the
need arose. The internal arrangement was, in the event there was need to make use
of the checks, the accountant would prepare the corresponding voucher and
thereafter complete the entries on the pre-signed checks.
It turned out that on December 16, 1988, a John Doe presented to defendant-
appellant bank for encashment a couple of plaintiff-appellee corporations checks
(Nos. 401116 and 401117) with the indicated value of P110,000.00 each. It is
admitted that these 2 checks were among those presigned by plaintiff-appellee
corporations authorized signatories.
The two (2) checks had similar entries with similar infirmities and irregularities. On the
space where the name of the payee should be indicated (Pay To The Order Of) the
following 2-line entries were instead typewritten: on the upper line was the word
CASH while the lower line had the following typewritten words, viz: ONE HUNDRED
TEN THOUSAND PESOS ONLY. Despite the highly irregular entries on the face of
the checks, defendant-appellant bank, without as much as verifying and/or confirming
the legitimacy of the checks considering the substantial amount involved and the
obvious infirmity/defect of the checks on their faces, encashed said checks. A
verification process, even by was of a telephone call to PRCI office, would have taken
less than ten (10) minutes. But this was not done by BA. Investigation conducted by
plaintiff-appellee corporation yielded the fact that there was no transaction involving
PRCI that call for the payment of P220,000.00 to anyone. The checks appeared to
have come into the hands of an employee of PRCI (one Clarita Mesina who was
subsequently criminally charged for qualified theft) who eventually completed without
authority the entries on the pre-signed checks. PRCIs demand for defendant-
appellant to pay fell on deaf ears. Hence, the complaint.[4]
After due proceedings, the trial court rendered a Decision in favor of respondent, the
dispositive portion of which reads:
PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff and
against the defendant, and the latter is ordered to pay plaintiff:
(1) The sum of Two Hundred Twenty Thousand (P220,000.00) Pesos, with
legal interest to be computed from date of the filing of the herein complaint;
(2) The sum of Twenty Thousand (P20,000.00) Pesos by way of attorneys
fees;
(3) The sum of Ten Thousand (P10,000.00) Pesos for litigation expenses,
and
(4) To pay the costs of suit.
SO ORDERED.[5]
Petitioner appealed the aforesaid trial court Decision to the CA which, however,
affirmed said decision in toto in its July 16, 2001 Decision. Petitioners Motion for
Reconsideration of the CA Decision was subsequently denied on September 28,
2001.
Petitioner now comes before this Court arguing that:
I. The Court of Appeals gravely erred in holding that the proximate cause
of respondents loss was petitioners encashment of the checks.
A. The Court of Appeals gravely erred in holding that petitioner was liable for the
amount of the checks despite the fact that petitioner was merely fulfilling its obligation
under law and contract.
B. The Court of Appeals gravely erred in holding that petitioner had a duty to verify
the encashment, despite the absence of any obligation to do so.
C. The Court of Appeals gravely erred in not applying Section 14 of the Negotiable
Instruments Law, despite its clear applicability to this case;
II. The Court of Appeals gravely erred in not holding that the proximate
cause of respondents loss was its own grossly negligent practice of pre-signing
checks without payees and amounts and delivering these pre-signed checks to its
employees (other than their signatories).
III. The Court of Appeals gravely erred in affirming the trial courts award of
attorneys fees despite the absence of any applicable ground under Article 2208 of the
Civil Code.
IV. The Court of Appeals gravely erred in not awarding attorneys fees, moral
and exemplary damages, and costs of suit in favor of petitioner, who clearly deserves
them.[6]
From the discussions of both parties in their pleadings, the key issue to be resolved in
the present case is whether the proximate cause of the wrongful encashment of the
checks in question was due to (a) petitioners failure to make a verification regarding
the said checks with the respondent in view of the misplacement of entries on the
face of the checks or (b) the practice of the respondent of pre-signing blank checks
and leaving the same with its employees.
Petitioner insists that it merely fulfilled its obligation under law and contract when it
encashed the aforesaid checks. Invoking Sections 126[7] and 185[8] of the Negotiable
Instruments Law (NIL), petitioner claims that its duty as a drawee bank to a drawer-
client maintaining a checking account with it is to pay orders for checks bearing the
drawer-clients genuine signatures. The genuine signatures of the clients duly
authorized signatories affixed on the checks signify the order for payment. Thus,
pursuant to the said obligation, the drawee bank has the duty to determine whether
the signatures appearing on the check are the drawer-clients or its duly authorized
signatories. If the signatures are genuine, the bank has the unavoidable legal and
contractual duty to pay. If the signatures are forged and falsified, the drawee bank has
the corollary, but equally unavoidable legal and contractual, duty not to pay.[9]
Furthermore, petitioner maintains that there exists a duty on the drawee bank to
inquire from the drawer before encashing a check only when the check bears a
material alteration. A material alteration is defined in Section 125 of the NIL to be one
which changes the date, the sum payable, the time or place of payment, the number
or relations of the parties, the currency in which payment is to be made or one which
adds a place of payment where no place of payment is specified, or any other change
or addition which alters the effect of the instrument in any respect. With respect to the
checks at issue, petitioner points out that they do not contain any material
alteration.[10] This is a fact which was affirmed by the trial court itself.[11]
There is no dispute that the signatures appearing on the subject checks were genuine
signatures of the respondents authorized joint signatories; namely, Antonia Reyes
and Gregorio Reyes who were respondents President and Vice-President for
Finance, respectively. Both pre-signed the said checks since they were both
scheduled to go abroad and it was apparently their practice to leave with the company
accountant checks signed in black to answer for company obligations that might fall
due during the signatories absence. It is likewise admitted that neither of the subject
checks contains any material alteration or erasure.
However, on the blank space of each check reserved for the payee, the following
typewritten words appear: ONE HUNDRED TEN THOUSAND PESOS ONLY. Above
the same is the typewritten word, CASH. On the blank reserved for the amount, the
same amount of One Hundred Ten Thousand Pesos was indicated with the use of a
check writer. The presence of these irregularities in each check should have alerted
the petitioner to be cautious before proceeding to encash them which it did not do.
It is well-settled that banks are engaged in a business impressed with public interest,
and it is their duty to protect in return their many clients and depositors who transact
business with them. They have the obligation to treat their clients account
meticulously and with the highest degree of care, considering the fiduciary nature of
their relationship.The diligence required of banks, therefore, is more than that of a
good father of a family.[12]
Petitioner asserts that it was not duty-bound to verify with the respondent since the
amount below the typewritten word CASH, expressed in words, is the very same
amount indicated in figures by means of a check writer on the amount portion of the
check. The amount stated in words is, therefore, a mere reiteration of the amount
stated in figures. Petitioner emphasizes that a reiteration of the amount in words is
merely a repetition and that a repetition is not an alteration which if present and
material would have enjoined it to commence verification with respondent.[13]
We do not agree with petitioners myopic view and carefully crafted defense. Although
not in the strict sense material alterations, the misplacement of the typewritten entries
for the payee and the amount on the same blank and the repetition of the amount
using a check writer were glaringly obvious irregularities on the face of the
check.Clearly, someone made a mistake in filling up the checks and the repetition of
the entries was possibly an attempt to rectify the mistake. Also, if the check had been
filled up by the person who customarily accomplishes the checks of respondent, it
should have occurred to petitioners employees that it would be unlikely such mistakes
would be made. All these circumstances should have alerted the bank to the
possibility that the holder or the person who is attempting to encash the checks did
not have proper title to the checks or did not have authority to fill up and encash the
same. As noted by the CA, petitioner could have made a simple phone call to its client
to clarify the irregularities and the loss to respondent due to the encashment of the
stolen checks would have been prevented.
In the case at bar, extraordinary diligence demands that petitioner should have
ascertained from respondent the authenticity of the subject checks or the accuracy of
the entries therein not only because of the presence of highly irregular entries on the
face of the checks but also of the decidedly unusual circumstances surrounding their
encashment. Respondents witness testified that for checks in amounts greater than
Twenty Thousand Pesos (P20,000.00) it is the companys practice to ensure that the
payee is indicated by name in the check.[14] This was not rebutted by petitioner.
Indeed, it is highly uncommon for a corporation to make out checks payable to CASH
for substantial amounts such as in this case. If each irregular circumstance in this
case were taken singly or isolated, the banks employees might have been justified in
ignoring them. However, the confluence of the irregularities on the face of the checks
and circumstances that depart from the usual banking practice of respondent should
have put petitioners employees on guard that the checks were possibly not issued by
the respondent in due course of its business. Petitioners subtle sophistry cannot
exculpate it from behavior that fell extremely short of the highest degree of care and
diligence required of it as a banking institution.
Indeed, taking this with the testimony of petitioners operations manager that in case
of an irregularity on the face of the check (such as when blanks were not properly
filled out) the bank may or may not call the client depending on how busy the bank is
on a particular day,[15] we are even more convinced that petitioners safeguards to
protect clients from check fraud are arbitrary and subjective. Every client should be
treated equally by a banking institution regardless of the amount of his deposits and
each client has the right to expect that every centavo he entrusts to a bank would be
handled with the same degree of care as the accounts of other clients. Perforce, we
find that petitioner plainly failed to adhere to the high standard of diligence expected
of it as a banking institution.
In defense of its cashier/tellers questionable action, petitioner insists that pursuant to
Sections 14[16] and 16[17] of the NIL, it could validly presume, upon presentation of the
checks, that the party who filled up the blanks had authority and that a valid and
intentional delivery to the party presenting the checks had taken place. Thus, in
petitioners view, the sole blame for this debacle should be shifted to respondent for
having its signatories pre-sign and deliver the subject checks.[18] Petitioner argues that
there was indeed delivery in this case because, following American jurisprudence, the
gross negligence of respondents accountant in safekeeping the subject checks which
resulted in their theft should be treated as a voluntary delivery by the maker who is
estopped from claiming non-delivery of the instrument.[19]
Petitioners contention would have been correct if the subject checks were correctly
and properly filled out by the thief and presented to the bank in good order. In that
instance, there would be nothing to give notice to the bank of any infirmity in the title
of the holder of the checks and it could validly presume that there was proper delivery
to the holder. The bank could not be faulted if it encashed the checks under those
circumstances. However, the undisputed facts plainly show that there were
circumstances that should have alerted the bank to the likelihood that the checks
were not properly delivered to the person who encashed the same. In all, we see no
reason to depart from the finding in the assailed CA Decision that the subject checks
are properly characterized as incomplete and undelivered instruments thus making
Section 15[20] of the NIL applicable in this case.
However, we do agree with petitioner that respondents officers practice of pre-signing
of blank checks should be deemed seriously negligent behavior and a highly risky
means of purportedly ensuring the efficient operation of businesses. It should have
occurred to respondents officers and managers that the pre-signed blank checks
could fall into the wrong hands as they did in this case where the said checks were
stolen from the company accountant to whom the checks were entrusted.
Nevertheless, even if we assume that both parties were guilty of negligent acts that
led to the loss, petitioner will still emerge as the party foremost liable in this case. In
instances where both parties are at fault, this Court has consistently applied the
doctrine of last clear chance in order to assign liability.
In Westmont Bank v. Ong,[21] we ruled:
[I]t is petitioner [bank] which had the last clear chance to stop the fraudulent
encashment of the subject checks had it exercised due diligence and followed the
proper and regular banking procedures in clearing checks. As we had earlier
ruled, the one who had a last clear opportunity to avoid the impending harm but
failed to do so is chargeable with the consequences thereof.[22] (emphasis ours)
In the case at bar, petitioner cannot evade responsibility for the loss by attributing
negligence on the part of respondent because, even if we concur that the latter was
indeed negligent in pre-signing blank checks, the former had the last clear chance to
avoid the loss. To reiterate, petitioners own operations manager admitted that they
could have called up the client for verification or confirmation before honoring the
dubious checks. Verily, petitioner had the final opportunity to avert the injury that
befell the respondent. Failing to make the necessary verification due to the volume of
banking transactions on that particular day is a flimsy and unacceptable excuse,
considering that the banking business is so impressed with public interest where the
trust and confidence of the public in general is of paramount importance such that the
appropriate standard of diligence must be a high degree of diligence, if not the utmost
diligence.[23] Petitioners negligence has been undoubtedly established and, thus,
pursuant to Art. 1170 of the NCC,[24] it must suffer the consequence of said
negligence.
In the interest of fairness, however, we believe it is proper to consider respondents
own negligence to mitigate petitioners liability. Article 2179 of the Civil Code provides:
Art. 2179. When the plaintiffs own negligence was the immediate and proximate
cause of his injury, he cannot recover damages. But if his negligence was only
contributory, the immediate and proximate cause of the injury being the defendants
lack of due care, the plaintiff may recover damages, but the courts shall mitigate the
damages to be awarded.
Explaining this provision in Lambert v. Heirs of Ray Castillon,[25] the Court held:
The underlying precept on contributory negligence is that a plaintiff who is partly
responsible for his own injury should not be entitled to recover damages in full but
must bear the consequences of his own negligence. The defendant must thus be held
liable only for the damages actually caused by his negligence. xxx xxx xxx
As we previously stated, respondents practice of signing checks in blank whenever its
authorized bank signatories would travel abroad was a dangerous policy, especially
considering the lack of evidence on record that respondent had appropriate
safeguards or internal controls to prevent the pre-signed blank checks from falling into
the hands of unscrupulous individuals and being used to commit a fraud against the
company. We cannot believe that there was no other secure and reasonable way to
guarantee the non-disruption of respondents business. As testified to by petitioners
expert witness, other corporations would ordinarily have another set of authorized
bank signatories who would be able to sign checks in the absence of the preferred
signatories.[26] Indeed, if not for the fortunate happenstance that the thief failed to
properly fill up the subject checks, respondent would expectedly take the blame for
the entire loss since the defense of forgery of a drawers signature(s) would be
unavailable to it. Considering that respondent knowingly took the risk that the pre-
signed blank checks might fall into the hands of wrongdoers, it is but just that
respondent shares in the responsibility for the loss.
We also cannot ignore the fact that the person who stole the pre-signed checks
subject of this case from respondents accountant turned out to be another employee,
purportedly a clerk in respondents accounting department. As the employer of the
thief, respondent supposedly had control and supervision over its own employee. This
gives the Court more reason to allocate part of the loss to respondent.
Following established jurisprudential precedents,[27] we believe the allocation of sixty
percent (60%) of the actual damages involved in this case (represented by the
amount of the checks with legal interest) to petitioner is proper under the
premises. Respondent should, in light of its contributory negligence, bear forty
percent (40%) of its own loss.
Finally, we find that the awards of attorneys fees and litigation expenses in favor of
respondent are not justified under the circumstances and, thus, must be deleted. The
power of the court to award attorneys fees and litigation expenses under Article 2208
of the NCC[28] demands factual, legal, and equitable justification.
An adverse decision does not ipso facto justify an award of attorneys fees to the
winning party.[29] Even when a claimant is compelled to litigate with third persons or to
incur expenses to protect his rights, still attorneys fees may not be awarded where no
sufficient showing of bad faith could be reflected in a partys persistence in a case
other than an erroneous conviction of the righteousness of his cause.[30]
WHEREFORE, the Decision of the Court of Appeals dated July 16, 2001 and its
Resolution dated September 28, 2001 are AFFIRMED with the following
MODIFICATIONS: (a) petitioner Bank of America NT & SA shall pay to respondent
Philippine Racing Club sixty percent (60%) of the sum of Two Hundred Twenty
Thousand Pesos (P220,000.00) with legal interest as awarded by the trial court and
(b) the awards of attorneys fees and litigation expenses in favor of respondent are
deleted.
Proportionate costs.
PHILIPPINE NATIONAL BANK, petitioner,
vs.
COURT OF APPEALS, CAPITOL CITY DEVELOPMENT BANK, PHILIPPINE
BANK OF COMMUNICATIONS, and F. ABANTE MARKETING, respondents.
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing
the decision dated April 29, 1992 of respondent Court of Appeals in CA-G.R. CV No.
24776 and its resolution dated September 16, 1992, denying petitioner Philippine
National Bank's motion for reconsideration of said decision.
The facts of the case are as follows.
A check with serial number 7-3666-223-3, dated August 7, 1981 in the amount of
P97,650.00 was issued by the Ministry of Education and Culture (now Department of
Education, Culture and Sports [DECS]) payable to F. Abante Marketing. This check
was drawn against Philippine National Bank (herein petitioner).
On August 11, 1981, F. Abante Marketing, a client of Capitol City Development Bank
(Capitol), deposited the questioned check in its savings account with said bank. In
turn, Capitol deposited the same in its account with the Philippine Bank of
Communications (PBCom) which, in turn, sent the check to petitioner for clearing.
Petitioner cleared the check as good and, thereafter, PBCom credited Capitol's
account for the amount stated in the check. However, on October 19, 1981, petitioner
returned the check to PBCom and debited PBCom's account for the amount covered
by the check, the reason being that there was a "material alteration" of the check
number.
PBCom, as collecting agent of Capitol, then proceeded to debit the latter's account for
the same amount, and subsequently, sent the check back to petitioner. Petitioner,
however, returned the check to PBCom.
On the other hand, Capitol could not, in turn, debit F. Abante Marketing's account
since the latter had already withdrawn the amount of the check as of October 15,
1981. Capitol sought clarification from PBCom and demanded the re-crediting of the
amount. PBCom followed suit by requesting an explanation and re-crediting from
petitioner.
Since the demands of Capitol were not heeded, it filed a civil suit with the Regional
Trial Court of Manila against PBCom which, in turn, filed a third-party complaint
against petitioner for reimbursement/indemnity with respect to the claims of Capitol.
Petitioner, on its part, filed a fourth-party complaint against F. Abante Marketing.
On October 3, 1989; the Regional Trial Court rendered its decision the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered as follows:
1.) On plaintiffs complaint, defendant Philippine Bank of Communications is ordered
to re-credit or reimburse plaintiff Capitol City Development Bank the amount of
P97,650.00, plus interest of 12 percent thereto from October 19, 1981 until the
amount is fully paid;
2.) On Philippine Bank of Communications third-party complaint third-party defendant
PNB is ordered to reimburse and indemnify Philippine Bank of Communications for
whatever amount PBCom pays to plaintiff;
3.) On Philippine National Bank's fourth-party complaint, F. Abante Marketing is
ordered to reimburse and indemnify PNB for whatever amount PNB pays to PBCom;
4.) On attorney's fees, Philippine Bank of Communications is ordered to pay Capitol
City Development Bank attorney's fees in the amount of Ten Thousand (P10,000.00)
Pesos; but PBCom is entitled to reimbursement/indemnity from PNB; and Philippine
National Bank to be, in turn reimbursed or indemnified by F. Abante Marketing for the
same amount;
5.) The Counterclaims of PBCom and PNB are hereby dismissed;
6.) No pronouncement as to costs.
SO ORDERED.1
An appeal was interposed before the respondent Court of Appeals which rendered its
decision on April 29, 1992, the decretal portion of which reads:
WHEREFORE, the judgment appealed from is modified by exempting PBCom from
liability to plaintiff-appellee for attorney's fees and ordering PNB to honor the check for
P97,650.00, with interest as declared by the trial court, and pay plaintiff-appellee
attorney's fees of P10,000.00. After the check shall have been honored by PNB,
PBCom shall re-credit plaintiff-appellee's account with it with the amount. No
pronouncement as to costs.
SO ORDERED.2
A motion for reconsideration of the decision was denied by the respondent Court in its
resolution dated September 16, 1992 for lack of merit.3
Hence, petitioner filed the instant petition which raises the following issues:
I
WHETHER OR NOT AN ALTERATION OF THE SERIAL NUMBER OF A CHECK IS
A MATERIAL ALTERATION UNDER THE NEGOTIABLE INSTRUMENTS LAW.
II
WHETHER OR NOT A CERTIFICATION HEREIN ISSUED BY THE MINISTRY OF
EDUCATION CAN BE GIVEN WEIGHT IN EVIDENCE.
III
WHETHER OR NOT A DRAWEE BANK WHO FAILED TO RETURN A. CHECK
WITHIN THE TWENTY FOUR (24) HOUR CLEARING PERIOD MAY RECOVER
THE VALUE OF THE CHECK FROM THE COLLECTING BANK.
IV
WHETHER OR NOT IN THE ABSENCE OF MALICE OR ILL WILL PETITIONER
PNB MAY BE HELD LIABLE FOR ATTORNEY'S FEES.4
We find no merit in the petition.
We shall first deal with the effect of the alteration of the serial number on the
negotiability of the check in question.
Petitioner anchors its position on Section 125 of the Negotiable Instruments Law
(ACT No. 2031)5 which provides:
Sec. 225. What constitutes a material alteration. Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
(f) Or which adds a place of payment where no place of payment is specified, or any
other change or addition which alters the effect of the instrument in any respect, is a
material alteration.
Petitioner alleges that there is no hard and fast rule in the interpretation of the
aforequoted provision of the Negotiable Instruments Law. It maintains that under
Section 125(f), any change that alters the effect of the instrument is a material
alteration.6
We do not agree.
An alteration is said to be material if it alters the effect of the
instrument.7 It means an unauthorized change in an instrument that purports to modify
in any respect the obligation of a party or an unauthorized addition of words or
numbers or other change to an incomplete instrument relating to the obligation of a
party.8 In other words, a material alteration is one which changes the items which are
required to be stated under Section 1 of the Negotiable Instruments Law.
Section 1 of the Negotiable Instruments Law provides:
Sec. 1. — Form of negotiable instruments. An instrument to be negotiable must
conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
In his book entitled "Pandect of Commercial Law and Jurisprudence," Justice Jose C.
Vitug opines that "an innocent alteration (generally, changes on items other than
those required to be stated under Sec. 1, N.I.L.) and spoliation (alterations done by a
stranger) will not avoid the instrument, but the holder may enforce it only according to
its original tenor."9
Reproduced hereunder are some examples of material and immaterial alterations:
A. Material Alterations:
(1) Substituting the words "or bearer" for "order."
(2) Writing "protest waived" above blank indorsements.
(3) A change in the date from which interest is to run.
(4) A check was originally drawn as follows: "Iron County Bank, Crystal Falls, Mich.
Aug. 5, 1901. Pay to G.L. or order $9 fifty cents CTR" The insertion of the figure 5
before the figure 9, the instrument being otherwise unchanged.
(5) Adding the words "with interest" with or without a fixed rate.
(6) An alteration in the maturity of a note, whether the time for payment is thereby
curtailed or extended.
(7) An instrument was payable "First Nat'l Bank" the plaintiff added the word "Marion."
(8) Plaintiff, without consent of the defendant, struck out the name of the defendant as
payee and inserted the name of the maker of the original note.
(9) Striking out the name of the payee and substituting that of the person who actually
discounted the note.
(10) Substituting the address of the maker for the name of a co-maker.10
B. Immaterial Alterations:
(1) Changing "I promise to pay" to "We promise to pay", where there are two makers.
(2) Adding the word "annual" after the interest clause.
(3) Adding the date of maturity as a marginal notation.
(4) Filling in the date of actual delivery where the makers of a note gave it with the
date in blank, "July ____."
(5) An alteration of the marginal figures of a note where the sum stated in words in the
body remained unchanged.
(6) The insertion of the legal rate of interest where the note had a provision for
"interest at _______ per cent."
(7) A printed form of promissory note had on the margin the printed words, "Extended
to ________." The holder on or after maturity wrote in the blank space the words
"May 1, 1913," as a reference memorandum of a promise made by him to the
principal maker at the time the words were written to extend the time of payment.
(8) Where there was a blank for the place of payment, filling in the blank with the
place desired.
(9) Adding to an indorsee's name the abbreviation "Cash" when it had been agreed
that the draft should be discounted by the trust company of which the indorsee was
cashier.
(10) The indorsement of a note by a stranger after its delivery to the payee at the time
the note was negotiated to the plaintiff.
(11) An extension of time given by the holder of a note to the principal maker, without
the consent of a surety co-maker.11
The case at bench is unique in the sense that what was altered is the serial number of
the check in question, an item which, it can readily be observed, is not an essential
requisite for negotiability under Section 1 of the Negotiable Instruments Law. The
aforementioned alteration did not change the relations between the parties. The name
of the drawer and the drawee were not altered. The intended payee was the same.
The sum of money due to the payee remained the same. Despite these findings,
however, petitioner insists, that:
xxx xxx xxx
It is an accepted concept, besides being a negotiable instrument itself, that a TCAA
check by its very nature is the medium of exchange of governments (sic)
instrumentalities of agencies. And as (a) safety measure, every government office o(r)
agency (is) assigned TCAA checks bearing different number series.
A concrete example is that of the disbursements of the Ministry of Education and
Culture. It is issued by the Bureau of Treasury sizeable bundles of checks in booklet
form with serial numbers different from other government office or agency. Now, for
fictitious payee to succeed in its malicious intentions to defraud the government, all it
need do is to get hold of a TCAA Check and have the serial numbers of portion (sic)
thereof changed or altered to make it appear that the same was issued by the MEG.
Otherwise, stated, it is through the serial numbers that (a) TCAA Check is determined
to have been issued by a particular office or agency of the government.12
xxx xxx xxx
Petitioner's arguments fail to convince. The check's serial number is not the sole
indication of its origin.. As succinctly found by the Court of Appeals, the name of the
government agency which issued the subject check was prominently printed therein.
The check's issuer was therefore sufficiently identified, rendering the referral to the
serial number redundant and inconsequential. Thus, we quote with favor the findings
of the respondent court:
xxx xxx xxx
If the purpose of the serial number is merely to identify the issuing government office
or agency, its alteration in this case had no material effect whatsoever on the integrity
of the check. The identity of the issuing government office or agency was not changed
thereby and the amount of the check was not charged against the account of another
government office or agency which had no liability under the check. The owner and
issuer of the check is boldly and clearly printed on its face, second line from the
top: "MINISTRY OF EDUCATION AND CULTURE," and below the name of the payee
are the rubber-stamped words: "Ministry of Educ. & Culture." These words are not
alleged to have been falsely or fraudulently intercalated into the check. The ownership
of the check is established without the necessity of recourse to the serial number.
Neither there any proof that the amount of the check was erroneously charged
against the account of a government office or agency other than the Ministry of
Education and Culture. Hence, the alteration in the number of the check did not affect
or change the liability of the Ministry of Education and Culture under the check and,
therefore, is immaterial. The genuineness of the amount and the signatures therein of
then Deputy Minister of Education Hermenegildo C. Dumlao and of the resident
Auditor, Penomio C. Alvarez are not challenged. Neither is the authenticity of the
different codes appearing therein questioned . . .13(Emphasis ours.)
Petitioner, thus cannot refuse to accept the check in question on the ground that the
serial number was altered, the same being an immaterial or innocent one.
We now go to the second issue. It is petitioner's submission that the certification
issued by Minrado C. Batonghinog, Cashier III of the MEC clearly shows that the
check was altered. Said certification reads:
July 22, 1985
TO WHOM IT MAY CONCERN:
This is to certify that according to the records of this Office, TCAA PNB Check Mo.
SN7-3666223-3 dated August 7, 1981 drawn in favor of F. Abante Marketing in the
amount of NINETY (S)EVEN THOUSAND SIX HUNDRED FIFTY PESOS ONLY
(P97,650.00) was not issued by this Office nor released to the payee concerned. The
series number of said check was not included among those requisition by this Office
from the Bureau of Treasury.
Very truly yours,
(SGD.) MINRADO C. BATONGHINOG
Cashier III14
Petitioner claims that even if the author of the certification issued by the Ministry of
Education and Culture (MEG) was not presented, still the best evidence of the
material alteration would be the disputed check itself and the serial number thereon.
Petitioner thus assails the refusal of respondent court to give weight to the
certification because the author thereof was not presented to identify it and to be
cross-examined thereon.15
We agree with the respondent court.
The one who signed the certification was not presented before the trial court to prove
that the said document was really the document he prepared and that the signature
below the said document is his own signature. Neither did petitioner present an
eyewitness to the execution of the questioned document who could possibly identify
it. 16 Absent this proof, we cannot rule on the authenticity of the contents of the
certification. Moreover, as we previously emphasized, there was no material alteration
on the check, the change of its serial number not being substantial to its negotiability.
Anent the third issue — whether or not the drawee bank may still recover the value of
the check from the collecting bank even if it failed to return the check within the
twenty-four (24) hour clearing period because the check was tampered — suffice it to
state that since there is no material alteration in the check, petitioner has no right to
dishonor it and return it to PBCom, the same being in all respects negotiable.
However, the amount of P10,000.00 as attorney's fees is hereby deleted. In their
respective decisions, the trial court and the Court of Appeals failed to explicitly state
the rationale for the said award. The trial court merely ruled as follows:
With respect to Capitol's claim for damages consisting of alleged loss of opportunity,
this Court finds that Capitol failed to adequately substantiate its claim. What Capitol
had presented was a self-serving, unsubstantiated and speculative computation of
what it allegedly could have earned or realized were it not for the debit made by
PBCom which was triggered by the return and debit made by PNB. However, this
Court finds that it would be fair and reasonable to impose interest at 12% per
annum on the principal amount of the check computed from October 19, 1981 (the
date PBCom debited Capitol's account) until the amount is fully paid and reasonable
attorney's fees.17 (Emphasis ours.)
And contrary to the Court of Appeal's resolution, petitioner unambiguously questioned
before it the award of attorney's fees, assigning the latter as one of the errors
committed by the trial court.18
The foregoing is in conformity with the guiding principles laid down in a long line of
cases and reiterated recently in Consolidated Bank & Trust Corporation (Solidbank)
v. Court of Appeals:19
The award of attorney's fees lies within the discretion of the court and depends upon
the circumstances of each case. However, the discretion of the court to award
attorney's fees under Article 2208 of the Civil Code of the Philippines demands
factual, legal and equitable justification, without which the award is a conclusion
without a premise and improperly left to speculation and conjecture. It becomes a
violation of the proscription against the imposition of a penalty on the right to litigate
(Universal Shipping Lines, Inc. v. Intermediate Appellate Court, 188 SCRA 170
[1990]). The reason for the award must be stated in the text of the court's decision. If
it is stated only in the dispositive portion of the decision, the same shall be disallowed.
As to the award of attorney's fees being an exception rather than the rule, it is
necessary for the court to make findings of fact and law that would bring the case
within the exception and justify the grant of the award (Refractories Corporation of the
Philippines v. Intermediate Appellate Court, 176 SCRA 539 [176 SCRA 539]).
WHEREFORE, premises considered, except for the deletion of the award of
attorney's fees, the decision of the Court of Appeals is hereby AFFIRMED.
SO ORDERED.
METROPOLITAN BANK AND TRUST COMPANY, petitioners,
vs.
RENATO D. CABILZO, respondent.
Before this Court is a Petition for Review on Certiorari, filed by petitioner Metropolitan
Bank and Trust Company (Metrobank) seeking to reverse and set aside the
Decision1 of the Court of Appeals dated 8 March 2002 and its Resolution dated 26
July 2002 affirming the Decision of the Regional Trial Court (RTC) of Manila, Branch
13 dated 4 September 1998. The dispositive portion of the Court of Appeals Decision
reads:
WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED with
modifications (sic) that the awards for exemplary damages and attorney’s fees are
hereby deleted.
Petitioner Metrobank is a banking institution duly organized and existing as such
under Philippine laws.2
Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobank’s clients who
maintained a current account with Metrobank Pasong Tamo Branch.3
On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988, payable to
"CASH" and postdated on 24 November 1994 in the amount of One Thousand Pesos
(P1,000.00). The check was drawn against Cabilzo’s Account with Metrobank Pasong
Tamo Branch under Current Account No. 618044873-3 and was paid by Cabilzo to a
certain Mr. Marquez, as his sales commission.4
Subsequently, the check was presented to Westmont Bank for payment. Westmont
Bank, in turn, indorsed the check to Metrobank for appropriate clearing. After the
entries thereon were examined, including the availability of funds and the authenticity
of the signature of the drawer, Metrobank cleared the check for encashment in
accordance with the Philippine Clearing House Corporation (PCHC) Rules.
On 16 November 1994, Cabilzo’s representative was at Metrobank Pasong Tamo
Branch to make some transaction when he was asked by a bank personnel if Cabilzo
had issued a check in the amount of P91,000.00 to which the former replied in the
negative. On the afternoon of the same date, Cabilzo himself called Metrobank to
reiterate that he did not issue a check in the amount of P91,000.00 and requested
that the questioned check be returned to him for verification, to which Metrobank
complied.5
Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988
which he issued on 12 November 1994 in the amount of P1,000.00 was altered
to P91,000.00 and the date 24 November 1994 was changed to 14 November 1994.6
Hence, Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to his
account. Metrobank, however, refused reasoning that it has to refer the matter first to
its Legal Division for appropriate action. Repeated verbal demands followed but
Metrobank still failed to re-credit the amount of P91,000.00 to Cabilzo’s account.7
On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand8 to Metrobank for
the payment of P90,000.00, after deducting the original value of the check in the
amount of P1,000.00. Such written demand notwithstanding, Metrobank still failed or
refused to comply with its obligation.
Consequently, Cabilzo instituted a civil action for damages against Metrobank before
the RTC of Manila, Branch 13. In his Complaint docketed as Civil Case No. 95-
75651, Renato D. Cabilzo v. Metropolitan Bank and Trust Company,Cabilzo prayed
that in addition to his claim for reimbursement, actual and moral damages plus costs
of the suit be awarded in his favor.9
For its part, Metrobank countered that upon the receipt of the said check through the
PCHC on 14 November 1994, it examined the genuineness and the authenticity of the
drawer’s signature appearing thereon and the technical entries on the check including
the amount in figures and in words to determine if there were alterations, erasures,
superimpositions or intercalations thereon, but none was noted. After verifying the
authenticity and propriety of the aforesaid entries, including the indorsement of the
collecting bank located at the dorsal side of the check which stated that, "all prior
indorsements and lack of indorsement guaranteed," Metrobank cleared the check.10
Anent thereto, Metrobank claimed that as a collecting bank and the last indorser,
Westmont Bank should be held liable for the value of the check. Westmont Bank
indorsed the check as the an unqualified indorser, by virtue of which it assumed the
liability of a general indorser, and thus, among others, warranted that the instrument
is genuine and in all respect what it purports to be.
In addition, Metrobank, in turn, claimed that Cabilzo was partly responsible in leaving
spaces on the check, which, made the fraudulent insertion of the amount and figures
thereon, possible. On account of his negligence in the preparation and issuance of
the check, which according to Metrobank, was the proximate cause of the loss,
Cabilzo cannot thereafter claim indemnity by virtue of the doctrine of equitable
estoppel.
Thus, Metrobank demanded from Cabilzo, for payment in the amount of P100,000.00
which represents the cost of litigation and attorney’s fees, for allegedly bringing a
frivolous and baseless suit. 11
12
On 19 April 1996, Metrobank filed a Third-Party Complaint against Westmont Bank
on account of its unqualified indorsement stamped at the dorsal side of the check
which the former relied upon in clearing what turned out to be a materially altered
check.
Subsequently, a Motion to Dismiss13 the Third-Party Complaint was then filed by
Westmont bank because another case involving the same cause of action was
pending before a different court. The said case arose from an action for
reimbursement filed by Metrobank before the Arbitration Committee of the PCHC
against Westmont Bank, and now the subject of a Petition for Review before the RTC
of Manila, Branch 19.
14
In an Order dated 4 February 1997, the trial court granted the Motion to Dismiss the
Third-Party Complaint on the ground of litis pendentia.
On 4 September 1998, the RTC rendered a Decision15 in favor of Cabilzo and thereby
ordered Metrobank to pay the sum of P90,000.00, the amount of the check. In
stressing the fiduciary nature of the relationship between the bank and its clients and
the negligence of the drawee bank in failing to detect an apparent alteration on the
check, the trial court ordered for the payment of exemplary damages, attorney’s fees
and cost of litigation. The dispositive portion of the Decision reads:
WHEREFORE, judgment is rendered ordering defendant Metropolitan Bank and Trust
Company to pay plaintiff Renato Cabilzo the sum of P90,000 with legal interest of 6
percent per annum from November 16, 1994 until payment is made plus P20,000
attorney’s fees, exemplary damages of P50,000, and costs of the suit.16
Aggrieved, Metrobank appealed the adverse decision to the Court of Appeals
reiterating its previous argument that as the last indorser, Westmont Bank shall bear
the loss occasioned by the fraudulent alteration of the check. Elaborating, Metrobank
maintained that by reason of its unqualified indorsement, Westmont Bank warranted
that the check in question is genuine, valid and subsisting and that upon presentment
the check shall be accepted according to its tenor.
Even more, Metrobank argued that in clearing the check, it was not remiss in the
performance of its duty as the drawee bank, but rather, it exercised the highest
degree of diligence in accordance with the generally accepted banking practice. It
further insisted that the entries in the check were regular and authentic and alteration
could not be determined even upon close examination.
In a Decision17 dated 8 March 2002, the Court of Appeals affirmed with modification
the Decision of the court a quo, similarly finding Metrobank liable for the amount of
the check, without prejudice, however, to the outcome of the case between
Metrobank and Westmont Bank which was pending before another tribunal. The
decretal portion of the Decision reads:
WHEREFORE, the assailed decision dated September 4, 1998 is AFFIRMED with the
modifications (sic) that the awards for exemplary damages and attorney’s fees are
hereby deleted.18
Similarly ill-fated was Metrobank’s Motion for Reconsideration which was also denied
by the appellate court in its Resolution19 issued on 26 July 2002, for lack of merit.
Metrobank now poses before this Court this sole issue:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING
METROBANK, AS DRAWEE BANK, LIABLE FOR THE ALTERATIONS ON THE
SUBJECT CHECK BEARING THE AUTHENTIC SIGNATURE OF THE DRAWER
THEREOF.
We resolve to deny the petition.
An alteration is said to be material if it changes the effect of the instrument. It means
that an unauthorized change in an instrument that purports to modify in any respect
the obligation of a party or an unauthorized addition of words or numbers or other
change to an incomplete instrument relating to the obligation of a party.20 In other
words, a material alteration is one which changes the items which are required to be
stated under Section 1 of the Negotiable Instruments Law.
Section 1 of the Negotiable Instruments Law provides:
Section 1. Form of negotiable instruments. - An instrument to be negotiable must
conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand or at a fixed determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
Also pertinent is the following provision in the Negotiable Instrument Law which
states:
Section 125. What constitutes material alteration. – Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relation of the parties;
(e) The medium or currency in which payment is to be made;
Or which adds a place of payment where no place of payment is specified, or any
other change or addition which alters the effect of the instrument in any respect is a
material alteration.
In the case at bar, the check was altered so that the amount was increased
from P1,000.00 to P91,000.00 and the date was changed from 24 November 1994 to
14 November 1994. Apparently, since the entries altered were among those
enumerated under Section 1 and 125, namely, the sum of money payable and the
date of the check, the instant controversy therefore squarely falls within the purview of
material alteration.
Now, having laid the premise that the present petition is a case of material alteration,
it is now necessary for us to determine the effect of a materially altered instrument, as
well as the rights and obligations of the parties thereunder. The following provision of
the Negotiable Instrument Law will shed us some light in threshing out this issue:
Section 124. Alteration of instrument; effect of. – Where a negotiable instrument is
materially altered without the assent of all parties liable thereon, it is avoided, except
as against a party who has himself made,authorized, and assented to the
alteration and subsequent indorsers.
But when the instrument has been materially altered and is in the hands of a holder in
due course not a party to the alteration, he may enforce the payment thereof
according to its original tenor. (Emphasis ours.)
Indubitably, Cabilzo was not the one who made nor authorized the alteration. Neither
did he assent to the alteration by his express or implied acts. There is no showing that
he failed to exercise such reasonable degree of diligence required of a prudent man
which could have otherwise prevented the loss. As correctly ruled by the appellate
court, Cabilzo was never remiss in the preparation and issuance of the check, and
there were no indicia of evidence that would prove otherwise. Indeed, Cabilzo placed
asterisks before and after the amount in words and figures in order to forewarn the
subsequent holders that nothing follows before and after the amount indicated other
than the one specified between the asterisks.
The degree of diligence required of a reasonable man in the exercise of his tasks and
the performance of his duties has been faithfully complied with by Cabilzo. In fact, he
was wary enough that he filled with asterisks the spaces between and after the
amounts, not only those stated in words, but also those in numerical figures, in order
to prevent any fraudulent insertion, but unfortunately, the check was still successfully
altered, indorsed by the collecting bank, and cleared by the drawee bank, and
encashed by the perpetrator of the fraud, to the damage and prejudice of Cabilzo.
Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is therefore
prevented from asserting his rights under the doctrine of equitable estoppel when the
facts on record are bare of evidence to support such conclusion. The doctrine of
equitable estoppel states that when one of the two innocent persons, each guiltless of
any intentional or moral wrong, must suffer a loss, it must be borne by the one whose
erroneous conduct, either by omission or commission, was the cause of
injury.21 Metrobank’s reliance on this dictum, is misplaced. For one, Metrobank’s
representation that it is an innocent party is flimsy and evidently, misleading. At the
same time, Metrobank cannot asseverate that Cabilzo was negligent and this
negligence was the proximate cause22 of the loss in the absence of even a scintilla
proof to buttress such claim. Negligence is not presumed but must be proven by the
one who alleges it.23
Undoubtedly, Cabilzo was an innocent party in this instant controversy. He was just
an ordinary businessman who, in order to facilitate his business transactions,
entrusted his money with a bank, not knowing that the latter would yield a substantial
amount of his deposit to fraud, for which Cabilzo can never be faulted.
We never fail to stress the remarkable significance of a banking institution to
commercial transactions, in particular, and to the country’s economy in general. The
banking system is an indispensable institution in the modern world and plays a vital
role in the economic life of every civilized nation. Whether as mere passive entities for
the safekeeping and saving of money or as active instruments of business and
commerce, banks have become an ubiquitous presence among the people, who have
come to regard them with respect and even gratitude and, most of all, confidence.24
Thus, even the humble wage-earner does not hesitate to entrust his life's savings to
the bank of his choice, knowing that they will be safe in its custody and will even earn
some interest for him. The ordinary person, with equal faith, usually maintains a
modest checking account for security and convenience in the settling of his monthly
bills and the payment of ordinary expenses. As for a businessman like the
respondent, the bank is a trusted and active associate that can help in the running of
his affairs, not only in the form of loans when needed but more often in the conduct of
their day-to-day transactions like the issuance or encashment of checks.25
In every case, the depositor expects the bank to treat his account with the utmost
fidelity, whether such account consists only of a few hundred pesos or of millions. The
bank must record every single transaction accurately, down to the last centavo, and
as promptly as possible. This has to be done if the account is to reflect at any given
time the amount of money the depositor can dispose of as he sees fit, confident that
the bank will deliver it as and to whomever he directs.26
The point is that as a business affected with public interest and because of the nature
of its functions, the bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship. The
appropriate degree of diligence required of a bank must be a high degree of diligence,
if not the utmost diligence.27
In the present case, it is obvious that Metrobank was remiss in that duty and violated
that relationship. As observed by the Court of Appeals, there are material alterations
on the check that are visible to the naked eye. Thus:
x x x The number "1" in the date is clearly imposed on a white figure in the shape of
the number "2". The appellant’s employees who examined the said check should
have likewise been put on guard as to why at the end of the amount in words, i.e.,
after the word "ONLY", there are 4 asterisks, while at the beginning of the line or
before said phrase, there is none, even as 4 asterisks have been placed before and
after the word "CASH" in the space for payee. In addition, the 4 asterisks before the
words "ONE THOUSAND PESOS ONLY" have noticeably been erased with typing
correction paper, leaving white marks, over which the word "NINETY" was
superimposed. The same can be said of the numeral "9" in the amount "91,000",
which is superimposed over a whitish mark, obviously an erasure, in lieu of the
asterisk which was deleted to insert the said figure. The appellant’s employees should
have again noticed why only 2 asterisks were placed before the amount in figures,
while 3 asterisks were placed after such amount. The word "NINETY" is also typed
differently and with a lighter ink, when compared with the words "ONE THOUSAND
PESOS ONLY." The letters of the word "NINETY" are likewise a little bigger when
compared with the letters of the words "ONE THOUSAND PESOS ONLY".28
Surprisingly, however, Metrobank failed to detect the above alterations which could
not escape the attention of even an ordinary person. This negligence was
exacerbated by the fact that, as found by the trial court, the check in question was
examined by the cash custodian whose functions do not include the examinations of
checks indorsed for payment against drawer’s accounts.29 Obviously, the employee
allowed by Metrobank to examine the check was not verse and competent to handle
such duty. These factual findings of the trial court is conclusive upon this court
especially when such findings was affirmed the appellate court.30
Apropos thereto, we need to reiterate that by the very nature of their work the degree
of responsibility, care and trustworthiness expected of their employees and officials is
far better than those of ordinary clerks and employees. Banks are expected to
exercise the highest degree of diligence in the selection and supervision of their
employees.31
In addition, the bank on which the check is drawn, known as the drawee bank, is
under strict liability to pay to the order of the payee in accordance with the drawer’s
instructions as reflected on the face and by the terms of the check. Payment made
under materially altered instrument is not payment done in accordance with the
instruction of the drawer.
When the drawee bank pays a materially altered check, it violates the terms of the
check, as well as its duty to charge its client’s account only for bona fide
disbursements he had made. Since the drawee bank, in the instant case, did not pay
according to the original tenor of the instrument, as directed by the drawer, then it has
no right to claim reimbursement from the drawer, much less, the right to deduct the
erroneous payment it made from the drawer’s account which it was expected to treat
with utmost fidelity.
Metrobank vigorously asserts that the entries in the check were carefully examined:
The date of the instrument, the amount in words and figures, as well as the drawer’s
signature, which after verification, were found to be proper and authentic and was
thus cleared. We are not persuaded. Metrobank’s negligence consisted in the
omission of that degree of diligence required of a bank owing to the fiduciary nature of
its relationship with its client. Article 1173 of the Civil Code provides:
The fault or negligence of the obligor consists in the omission of that diligence which
is required by the nature of the obligation and corresponds with the circumstances of
the persons, of the time and of the place. x x x.
Beyond question, Metrobank failed to comply with the degree required by the nature
of its business as provided by law and jurisprudence. If indeed it was not remiss in its
obligation, then it would be inconceivable for it not to detect an evident alteration
considering its vast knowledge and technical expertise in the intricacies of the
banking business. This Court is not completely unaware of banks’ practices of
employing devices and techniques in order to detect forgeries, insertions,
intercalations, superimpositions and alterations in checks and other negotiable
instruments so as to safeguard their authenticity and negotiability. Metrobank cannot
now feign ignorance nor claim diligence; neither can it point its finger at the collecting
bank, in order to evade liability.
Metrobank argues that Westmont Bank, as the collecting bank and the last indorser,
shall bear the loss. Without ruling on the matter between the drawee bank and the
collecting bank, which is already under the jurisdiction of another tribunal, we find that
Metrobank cannot rely on such indorsement, in clearing the questioned check. The
corollary liability of such indorsement, if any, is separate and independent from the
liability of Metrobank to Cabilzo.
The reliance made by Metrobank on Westmont Bank’s indorsement is clearly
inconsistent, if not totally offensive to the dictum that being impressed with public
interest, banks should exercise the highest degree of diligence, if not utmost diligence
in dealing with the accounts of its own clients. It owes the highest degree fidelity to its
clients and should not therefore lightly rely on the judgment of other banks on
occasions where its clients money were involve, no matter how small or substantial
the amount at stake.
Metrobank’s contention that it relied on the strength of collecting bank’s indorsement
may be merely a lame excuse to evade liability, or may be indeed an actual banking
practice. In either case, such act constitutes a deplorable banking practice and could
not be allowed by this Court bearing in mind that the confidence of public in general is
of paramount importance in banking business.
What is even more deplorable is that, having been informed of the alteration,
Metrobank did not immediately re-credit the amount that was erroneously debited
from Cabilzo’s account but permitted a full blown litigation to push through, to the
prejudice of its client. Anyway, Metrobank is not left with no recourse for it can still run
after the one who made the alteration or with the collecting bank, which it had already
done. It bears repeating that the records are bare of evidence to prove that Cabilzo
was negligent. We find no justifiable reason therefore why Metrobank did not
immediately reimburse his account. Such ineptness comes within the concept of
wanton manner contemplated under the Civil Code which warrants the imposition of
exemplary damages, "by way of example or correction for the public good," in the
words of the law. It is expected that this ruling will serve as a stern warning in order to
deter the repetition of similar acts of negligence, lest the confidence of the public in
the banking system be further eroded. 32
WHEREFORE, premises considered, the instant Petition is DENIED. The Decision
dated 8 March 2002 and the Resolution dated 26 July 2002 of the Court of Appeals
are AFFIRMED with modification that exemplary damages in the amount
of P50,000.00 be awarded. Costs against the petitioner.
SO ORDERED.
CESAR V. AREZA and LOLITA B. AREZA, Petitioners,
vs.
EXPRESS SAVINGS BANK, INC. and MICHAEL POTENCIANO, Respondnets.
Before this Court is a Petition for Review on Certiorari under Ruic 45 of the Rules of
Court, which seeks to reverse the Decision1 and Resolution2 dated 29 June 2006 and
12 February 2007 of the Court of Appeals in CAG.R. CV No. 83192. The Court of
Appeals affirmed with modification the 22 April 2004 Resolution3 of the Regional Trial
Court (RTC) of Calamba, Laguna, Branch 92, in Civil Case No. B-5886.
The factual antecedents follow.
Petitioners Cesar V. Areza and LolitaB. Areza maintained two bank deposits with
respondent Express Savings Bank’s Biñan branch: 1) Savings Account No. 004-01-
000185-5 and 2) Special Savings Account No. 004-02-000092-3.
They were engaged in the business of "buy and sell" of brand new and second-hand
motor vehicles. On 2 May 2000, they received an order from a certain Gerry
Mambuay (Mambuay) for the purchase of a second-hand Mitsubishi Pajero and a
brand-new Honda CRV.
The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs Office
(PVAO) checks payable to different payees and drawn against the Philippine
Veterans Bank (drawee), each valued at Two Hundred Thousand Pesos
(₱200,000.00) for a total of One Million Eight Hundred Thousand Pesos
(₱1,800,000.00).
About this occasion, petitioners claimed that Michael Potenciano (Potenciano), the
branch manager of respondent Express Savings Bank (the Bank) was present during
the transaction and immediately offered the services of the Bank for the processing
and eventual crediting of the said checks to petitioners’ account.4 On the other
hand,Potenciano countered that he was prevailed upon to accept the checks by way
of accommodation of petitioners who were valued clients of the Bank.5
On 3 May 2000, petitioners deposited the said checks in their savings account with
the Bank. The Bank, inturn, deposited the checks with its depositary bank, Equitable-
PCI Bank, in Biñan,Laguna. Equitable-PCI Bank presented the checks to the drawee,
the Philippine Veterans Bank, which honored the checks.
On 6 May 2000, Potenciano informedpetitioners that the checks they deposited with
the Bank werehonored. He allegedly warned petitioners that the clearing of the
checks pertained only to the availability of funds and did not mean that the checks
were not infirmed.6 Thus, the entire amount of ₱1,800,000.00 was credited to
petitioners’ savings account. Based on this information, petitioners released the two
cars to the buyer.
Sometime in July 2000, the subjectchecks were returned by PVAO to the drawee on
the ground that the amount on the face of the checks was altered from the original
amount of ₱4,000.00 to ₱200,000.00. The drawee returned the checks to Equitable-
PCI Bank by way of Special Clearing Receipts. In August 2000, the Bank was
informed by Equitable-PCI Bank that the drawee dishonored the checks onthe ground
of material alterations. Equitable-PCI Bank initially filed a protest with the Philippine
Clearing House. In February 2001, the latter ruled in favor of the drawee Philippine
Veterans Bank. Equitable-PCI Bank, in turn, debited the deposit account of the Bank
in the amount of ₱1,800,000.00.
The Bank insisted that they informed petitioners of said development in August 2000
by furnishing them copies of the documents given by its depositary bank.7 On the
other hand, petitioners maintained that the Bank never informed them of these
developments.
On 9 March 2001, petitioners issued a check in the amount of ₱500,000.00. Said
check was dishonored by the Bank for the reason "Deposit Under Hold." According
topetitioners, the Bank unilaterally and unlawfully put their account with the Bank on
hold. On 22 March 2001, petitioners’ counsel sent a demand letter asking the Bank to
honor their check. The Bank refused to heed their request and instead, closed the
Special Savings Account of the petitioners with a balance of ₱1,179,659.69 and
transferred said amount to their savings account. The Bank then withdrew the amount
of ₱1,800,000.00representing the returned checks from petitioners’ savings account.
Acting on the alleged arbitrary and groundless dishonoring of their checks and the
unlawful and unilateral withdrawal from their savings account, petitioners filed a
Complaint for Sum of Money with Damages against the Bank and Potenciano with the
RTC of Calamba.
On 15 January 2004, the RTC, through Judge Antonio S. Pozas, ruled in favor of
petitioners. The dispositive portion of the Decision reads:
WHEREFORE, the foregoing considered, the Court orders that judgment be rendered
in favor of plaintiffs and against the defendants jointly and severally to pay plaintiffs as
follows, to wit:
1. ₱1,800,000.00 representing the amount unlawfully withdrawn by the defendants
from the account of plaintiffs;
2. ₱500,000.00 as moral damages; and
3. ₱300,000.00 as attorney’s fees.8
The trial court reduced the issue to whether or not the rights of petitioners were
violated by respondents when the deposits of the former were debited by respondents
without any court order and without their knowledge and consent. According to the
trial court, it is the depositary bank which should safeguard the right ofthe depositors
over their money. Invoking Article 1977 of the Civil Code, the trial court stated that the
depositary cannot make use of the thing deposited without the express permission of
the depositor. The trial court also held that respondents should have observed the 24-
hour clearing house rule that checks should be returned within 24-hours after
discovery of the forgery but in no event beyond the period fixed by law for filing a legal
action. In this case, petitioners deposited the checks in May 2000, and respondents
notified them of the problems on the check three months later or in August 2000. In
sum, the trial court characterized said acts of respondents as attended with bad faith
when they debited the amount of ₱1,800,000.00 from the account of petitioners.
Respondents filed a motion for reconsideration while petitioners filed a motion for
execution from the Decision of the RTC on the ground that respondents’ motion for
reconsideration did not conform with Section 5, Rule 16 of the Rules of Court; hence,
it was a mere scrap of paper that did not toll the running of the period to appeal.
On 22 April 2004, the RTC, through Pairing Judge Romeo C. De Leon granted the
motion for reconsideration, set aside the Pozas Decision, and dismissed the
complaint. The trial court awarded respondents their counterclaim of moral and
exemplary damages of ₱100,000.00 each. The trial court first applied the principle of
liberality when it disregarded the alleged absence of a notice of hearing in
respondents’ motion for reconsideration. On the merits, the trial court considered the
relationship of the Bank and petitioners with respect to their savings account deposits
as a contract of loan with the bank as the debtor and petitioners as creditors. As such,
Article 1977 of the Civil Code prohibiting the depository from making use of the thing
deposited without the express permission of the depositor is not applicable. Instead,
the trial court applied Article 1980 which provides that fixed, savings and current
deposits ofmoney in banks and similar institutions shall be governed by the provisions
governing simple loan. The trial court then opined thatthe Bank had all the right to set-
off against petitioners’ savings deposits the value of their nine checks that were
returned.
On appeal, the Court of Appeals affirmed the ruling of the trial court but deleted the
award of damages. The appellate court made the following ratiocination:
Any argument as to the notice of hearing has been resolved when the pairing judge
issued the order on February 24, 2004 setting the hearing on March 26, 2004. A
perusal of the notice of hearing shows that request was addressed to the Clerk of
Court and plaintiffs’ counsel for hearing to be set on March 26, 2004.
The core issues in this case revolve on whether the appellee bank had the right to
debit the amount of ₱1,800,000.00 from the appellants’ accounts and whether the
bank’s act of debiting was done "without the plaintiffs’ knowledge."
We find that the elements of legal compensation are all present in the case at bar.
Hence, applying the case of the Bank of the Philippine Islands v. Court of Appeals,
the obligors bound principally are at the same time creditors of each other. Appellee
bank stands as a debtor of appellant, a depositor. At the same time, said bank is the
creditor of the appellant with respect to the dishonored treasury warrant checks which
amount were already credited to the account of appellants. When the appellants had
withdrawn the amount of the checks they deposited and later on said checks were
returned, they became indebted to the appellee bank for the corresponding amount.
It should be noted that [G]erry Mambuay was the appellants’ walkin buyer. As sellers,
appellants oughtto have exercised due diligence in assessing his credit or personal
background. The 24-hour clearing house rule is not the one that governs in this case
since the nine checks were discovered by the drawee bank to contain material
alterations.
Appellants merely allege that they were not informed of any development on the
checks returned. However, this Court believes that the bank and appellants had
opportunities to communicate about the checks considering that several transactions
occurred from the time of alleged return of the checks to the date of the debit.
However, this Court agrees withappellants that they should not pay moral and
exemplary damages to each of the appellees for lack of basis. The appellants were
not shown to have acted in bad faith.9
Petitioners filed the present petition for review on certiorariraising both procedural and
substantive issues, to wit:
1. Whether or not the Honorable Court of Appeals committed a reversible error of law
and grave abuse of discretion in upholding the legality and/or propriety of the Motion
for Reconsideration filed in violation of Section 5, Rule 15 ofthe Rules on Civil
Procedure;
2. Whether or not the Honorable Court of Appeals committed a grave abuse of
discretion in declaring that the private respondents "had the right to debit the amount
of ₱1,800,000.00 from the appellants’ accounts" and the bank’s act of debiting was
done with the plaintiff’s knowledge.10
Before proceeding to the substantive issue, we first resolve the procedural issue
raised by petitioners.
Sections 5, Rule 15 of the Rules of Court states:
Section 5. Notice of hearing. – The notice of hearing shall be addressed to all parties
concerned, and shall specify the time and date of the hearing which must not be later
than ten (10) days after the filing of the motion.
Petitioners claim that the notice of hearing was addressed to the Clerk of Court and
not to the adverse party as the rules require. Petitioners add that the hearing on the
motion for reconsideration was scheduled beyond 10 days from the date of filing.
As held in Maturan v. Araula,11 the rule requiring that the notice be addressed to the
adverse party has beensubstantially complied with when a copy of the motion for
reconsideration was furnished to the counsel of the adverse party, coupled with the
fact that the trial court acted on said notice of hearing and, as prayed for, issued an
order12 setting the hearing of the motion on 26 March 2004.
We would reiterate later that there is substantial compliance with the foregoing Rule if
a copy of the said motion for reconsideration was furnished to the counsel of the
adverse party.13
Now to the substantive issues to which procedural imperfection must, in this case,
give way.
The central issue is whether the Bank had the right to debit ₱1,800,000.00 from
petitioners’ accounts.
On 6 May 2000, the Bank informed petitioners that the subject checks had been
honored. Thus, the amountof ₱1,800,000.00 was accordingly credited to petitioners’
accounts, prompting them to release the purchased cars to the buyer.
Unknown to petitioners, the Bank deposited the checks in its depositary bank,
Equitable-PCI Bank. Three months had passed when the Bank was informed by its
depositary bank that the drawee had dishonored the checks on the ground of material
alterations.
The return of the checks created a chain of debiting of accounts, the last loss
eventually falling upon the savings account of petitioners with respondent bank. The
trial court inits reconsidered decision and the appellate court were one in declaring
that petitioners should bear the loss.
We reverse.
The fact that material alteration caused the eventual dishonor of the checks issued by
PVAO is undisputed. In this case, before the alteration was discovered, the checks
were already cleared by the drawee bank, the Philippine Veterans Bank. Three
months had lapsed before the drawee dishonored the checks and returned them to
Equitable-PCI Bank, the respondents’ depositary bank. And itwas not until 10 months
later when petitioners’ accounts were debited. A question thus arises: What are the
liabilities of the drawee, the intermediary banks, and the petitioners for the altered
checks?
LIABILITY OF THE DRAWEE
Section 63 of Act No. 2031 orthe Negotiable Instruments Law provides that the
acceptor, by accepting the instrument, engages that he will pay it according to the
tenor of his acceptance. The acceptor is a drawee who accepts the bill. In Philippine
National Bank v. Court of Appeals,14 the payment of the amount of a check implies
not only acceptance but also compliance with the drawee’s obligation.
In case the negotiable instrument isaltered before acceptance, is the drawee liable for
the original or the altered tenor of acceptance? There are two divergent intepretations
proffered by legal analysts.15 The first view is supported by the leading case of
National City Bank ofChicago v. Bank of the Republic.16 In said case, a certain
Andrew Manning stole a draft and substituted his name for that of the original payee.
He offered it as payment to a jeweler in exchange for certain jewelry. The jeweler
deposited the draft to the defendant bank which collectedthe equivalent amount from
the drawee. Upon learning of the alteration, the drawee sought to recover from the
defendant bank the amount of the draft, as money paid by mistake. The court denied
recovery on the ground that the drawee by accepting admitted the existence of the
payee and his capacity to endorse.17 Still, in Wells Fargo Bank & Union Trust Co. v.
Bank of Italy,18 the court echoed the court’s interpretation in National City Bank of
Chicago, in this wise:
We think the construction placed upon the section by the Illinois court is correct and
that it was not the legislative intent that the obligation of the acceptor should be
limited to the tenorof the instrument as drawn by the maker, as was the rule at
common law,but that it should be enforceable in favor of a holder in due course
against the acceptor according to its tenor at the time of its acceptance or
certification.
The foregoing opinion and the Illinois decision which it follows give effect to the literal
words of the Negotiable Instruments Law. As stated in the Illinois case: "The court
must take the act as it is written and should give to the words their natural and
common meaning . . . ifthe language of the act conflicts with statutes or decisions in
force before its enactment the courts should not give the act a strained construction in
order to make it harmonize with earlier statutes or decisions." The wording of the act
suggests that a change in the common law was intended. A careful reading thereof,
independent of any common-law influence, requires that the words "according to the
tenor of his acceptance" be construed as referring to the instrument as it was at the
time it came into the hands of the acceptor for acceptance, for he accepts no other
instrument than the one presented to him — the altered form — and it alone he
engages to pay. This conclusion is in harmony with the law of England and the
continental countries. It makes for the usefulness and currency of negotiable paper
without seriously endangering accepted banking practices, for banking institutions can
readily protect themselves against liability on altered instruments either by qualifying
their acceptance or certification or by relying on forgery insurance and specialpaper
which will make alterations obvious. All of the arguments advanced against the
conclusion herein announced seem highly technical in the face of the practical facts
that the drawee bank has authenticated an instrument in a certain form, and that
commercial policy favors the protection of anyone who, in due course, changes his
position on the faith of that authentication.19
The second view is that the acceptor/drawee despite the tenor of his acceptance is
liable only to the extent of the bill prior to alteration.20 This view appears to be in
consonance with Section 124 of the Negotiable Instruments Law which statesthat a
material alteration avoids an instrument except as against an assenting party and
subsequent indorsers, but a holder in due course may enforce payment according to
its original tenor. Thus, when the drawee bank pays a materially altered check, it
violates the terms of the check, as well as its duty tocharge its client’s account only for
bona fide disbursements he had made. If the drawee did not pay according to the
original tenor of the instrument, as directed by the drawer, then it has no right to claim
reimbursement from the drawer, much less, the right to deduct the erroneous
payment it made from the drawer’s account which it was expected to treat with utmost
fidelity.21 The drawee, however, still has recourse to recover its loss. It may pass the
liability back to the collecting bank which is what the drawee bank exactly did in this
case. It debited the account of Equitable-PCI Bank for the altered amount of the
checks.
LIABILITY OF DEPOSITARY BANK AND COLLECTING BANK
A depositary bank is the first bank to take an item even though it is also the payor
bank, unless the item is presented for immediate payment over the counter.22 It is
also the bank to which a check is transferred for deposit in an account at such bank,
evenif the check is physically received and indorsed first by another bank.23 A
collecting bank is defined as any bank handling an item for collection except the bank
on which the check is drawn.24
When petitioners deposited the check with the Bank, they were designating the latter
as the collecting bank. This is in consonance with the rule that a negotiable
instrument, such as a check, whether a manager's check or ordinary check, is not
legal tender. As such, after receiving the deposit, under its own rules, the Bank shall
credit the amount in petitioners’ account or infuse value thereon only after the drawee
bank shall have paid the amount of the check or the check has been cleared for
deposit.25
The Bank and Equitable-PCI Bank are both depositary and collecting banks.
A depositary/collecting bank where a check is deposited, and which endorses the
check upon presentment with the drawee bank, is an endorser. Under Section 66 of
the Negotiable Instruments Law, an endorser warrants "that the instrument is genuine
and in all respects what it purports to be; that he has good title to it; that all prior
parties had capacity to contract; and that the instrument is at the time of his
endorsement valid and subsisting." It has been repeatedly held that in check
transactions, the depositary/collecting bank or last endorser generally suffers the loss
because it has the duty to ascertain the genuineness of all prior endorsements
considering that the act of presenting the check for payment to the drawee is an
assertion that the party making the presentment has done its duty to ascertain the
genuineness of the endorsements.26 If any of the warranties made by the
depositary/collecting bank turns out to be false, then the drawee bank may recover
from it up to the amount of the check.27
The law imposes a duty of diligence on the collecting bank to scrutinize checks
deposited with it for the purpose of determining their genuineness and regularity. The
collecting bank being primarily engaged in banking holds itself out to the public as the
expert and the law holds it to a high standard of conduct.28
As collecting banks, the Bank and Equitable-PCI Bank are both liable for the amount
of the materially altered checks. Since Equitable-PCI Bank is not a party to this case
and the Bank allowed its account with EquitablePCI Bank to be debited, it has the
option toseek recourse against the latter in another forum.
24-HOUR CLEARING RULE
Petitioners faulted the drawee bank for not following the 24-hour clearing period
because it was only in August 2000 that the drawee bank notified Equitable-PCI that
there were material alterations in the checks.
We do not subscribe to the position taken by petitioners that the drawee bank was at
fault because it did not follow the 24-hour clearing period which provides that when a
drawee bank fails to return a forged or altered check to the collecting bank within the
24-hour clearing period, the collecting bank is absolved from liability.
Section 21 of the Philippine Clearing House Rules and Regulations provides: Sec. 21.
Special Return Items Beyond The Reglementary Clearing Period.- Items which have
been the subject of material alteration or items bearing forged endorsement when
such endorsement is necessary for negotiation shall be returned by direct
presentation or demand to the Presenting Bank and not through the regular clearing
house facilities within the period prescribed by law for the filing of a legal action by the
returning bank/branch, institution or entity sending the same.
Antonio Viray, in his book Handbook on Bank Deposits, elucidated:
It is clear that the so-called "24-hour" rule has been modified. In the case of
Hongkong & Shanghai vs. People’s Bank reiterated in Metropolitan Bank and Trust
Co. vs. FNCB, the Supreme Court strictly enforced the 24-hour rule under which the
drawee bank forever loses the right to claim against presenting/collecting bank if the
check is not returned at the next clearing day orwithin 24 hours. Apparently, the
commercial banks felt strict enforcement of the 24-hour rule is too harsh and therefore
made representations and obtained modification of the rule, which modification is now
incorporated in the Manual of Regulations. Since the same commercial banks
controlled the Philippine Clearing House Corporation, incorporating the amended rule
in the PCHC Rules naturally followed.
As the rule now stands, the 24-hour rule is still in force, that is, any check which
should be refused by the drawee bank in accordance with long standing and accepted
banking practices shall be returned through the PCHC/local clearing office, as the
case may be, not later than the next regular clearing (24-hour). The modification,
however, is that items which have been the subject of material alteration or bearing
forged endorsement may be returned even beyond 24 hours so long that the same is
returned within the prescriptive period fixed by law. The consensus among lawyers is
that the prescriptiveperiod is ten (10)years because a check or the endorsement
thereon is a written contract. Moreover, the item need not be returned through the
clearing house but by direct presentation to the presenting bank.29
In short, the 24-hour clearing ruledoes not apply to altered checks.
LIABILITY OF PETITIONERS
The 2008 case of Far East Bank & Trust Company v. Gold Palace Jewellery Co.30 is
in point. A foreigner purchased several pieces of jewelry from Gold Palace Jewellery
using a United Overseas Bank (Malaysia) issued draft addressed to the Land Bank of
the Philippines (LBP). Gold Palace Jewellery deposited the draft in the company’s
account with Far East Bank. Far East Bank presented the draft for clearing to LBP.
The latter cleared the same and Gold Palace Jewellery’s account was credited with
the amount stated in the draft. Consequently, Gold Palace Jewellery released the
pieces of jewelries to the foreigner. Three weeks later, LBP informed Far East Bank
that the amount in the foreign draft had been materially altered from ₱300,000.00 to
₱380,000.00. LBP returnedthe check to Far East Bank. Far East Bank refunded LBP
the ₱380,000.00 paid by LBP. Far East Bank initially debited ₱168,053.36 from Gold
Palace Jewellery’s account and demanded the payment of the difference between the
amount in the altered draft and the amount debited from Gold Palace Jewellery.
However, for the reasons already discussed above, our pronouncement in the Far
East Bank and Trust Companycase that "the drawee is liable on its payment of the
check according to the tenor of the check at the time of payment, which was the
raised amount"31 is inapplicable to the factual milieu obtaining herein.
We only adopt said decision in so far as it adjudged liability on the part of the
collecting bank, thus:
Thus, considering that, in this case, Gold Palace is protected by Section 62 of the
NIL, its collecting agent, Far East, should not have debited the money paid by the
drawee bank from respondent company's account. When Gold Palace deposited the
check with Far East, the latter, under the terms of the deposit and the provisions of
the NIL, became an agent of the former for the collection of the amount in the draft.
The subsequent payment by the drawee bank and the collection of the amount by the
collecting bank closed the transaction insofar as the drawee and the holder of the
check or his agent are concerned, converted the check into a mere voucher, and, as
already discussed, foreclosed the recovery by the drawee of the amount paid. This
closure of the transaction is a matter of course; otherwise, uncertainty in commercial
transactions, delay and annoyance will arise if a bank at some future time will call on
the payee for the return of the money paid to him on the check.
As the transaction in this case had been closed and the principalagent relationship
between the payee and the collecting bank had already ceased, the latter in returning
the amount to the drawee bank was already acting on its own and should now be
responsible for its own actions. x x x Likewise, Far East cannot invoke the warranty of
the payee/depositor who indorsed the instrument for collection to shift the burden it
brought upon itself. This is precisely because the said indorsement is only for
purposes of collection which, under Section 36 of the NIL, is a restrictive indorsement.
It did not in any way transfer the title of the instrument to the collecting bank. Far East
did not own the draft, it merely presented it for payment. Considering that the
warranties of a general indorser as provided in Section 66 of the NIL are based upon
a transfer of title and are available only to holders in due course, these warranties did
not attach to the indorsement for deposit and collection made by Gold Palace to Far
East. Without any legal right to do so, the collecting bank, therefore, could not debit
respondent's account for the amount it refunded to the drawee bank.
The foregoing considered, we affirm the ruling of the appellate court to the extent that
Far East could not debit the account of Gold Palace, and for doing so, it must return
what it had erroneously taken.32
Applying the foregoing ratiocination, the Bank cannot debit the savings account of
petitioners. A depositary/collecting bank may resist or defend against a claim for
breach of warranty if the drawer, the payee, or either the drawee bank or depositary
bank was negligent and such negligence substantially contributed tothe loss from
alteration. In the instant case, no negligence can be attributed to petitioners. We lend
credence to their claim that at the time of the sales transaction, the Bank’s branch
manager was present and even offered the Bank’s services for the processing and
eventual crediting of the checks. True to the branch manager’s words, the checks
were cleared three days later when deposited by petitioners and the entire amount
ofthe checks was credited to their savings account.
ON LEGAL COMPENSATION
Petitioners insist that the Bank cannotbe considered a creditor of the petitioners
because it should have made a claim of the amount of ₱1,800,000.00 from Equitable-
PCI Bank, its own depositary bank and the collecting bank in this case and not from
them.
No. 83192 are REVERSED and SET ASIDE. The 15 January 2004 Decision of the
Regional Trial Court of Calamba City, Branch 92 in Civil Case No. B-5886 rendered
by Judge Antonio S. Pozas is REINSTATEDonly insofar as it ordered respondents to
jointly and severally pay petitioners ₱1,800,000.00 representing the amount
withdrawn from the latter’s account. The award of moral damages and attorney’s fees
are DELETED.

The Bank cannot set-off the amount it paid to Equitable-PCI Bank with petitioners’ SO ORDERED.
savings account. Under Art. 1278 of the New Civil Code, compensation shall take
place when two persons, in their own right, are creditors and debtors of each other.
And the requisites for legal compensation are:

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.

It is well-settled that the relationship of the depositors and the Bank or similar
institution is that of creditor-debtor. Article 1980 of the New Civil Code provides that
fixed, savings and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loans. The bank is the debtorand 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.33

But as previously discussed, petitioners are not liable for the deposit of the altered
checks. The Bank, asthe depositary and collecting bank ultimately bears the loss.
Thus, there being no indebtedness to the Bank on the part of petitioners, legal
compensation cannot take place. DAMAGES

The Bank incurred a delay in informing petitioners of the checks’ dishonor. The Bank
was informed of the dishonor by Equitable-PCI Bank as early as August 2000 but it
was only on 7 March 2001 when the Bank informed petitioners that it will debit from
their account the altered amount. This delay is tantamount to negligence on the part
of the collecting bank which would entitle petitioners to an award for damages under
Article 1170 of the New Civil Code which reads:

Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are
liable for damages.

The damages in the form of actual or compensatory damages represent the amount
debited by the Bank from petitioners’ account.

We delete the award of moral damages. Contrary to the lower court’s finding, there
was no showing that the Bank acted fraudulently or in bad faith. It may have been
remiss in its duty to diligently protect the account of its depositors but its honest but
mistaken belief that petitioners’ account should be debited is not tantamount to bad
faith. We also delete the award of attorney’s fees for it is not a sound public policy to
place a premium on the right to litigate. No damages can becharged to those who
exercise such precious right in good faith, even if done erroneously.34

To recap, the drawee bank, Philippine Veterans Bank in this case, is only liable to the
extent of the check prior to alteration.1âwphi1 Since Philippine Veterans Bank paid
the altered amount of the check, it may pass the liability back as it did, to Equitable-
PCI Bank,the collecting bank. The collecting banks, Equitable-PCI Bank and the
Bank, are ultimately liable for the amount of the materially altered check. It cannot
further pass the liability back to the petitioners absent any showing in the negligence
on the part of the petitioners which substantially contributed to the loss from
alteration.

Based on the foregoing, we affirm the Pozasdecision only insofar as it ordered

respondents to jointly and severally pay petitioners ₱1,800,000.00, representing the
amount withdrawn from the latter’s account. We do not conform with said ruling
regarding the finding of bad faith on the part of respondents, as well as its failure
toobserve the 24-hour clearing rule.

WHEREFORE, the petition is GRANTED. The Decision and Resolution dated 29

June 2006 and 12 February 2007 respectively of the Court of Appeals in CA-G.R. CV
TOWN SAVINGS AND LOAN BANK, INC., petitioner,
vs.
THE COURT OF APPEALS, SPOUSES MIGUELITO HIPOLITO AND ALICIA N.
HIPOLITO, respondents.
This is a petition for review on certiorari to set aside the decision dated March 12,
1992, of the Court of Appeals in CA-G.R. CV No. 29475 entitled, "Town Savings and
Loan Bank, Inc. vs. Spouses Miguel Hipolito and Alicia N. Hipolito" reversing the
decision dated September 14, 1990 of the Regional Trial Court of Bulacan which
declared that the Hipolitos were accommodation parties on the promissory note and
holding them liable to pay Town Savings And Loan Bank the sum of P1,392, 600.00.
On or about May 4, 1983, the Hipolitos applied for, and were granted, a loan in the
amount of P700,000.00 with interest of 24% per annum for which they executed and
delivered to Town Savings and Loan Bank (or TSLB) a promissory note with a
maturity period of three (3) years and an acceleration clause upon default in the
payment of any amortization, plus a penalty of 36% and 10% attorney's fees, if the
note were referred to an attorney for collection. For failure to keep current their
monthly payments on the account, the obligors were deemed to have defaulted on
May 24, 1984. Notices of past due account and demands for payment were sent but
ignored. At the time of the institution of the action on March 12, 1986, the unpaid
obligation amounted to P1,114,983.40.
The Hipolitos denied being personally liable on the P700,000.00 promissory note
which they executed. The loan was allegedly for the account of Pilarita H. Reyes, the
sister of Miguel Hipolito. She was the real party-in-interest. The Hipolitos, not having
received any part of the loan, were mere guarantors for Pilarita. They allegedly signed
the promissory note because they were persuaded to do so by Joey Santos,
President of TSLB. When they received the demand letters, they confronted him but
they were told that the Bank had to observe the formality of sending notices and
demand letters. The real purpose was only to pressure Pilarita to comply with her
undertaking.
Insisting that they were mere guarantors, the Hipolitos vehemently protested against
being dragged into the litigation as principal parties. As a result of the unfounded suit,
they allegedly incurred actual damages estimated at P200,000.00 and attorney's fees
of P30,000.00.
In a decision dated September 14, 1990, Judge Zotico A. Toleto of the RTC of
Malolos, Branch 18, held the respondents (then defendants) spouses Miguel and
Alicia Hipolito, liable as accommodation parties on the promissory note.
The spouses appealed to the Court of Appeals. In a decision dated March 12, 1992,
the Court of Appeals found that the Hipolitos did not accommodate Pilarita but the
TSLB, whose lending authority was restricted by the size of its loan portfolio. The
Hipolitos were relieved from any liability to TSLB.
Hence, this petition for review by TSLB.
The lone issue in this case is whether the Hipolitos are liable on the promissory note
which they executed in favor of the petitioner.
We hold for the petitioner.
An accommodation party is one who has signed the instrument as marker, drawer,
indorser, without receiving value therefor and for the purpose of lending his name to
some other person. Such person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of the taking of the instrument knew him to
be only an accommodation party. In lending his name to the accommodated party, the
accommodation party is in effect a surety for the latter. He lends his name to enable
the accommodated party to obtain credit or to raise money. He receives no part of the
consideration for the instrument but assumes liability to the other parties thereto
because he wants to accommodate another. (The Phil. Bank of Commerce vs.
Aruego, 102 SCRA 530, 539, 540.)
In this case, there is no question that the private respondents signed the promissory
note in order to enable Pilarita H. Reyes, who is Miguel Hipolito's sister, to borrow the
total sum of P1.4 million from TSLB. As observed by both the trial court and the
appellate court, the actual beneficiary of the loan was Pilarita H. Reyes and no other.
The Hipolitos accommodated her by signing a promissory note for half of the loan that
she applied for because TSLB may not lend any single borrower more than the
authorized limit of its loan portfilio. Under Section 29 of the Negotiable Instruments
Law, the Hipolitos are liable to the bank on the promissory note that they signed to
accommodate Pilarita.
Respondent appellate court erred in giving credence to Hipolito's allegation that it was
the bank's president who induced him to sign the promissory note so that the bank
would not violate the Central Bank's regulation limiting the amount that TSLB could
lend out. Besides being self-serving, Hipolito's testimony was uncorroborated by any
other evidence on record, therefore, it should have been received with extreme
caution. The Court is convinced that the intention of respondents Hipolitos in signing
the promissory note was not so much to enable the Bank to grant a loan to Pilarita but
for the latter to be able to obtain the full amount of the loan that she needed at the
time.
It is not credible that a Bank would want so much to lend money to a borrower that it
would go out of its way to convince another person (respondent Miguel Hipolito) to
accommodate the borrower (Pilarita H. Reyes). In the ordinary course of things, the
borrower, Pilarita, not the Bank, would have requested her brother Miguel to
accommodate her so she could have the P1.4 million that she wanted to borrow from
the Bank.
The case of Maulini vs. Serrano (28 Phil. 640), relied upon by the appellate court in
reversing the decision of the trial court, is not applicable to this case. In that case, the
evidence showed that the indorser (the loan broker Serrano) in making the
indorsement to the lender, Maulini, was acting as agent for the latter or, as a mere
vehicle for the transference of the naked title from the borrower or maker of the note
(Moreno). Furthermore, his indorsement was wholly without consideration. We ruled
that Serrano was not an accommodation indorser; he was not liable on the note.
. . . Where, however, an indorsement is made as a favor to the indorsee, who
requests it, not the better to secure payment, but to relieve himself from a distasteful
situation, and where the only consideration for such indorsement passes from the
indorser to the indorsee, the situation does not present one creating an
accommodation indorsement, nor one where there is a consideration sufficient to
sustain an action on the indorsement. (p. 644.)
Unlike the Maulini case, there was no agreement here, written or verbal, that in
signing the promissory note, Miguel and Alicia Hipolito were acting as agents for the
money lender the Bank. The consideration of the note signed by the Hipolitos was
received by them through Pilarita. They acted as agents of Pilarita, not of the bank.
They signed the promissory note as favor to Pilarita, to help her raise the funds that
she needed. It was Pilarita whom they accommodated, not the bank, contrary to the
erroneous finding of the appellate court.
WHEREFORE, the petition for review is GRANTED. The appealed decision of the
Court of Appeals is hereby REVERSED and that of the trial court is REINSTATED.
Costs against the private respondents.
SO ORDERED.
ERNESTINA CRISOLOGO-JOSE, petitioner,
vs.
COURT OF APPEALS and RICARDO S. SANTOS, JR. in his own behalf and as
Vice-President for Sales of Mover Enterprises, Inc., respondents.
Petitioner seeks the annulment of the decision 1 of respondent Court of Appeals,
promulgated on September 8, 1987, which reversed the decision of the trial
Court 2 dismissing the complaint for consignation filed by therein plaintiff Ricardo S.
Santos, Jr.
The parties are substantially agreed on the following facts as found by both lower
courts:
In 1980, plaintiff Ricardo S. Santos, Jr. was the vice-president of Mover Enterprises,
Inc. in-charge of marketing and sales; and the president of the said corporation was
Atty. Oscar Z. Benares. On April 30, 1980, Atty. Benares, in accommodation of his
clients, the spouses Jaime and Clarita Ong, issued Check No. 093553 drawn against
Traders Royal Bank, dated June 14, 1980, in the amount of P45,000.00 (Exh- 'I')
payable to defendant Ernestina Crisologo-Jose. Since the check was under the
account of Mover Enterprises, Inc., the same was to be signed by its president, Atty.
Oscar Z. Benares, and the treasurer of the said corporation. However, since at that
time, the treasurer of Mover Enterprises was not available, Atty. Benares prevailed
upon the plaintiff, Ricardo S. Santos, Jr., to sign the aforesaid chEck as an alternate
story. Plaintiff Ricardo S. Santos, Jr. did sign the check.
It appears that the check (Exh. '1') was issued to defendant Ernestina Crisologo-Jose
in consideration of the waiver or quitclaim by said defendant over a certain property
which the Government Service Insurance System (GSIS) agreed to sell to the clients
of Atty. Oscar Benares, the spouses Jaime and Clarita Ong, with the understanding
that upon approval by the GSIS of the compromise agreement with the spouses Ong,
the check will be encashed accordingly. However, since the compromise agreement
was not approved within the expected period of time, the aforesaid check for
P45,000.00 (Exh. '1') was replaced by Atty. Benares with another Traders Royal Bank
cheek bearing No. 379299 dated August 10, 1980, in the same amount of P45,000.00
(Exhs. 'A' and '2'), also payable to the defendant Jose. This replacement check was
also signed by Atty. Oscar Z. Benares and by the plaintiff Ricardo S. Santos, Jr.
When defendant deposited this replacement check (Exhs. 'A' and '2') with her account
at Family Savings Bank, Mayon Branch, it was dishonored for insufficiency of funds. A
subsequent redepositing of the said check was likewise dishonored by the bank for
the same reason. Hence, defendant through counsel was constrained to file a criminal
complaint for violation of Batas Pambansa Blg. 22 with the Quezon City Fiscal's Office
against Atty. Oscar Z. Benares and plaintiff Ricardo S. Santos, Jr. The investigating
Assistant City Fiscal, Alfonso Llamas, accordingly filed an amended information with
the court charging both Oscar Benares and Ricardo S. Santos, Jr., for violation of
Batas Pambansa Blg. 22 docketed as Criminal Case No. Q-14867 of then Court of
First Instance of Rizal, Quezon City.
Meanwhile, during the preliminary investigation of the criminal charge against
Benares and the plaintiff herein, before Assistant City Fiscal Alfonso T. Llamas,
plaintiff Ricardo S. Santos, Jr. tendered cashier's check No. CC 160152 for
P45,000.00 dated April 10, 1981 to the defendant Ernestina Crisologo-Jose, the
complainant in that criminal case. The defendant refused to receive the cashier's
check in payment of the dishonored check in the amount of P45,000.00. Hence,
plaintiff encashed the aforesaid cashier's check and subsequently deposited said
amount of P45,000.00 with the Clerk of Court on August 14, 1981 (Exhs. 'D' and 'E').
Incidentally, the cashier's check adverted to above was purchased by Atty. Oscar Z.
Benares and given to the plaintiff herein to be applied in payment of the dishonored
check. 3
After trial, the court a quo, holding that it was "not persuaded to believe that
consignation referred to in Article 1256 of the Civil Code is applicable to this case,"
rendered judgment dismissing plaintiff s complaint and defendant's counterclaim. 4
As earlier stated, respondent court reversed and set aside said judgment of dismissal
and revived the complaint for consignation, directing the trial court to give due course
thereto.
Hence, the instant petition, the assignment of errors wherein are prefatorily stated and
discussed seriatim.
1. Petitioner contends that respondent Court of Appeals erred in holding that private
respondent, one of the signatories of the check issued under the account of Mover
Enterprises, Inc., is an accommodation party under the Negotiable Instruments Law
and a debtor of petitioner to the extent of the amount of said check.
Petitioner avers that the accommodation party in this case is Mover Enterprises, Inc.
and not private respondent who merely signed the check in question in a
representative capacity, that is, as vice-president of said corporation, hence he is not
liable thereon under the Negotiable Instruments Law.
The pertinent provision of said law referred to provides:
Sec. 29. Liability of accommodation party an accommodation party is one who has
signed the instrument as maker, drawer, acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his name to some other person. Such a
person is liable on the instrument to a holder for value, notwithstanding such holder,
at the time of taking the instrument, knew him to be only an accommodation party.
Consequently, to be considered an accommodation party, a person must (1) be a
party to the instrument, signing as maker, drawer, acceptor, or indorser, (2) not
receive value therefor, and (3) sign for the purpose of lending his name for the credit
of some other person.
Based on the foregoing requisites, it is not a valid defense that the accommodation
party did not receive any valuable consideration when he executed the instrument.
From the standpoint of contract law, he differs from the ordinary concept of a debtor
therein in the sense that he has not received any valuable consideration for the
instrument he signs. Nevertheless, he is liable to a holder for value as if the contract
was not for accommodation 5 in whatever capacity such accommodation party signed
the instrument, whether primarily or secondarily. Thus, it has been held that in lending
his name to the accommodated party, the accommodation party is in effect a surety
for the latter. 6
Assuming arguendo that Mover Enterprises, Inc. is the accommodation party in this
case, as petitioner suggests, the inevitable question is whether or not it may be held
liable on the accommodation instrument, that is, the check issued in favor of herein
petitioner.
We hold in the negative.
The aforequoted provision of the Negotiable Instruments Law which holds an
accommodation party liable on the instrument to a holder for value, although such
holder at the time of taking the instrument knew him to be only an accommodation
party, does not include nor apply to corporations which are accommodation
parties. 7 This is because the issue or indorsement of negotiable paper by a
corporation without consideration and for the accommodation of another is ultra
vires. 8 Hence, one who has taken the instrument with knowledge of the
accommodation nature thereof cannot recover against a corporation where it is only
an accommodation party. If the form of the instrument, or the nature of the
transaction, is such as to charge the indorsee with knowledge that the issue or
indorsement of the instrument by the corporation is for the accommodation of another,
he cannot recover against the corporation thereon. 9
By way of exception, an officer or agent of a corporation shall have the power to
execute or indorse a negotiable paper in the name of the corporation for the
accommodation of a third person only if specifically authorized to do so. 10 Corollarily,
corporate officers, such as the president and vice-president, have no power to
execute for mere accommodation a negotiable instrument of the corporation for their
individual debts or transactions arising from or in relation to matters in which the
corporation has no legitimate concern. Since such accommodation paper cannot thus
be enforced against the corporation, especially since it is not involved in any aspect of
the corporate business or operations, the inescapable conclusion in law and in logic is
that the signatories thereof shall be personally liable therefor, as well as the
consequences arising from their acts in connection therewith.
The instant case falls squarely within the purview of the aforesaid decisional rules. If
we indulge petitioner in her aforesaid postulation, then she is effectively barred from
recovering from Mover Enterprises, Inc. the value of the check. Be that as it may,
petitioner is not without recourse.
The fact that for lack of capacity the corporation is not bound by an accommodation
paper does not thereby absolve, but should render personally liable, the signatories of
said instrument where the facts show that the accommodation involved was for their
personal account, undertaking or purpose and the creditor was aware thereof.
Petitioner, as hereinbefore explained, was evidently charged with the knowledge that
the cheek was issued at the instance and for the personal account of Atty. Benares
who merely prevailed upon respondent Santos to act as co-signatory in accordance
with the arrangement of the corporation with its depository bank. That it was a
personal undertaking of said corporate officers was apparent to petitioner by reason
of her personal involvement in the financial arrangement and the fact that, while it was
the corporation's check which was issued to her for the amount involved, she actually
had no transaction directly with said corporation.
There should be no legal obstacle, therefore, to petitioner's claims being directed
personally against Atty. Oscar Z. Benares and respondent Ricardo S. Santos, Jr.,
president and vice-president, respectively, of Mover Enterprises, Inc.
2. On her second assignment of error, petitioner argues that the Court of Appeals
erred in holding that the consignation of the sum of P45,000.00, made by private
respondent after his tender of payment was refused by petitioner, was proper under
Article 1256 of the Civil Code.
Petitioner's submission is that no creditor-debtor relationship exists between the
parties, hence consignation is not proper. Concomitantly, this argument was premised
on the assumption that private respondent Santos is not an accommodation party.
As previously discussed, however, respondent Santos is an accommodation party
and is, therefore, liable for the value of the check. The fact that he was only a co-
signatory does not detract from his personal liability. A co-maker or co-drawer under
the circumstances in this case is as much an accommodation party as the other co-
signatory or, for that matter, as a lone signatory in an accommodation instrument.
Under the doctrine in Philippine Bank of Commerce vs. Aruego, supra, he is in effect
a co-surety for the accommodated party with whom he and his co-signatory, as the
other co-surety, assume solidary liability ex lege for the debt involved. With the
dishonor of the check, there was created a debtor-creditor relationship, as between
Atty. Benares and respondent Santos, on the one hand, and petitioner, on the other.
This circumstance enables respondent Santos to resort to an action of consignation
where his tender of payment had been refused by petitioner.
We interpose the caveat, however, that by holding that the remedy of consignation is
proper under the given circumstances, we do not thereby rule that all the operative
facts for consignation which would produce the effect of payment are present in this
case. Those are factual issues that are not clear in the records before us and which
are for the Regional Trial Court of Quezon City to ascertain in Civil Case No. Q-
33160, for which reason it has advisedly been directed by respondent court to give
due course to the complaint for consignation, and which would be subject to such
issues or claims as may be raised by defendant and the counterclaim filed therein
which is hereby ordered similarly revived.
3. That respondent court virtually prejudged Criminal Case No. Q-14687 of the
Regional Trial Court of Quezon City filed against private respondent for violation of
Batas Pambansa Blg. 22, by holding that no criminal liability had yet attached to
private respondent when he deposited with the court the amount of P45,000.00 is the
final plaint of petitioner.
We sustain petitioner on this score.
Indeed, respondent court went beyond the ratiocination called for in the appeal to it in
CA-G.R. CV. No. 05464. In its own decision therein, it declared that "(t)he lone issue
dwells in the question of whether an accommodation party can validly consign the
amount of the debt due with the court after his tender of payment was refused by the
creditor." Yet, from the commercial and civil law aspects determinative of said issue, it
digressed into the merits of the aforesaid Criminal Case No. Q-14867, thus:
Section 2 of B.P. 22 establishes the prima facie evidence of knowledge of such
insufficiency of funds or credit. Thus, the making, drawing and issuance of a check,
payment of which is refused by the drawee because of insufficient funds in or credit
with such bank is prima facie evidence of knowledge of insufficiency of funds or
credit, when the check is presented within 90 days from the date of the check.
It will be noted that the last part of Section 2 of B.P. 22 provides that the element of
knowledge of insufficiency of funds or credit is not present and, therefore, the crime
does not exist, when the drawer pays the holder the amount due or makes
arrangements for payment in full by the drawee of such check within five (5) banking
days after receiving notice that such check has not been paid by the drawee.
Based on the foregoing consideration, this Court finds that the plaintiff-appellant acted
within Ms legal rights when he consigned the amount of P45,000.00 on August 14,
1981, between August 7, 1981, the date when plaintiff-appellant receive (sic) the
notice of non-payment, and August 14, 1981, the date when the debt due was
deposited with the Clerk of Court (a Saturday and a Sunday which are not banking
days) intervened. The fifth banking day fell on August 14, 1981. Hence, no criminal
liability has yet attached to plaintiff-appellant when he deposited the amount of
P45,000.00 with the Court a quo on August 14, 1981. 11
That said observations made in the civil case at bar and the intrusion into the merits
of the criminal case pending in another court are improper do not have to be
belabored. In the latter case, the criminal trial court has to grapple with such factual
issues as, for instance, whether or not the period of five banking days had expired, in
the process determining whether notice of dishonor should be reckoned from any
prior notice if any has been given or from receipt by private respondents of the
subpoena therein with supporting affidavits, if any, or from the first day of actual
preliminary investigation; and whether there was a justification for not making the
requisite arrangements for payment in full of such check by the drawee bank within
the said period. These are matters alien to the present controversy on tender and
consignation of payment, where no such period and its legal effects are involved.
These are aside from the considerations that the disputed period involved in the
criminal case is only a presumptive rule, juris tantum at that, to determine whether or
not there was knowledge of insufficiency of funds in or credit with the drawee bank;
that payment of civil liability is not a mode for extinguishment of criminal liability; and
that the requisite quantum of evidence in the two types of cases are not the same.
To repeat, the foregoing matters are properly addressed to the trial court in Criminal
Case No. Q-14867, the resolution of which should not be interfered with by
respondent Court of Appeals at the present posture of said case, much less
preempted by the inappropriate and unnecessary holdings in the aforequoted portion
of the decision of said respondent court. Consequently, we modify the decision of
respondent court in CA-G.R. CV No. 05464 by setting aside and declaring without
force and effect its pronouncements and findings insofar as the merits of Criminal
Case No. Q-14867 and the liability of the accused therein are concerned.
WHEREFORE, subject to the aforesaid modifications, the judgment of respondent
Court of Appeals is AFFIRMED.
SO ORDERED.
THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,
vs.
JOSE M. ARUEGO, defendant-appellant.
The defendant, Jose M. Aruego, appealed to the Court of Appeals from the order of
the Court of First Instance of Manila, Branch XIII, in Civil Case No. 42066 denying his
motion to set aside the order declaring him in default, 1 and from the order of said
court in the same case denying his motion to set aside the judgment rendered after
he was declared in default. 2 These two appeals of the defendant were docketed as
CA-G.R. NO. 27734-R and CA-G.R. NO. 27940-R, respectively.
Upon motion of the defendant on July 25, 1960, 3 he was allowed by the Court of
Appeals to file one consolidated record on appeal of CA-G.R. NO. 27734-R and CA-
G.R. NO. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court of Appeals, First Division,
certified the consolidated appeal to the Supreme Court on the ground that only
questions of law are involved. 5
On December 1, 1959, the Philippine Bank of Commerce instituted against Jose M.
Aruego Civil Case No. 42066 for the recovery of the total sum of about P35,000.00
with daily interest thereon from November 17, 1959 until fully paid and commission
equivalent to 3/8% for every thirty (30) days or fraction thereof plus attorney's fees
equivalent to 10% of the total amount due and costs. 6 The complaint filed by the
Philippine Bank of Commerce contains twenty-two (22) causes of action referring to
twenty-two (22) transactions entered into by the said Bank and Aruego on different
dates covering the period from August 28, 1950 to March 14, 1951. 7 The sum sought
to be recovered represents the cost of the printing of "World Current Events," a
periodical published by the defendant. To facilitate the payment of the printing the
defendant obtained a credit accommodation from the plaintiff. Thus, for every printing
of the "World Current Events," the printer, Encal Press and Photo Engraving,
collected the cost of printing by drawing a draft against the plaintiff, said draft being
sent later to the defendant for acceptance. As an added security for the payment of
the amounts advanced to Encal Press and Photo-Engraving, the plaintiff bank also
required defendant Aruego to execute a trust receipt in favor of said bank wherein
said defendant undertook to hold in trust for plaintiff the periodicals and to sell the
same with the promise to turn over to the plaintiff the proceeds of the sale of said
publication to answer for the payment of all obligations arising from the draft. 8
Aruego received a copy of the complaint together with the summons on December 2,
1959. 9 On December 14, 1959 defendant filed an urgent motion for extension of time
to plead, and set the hearing on December 16, 1959. 10At the hearing, the court
denied defendant's motion for extension. Whereupon, the defendant filed a motion to
dismiss the complaint on December 17, 1959 on the ground that the complaint states
no cause of action because:
a) When the various bills of exchange were presented to the defendant as drawee for
acceptance, the amounts thereof had already been paid by the plaintiff to the drawer
(Encal Press and Photo Engraving), without knowledge or consent of the defendant
drawee.
b) In the case of a bill of exchange, like those involved in the case at bar, the
defendant drawee is an accommodating party only for the drawer (Encal Press and
Photo-Engraving) and win be liable in the event that the accommodating party
(drawer) fails to pay its obligation to the plaintiff. 11
The complaint was dismissed in an order dated December 22, 1959, copy of which
was received by the defendant on December 24, 1959. 12
On January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On March 7,
1960, acting upon the motion for reconsideration filed by the plaintiff, the trial court set
aside its order dismissing the complaint and set the case for hearing on March 15,
1960 at 8:00 in the morning. 14 A copy of the order setting aside the order of dismissal
was received by the defendant on March 11, 1960 at 5:00 o'clock in the afternoon
according to the affidavit of the deputy sheriff of Manila, Mamerto de la Cruz. On the
following day, March 12, 1960, the defendant filed a motion to postpone the trial of the
case on the ground that there having been no answer as yet, the issues had not yet
been joined. 15 On the same date, the defendant filed his answer to the complaint
interposing the following defenses: That he signed the document upon which the
plaintiff sues in his capacity as President of the Philippine Education Foundation; that
his liability is only secondary; and that he believed that he was signing only as an
accommodation party. 16
On March 15, 1960, the plaintiff filed an ex parte motion to declare the defendant in
default on the ground that the defendant should have filed his answer on March 11,
1960. He contends that by filing his answer on March 12, 1960, defendant was one
day late. 17 On March 19, 1960 the trial court declared the defendant in default. 18 The
defendant learned of the order declaring him in default on March 21, 1960. On March
22, 1960 the defendant filed a motion to set aside the order of default alleging that
although the order of the court dated March 7, 1960 was received on March 11, 1960
at 5:00 in the afternoon, it could not have been reasonably expected of the defendant
to file his answer on the last day of the reglementary period, March 11, 1960, within
office hours, especially because the order of the court dated March 7, 1960 was
brought to the attention of counsel only in the early hours of March 12, 1960. The
defendant also alleged that he has a good and substantial defense. Attached to the
motion are the affidavits of deputy sheriff Mamerto de la Cruz that he served the order
of the court dated March 7, 1960 on March 11, 1960, at 5:00 o'clock in the afternoon
and the affidavit of the defendant Aruego that he has a good and substantial
defense. 19 The trial court denied the defendant's motion on March 25, 1960. 20 On
May 6, 1960, the trial court rendered judgment sentencing the defendant to pay to the
plaintiff the sum of P35,444.35 representing the total amount of his obligation to the
said plaintiff under the twenty-two (22) causes of action alleged in the complaint as of
November 15, 1957 and the sum of P10,000.00 as attorney's fees. 21
On May 9, 1960 the defendant filed a notice of appeal from the order dated March 25,
1961 denying his motion to set aside the order declaring him in default, an appeal
bond in the amount of P60.00, and his record on appeal. The plaintiff filed his
opposition to the approval of defendant's record on appeal on May 13, 1960. The
following day, May 14, 1960, the lower court dismissed defendant's appeal from the
order dated March 25, 1960 denying his motion to set aside the order of default. 22 On
May 19, 1960, the defendant filed a motion for reconsideration of the trial court's order
dismissing his appeal. 23 The plaintiff, on May 20, 1960, opposed the defendant's
motion for reconsideration of the order dismissing appeal. 24 On May 21, 1960, the
trial court reconsidered its previous order dismissing the appeal and approved the
defendant's record on appeal. 25 On May 30, 1960, the defendant received a copy of a
notice from the Clerk of Court dated May 26, 1960, informing the defendant that the
record on appeal filed ed by the defendant was forwarded to the Clerk of Court of
Appeals. 26
On June 1, 1960 Aruego filed a motion to set aside the judgment rendered after he
was declared in default reiterating the same ground previously advanced by him in his
motion for relief from the order of default. 27 Upon opposition of the plaintiff filed on
June 3, 1960, 28 the trial court denied the defendant's motion to set aside the
judgment by default in an order of June 11, 1960. 29 On June 20, 1960, the defendant
filed his notice of appeal from the order of the court denying his motion to set aside
the judgment by default, his appeal bond, and his record on appeal. The defendant's
record on appeal was approved by the trial court on June 25, 1960. 30 Thus, the
defendant had two appeals with the Court of Appeals: (1) Appeal from the order of the
lower court denying his motion to set aside the order of default docketed as CA-G.R.
NO. 27734-R; (2) Appeal from the order denying his motion to set aside the judgment
by default docketed as CA-G.R. NO. 27940-R.
In his brief, the defendant-appellant assigned the following errors:
I
THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT WAS IN
DEFAULT.
II
THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO DECLARE
DEFENDANT IN DEFAULT ALTHOUGH AT THE TIME THERE WAS ALREADY ON
FILE AN ANSWER BY HIM WITHOUT FIRST DISPOSING OF SAID ANSWER IN AN
APPROPRIATE ACTION.
III
THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION FOR RELIEF
OF ORDER OF DEFAULT AND FROM JUDGMENT BY DEFAULT AGAINST
DEFENDANT. 31
It has been held that to entitle a party to relief from a judgment taken against him
through his mistake, inadvertence, surprise or excusable neglect, he must show to the
court that he has a meritorious defense. 32 In other words, in order to set aside the
order of default, the defendant must not only show that his failure to answer was due
to fraud, accident, mistake or excusable negligence but also that he has a meritorious
defense.
The record discloses that Aruego received a copy of the complaint together with the
summons on December 2, 1960; that on December 17, 1960, the last day for filing his
answer, Aruego filed a motion to dismiss; that on December 22, 1960 the lower court
dismissed the complaint; that on January 23, 1960, the plaintiff filed a motion for
reconsideration and on March 7, 1960, acting upon the motion for reconsideration, the
trial court issued an order setting aside the order of dismissal; that a copy of the order
was received by the defendant on March 11, 1960 at 5:00 o'clock in the afternoon as
shown in the affidavit of the deputy sheriff; and that on the following day, March 12,
1960, the defendant filed his answer to the complaint.
The failure then of the defendant to file his answer on the last day for pleading is
excusable. The order setting aside the dismissal of the complaint was received at
5:00 o'clock in the afternoon. It was therefore impossible for him to have filed his
answer on that same day because the courts then held office only up to 5:00 o'clock
in the afternoon. Moreover, the defendant immediately filed his answer on the
following day.
However, while the defendant successfully proved that his failure to answer was due
to excusable negligence, he has failed to show that he has a meritorious defense.
The defendant does not have a good and substantial defense.
Defendant Aruego's defenses consist of the following:
a) The defendant signed the bills of exchange referred to in the plaintiff's complaint in
a representative capacity, as the then President of the Philippine Education
Foundation Company, publisher of "World Current Events and Decision Law Journal,"
printed by Encal Press and Photo-Engraving, drawer of the said bills of exchange in
favor of the plaintiff bank;
b) The defendant signed these bills of exchange not as principal obligor, but as
accommodation or additional party obligor, to add to the security of said plaintiff bank.
The reason for this statement is that unlike real bills of exchange, where payment of
the face value is advanced to the drawer only upon acceptance of the same by the
drawee, in the case in question, payment for the supposed bills of exchange were
made before acceptance; so that in effect, although these documents are labelled
bills of exchange, legally they are not bills of exchange but mere instruments
evidencing indebtedness of the drawee who received the face value thereof, with the
defendant as only additional security of the same. 33
The first defense of the defendant is that he signed the supposed bills of exchange as
an agent of the Philippine Education Foundation Company where he is president.
Section 20 of the Negotiable Instruments Law provides that "Where the instrument
contains or a person adds to his signature words indicating that he signs for or on
behalf of a principal or in a representative capacity, he is not liable on the instrument if
he was duly authorized; but the mere addition of words describing him as an agent or
as filing a representative character, without disclosing his principal, does not exempt
him from personal liability."
An inspection of the drafts accepted by the defendant shows that nowhere has he
disclosed that he was signing as a representative of the Philippine Education
Foundation Company. 34 He merely signed as follows: "JOSE ARUEGO (Acceptor)
(SGD) JOSE ARGUEGO For failure to disclose his principal, Aruego is personally
liable for the drafts he accepted.
The defendant also contends that he signed the drafts only as an accommodation
party and as such, should be made liable only after a showing that the drawer is
incapable of paying. This contention is also without merit.
An accommodation party is one who has signed the instrument as maker, drawer,
indorser, without receiving value therefor and for the purpose of lending his name to
some other person. Such person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of the taking of the instrument knew him to
be only an accommodation party.35 In lending his name to the accommodated party,
the accommodation party is in effect a surety for the latter. He lends his name to
enable the accommodated party to obtain credit or to raise money. He receives no
part of the consideration for the instrument but assumes liability to the other parties
thereto because he wants to accommodate another. In the instant case, the
defendant signed as a drawee/acceptor. Under the Negotiable Instrument Law, a
drawee is primarily liable. Thus, if the defendant who is a lawyer, he should not have
signed as an acceptor/drawee. In doing so, he became primarily and personally liable
for the drafts.
The defendant also contends that the drafts signed by him were not really bills of
exchange but mere pieces of evidence of indebtedness because payments were
made before acceptance. This is also without merit. Under the Negotiable Instruments
Law, a bill of exchange is an unconditional order in writting addressed by one person
to another, signed by the person giving it, requiring the person to whom it is
addressed to pay on demand or at a fixed or determinable future time a sum certain in
money to order or to bearer. 36 As long as a commercial paper conforms with the
definition of a bill of exchange, that paper is considered a bill of exchange. The nature
of acceptance is important only in the determination of the kind of liabilities of the
parties involved, but not in the determination of whether a commercial paper is a bill
of exchange or not.
It is evident then that the defendant's appeal can not prosper. To grant the
defendant's prayer will result in a new trial which will serve no purpose and will just
waste the time of the courts as well as of the parties because the defense is nil or
ineffective. 37
WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court of First
Instance of Manila denying the petition for relief from the judgment rendered in said
case is hereby affirmed, without pronouncement as to costs.
SO ORDERED.
FIDELIZA J. AGLIBOT, Petitioner,
vs.
INGERSOL L. SANTIA, Respondent.
DECISION
REYES, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the 1997
Rules of Civil Procedure seeking to annul and set aside the Decision1 dated March I 8,
2008 of the Court of Appeals (CA) in CA-G.R. SP No. 100021, which reversed the
Decision2 dated April 3, 2007 of the Regional Trial Court (RTC) of Dagupan City,
Branch 40, in Criminal Case Nos. 2006-0559-D to 2006-0569-D and entered a new
judgment. The fallo reads as follows:
WHEREFORE, the instant petition is GRANTED and the assailed Joint Decision
dated April 3, 2007 of the RTC of Dagupan City, Branch 40, and its Order dated June
12, 2007 are REVERSED AND SET ASIDE and a new one is entered ordering
private respondent Fideliza J. Aglibot to pay petitioner the total amount of
₱3,000,000.00 with 12% interest per annum from the filing of the Informations until
the finality of this Decision, the sum of which, inclusive of interest, shall be subject
thereafter to 12% annual interest until fully paid.
SO ORDERED.3
SO ORDERED.6
On appeal, the RTC rendered a Decision dated April 3, 2007 in Criminal Case Nos.
2006-0559-D to 2006-0569-D, which further absolved Aglibot of any civil liability
towards Santia, to wit:
WHEREFORE, premises considered, the Joint Decision of the court a quo regarding
the civil aspect of these cases is reversed and set aside and a new one is entered
dismissing the said civil aspect on the ground of failure to fulfill, a condition precedent
of exhausting all means to collect from the principal debtor.
SO ORDERED.7
Santia’s motion for reconsideration was denied in the RTC’s Order dated June 12,
2007.8 On petition for review to the CA docketed as CA-G.R. SP No. 100021, Santia
interposed the following assignment of errors, to wit:

On December 23, 2008, the appellate court denied herein petitioner’s motion for "In brushing aside the law and jurisprudence on the matter, the Regional Trial Court
reconsideration. seriously erred:

Antecedent Facts 1. In reversing the joint decision of the trial court by dismissing the civil aspect of
these cases;
Private respondent-complainant Engr. Ingersol L. Santia (Santia) loaned the amount
of ₱2,500,000.00 to Pacific Lending & Capital Corporation (PLCC), through its 2. In concluding that it is the Pacific Lending and Capital Corporation and not the
Manager, petitioner Fideliza J. Aglibot (Aglibot). The loan was evidenced by a private respondent which is principally responsible for the amount of the checks being
Promissory Note dated July 1, 2003, issued by Aglibot in behalf of PLCC, payable in claimed by the petitioner;
one year subject to interest at 24% per annum. Allegedly as a guaranty or security for
the payment of the note, Aglibot also issued and delivered to Santia eleven (11) post- 3. In finding that the petitioner failed to exhaust all available legal remedies against
dated personal checks drawn from her own demand account maintained at the principal debtor Pacific Lending and Capital Corporation;
Metrobank, Camiling Branch. Aglibot is a major stockholder of PLCC, with
headquarters at 27 Casimiro Townhouse, Casimiro Avenue, Zapote, Las Piñas, Metro 4. In finding that the private respondent is a mere guarantor and not an
Manila, where most of the stockholders also reside.4 accommodation party, and thus, cannot be compelled to pay the petitioner unless all
legal remedies against the Pacific Lending and Capital Corporation have been
Upon presentment of the aforesaid checks for payment, they were dishonored by the exhausted by the petitioner;
bank for having been drawn against insufficient funds or closed account. Santia thus
demanded payment from PLCC and Aglibot of the face value of the checks, but 5. In denying the motion for reconsideration filed by the petitioner."9
neither of them heeded his demand. Consequently, eleven (11) Informations for
violation of Batas Pambansa Bilang 22 (B.P. 22), corresponding to the number of
In its now assailed decision, the appellate court rejected the RTC’s dismissal of the
dishonored checks, were filed against Aglibot before the Municipal Trial Court in
civil aspect of the aforesaid B.P. 22 cases based on the ground it cited, which is that
Cities (MTCC), Dagupan City, Branch 3, docketed as Criminal Case Nos. 47664 to
the "failure to fulfill a condition precedent of exhausting all means to collect from the
47674. Each Information, except as to the amount, number and date of the checks,
principal debtor." The appellate court held that since Aglibot’s acquittal by the MTCC
and the reason for the dishonor, uniformly alleged, as follows:
in Criminal Case Nos. 47664 to 47674 was upon a reasonable doubt10 on whether the
prosecution was able to satisfactorily establish that she did receive a notice of
That sometime in the month of September, 2003 in the City of Dagupan, Philippines dishonor, a requisite to hold her criminally liable under B.P. 22, her acquittal did not
and within the jurisdiction of this Honorable Court, the above-named operate to bar Santia’s recovery of civil indemnity.
accused, FIDELIZA J. AGLIBOT, did then and there, willfully, unlawfully and
criminally, draw, issue and deliver to one Engr. Ingersol L. Santia, a METROBANK
It is axiomatic that the "extinction of penal action does not carry with it the eradication
Check No. 0006766, Camiling Tarlac Branch, postdated November 1, 2003, in the
of civil liability, unless the extinction proceeds from a declaration in the final judgment
amount of ₱50,000.00, Philippine Currency, payable to and in payment of an
that the fact from which the civil liability might arise did not exist. Acquittal will not bar
obligation with the complainant, although the said accused knew fully well that she did
a civil action in the following cases: (1) where the acquittal is based on reasonable
not have sufficient funds in or credit with the said bank for the payment of such check
doubt as only preponderance of evidence is required in civil cases; (2) where the
in full upon its presentment, such that when the said check was presented to the
court declared the accused’s liability is not criminal but only civil in nature[;] and (3)
drawee bank for payment within ninety (90) days from the date thereof, the same was
where the civil liability does not arise from or is not based upon the criminal act of
dishonored for reason "DAIF", and returned to the complainant, and despite notice of
which the accused was acquitted."11 (Citation omitted)
dishonor, accused failed and/or refused to pay and/or make good the amount of said
check within five (5) days banking days [sic], to the damage and prejudice of one
The CA therefore ordered Aglibot to personally pay Santia ₱3,000,000.00 with
Engr. Ingersol L. Santia in the aforesaid amount of ₱50,000.00 and other
interest at 12% per annum, from the filing of the Informations until the finality of its
consequential damages.5
decision. Thereafter, the sum due, to be compounded with the accrued interest, will in
turn be subject to annual interest of 12% from the finality of its judgment until full
Aglibot, in her counter-affidavit, admitted that she did obtain a loan from Santia, but
payment. It thus modified the MTCC judgment, which simply imposed a straight
claimed that she did so in behalf of PLCC; that before granting the loan, Santia
interest of 12% per annum from the filing of the cases on November 2, 2004 until the
demanded and obtained from her a security for the repayment thereof in the form of
₱3,000,000.00 due is fully paid, plus attorney’s fees of ₱30,000.00 and the costs of
the aforesaid checks, but with the understanding that upon remittance in cash of the
the suit.
face amount of the checks, Santia would correspondingly return to her each check so
paid; but despite having already paid the said checks, Santia refused to return them
Issue
to her, although he gave her assurance that he would not deposit them; that in breach
of his promise, Santia deposited her checks, resulting in their dishonor; that she did
Now before the Court, Aglibot maintains that it was error for the appellate court to
not receive any notice of dishonor of the checks; that for want of notice, she could not
adjudge her personally liable for issuing her own eleven (11) post-dated checks to
be held criminally liable under B.P. 22 over the said checks; and that the reason
Santia, since she did so in behalf of her employer, PLCC, the true borrower and
Santia filed the criminal cases against her was because she refused to agree to his
beneficiary of the loan. Still maintaining that she was a mere guarantor of the said
demand for higher interest.
debt of PLCC when she agreed to issue her own checks, Aglibot insists that Santia
failed to exhaust all means to collect the debt from PLCC, the principal debtor, and
On August 18, 2006, the MTCC in its Joint Decision decreed as follows:
therefore he cannot now be permitted to go after her subsidiary liability.

WHEREFORE, in view of the foregoing, the accused, FIDELIZA J. AGLIBOT, is

Ruling of the Court
hereby ACQUITTED of all counts of the crime of violation of the bouncing checks law
on reasonable doubt. However, the said accused is ordered to pay the private
The petition is bereft of merit.
complainant the sum of ₱3,000,000.00 representing the total face value of the eleven
checks plus interest of 12% per annum from the filing of the cases on November 2,
2004 until fully paid, attorney’s fees of ₱30,000.00 as well as the cost of suit. Aglibot cannot invoke the benefit of excussion
The RTC in its decision held that, "It is obvious, from the face of the Promissory Note
x x x that the accused-appellant signed the same on behalf of PLCC as Manager
thereof and nowhere does it appear therein that she signed as an accommodation
party."12 The RTC further ruled that what Aglibot agreed to do by issuing her personal
checks was merely to guarantee the indebtedness of PLCC. So now petitioner Aglibot
reasserts that as a guarantor she must be accorded the benefit of excussion – prior
exhaustion of the property of the debtor – as provided under Article 2058 of the Civil
Code, to wit:
Art. 2058. The guarantor cannot be compelled to pay the creditor unless the latter has
exhausted all the property of the debtor, and has resorted to all the legal remedies
against the debtor.
It is settled that the liability of the guarantor is only subsidiary, and all the properties of
the principal debtor, the PLCC in this case, must first be exhausted before the
guarantor may be held answerable for the debt.13 Thus, the creditor may hold the
guarantor liable only after judgment has been obtained against the principal debtor
and the latter is unable to pay, "for obviously the ‘exhaustion of the principal’s
property’ — the benefit of which the guarantor claims — cannot even begin to take
place before judgment has been obtained."14 This rule is contained in Article 206215 of
the Civil Code, which provides that the action brought by the creditor must be filed
against the principal debtor alone, except in some instances mentioned in Article
205916 when the action may be brought against both the guarantor and the principal
debtor.
The Court must, however, reject Aglibot’s claim as a mere guarantor of the
indebtedness of PLCC to Santia for want of proof, in view of Article 1403(2) of the
Civil Code, embodying the Statute of Frauds, which provides:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
xxxx
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In
the following cases an agreement hereafter made shall be unenforceable by action,
unless the same, or some note or memorandum thereof, be in writing, and subscribed
by the party charged, or by his agent; evidence, therefore, of the agreement cannot
be received without the writing, or a secondary evidence of its contents:
a) An agreement that by its terms is not to be performed within a year from the
making thereof;
b) A special promise to answer for the debt, default, or miscarriage of another;
c) An agreement made in consideration of marriage, other than a mutual promise to
marry;
d) An agreement for the sale of goods, chattels or things in action, at a price not less
than five hundred pesos, unless the buyer accept and receive part of such goods and
chattels, or the evidences, or some of them, or such things in action, or pay at the
time some part of the purchase money; but when a sale is made by auction and entry
is made by the auctioneer in his sales book, at the time of the sale, of the amount and
kind of property sold, terms of sale, price, names of purchasers and person on whose
account the sale is made, it is a sufficient memorandum;
e) An agreement for the leasing of a longer period than one year, or for the sale of
real property or of an interest therein;
f) A representation to the credit of a third person. (Italics ours)
Under the above provision, concerning a guaranty agreement, which is a promise to
answer for the debt or default of another,17 the law clearly requires that it, or some
note or memorandum thereof, be in writing. Otherwise, it would be unenforceable
unless ratified,18 although under Article 135819 of the Civil Code, a contract of guaranty
does not have to appear in a public document.20 Contracts are generally obligatory in
whatever form they may have been entered into, provided all the essential requisites
for their validity are present, and the Statute of Frauds simply provides the method by
which the contracts enumerated in Article 1403(2) may be proved, but it does not
declare them invalid just because they are not reduced to writing. Thus, the form
required under the Statute is for convenience or evidentiary purposes only.21
On the other hand, Article 2055 of the Civil Code also provides that a guaranty is not
presumed, but must be express, and cannot extend to more than what is stipulated
therein. This is the obvious rationale why a contract of guarantee is unenforceable
unless made in writing or evidenced by some writing. For as pointed out by Santia,
Aglibot has not shown any proof, such as a contract, a secretary’s certificate or a
board resolution, nor even a note or memorandum thereof, whereby it was agreed
that she would issue her personal checks in behalf of the company to guarantee the
payment of its debt to Santia. Certainly, there is nothing shown in the Promissory
Note signed by Aglibot herself remotely containing an agreement between her and
PLCC resembling her guaranteeing its debt to Santia. And neither is there a showing
that PLCC thereafter ratified her act of "guaranteeing" its indebtedness by issuing her
own checks to Santia.
Thus did the CA reject the RTC’s ruling that Aglibot was a mere guarantor of the
indebtedness of PLCC, and as such could not "be compelled to pay [Santia], unless
the latter has exhausted all the property of PLCC, and has resorted to all the legal
remedies against PLCC x x x."22
Aglibot is an accommodation party and therefore liable to Santia
Section 185 of the Negotiable Instruments Law defines a check as "a bill of exchange
drawn on a bank payable on demand," while Section 126 of the said law defines a bill
of exchange as "an unconditional order in writing addressed by one person to
another, signed by the person giving it, requiring the person to whom it is addressed
to pay on demand or at a fixed or determinable future time a sum certain in money to
order or to bearer."
The appellate court ruled that by issuing her own post-dated checks, Aglibot thereby
bound herself personally and solidarily to pay Santia, and dismissed her claim that
she issued her said checks in her official capacity as PLCC’s manager merely to
guarantee the investment of Santia. It noted that she could have issued PLCC’s
checks, but instead she chose to issue her own checks, drawn against her personal
account with Metrobank. It concluded that Aglibot intended to personally assume the
repayment of the loan, pointing out that in her Counter-Affidavit, she even admitted
that she was personally indebted to Santia, and only raised payment as her defense,
a clear admission of her liability for the said loan.
The appellate court refused to give credence to Aglibot’s claim that she had an
understanding with Santia that the checks would not be presented to the bank for
payment, but were to be returned to her once she had made cash payments for their
face values on maturity. It noted that Aglibot failed to present any proof that she had
indeed paid cash on the above checks as she claimed. This is precisely why Santia
decided to deposit the checks in order to obtain payment of his loan.
The facts below present a clear situation where Aglibot, as the manager of PLCC,
agreed to accommodate its loan to Santia by issuing her own post-dated checks in
payment thereof. She is what the Negotiable Instruments Law calls an
accommodation party.23 Concerning the liability of an accommodation party, Section
29 of the said law provides:
Sec. 29. Liability of an accommodation party. — An accommodation party is one who
has signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other person. Such a
person is liable on the instrument to a holder for value notwithstanding such holder at
the time of taking the instrument knew him to be only an accommodation party.
As elaborated in The Phil. Bank of Commerce v. Aruego:24
An accommodation party is one who has signed the instrument as maker, drawer,
indorser, without receiving value therefor and for the purpose of lending his name to
some other person. Such person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of the taking of the instrument knew him to
be only an accommodation party. In lending his name to the accommodated party, the
accommodation party is in effect a surety for the latter. He lends his name to enable
the accommodated party to obtain credit or to raise money. He receives no part of the
consideration for the instrument but assumes liability to the other parties thereto
because he wants to accommodate another. x x x.25 (Citation omitted)
The relation between an accommodation party and the party accommodated is, in
effect, one of principal and surety — the accommodation party being the surety. It is a
settled rule that a surety is bound equally and absolutely with the principal and is
deemed an original promisor and debtor from the beginning. The liability is immediate
and direct.26 It is not a valid defense that the accommodation party did not receive any
valuable consideration when he executed the instrument; nor is it correct to say that
the holder for value is not a holder in due course merely because at the time he
acquired the instrument, he knew that the indorser was only an accommodation
party.27 1âwphi1
Moreover, it was held in Aruego that unlike in a contract of suretyship, the liability of
the accommodation party remains not only primary but also unconditional to a holder
for value, such that even if the accommodated party receives an extension of the
period for payment without the consent of the accommodation party, the latter is still
liable for the whole obligation and such extension does not release him because as
far as a holder for value is concerned, he is a solidary co-debtor.
The mere fact, then, that Aglibot issued her own checks to Santia made her
personally liable to the latter on her checks without the need for Santia to first go after
PLCC for the payment of its loan.28 It would have been otherwise had it been shown
that Aglibot was a mere guarantor, except that since checks were issued ostensibly in
payment for the loan, the provisions of the Negotiable Instruments Law must take
primacy in application.
WHEREFORE, premises considered, the Petition for Review
on Certiorari is DENIED and the Decision dated March 18, 2008 of the Court of
Appeals in CA-G.R. SP No. I 00021 is hereby AFFIRMED.
SO ORDERED.
SECBANK vs RCBC
Before us are opposing parties petitions for review of the Decision[1] dated March 29,
2005 and Resolution[2] dated December 12, 2005 of the Court of Appeals in CA-G.R.
CV No. 67387. The two petitions are herein consolidated as they stem from the same
set of factual circumstances.
The facts, as found by the trial and appellate courts, are as follows:
On January 9, 1981, Security Bank and Trust Company (SBTC) issued a managers
check for P8 million, payable to CASH, as proceeds of the loan granted to Guidon
Construction and Development Corporation (GCDC). On the same day, the P8-million
check, along with other checks, was deposited by Continental Manufacturing
Corporation (CMC) in its Current Account No. 0109-022888 with Rizal Commercial
Banking Corporation (RCBC). Immediately, RCBC honored the P8-million check and
allowed CMC to withdraw the same.[3]
On the next banking day, January 12, 1981, GCDC issued a Stop Payment Order to
SBTC, claiming that the P8-million check was released to a third party by
mistake.Consequently, SBTC dishonored and returned the managers check to
RCBC. Thereafter, the check was returned back and forth between the two banks,
resulting in automatic debits and credits in each banks clearing balance.[4]
On February 13, 1981, RCBC filed a complaint[5] for damages against SBTC with the
then Court of First Instance of Rizal, Branch XXII. Said case was docketed as Civil
Case No. 1081 and later transferred to the Regional Trial Court (RTC) of Makati City,
Branch 143.
Meanwhile, following the rules of the Philippine Clearing House, RCBC and SBTC
stopped returning the checks to each other. By way of a temporary arrangement
pending resolution of the case, the P8-million check was equally divided between,
and credited to, RCBC and SBTC.[6]
On May 9, 2000, the RTC of Makati City, Branch 143, rendered a Decision[7] in favor
of RCBC. The dispositive portion of the decision reads:
PREMISES CONSIDERED, the Court renders judgment in favor of plaintiff [RCBC]
and finds defendant SBTC justly liable to [RCBC] and sentences [SBTC] to pay
[RCBC] the amount of:
1. PhP4,000,000.00 as and for actual damages;
2. PhP100,000.00 as and for attorneys fees; and,
3. the costs.
SO ORDERED.[8]
On appeal, the Court of Appeals affirmed with modification the above Decision, to wit:
WHEREFORE, the appealed Decision is AFFIRMED with MODIFICATION. Appellant
Security Bank and Trust Co. shall pay appellee Rizal Commercial Banking
Corporation not only the principal amount of P4,000,000.00 but also interest thereon
at (6%) per annum covering appellees unearned income on interest computed from
the time of filing of the complaint on February 13, 1981 to the date of finality of this
Decision. For lack of factual and legal basis, the award of attorneys fees
is DELETED.
SO ORDERED.[9]
Now for our resolution are the opposing parties petitions for review on certiorari of the
abovecited decision. On its part, SBTC alleges the following to support its petition:
I.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN REFUSING TO
APPLY THE LAW BECAUSE, IN ITS OPINION, TO DO SO WOULD RESULT IN AN
INJUSTICE.
II.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT
TO DETERMINE WHETHER OR NOT A BANK IS A HOLDER IN DUE COURSE,
ONLY THE NEGOTIABLE INSTRUMENTS LAW NEED BE APPLIED TO THE
EXCLUSION OF CENTRAL BANK RULES AND REGULATIONS.
III.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO NOTE
THAT THE MANAGERS CHECK IN QUESTION WAS ACCEPTED FOR DEPOSIT
BY THE RCBC AND WAS NOT ENCASHED BY THE PAYEE.
IV.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO
CONSIDER THAT PRIOR TO THE DEPOSIT OF THE CHECKS WORTH PhP53
MILLION, RCBC WAS HOLDING 43 CHECKS TOTALING P49,017,669.66 DRAWN
BY CONTINENTAL MANUFACTURING CORPORATION AGAINST ITS CURRENT
ACCOUNT WHEN THE BALANCE OF THAT ACCOUNT WAS A MERE P573.62.
V.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO
CONSIDER THAT THE CHECKS DEPOSITED WITH RCBC THE PROCEEDS OF
WHICH WERE IMMEDIATELY WITHDRAWN TO HONOR THE 43 CHECKS
TOTALING P49,017,669.66 DRAWN BY CONTINENTAL MANUFACTURING
CORPORATION ON ITS CURRENT ACCOUNT WERE NOT ALL MANAGERS
CHECK[S] BUT INCLUDED ORDINARY CHECKS IN THE TOTAL AMOUNT OF
PhP15,436,140.81.
VI.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO
CONSIDER THAT EACH OF THE 43 CHECKS DRAWN BY THE CONTINENTAL
MANUFACTURING CORPORATION WERE ALL HONORED BY RCBC ON THE
BASIS OF A MIXTURE OF ALL THE MANAGERS AND ORDINARY CHECKS
DEPOSITED ON THAT DAY OF 9 JANUARY 1981.
VII.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT
THE RCBC IS A HOLDER IN DUE COURSE.
VIII.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT
SBTC WAITED FOR THREE (3) DAYS TO NOTIFY THE RCBC OF THE STOP
PAYMENT ORDER.
IX.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT
SBTC SHOULD HAVE FIRST ACQUIRED PERSONAL KNOWLEDGE OF THE
FACTS WHICH GAVE RISE TO THE REQUEST FOR THE STOP PAYMENT
ORDER BEFORE HONORING SUCH REQUEST.
X.
THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN REFUSING TO
HOLD SBTC LIABLE FOR DAMAGE CLAIMS BASED SOLELY ON SPECULATION,
CONJECTURE AND GUESSWORK.
XI.
THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN HOLDING THAT
RCBC IS NOT ENTITLED TO EXEMPLARY DAMAGES.
XII.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING SBTC
LIABLE FOR THE ATTORNEYS FEES OF RCBC [SIC].[10]
On RCBCs part, the following issues are submitted for resolution:
I.
WHETHER OR NOT SBTC IS LIABLE FOR THE MANAGERS CHECK IT ISSUED.
II.
WHETHER OR NOT RCBC IS ENTITLED TO COMPENSATORY DAMAGES
EQUIVALENT TO THE INTEREST INCOME LOST AS A RESULT OF THE ILLEGAL
REFUSAL OF SBTC TO HONOR ITS OWN MANAGERS CHECK, AS WELL AS
FOR EXEMPLARY DAMAGES AND ATTORNEYS FEES.[11]
Simply stated, we find that in these consolidated petitions, the legal issues for our
resolution are: (1) Is SBTC liable to RCBC for the remaining P4 million? and (2) Is
SBTC liable to pay for lost interest income on the remaining P4 million, exemplary
damages and attorneys fees?
RCBC avers that the managers check issued by SBTC is substantially as good as the
money it represents because by its peculiar character, its issuance has the effect of
an advance acceptance. RCBC claims that it is a holder in due course when it
credited the P8-million managers check to CMCs account. Accordingly, RCBC
asserts that SBTCs refusal to honor its obligation justifies RCBC claim for lost interest
income, exemplary damages and attorneys fees.
On the other hand, SBTC contends that RCBC violated Monetary Board Resolution
No. 2202 of the Central Bank of the Philippines mandating all banks to verify the
genuineness and validity of all checks before allowing drawings of the same. SBTC
insists that RCBC should bear the consequences of allowing CMC to withdraw the
amount of the check before it was cleared.[12]
We shall rule on the issues seriatim.
At the outset, it must be noted that the questioned check issued by SBTC is not just
an ordinary check but a managers check. A managers check is one drawn by a banks
manager upon the bank itself. It stands on the same footing as a certified
check,[13] which is deemed to have been accepted by the bank that certified it.[14] As
the banks own check, a managers check becomes the primary obligation of the bank
and is accepted in advance by the act of its issuance.[15]
In this case, RCBC, in immediately crediting the amount of P8 million to CMCs
account, relied on the integrity and honor of the check as it is regarded in commercial
transactions. Where the questioned check, which was payable to Cash, appeared
regular on its face, and the bank found nothing unusual in the transaction, as the
drawer usually issued checks in big amounts made payable to cash, RCBC cannot be
faulted in paying the value of the questioned check.[16]
In our considered view, SBTC cannot escape liability by invoking Monetary Board
Resolution No. 2202 dated December 21, 1979, prohibiting drawings against
uncollected deposits. For we must point out that the Central Bank at that time issued
a Memorandum dated July 9, 1980, which interpreted said Monetary Board
Resolution No. 2202. In its pertinent portion, said Memorandum reads:
MEMORANDUM TO ALL BANKS
July 9, 1980
For the guidance of all concerned, Monetary Board Resolution No. 2202 dated
December 31, 1979 prohibiting, as a matter of policy, drawing against uncollected
deposit effective July 1, 1980,uncollected deposits representing managers cashiers/
treasurers checks, treasury warrants, postal money orders and duly funded on us
checks which may be permitted at the discretion of each bank, covers drawings
against demand deposits as well as withdrawals from savings deposits.[17]
Thus, it is clear from the July 9, 1980 Memorandum that banks were given the
discretion to allow immediate drawings on uncollected deposits of managers checks,
among others. Consequently, RCBC, in allowing the immediate withdrawal against
the subject managers check, only exercised a prerogative expressly granted to it by
the Monetary Board.
Moreover, neither Monetary Board Resolution No. 2202 nor the July 9,
1980 Memorandum alters the extraordinary nature of the managers check and the
relative rights of the parties thereto. SBTCs liability as drawer remains the same − by
drawing the instrument, it admits the existence of the payee and his then capacity to
indorse; and engages that on due presentment, the instrument will be accepted, or
paid, or both, according to its tenor.[18]
Concerning RCBCs claim for lost interest income on the remaining P4 million, this is
already covered by the amount of damages in the form of legal interest of 6%, based
on Article 2200[19] and 2209[20] of the Civil Code of the Philippines, as awarded by the
Court of Appeals in its decision.
In addition to the above-mentioned award of compensatory damages, we also find
merit in the need to award exemplary damages in order 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 safe-keeping 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, above all, trust and confidence. In this connection, it is important that
banks should guard against injury attributable to negligence or bad faith on its part. As
repeatedly emphasized, since the banking business is impressed with public interest,
the trust and confidence of the public in it is of paramount importance. Consequently,
the highest degree of diligence is expected, and high standards of integrity and
performance are required of it. SBTC having failed in this respect, the award of
exemplary damages to RCBC in the amount of P50,000.00 is warranted.[21]
Pursuant to current jurisprudence, with the finding of liability for exemplary damages,
attorneys fees in the amount of P25,000.00[22] must also be awarded against SBTC
and in favor of RCBC.
WHEREFORE, the assailed Decision dated March 29, 2005 and Resolution
dated December 12, 2005 of the Court of Appeals in CA-G.R. CV No. 67387 is
hereby AFFIRMED with MODIFICATION. Security Bank and Trust Company is
ordered to pay Rizal Commercial Banking Corporation: (1) the
remaining P4,000,000.00, with legal interest thereon at six percent (6%) per annum
from the time of filing of the complaint on February 13, 1981 to the date of finality of
this Decision; (2) exemplary damages of P50,000.00; and (3) attorneys fees
of P25,000.00.
No pronouncement as to costs.
SO ORDERED.
ALLIED BANKING G.R. No. 133179
CORPORATION, vs LIM SIO WAN, METROPOLITAN
BANK AND TRUST CO., and Promulgated:
PRODUCERS BANK,
To ingratiate themselves to their valued depositors, some banks at times bend over
backwards that they unwittingly expose themselves to great risks.
The Case
This Petition for Review on Certiorari under Rule 45 seeks to reverse the Court of
Appeals (CAs) Decision promulgated on March 18, 1998[1] in CA-G.R. CV No. 46290
entitled Lim Sio Wan v. Allied Banking Corporation, et al. The CA Decision modified
the Decision dated November 15, 1993[2] of the Regional Trial Court (RTC), Branch
63 in Makati City rendered in Civil Case No. 6757.
The Facts
The facts as found by the RTC and affirmed by the CA are as follows:
On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied
Banking Corporation (Allied) at its Quintin Paredes Branch in Manila a money market
placement of PhP 1,152,597.35 for a term of 31 days to mature on December 15,
1983,[3] as evidenced by Provisional Receipt No. 1356 dated November 14, 1983.[4]
On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an
officer of Allied, and instructed the latter to pre-terminate Lim Sio Wans money market
placement, to issue a managers check representing the proceeds of the placement,
and to give the check to one Deborah Dee Santos who would pick up the check.[5] Lim
Sio Wan described the appearance of Santos so that So could easily identify her.[6]
Later, Santos arrived at the bank and signed the application form for a managers
check to be issued.[7] The bank issued Managers Check No. 035669 for PhP
1,158,648.49, representing the proceeds of Lim Sio Wans money market placement
in the name of Lim Sio Wan, as payee.[8] The check was cross-checked For Payees
Account Only and given to Santos.[9]
Thereafter, the managers check was deposited in the account of Filipinas Cement
Corporation (FCC) at respondent Metropolitan Bank and Trust Co.
(Metrobank),[10] with the forged signature of Lim Sio Wan as indorser.[11]
Earlier, on September 21, 1983, FCC had deposited a money market placement for
PhP 2 million with respondent Producers Bank. Santos was the money market trader
assigned to handle FCCs account.[12] Such deposit is evidenced by Official Receipt
No. 317568[13] and a Letter dated September 21, 1983 of Santos addressed to Angie
Lazo of FCC, acknowledging receipt of the placement.[14] The placement matured
on October 25, 1983 and was rolled-over until December 5, 1983 as evidenced by a
Letter dated October 25, 1983.[15] When the placement matured, FCC demanded the
payment of the proceeds of the placement.[16] On December 5, 1983, the same date
that So received the phone call instructing her to pre-terminate Lim Sio Wans
placement, the managers check in the name of Lim Sio Wan was deposited in the
account of FCC, purportedly representing the proceeds of FCCs money market
placement with Producers Bank.[17] In other words, the Allied check was deposited
with Metrobank in the account of FCC as Producers Banks payment of its obligation
to FCC.
To clear the check and in compliance with the requirements of the Philippine Clearing
House Corporation (PCHC) Rules and Regulations, Metrobank stamped a guaranty
on the check, which reads: All prior endorsements and/or lack of endorsement
guaranteed.[18]
The check was sent to Allied through the PCHC. Upon the presentment of the check,
Allied funded the check even without checking the authenticity of Lim Sio Wans
purported indorsement. Thus, the amount on the face of the check was credited to the
account of FCC.[19]
On December 9, 1983, Lim Sio Wan deposited with Allied a second money market
placement to mature on January 9, 1984.[20]
On December 14, 1983, upon the maturity date of the first money market placement,
Lim Sio Wan went to Allied to withdraw it.[21] She was then informed that the
placement had been pre-terminated upon her instructions. She denied giving any
instructions and receiving the proceeds thereof. She desisted from further complaints
when she was assured by the banks manager that her money would be recovered.[22]
When Lim Sio Wans second placement matured on January 9, 1984, So called Lim
Sio Wan to ask for the latters instructions on the second placement. Lim Sio Wan
instructed So to roll-over the placement for another 30 days.[23] On January 24, 1984,
Lim Sio Wan, realizing that the promise that her money would be recovered would not
materialize, sent a demand letter to Allied asking for the payment of the first
placement.[24] Allied refused to pay Lim Sio Wan, claiming that the latter had
authorized the pre-termination of the placement and its subsequent release
to Santos.[25]
Consequently, Lim Sio Wan filed with the RTC a Complaint dated February 13,
1984[26] docketed as Civil Case No. 6757 against Allied to recover the proceeds of her
first money market placement. Sometime in February 1984, she withdrew her second
placement from Allied.
Allied filed a third party complaint[27] against Metrobank and Santos. In turn,
Metrobank filed a fourth party complaint[28] against FCC. FCC for its part filed a fifth
party complaint[29] against Producers Bank. Summonses were duly served upon all
the parties except for Santos, who was no longer connected with Producers Bank.[30]
On May 15, 1984, or more than six (6) months after funding the check, Allied informed
Metrobank that the signature on the check was forged.[31] Thus, Metrobank withheld
the amount represented by the check from FCC. Later on, Metrobank agreed to
release the amount to FCC after the latter executed an Undertaking, promising to
indemnify Metrobank in case it was made to reimburse the amount.[32]
Lim Sio Wan thereafter filed an amended complaint to include Metrobank as a party-
defendant, along with Allied.[33] The RTC admitted the amended complaint despite the
opposition of Metrobank.[34] Consequently, Allieds third party complaint against
Metrobank was converted into a cross-claim and the latters fourth party complaint
against FCC was converted into a third party complaint.[35]
After trial, the RTC issued its Decision, holding as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Ordering defendant Allied Banking Corporation to pay plaintiff the amount of
P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid;
2. Ordering defendant Allied Bank to pay plaintiff the amount of P100,000.00 by way
of moral damages;
3. Ordering defendant Allied Bank to pay plaintiff the amount of P173,792.20 by way
of attorneys fees; and,
4. Ordering defendant Allied Bank to pay the costs of suit.
Defendant Allied Banks cross-claim against defendant Metrobank is DISMISSED.
Likewise defendant Metrobanks third-party complaint as against Filipinas Cement
Corporation is DISMISSED.
Filipinas Cement Corporations fourth-party complaint against Producers Bank is also
DISMISSED.
SO ORDERED.[36]
The Decision of the Court of Appeals
Allied appealed to the CA, which in turn issued the assailed Decision on March 18,
1998, modifying the RTC Decision, as follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED.
Judgment is rendered ordering and sentencing defendant-appellant Allied Banking
Corporation to pay sixty (60%) percent and defendant-appellee Metropolitan Bank
and Trust Company forty (40%) of the amount of P1,158,648.49 plus 12% interest per
annum from March 16, 1984 until fully paid. The moral damages, attorneys fees and
costs of suit adjudged shall likewise be paid by defendant-appellant Allied Banking
Corporation and defendant-appellee Metropolitan Bank and Trust Company in the
same proportion of 60-40. Except as thus modified, the decision appealed from is
AFFIRMED.
SO ORDERED.[37]
Hence, Allied filed the instant petition.
The Issues
Allied raises the following issues for our consideration:
The Honorable Court of Appeals erred in holding that Lim Sio Wan did not authorize
[Allied] to pre-terminate the initial placement and to deliver the check to Deborah
Santos.
The Honorable Court of Appeals erred in absolving Producers Bank of any liability for
the reimbursement of amount adjudged demandable.
The Honorable Court of Appeals erred in holding [Allied] liable to the extent of 60% of
amount adjudged demandable in clear disregard to the ultimate liability of Metrobank
as guarantor of all endorsement on the check, it being the collecting bank.[38]
The petition is partly meritorious.
A Question of Fact
Allied questions the finding of both the trial and appellate courts that Allied was not
authorized to release the proceeds of Lim Sio Wans money market placement
to Santos.Allied clearly raises a question of fact. When the CA affirms the findings of
fact of the RTC, the factual findings of both courts are binding on this Court.[39]
We also agree with the CA when it said that it could not disturb the trial courts findings
on the credibility of witness So inasmuch as it was the trial court that heard the
witness and had the opportunity to observe closely her deportment and manner of
testifying. Unless the trial court had plainly overlooked facts of substance or value,
which, if considered, might affect the result of the case,[40] we find it best to defer to
the trial court on matters pertaining to credibility of witnesses.
Additionally, this Court has held that the matter of negligence is also a factual
question.[41] Thus, the finding of the RTC, affirmed by the CA, that the respective
parties were negligent in the exercise of their obligations is also conclusive upon this
Court.
The Liability of the Parties
As to the liability of the parties, we find that Allied is liable to Lim Sio
Wan. Fundamental and familiar is the doctrine that the relationship between a bank
and a client is one of debtor-creditor.
Articles 1953 and 1980 of the Civil Code provide:
Art. 1953. A person who receives a loan of money or any other fungible thing acquires
the ownership thereof, and is bound to pay to the creditor an equal amount of the
same kind and quality.
Art. 1980. Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan.
Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple
loan or mutuum.[42] More succinctly, in Citibank, N.A. (Formerly First National City
Bank) v. Sabeniano, this Court ruled that a money market placement is a simple loan
or mutuum.[43] Further, we defined a money market in Cebu International Finance
Corporation v. Court of Appeals, as follows:
[A] money market is a market dealing in standardized short-term credit instruments
(involving large amounts) where lenders and borrowers do not deal directly with each
other but through a middle man or dealer in open market. In a money market
transaction, the investor is a lender who loans his money to a borrower through a
middleman or dealer.
In the case at bar, the money market transaction between the petitioner and the
private respondent is in the nature of a loan.[44]
Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to
payment upon her request, or upon maturity of the placement, or until the bank is
released from its obligation as debtor. Until any such event, the obligation of Allied to
Lim Sio Wan remains unextinguished.
Art. 1231 of the Civil Code enumerates the instances when obligations are considered
extinguished, thus:
Art. 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as annulment, rescission,
fulfillment of a resolutory condition, and prescription, are governed elsewhere in this
Code. (Emphasis supplied.)
From the factual findings of the trial and appellate courts that Lim Sio Wan did not
authorize the release of her money market placement to Santos and the bank had
been negligent in so doing, there is no question that the obligation of Allied to pay Lim
Sio Wan had not been extinguished. Art. 1240 of the Code states that payment shall
be made to the person in whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive it. As commented by Arturo
Tolentino:
Payment made by the debtor to a wrong party does not extinguish the obligation as to
the creditor, if there is no fault or negligence which can be imputed to the latter. Even
when the debtor acted in utmost good faith and by mistake as to the person of his
creditor, or through error induced by the fraud of a third person, the payment to one
who is not in fact his creditor, or authorized to receive such payment, is void, except
as provided in Article 1241. Such payment does not prejudice the creditor, and
accrual of interest is not suspended by it.[45](Emphasis supplied.)
Since there was no effective payment of Lim Sio Wans money market placement, the
bank still has an obligation to pay her at six percent (6%) interest from March 16,
1984 until the payment thereof.
We cannot, however, say outright that Allied is solely liable to Lim Sio Wan.
Allied claims that Metrobank is the proximate cause of the loss of Lim Sio Wans
money. It points out that Metrobank guaranteed all prior indorsements inscribed on
the managers check, and without Metrobanks guarantee, the present controversy
would never have occurred. According to Allied:
Failure on the part of the collecting bank to ensure that the proceeds of the check is
paid to the proper party is, aside from being an efficient intervening cause, also the
last negligent act, x x x contributory to the injury caused in the present case, which
thereby leads to the conclusion that it is the collecting bank, Metrobank that is the
proximate cause of the alleged loss of the plaintiff in the instant case.[46]
We are not persuaded.
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.[47] Thus, there is an efficient supervening event if the event
breaks the sequence leading from the cause to the ultimate result. To determine the
proximate cause of a controversy, the question that needs to be asked is: If the event
did not happen, would the injury have resulted? If the answer is NO, then the event is
the proximate cause.
In the instant case, Allied avers that even if it had not issued the check payment, the
money represented by the check would still be lost because of Metrobanks
negligence in indorsing the check without verifying the genuineness of the
indorsement thereon.
Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:
Section 66. Liability of general indorser.Every indorser who indorses without
qualification, warrants to all subsequent holders in due course;
a) The matters and things mentioned in subdivisions (a), (b) and (c) of the
next preceding section; and
b) That the instrument is at the time of his indorsement valid and subsisting;
And in addition, he engages that on due presentment, it shall be accepted or paid, or
both, as the case may be according to its tenor, and that if it be dishonored, and the
necessary proceedings on dishonor be duly taken, he will pay the amount thereof to
the holder, or to any subsequent indorser who may be compelled to pay it.
Section 65. Warranty where negotiation by delivery, so forth.Every person negotiating
an instrument by delivery or by a qualified indorsement, warrants:
a) That the instrument is genuine and in all respects what it purports to be;
b) That he has a good title of it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no
holder other than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to persons negotiating
public or corporation securities, other than bills and notes. (Emphasis supplied.)
The warranty that the instrument is genuine and in all respects what it purports to be
covers all the defects in the instrument affecting the validity thereof, including a forged
indorsement. Thus, the last indorser will be liable for the amount indicated in the
negotiable instrument even if a previous indorsement was forged. We held in a line of
cases that a collecting bank which indorses a check bearing a forged indorsement
and presents it to the drawee bank guarantees all prior indorsements, including the
forged indorsement itself, and ultimately should be held liable therefor.[48]
However, this general rule is subject to exceptions. One such exception is when the
issuance of the check itself was attended with negligence. Thus, in the cases cited
above where the collecting bank is generally held liable, in two of the cases where the
checks were negligently issued, this Court held the institution issuing the check just
as liable as or more liable than the collecting bank.
In isolated cases where the checks were deposited in an account other than that of
the payees on the strength of forged indorsements, we held the collecting bank solely
liable for the whole amount of the checks involved for having indorsed the
same. In Republic Bank v. Ebrada,[49] the check was properly issued by the Bureau of
Treasury. While in Banco de Oro Savings and Mortgage Bank (Banco de Oro) v.
Equitable Banking Corporation,[50] Banco de Oro admittedly issued the checks in the
name of the correct payees.And in Traders Royal Bank v. Radio Philippines Network,
Inc.,[51] the checks were issued at the request of Radio Philippines Network, Inc. from
Traders Royal Bank.
However, in Bank of the Philippine Islands v. Court of Appeals, we said that the
drawee bank is liable for 60% of the amount on the face of the negotiable instrument
and the collecting bank is liable for 40%. We also noted the relative negligence
exhibited by two banks, to wit:
Both banks were negligent in the selection and supervision of their employees
resulting in the encashment of the forged checks by an impostor. Both banks were not
able to overcome the presumption of negligence in the selection and supervision of
their employees. It was the gross negligence of the employees of both banks which
resulted in the fraud and the subsequent loss. While it is true that petitioner BPIs
negligence may have been the proximate cause of the loss, respondent CBCs
negligence contributed equally to the success of the impostor in encashing the
proceeds of the forged checks. Under these circumstances, we apply Article 2179 of
the Civil Code to the effect that while respondent CBC may recover its losses, such
losses are subject to mitigation by the courts. (See Phoenix Construction Inc. v.
Intermediate Appellate Courts, 148 SCRA 353 [1987]).
Considering the comparative negligence of the two (2) banks, we rule that the
demands of substantial justice are satisfied by allocating the loss of P2,413,215.16
and the costs of the arbitration proceeding in the amount of P7,250.00 and the cost of
litigation on a 60-40 ratio.[52]
Similarly, we ruled in Associated Bank v. Court of Appeals that the issuing institution
and the collecting bank should equally share the liability for the loss of amount
represented by the checks concerned due to the negligence of both parties:
The Court finds as reasonable, the proportionate sharing of fifty percent-fifty percent
(50%-50%). Due to the negligence of the Province of Tarlac in releasing the checks to
an unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to
receive the checks for the payee hospital for a period close to three years and in not
properly ascertaining why the retired hospital cashier was collecting checks for the
payee hospital in addition to the hospitals real cashier, respondent Province
contributed to the loss amounting to P203,300.00 and shall be liable to the PNB for
fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover fifty
percent (50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of
P203,300.00. It is liable on its warranties as indorser of the checks which were
deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior
indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas.
Associated Bank was also remiss in its duty to ascertain the genuineness of the
payees indorsement.[53]
A reading of the facts of the two immediately preceding cases would reveal that the
reason why the bank or institution which issued the check was held partially liable for
the amount of the check was because of the negligence of these parties which
resulted in the issuance of the checks.
In the instant case, the trial court correctly found Allied negligent in issuing the
managers check and in transmitting it to Santos without even a written
authorization.[54] In fact, Allied did not even ask for the certificate evidencing the
money market placement or call up Lim Sio Wan at her residence or office to confirm
her instructions. Both actions could have prevented the whole fraudulent transaction
from unfolding. Allieds negligence must be considered as the proximate cause of the
resulting loss.
To reiterate, had Allied exercised the diligence due from a financial institution, the
check would not have been issued and no loss of funds would have resulted. In fact,
there would have been no issuance of indorsement had there been no check in the
first place.
The liability of Allied, however, is concurrent with that of Metrobank as the last
indorser of the check. When Metrobank indorsed the check in compliance with the
PCHC Rules and Regulations[55] without verifying the authenticity of Lim Sio Wans
indorsement and when it accepted the check despite the fact that it was cross-
checked payable to payees account only,[56] its negligent and cavalier indorsement
contributed to the easier release of Lim Sio Wans money and perpetuation of the
fraud. Given the relative participation of Allied and Metrobank to the instant case, both
banks cannot be adjudged as equally liable. Hence, the 60:40 ratio of the liabilities of
Allied and Metrobank, as ruled by the CA, must be upheld.
FCC, having no participation in the negotiation of the check and in the forgery of Lim
Sio Wans indorsement, can raise the real defense of forgery as against both banks.[57]
As to Producers Bank, Allied Banks argument that Producers Bank must be held
liable as employer of Santos under Art. 2180 of the Civil Code is erroneous. Art. 2180
pertains to the vicarious liability of an employer for quasi-delicts that an employee has
committed. Such provision of law does not apply to civil liability arising from delict.
One also cannot apply the principle of subsidiary liability in Art. 103 of the Revised
Penal Code in the instant case. Such liability on the part of the employer for the civil
aspect of the criminal act of the employee is based on the conviction of the employee
for a crime. Here, there has been no conviction for any crime.
As to the claim that there was unjust enrichment on the part of Producers Bank, the
same is correct. Allied correctly claims in its petition that Producers Bank should
reimburse Allied for whatever judgment that may be rendered against it pursuant to
Art. 22 of the Civil Code, which provides: Every person who through an act of
performance by another, or any other means, acquires or comes into possession of
something at the expense of the latter without just cause or legal ground, shall return
the same to him.
The above provision of law was clarified in Reyes v. Lim, where we ruled that [t]here
is unjust enrichment when a person unjustly retains a benefit to the loss of another, or
when a person retains money or property of another against the fundamental
principles of justice, equity and good conscience.[58]
In Tamio v. Ticson, we further clarified the principle of unjust enrichment, thus: Under
Article 22 of the Civil Code, there is unjust enrichment when (1) a person is unjustly
benefited, and (2) such benefit is derived at the expense of or with damages to
another.[59]
In the instant case, Lim Sio Wans money market placement in Allied Bank was pre-
terminated and withdrawn without her consent. Moreover, the proceeds of the
placement were deposited in Producers Banks account in Metrobank without any
justification. In other words, there is no reason that the proceeds of Lim Sio Wans
placement should be deposited in FCCs account purportedly as payment for FCCs
money market placement and interest in Producers Bank. With such payment,
Producers Banks indebtedness to FCC was extinguished, thereby benefitting the
former. Clearly, Producers Bank was unjustly enriched at the expense of Lim Sio
Wan. Based on the facts and circumstances of the case, Producers Bank should
reimburse Allied and Metrobank for the amounts the two latter banks are ordered to
pay Lim Sio Wan.
It cannot be validly claimed that FCC, and not Producers Bank, should be considered
as having been unjustly enriched. It must be remembered that FCCs money market
placement with Producers Bank was already due and demandable; thus, Producers
Banks payment thereof was justified. FCC was entitled to such payment. As earlier
stated, the fact that the indorsement on the check was forged cannot be raised
against FCC which was not a part in any stage of the negotiation of the check. FCC
was not unjustly enriched.
From the facts of the instant case, we see that Santos could be the architect of the
entire controversy. Unfortunately, since summons had not been served on Santos,
the courts have not acquired jurisdiction over her.[60] We, therefore, cannot ascribe to
her liability in the instant case.
Clearly, Producers Bank must be held liable to Allied and Metrobank for the amount of
the check plus 12% interest per annum, moral damages, attorneys fees, and costs of
suit which Allied and Metrobank are adjudged to pay Lim Sio Wan based on a
proportion of 60:40.
WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998 CA Decision
in CA-G.R. CV No. 46290 and the November 15, 1993 RTC Decision in Civil Case
No. 6757 are AFFIRMED with MODIFICATION.
Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED.
Judgment is rendered ordering and sentencing defendant-appellant Allied Banking
Corporation to pay sixty (60%) percent and defendant-appellee Metropolitan Bank
and Trust Company forty (40%) of the amount of P1,158,648.49 plus 12% interest per
annum from March 16, 1984 until fully paid. The moral damages, attorneys fees and
costs of suit adjudged shall likewise be paid by defendant-appellant Allied Banking
Corporation and defendant-appellee Metropolitan Bank and Trust Company in the
same proportion of 60-40. Except as thus modified, the decision appealed from is
AFFIRMED.
SO ORDERED.
Additionally and by way of MODIFICATION, Producers Bank is hereby ordered to pay
Allied and Metrobank the aforementioned amounts. The liabilities of the parties are
concurrent and independent of each other.
SO ORDERED.
THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs. COURT
OF APPEALS and L.C. DIAZ and COMPANY, CPAs, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision[1] of the Court of Appeals dated 27
October 1998 and its Resolution dated 11 May 1999. The assailed decision reversed
the Decision[2]of the Regional Trial Court of Manila, Branch 8, absolving petitioner
Consolidated Bank and Trust Corporation, now known as Solidbank Corporation
(Solidbank), of any liability. The questioned resolution of the appellate court denied
the motion for reconsideration of Solidbank but modified the decision by deleting the
award of exemplary damages, attorneys fees, expenses of litigation and cost of suit.
The Facts
Solidbank is a domestic banking corporation organized and existing under Philippine
laws. Private respondent L.C. Diaz and Company, CPAs (L.C. Diaz), is a professional
partnership engaged in the practice of accounting.
Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank,
designated as Savings Account No. S/A 200-16872-6.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya (Macaraya),
filled up a savings (cash) deposit slip for P990 and a savings (checks) deposit slip
for P50.Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre (Calapre), to
deposit the money with Solidbank. Macaraya also gave Calapre the Solidbank
passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the
passbook. The teller acknowledged receipt of the deposit by returning to Calapre the
duplicate copies of the two deposit slips. Teller No. 6 stamped the deposit slips with
the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE. Since
the transaction took time and Calapre had to make another deposit for L.C. Diaz with
Allied Bank, he left the passbook with Solidbank. Calapre then went to Allied
Bank. When Calapre returned to Solidbank to retrieve the passbook, Teller No. 6
informed him that somebody got the passbook.[3] Calapre went back to L.C. Diaz and
reported the incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a check
of P200,000. Macaraya, together with Calapre, went to Solidbank and presented to
Teller No. 6 the deposit slip and check. The teller stamped the words DUPLICATE
and SAVING TELLER 6 SOLIDBANK HEAD OFFICE on the duplicate copy of the
deposit slip. When Macaraya asked for the passbook, Teller No. 6 told Macaraya that
someone got the passbook but she could not remember to whom she gave the
passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No.
6 answered that someone shorter than Calapre got the passbook. Calapre was then
standing beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit
of a check for P90,000 drawn on Philippine Banking Corporation (PBC). This PBC
check of L.C. Diaz was a check that it had long closed.[4] PBC subsequently
dishonored the check because of insufficient funds and because the signature in the
check differed from PBCs specimen signature. Failing to get back the passbook,
Macaraya went back to her office and reported the matter to the Personnel Manager
of L.C. Diaz, Emmanuel Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis
C. Diaz (Diaz), called up Solidbank to stop any transaction using the same passbook
until L.C. Diaz could open a new account.[5] On the same day, Diaz formally wrote
Solidbank to make the same request. It was also on the same day that L.C. Diaz
learned of the unauthorized withdrawal the day before, 14 August 1991, of P300,000
from its savings account. The withdrawal slip for the P300,000 bore the signatures of
the authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The
signatories, however, denied signing the withdrawal slip. A certain Noel Tamayo
received the P300,000.
In an Information[6] dated 5 September 1991, L.C. Diaz charged its messenger,
Emerano Ilagan (Ilagan) and one Roscon Verdazola with Estafa through Falsification
of Commercial Document. The Regional Trial Court of Manila dismissed the criminal
case after the City Prosecutor filed a Motion to Dismiss on 4 August 1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the
return of its money. Solidbank refused.
On 25 August 1992, L.C. Diaz filed a Complaint[7] for Recovery of a Sum of Money
against Solidbank with the Regional Trial Court of Manila, Branch 8. After trial, the
trial court rendered on 28 December 1994 a decision absolving Solidbank and
dismissing the complaint.
L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the Court of
Appeals issued its Decision reversing the decision of the trial court.
On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for
reconsideration of Solidbank. The appellate court, however, modified its decision by
deleting the award of exemplary damages and attorneys fees.
The Ruling of the Trial Court
In absolving Solidbank, the trial court applied the rules on savings account written on
the passbook. The rules state that possession of this book shall raise the presumption
of ownership and any payment or payments made by the bank upon the production of
the said book and entry therein of the withdrawal shall have the same effect as if
made to the depositor personally.[9]
At the time of the withdrawal, a certain Noel Tamayo was not only in possession of
the passbook, he also presented a withdrawal slip with the signatures of the
authorized signatories of L.C. Diaz. The specimen signatures of these persons were
in the signature cards. The teller stamped the withdrawal slip with the words Saving
Teller No. 5. The teller then passed on the withdrawal slip to Genere Manuel (Manuel)
for authentication. Manuel verified the signatures on the withdrawal slip. The
withdrawal slip was then given to another officer who compared the signatures on the
withdrawal slip with the specimen on the signature cards. The trial court concluded
that Solidbank acted with care and observed the rules on savings account when it
allowed the withdrawal of P300,000 from the savings account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove
that the signatures on the withdrawal slip were forged. The trial court admonished
L.C. Diaz for not offering in evidence the National Bureau of Investigation (NBI) report
on the authenticity of the signatures on the withdrawal slip for P300,000. The trial
court believed that L.C. Diaz did not offer this evidence because it is derogatory to its
action.
Another provision of the rules on savings account states that the depositor must keep
the passbook under lock and key.[10] When another person presents the passbook for
withdrawal prior to Solidbanks receipt of the notice of loss of the passbook, that
person is considered as the owner of the passbook. The trial court ruled that the
passbook presented during the questioned transaction was now out of the lock and
key and presumptively ready for a business transaction.[11]
Solidbank did not have any participation in the custody and care of the passbook. The
trial court believed that Solidbanks act of allowing the withdrawal of P300,000 was not
the direct and proximate cause of the loss. The trial court held that L.C. Diazs
negligence caused the unauthorized withdrawal. Three facts establish L.C. Diazs
negligence: (1) the possession of the passbook by a person other than the depositor
L.C. Diaz; (2) the presentation of a signed withdrawal receipt by an unauthorized
person; and (3) the possession by an unauthorized person of a PBC check long
closed by L.C. Diaz, which check was deposited on the day of the fraudulent
withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank did not follow the
precautionary procedures observed by the two parties whenever L.C. Diaz withdrew
significant amounts from its account. L.C. Diaz claimed that a letter must accompany
withdrawals of more than P20,000. The letter must request Solidbank to allow the
withdrawal and convert the amount to a managers check. The bearer must also have
a letter authorizing him to withdraw the same amount. Another person driving a car
must accompany the bearer so that he would not walk from Solidbank to the office in
making the withdrawal. The trial court pointed out that L.C. Diaz disregarded these
precautions in its past withdrawal. On 16 July 1991, L.C. Diaz withdrew P82,554
without any separate letter of authorization or any communication with Solidbank that
the money be converted into a managers check.
The trial court further justified the dismissal of the complaint by holding that the case
was a last ditch effort of L.C. Diaz to recover P300,000 after the dismissal of the
criminal case against Ilagan.
The dispositive portion of the decision of the trial court reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the
complaint.
The Court further renders judgment in favor of defendant bank pursuant to its
counterclaim the amount of Thirty Thousand Pesos (P30,000.00) as attorneys fees.
With costs against plaintiff.
[12]
SO ORDERED.
The Ruling of the Court of Appeals
The Court of Appeals ruled that Solidbanks negligence was the proximate cause of
the unauthorized withdrawal of P300,000 from the savings account of L.C. Diaz. The
appellate court reached this conclusion after applying the provision of the Civil Code
on quasi-delict, to wit:
Article 2176. Whoever by act or omission causes damage to another, there being fault
or negligence, is obliged to pay for the damage done. Such fault or negligence, if
there is no pre-existing contractual relation between the parties, is called a quasi-
delict and is governed by the provisions of this chapter.
The appellate court held that the three elements of a quasi-delict are present in this
case, namely: (a) damages suffered by the plaintiff; (b) fault or negligence of the
defendant, or some other person for whose acts he must respond; and (c) the
connection of cause and effect between the fault or negligence of the defendant and
the damage incurred by the plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who received the
withdrawal slip for P300,000 allowed the withdrawal without making the necessary
inquiry. The appellate court stated that the teller, who was not presented by Solidbank
during trial, should have called up the depositor because the money to be withdrawn
was a significant amount. Had the teller called up L.C. Diaz, Solidbank would have
known that the withdrawal was unauthorized. The teller did not even verify the identity
of the impostor who made the withdrawal. Thus, the appellate court found Solidbank
liable for its negligence in the selection and supervision of its employees.
The appellate court ruled that while L.C. Diaz was also negligent in entrusting its
deposits to its messenger and its messenger in leaving the passbook with the
teller, Solidbank could not escape liability because of the doctrine of last clear
chance. Solidbank could have averted the injury suffered by L.C. Diaz had it called up
L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from Solidbank is more
than that of a good father of a family. The business and functions of banks are
affected with public interest. Banks are obligated to treat the accounts of their
depositors with meticulous care, always having in mind the fiduciary nature of their
relationship with their clients. The Court of Appeals found Solidbank remiss in its duty,
violating its fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, premises considered, the decision appealed from is hereby
REVERSED and a new one entered.
1. Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay
plaintiff-appellant the sum of Three Hundred Thousand Pesos (P300,000.00), with
interest thereon at the rate of 12% per annum from the date of filing of the complaint
until paid, the sum of P20,000.00 as exemplary damages, and P20,000.00 as
attorneys fees and expenses of litigation as well as the cost of suit; and
2. Ordering the dismissal of defendant-appellees counterclaim in the amount
of P30,000.00 as attorneys fees.
SO ORDERED.[13]
Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its
decision but modified the award of damages. The appellate court deleted the award of
exemplary damages and attorneys fees. Invoking Article 2231[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.
Solidbanks Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict on the application of the
law. The trial court pinned the liability on L.C. Diaz based on the provisions of the
rules on savings account, a recognition of the contractual relationship between
Solidbank and L.C. Diaz, the latter being a depositor of the former. On the other hand,
the Court of Appeals applied the law on quasi-delict to determine who between the
two parties was ultimately negligent. The law on quasi-delict or culpa aquiliana is
generally applicable when there is no pre-existing contractual relationship between
the parties.
We hold that Solidbank is liable for breach of contract due to negligence, or culpa
contractual.
The contract between the bank and its depositor is governed by the provisions of the
Civil Code on simple loan.[17] Article 1980 of the Civil Code expressly provides that x x
x savings x x x deposits of money in banks and similar institutions shall be governed
by the provisions concerning simple loan. There is a debtor-creditor relationship
between the bank and its depositor.The bank is the debtor and the depositor is the
creditor. The depositor lends the bank money and the bank agrees to pay the
depositor on demand. The savings deposit agreement between the bank and the
depositor is the contract that determines the rights and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of
banking. Section 2 of Republic Act No. 8791 (RA 8791),[18] which took effect on 13
June 2000, declares that the State recognizes the fiduciary nature of banking that
requires high standards of integrity and performance.[19] This new provision in the
general banking law, introduced in 2000, is a statutory affirmation of Supreme Court
decisions, starting with the 1990 case of Simex International v. Court of
Appeals,[20] holding that the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of their
relationship.[21]
This fiduciary relationship means that the banks obligation to observe high standards
of integrity and performance is deemed written into every deposit agreement between
a bank and its depositor. The fiduciary nature of banking requires banks to assume a
degree of diligence higher than that of a good father of a family. Article 1172 of the
Civil Code states that the degree of diligence required of an obligor is that prescribed
by law or contract, and absent such stipulation then the diligence of a good father of a
family.[22] Section 2 of RA 8791 prescribes the statutory diligence required from banks
that banks must observe high standards of integrity and performance in servicing their
depositors. Although RA 8791 took effect almost nine years after the unauthorized
withdrawal of the P300,000 from L.C. Diazs savings account, jurisprudence[23] at the
time of the withdrawal already imposed on banks the same high standard of diligence
required under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not convert the
contract between the bank and its depositors from a simple loan to a trust agreement,
whether express or implied. Failure by the bank to pay the depositor is failure to pay a
simple loan, and not a breach of trust.[24] The law simply imposes on the bank
a higher standard of integrity and performance in complying with its obligations
under the contract of simple loan, beyond those required of non-bank debtors under a
similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust agreement
because banks do not accept deposits to enrich depositors but to earn money for
themselves. The law allows banks to offer the lowest possible interest rate to
depositors while charging the highest possible interest rate on their own
borrowers. The interest spread or differential belongs to the bank and not to the
depositors who are not cestui que trust of banks. If depositors are cestui que trust of
banks, then the interest spread or income belongs to the depositors, a situation that
Congress certainly did not intend in enacting Section 2 of RA 8791.
Solidbanks Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that responsibility arising from negligence in
the performance of every kind of obligation is demandable. For breach of the savings
deposit agreement due to negligence, or culpa contractual, the bank is liable to its
depositor.
Calapre left the passbook with Solidbank because the transaction took time and he
had to go to Allied Bank for another transaction. The passbook was still in the hands
of the employees of Solidbank for the processing of the deposit when Calapre left
Solidbank. Solidbanks rules on savings account require that the deposit book should
be carefully guarded by the depositor and kept under lock and key, if possible. When
the passbook is in the possession of Solidbanks tellers during withdrawals, the law
imposes on Solidbank and its tellers an even higher degree of diligence in
safeguarding the passbook.
Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring that
they return the passbook only to the depositor or his authorized representative. The
tellers know, or should know, that the rules on savings account provide that any
person in possession of the passbook is presumptively its owner. If the tellers give the
passbook to the wrong person, they would be clothing that person presumptive
ownership of the passbook, facilitating unauthorized withdrawals by that person. For
failing to return the passbook to Calapre, the authorized representative of L.C. Diaz,
Solidbank and Teller No. 6 presumptively failed to observe such high degree of
diligence in safeguarding the passbook, and in insuring its return to the party
authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a
presumption that the defendant was at fault or negligent. The burden is on the
defendant to prove that he was not at fault or negligent. In contrast, in culpa
aquiliana the plaintiff has the burden of proving that the defendant was negligent. In
the present case, L.C. Diaz has established that Solidbank breached its contractual
obligation to return the passbook only to the authorized representative of L.C.
Diaz. There is thus a presumption that Solidbank was at fault and its teller was
negligent in not returning the passbook to Calapre. The burden was on Solidbank to
prove that there was no negligence on its part or its employees.
Solidbank failed to discharge its burden. Solidbank did not present to the trial court
Teller No. 6, the teller with whom Calapre left the passbook and who was supposed to
return the passbook to him. The record does not indicate that Teller No. 6 verified the
identity of the person who retrieved the passbook. Solidbank also failed to adduce in
evidence its standard procedure in verifying the identity of the person retrieving the
passbook, if there is such a procedure, and that Teller No. 6 implemented this
procedure in the present case.
Solidbank is bound by the negligence of its employees under the principle
of respondeat superior or command responsibility. The defense of exercising the
required diligence in the selection and supervision of employees is not a complete
defense in culpa contractual, unlike in culpa aquiliana.[25]
The bank must not only exercise high standards of integrity and performance, it must
also insure that its employees do likewise because this is the only way to insure that
the bank will comply with its fiduciary duty. Solidbank failed to present the teller who
had the duty to return to Calapre the passbook, and thus failed to prove that this teller
exercised the high standards of integrity and performance required of Solidbanks
employees.
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts is the proximate
cause of the unauthorized withdrawal. The trial court believed that L.C. Diazs
negligence in not securing its passbook under lock and key was the proximate cause
that allowed the impostor to withdraw the P300,000. For the appellate court, the
proximate cause was the tellers negligence in processing the withdrawal without first
verifying with L.C. Diaz. We do not agree with either court.
Proximate cause is that cause which, in natural and continuous sequence, unbroken
by any efficient intervening cause, produces the injury and without which the result
would not have occurred.[26] Proximate cause is determined by the facts of each case
upon mixed considerations of logic, common sense, policy and precedent.[27]
L.C. Diaz was not at fault that the passbook landed in the hands of the
impostor. Solidbank was in possession of the passbook while it was processing the
deposit. After completion of the transaction, Solidbank had the contractual obligation
to return the passbook only to Calapre, the authorized representative of L.C.
Diaz. Solidbank failed to fulfill its contractual obligation because it gave the passbook
to another person.
Solidbanks failure to return the passbook to Calapre made possible the withdrawal of
the P300,000 by the impostor who took possession of the passbook. Under
Solidbanks rules on savings account, mere possession of the passbook raises the
presumption of ownership. It was the negligent act of Solidbanks Teller No. 6 that
gave the impostor presumptive ownership of the passbook. Had the passbook not
fallen into the hands of the impostor, the loss of P300,000 would not have happened.
Thus, the proximate cause of the unauthorized withdrawal was Solidbanks negligence
in not returning the passbook to Calapre.
We do not subscribe to the appellate courts theory that the proximate cause of the
unauthorized withdrawal was the tellers failure to call up L.C. Diaz to verify the
withdrawal. Solidbank did not have the duty to call up L.C. Diaz to confirm the
withdrawal. There is no arrangement between Solidbank and L.C. Diaz to this
effect. Even the agreement between Solidbank and L.C. Diaz pertaining to measures
that the parties must observe whenever withdrawals of large amounts are made does
not direct Solidbank to call up L.C. Diaz.
There is no law mandating banks to call up their clients whenever their
representatives withdraw significant amounts from their accounts. L.C. Diaz therefore
had the burden to prove that it is the usual practice of Solidbank to call up its clients to
verify a withdrawal of a large amount of money. L.C. Diaz failed to do so.
Teller No. 5 who processed the withdrawal could not have been put on guard to verify
the withdrawal. Prior to the withdrawal of P300,000, the impostor deposited with Teller
No. 6 theP90,000 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.
PHILIPPINE BANK OF COMMERCE, now absorbed by PHILIPPINE
COMMERCIAL INTERNATIONAL BANK, ROGELIO LACSON, DIGNA DE LEON,
MARIA ANGELITA PASCUAL, et al., petitioners,
vs.
THE COURT OF APPEALS, ROMMEL'S MARKETING CORP., represented by
ROMEO LIPANA, its President & General Manager, respondents.
HERMOSISIMA, JR., J.:
Challenged in this petition for review is the Decision dated February 28,
19911 rendered by public respondent Court of Appeals which affirmed the Decision
dated November 15, 1985 of the Regional Trial Court, National Capital Judicial
Region, Branch CLX (160), Pasig City, in Civil Case No. 27288 entitled "Rommel's
Marketing Corporation, etc. v. Philippine Bank of Commerce, now absorbed by
Philippine Commercial and Industrial Bank."
The case stemmed from a complaint filed by the private respondent Rommel's
Marketing Corporation (RMC for brevity), represented by its President and General
Manager Romeo Lipana, to recover from the former Philippine Bank of Commerce
(PBC for brevity), now absorbed by the Philippine Commercial International Bank, the
sum of P304,979.74 representing various deposits it had made in its current account
with said bank but which were not credited to its account, and were instead deposited
to the account of one Bienvenido Cotas, allegedly due to the gross and inexcusable
negligence of the petitioner bank.
RMC maintained two (2) separate current accounts, Current Account Nos. 53-01980-
3 and 53-01748-7, with the Pasig Branch of PBC in connection with its business of
selling appliances.
In the ordinary and usual course of banking operations, current account deposits are
accepted by the bank on the basis of deposit slips prepared and signed by the
depositor, or the latter's agent or representative, who indicates therein the current
account number to which the deposit is to be credited, the name of the depositor or
current account holder, the date of the deposit, and the amount of the deposit either in
cash or checks. The deposit slip has an upper portion or stub, which is detached and
given to the depositor or his agent; the lower portion is retained by the bank. In some
instances, however, the deposit slips are prepared in duplicate by the depositor. The
original of the deposit slip is retained by the bank, while the duplicate copy is returned
or given to the depositor.
From May 5, 1975 to July 16, 1976, petitioner Romeo Lipana claims to have entrusted
RMC funds in the form of cash totalling P304,979.74 to his secretary, Irene Yabut, for
the purpose of depositing said funds in the current accounts of RMC with PBC. It
turned out, however, that these deposits, on all occasions, were not credited to RMC's
account but were instead deposited to Account No. 53-01734-7 of Yabut's husband,
Bienvenido Cotas who likewise maintains an account with the same bank. During this
period, petitioner bank had, however, been regularly furnishing private respondent
with monthly statements showing its current accounts balances. Unfortunately, it had
never been the practice of Romeo Lipana to check these monthly statements of
account reposing complete trust and confidence on petitioner bank.
Irene Yabut's modus operandi is far from complicated. She would accomplish two (2)
copies of the deposit slip, an original and a duplicate. The original showed the name
of her husband as depositor and his current account number. On the duplicate copy
was written the account number of her husband but the name of the account holder
was left blank. PBC's teller, Azucena Mabayad, would, however, validate and stamp
both the original and the duplicate of these deposit slips retaining only the original
copy despite the lack of information on the duplicate slip. The second copy was kept
by Irene Yabut allegedly for record purposes. After validation, Yabut would then fill up
the name of RMC in the space left blank in the duplicate copy and change the
account number written thereon, which is that of her husband's, and make it appear to
be RMC's account number, i.e., C.A. No. 53-01980-3. With the daily remittance
records also prepared by Ms. Yabut and submitted to private respondent RMC
together with the validated duplicate slips with the latter's name and account number,
she made her company believe that all the while the amounts she deposited were
being credited to its account when, in truth and in fact, they were being deposited by
her and credited by the petitioner bank in the account of Cotas. This went on in a
span of more than one (1) year without private respondent's knowledge.
Upon discovery of the loss of its funds, RMC demanded from petitioner bank the
return of its money, but as its demand went unheeded, it filed a collection suit before
the Regional Trial Court of Pasig, Branch 160. The trial court found petitioner bank
negligent and ruled as follows:
WHEREFORE, judgment is hereby rendered sentencing defendant Philippine Bank of
Commerce, now absorbed by defendant Philippine Commercial & Industrial Bank,
and defendant Azucena Mabayad to pay the plaintiff, jointly and severally, and without
prejudice to any criminal action which may be instituted if found warranted:
1. The sum of P304,979.72, representing plaintiffs lost deposit, plus interest thereon
at the legal rate from the filing of the complaint;
2. A sum equivalent to 14% thereof, as exemplary damages;
3. A sum equivalent to 25% of the total amount due, as and for attorney's fees; and
4. Costs.
Defendants' counterclaim is hereby dismissed for lack of merit.2
On appeal, the appellate court affirmed the foregoing decision with modifications, viz:
WHEREFORE, the decision appealed from herein is MODIFIED in the sense that the
awards of exemplary damages and attorney's fees specified therein are eliminated
and instead, appellants are ordered to pay plaintiff, in addition to the principal sum of
P304,979.74 representing plaintiff's lost deposit plus legal interest thereon from the
filing of the complaint, P25,000.00 attorney's fees and costs in the lower court as well
as in this Court.3
Hence, this petition anchored on the following grounds:
1) The proximate cause of the loss is the negligence of respondent Rommel
Marketing Corporation and Romeo Lipana in entrusting cash to a dishonest
employee.
2) The failure of respondent Rommel Marketing Corporation to cross-check the bank's
statements of account with its own records during the entire period of more than one
(1) year is the proximate cause of the commission of subsequent frauds and
misappropriation committed by Ms. Irene Yabut.
3) The duplicate copies of the deposit slips presented by respondent Rommel
Marketing Corporation are falsified and are not proof that the amounts appearing
thereon were deposited to respondent Rommel Marketing Corporation's account with
the bank,
4) The duplicate copies of the deposit slips were used by Ms. Irene Yabut to cover up
her fraudulent acts against respondent Rommel Marketing Corporation, and not as
records of deposits she made with the bank.4
The petition has no merit.
Simply put, the main issue posited before us is: What is the proximate cause of the
loss, to the tune of P304,979.74, suffered by the private respondent RMC —
petitioner bank's negligence or that of private respondent's?
Petitioners submit that the proximate cause of the loss is the negligence of
respondent RMC and Romeo Lipana in entrusting cash to a dishonest employee in
the person of Ms. Irene Yabut.5 According to them, it was impossible for the bank to
know that the money deposited by Ms. Irene Yabut belong to RMC; neither was the
bank forewarned by RMC that Yabut will be depositing cash to its account. Thus, it
was impossible for the bank to know the fraudulent design of Yabut considering that
her husband, Bienvenido Cotas, also maintained an account with the bank. For the
bank to inquire into the ownership of the cash deposited by Ms. Irene Yabut would be
irregular. Otherwise stated, it was RMC's negligence in entrusting cash to a dishonest
employee which provided Ms. Irene Yabut the opportunity to defraud RMC.6
Private respondent, on the other hand, maintains that the proximate cause of the loss
was the negligent act of the bank, thru its teller Ms. Azucena Mabayad, in validating
the deposit slips, both original and duplicate, presented by Ms. Yabut to Ms.
Mabayad, notwithstanding the fact that one of the deposit slips was not completely
accomplished.
We sustain the private respondent.
Our law on quasi-delicts states:
Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is
no pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter.
There are three elements of a quasi-delict: (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 damages incurred by the plaintiff.7
In the case at bench, there is no dispute as to the damage suffered by the private
respondent (plaintiff in the trial court) RMC in the amount of P304,979.74. It is in
ascribing fault or negligence which caused the damage where the parties point to
each other as the culprit.
Negligence is the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or
the doing of something which a prudent and reasonable man would do. The seventy-
eight (78)-year-old, yet still relevant, case of Picart v. Smith,8 provides the test by
which to determine the existence of negligence in a particular case which may be
stated as follows: Did the defendant in doing the alleged negligent act use that
reasonable care and caution which an ordinarily prudent person would have used in
the same situation? If not, then he is guilty of negligence. The law here in effect
adopts the standard supposed to be supplied by the imaginary conduct of the
discreet paterfamilias of the Roman law. The existence of negligence in a given case
is not determined by reference to the personal judgment of the actor in the situation
before him. The law considers what would be reckless, blameworthy, or negligent in
the man of ordinary intelligence and prudence and determines liability by that.
Applying the above test, it appears that the bank's teller, Ms. Azucena Mabayad, was
negligent in validating, officially stamping and signing all the deposit slips prepared
and presented by Ms. Yabut, despite the glaring fact that the duplicate copy was not
completely accomplished contrary to the self-imposed procedure of the bank with
respect to the proper validation of deposit slips, original or duplicate, as testified to by
Ms. Mabayad herself, thus:
Q: Now, as teller of PCIB, Pasig Branch, will you please tell us Mrs. Mabayad your
important duties and functions?
A: I accept current and savings deposits from depositors and encashments.
Q: Now in the handling of current account deposits of bank clients, could you tell us
the procedure you follow?
A: The client or depositor or the authorized representative prepares a deposit slip by
filling up the deposit slip with the name, the account number, the date, the cash
breakdown, if it is deposited for cash, and the check number, the amount and then he
signs the deposit slip.
Q: Now, how many deposit slips do you normally require in accomplishing current
account deposit, Mrs. Mabayad?
A: The bank requires only one copy of the deposit although some of our clients
prepare the deposit slip in duplicate.
Q: Now in accomplishing current account deposits from your clients, what do you
issue to the depositor to evidence the deposit made?
A: We issue or we give to the clients the depositor's stub as a receipt of the deposit.
Q: And who prepares the deposit slip?
A: The depositor or the authorized representative sir?
Q: Where does the depositor's stub comes (sic) from Mrs. Mabayad, is it with the
deposit slip?
A: The depositor's stub is connected with the deposit slip or the bank's copy. In a
deposit slip, the upper portion is the depositor's stub and the lower portion is the
bank's copy, and you can detach the bank's copy from the depositor's stub by tearing
it sir.
Q: Now what do you do upon presentment of the deposit slip by the depositor or the
depositor's authorized representative?
A: We see to it that the deposit slip9 is properly accomplished and then we count the
money and then we tally it with the deposit slip sir.
Q: Now is the depositor's stub which you issued to your clients validated?
A: Yes, sir. 10 [Emphasis ours]
Clearly, Ms. Mabayad failed to observe this very important procedure. The fact that
the duplicate slip was not compulsorily required by the bank in accepting deposits
should not relieve the petitioner bank of responsibility. The odd circumstance alone
that such duplicate copy lacked one vital information — that of the name of the
account holder — should have already put Ms. Mabayad on guard. Rather than
readily validating the incomplete duplicate copy, she should have proceeded more
cautiously by being more probing as to the true reason why the name of the account
holder in the duplicate slip was left blank while that in the original was filled up. She
should not have been so naive in accepting hook, line and sinker the too shallow
excuse of Ms. Irene Yabut to the effect that since the duplicate copy was only for her
personal record, she would simply fill up the blank space later on. 11 A "reasonable
man of ordinary prudence" 12 would not have given credence to such explanation and
would have insisted that the space left blank be filled up as a condition for validation.
Unfortunately, this was not how bank teller Mabayad proceeded thus resulting in huge
losses to the private respondent.
Negligence here lies not only on the part of Ms. Mabayad but also on the part of the
bank itself in its lackadaisical selection and supervision of Ms. Mabayad. This was
exemplified in the testimony of Mr. Romeo Bonifacio, then Manager of the Pasig
Branch of the petitioner bank and now its Vice-President, to the effect that, while he
ordered the investigation of the incident, he never came to know that blank deposit
slips were validated in total disregard of the bank's validation procedures, viz:
Q: Did he ever tell you that one of your cashiers affixed the stamp mark of the bank
on the deposit slips and they validated the same with the machine, the fact that those
deposit slips were unfilled up, is there any report similar to that?
A: No, it was not the cashier but the teller.
Q: The teller validated the blank deposit slip?
A: No it was not reported.
Q: You did not know that any one in the bank tellers or cashiers validated the blank
deposit slip?
A: I am not aware of that.
Q: It is only now that you are aware of that?
A: Yes, sir. 13
Prescinding from the above, public respondent Court of Appeals aptly observed:
xxx xxx xxx
It was in fact only when he testified in this case in February, 1983, or after the lapse of
more than seven (7) years counted from the period when the funds in question were
deposited in plaintiff's accounts (May, 1975 to July, 1976) that bank manager
Bonifacio admittedly became aware of the practice of his teller Mabayad of validating
blank deposit slips. Undoubtedly, this is gross, wanton, and inexcusable negligence in
the appellant bank's supervision of its employees. 14
It was this negligence of Ms. Azucena Mabayad, coupled by the negligence of the
petitioner bank in the selection and supervision of its bank teller, which was the
proximate cause of the loss suffered by the private respondent, and not the latter's act
of entrusting cash to a dishonest employee, as insisted by the petitioners.
Proximate cause is determined on the facts of each case upon mixed considerations
of logic, common sense, policy and precedent. 15 Vda. de Bataclan v.
Medina, 16 reiterated in the case of Bank of the Phil. Islands v. Court of
Appeals, 17 defines proximate cause as "that cause, which, in natural and continuous
sequence, unbroken by any efficient intervening cause, produces the injury, and
without which the result would not have occurred. . . ." In this case, absent the act of
Ms. Mabayad in negligently validating the incomplete duplicate copy of the deposit
slip, Ms. Irene Yabut would not have the facility with which to perpetrate her
fraudulent scheme with impunity. Apropos, once again, is the pronouncement made
by the respondent appellate court, to wit:
. . . . Even if Yabut had the fraudulent intention to misappropriate the funds entrusted
to her by plaintiff, she would not have been able to deposit those funds in her
husband's current account, and then make plaintiff believe that it was in the latter's
accounts wherein she had deposited them, had it not been for bank teller Mabayad's
aforesaid gross and reckless negligence. The latter's negligence was thus the
proximate, immediate and efficient cause that brought about the loss claimed by
plaintiff in this case, and the failure of plaintiff to discover the same soon enough by
failing to scrutinize the monthly statements of account being sent to it by appellant
bank could not have prevented the fraud and misappropriation which Irene Yabut had
already completed when she deposited plaintiff's money to the account of her
husband instead of to the latter's accounts. 18
Furthermore, under the doctrine of "last clear chance" (also referred to, at times as
"supervening negligence" or as "discovered peril"), petitioner bank was indeed the
culpable party. This doctrine, in essence, states that where both parties are negligent,
but the negligent act of one is appreciably later in time than that of the other, or when
it is impossible to determine whose fault or negligence should be attributed to the
incident, the one who had the last clear opportunity to avoid the impending harm and
failed to do so is chargeable with the consequences thereof. 19Stated differently, the
rule would also mean that an antecedent negligence of a person does not preclude
the recovery of damages for the supervening negligence of, or bar a defense against
liability sought by another, if the latter, who had the last fair chance, could have
avoided the impending harm by the exercise of due diligence. 20Here, assuming that
private respondent RMC was negligent in entrusting cash to a dishonest employee,
thus providing the latter with the opportunity to defraud the company, as advanced by
the petitioner, yet it cannot be denied that the petitioner bank, thru its teller, had the
last clear opportunity to avert the injury incurred by its client, simply by faithfully
observing their self-imposed validation procedure.
At this juncture, it is worth to discuss the degree of diligence ought to be exercised by
banks in dealing with their clients.
The New Civil Code provides:
Art. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. When negligence shows
bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required.
(1104a)
In the case of banks, however, the degree of diligence required is more than that of
a good father of a family. Considering the fiduciary nature of their relationship with
their depositors, banks are duty bound to treat the accounts of their clients with
the highest degree of care. 21
As elucidated in Simex International (Manila), Inc. v. Court of Appeals, 22 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 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 failure to duly credit him his deposits as soon as they are made, can cause the
depositor not a little embarrassment if not financial loss and perhaps even civil and
criminal litigation.
The point is that as a business affected with public interest and because of the nature
of its functions, the bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship. In the
case before us, it is apparent that the petitioner bank was remiss in that duty and
violated that relationship.
Petitioners nevertheless aver that the failure of respondent RMC to cross-check the
bank's statements of account with its own records during the entire period of more
than one (1) year is the proximate cause of the commission of subsequent frauds and
misappropriation committed by Ms. Irene Yabut.

We do not agree.

While it is true that had private respondent checked the monthly statements of
account sent by the petitioner bank to RMC, the latter would have discovered the loss
early on, such cannot be used by the petitioners to escape liability. This omission on
the part of the private respondent does not change the fact that were it not for the
wanton and reckless negligence of the petitioners' employee in validating the
incomplete duplicate deposit slips presented by Ms. Irene Yabut, the loss would not
have occurred. Considering, however, that the fraud was committed in a span of more
than one (1) year covering various deposits, common human experience dictates that
the same would not have been possible without any form of collusion between Ms.
Yabut and bank teller Mabayad. Ms. Mabayad was negligent in the performance of
her duties as bank teller nonetheless. Thus, the petitioners are entitled to claim
reimbursement from her for whatever they shall be ordered to pay in this case.

The foregoing notwithstanding, it cannot be denied that, indeed, private respondent

was likewise negligent in not checking its monthly statements of account. Had it done
so, the company would have been alerted to the series of frauds being committed
against RMC by its secretary. The damage would definitely not have ballooned to
such an amount if only RMC, particularly Romeo Lipana, had exercised even a little
vigilance in their financial affairs. This omission by RMC amounts to contributory
negligence which shall mitigate the damages that may be awarded to the private
respondent 23 under Article 2179 of the New Civil Code, to wit:

. . . When the plaintiff's own negligence was the immediate and proximate cause of
his injury, he cannot recover damages. But if his negligence was only contributory, the
immediate and proximate cause of the injury being the defendant's lack of due care,
the plaintiff may recover damages, but the courts shall mitigate the damages to be
awarded.

In view of this, we believe that the demands of substantial justice are satisfied by
allocating the damage on a 60-40 ratio. Thus, 40% of the damage awarded by the
respondent appellate court, except the award of P25,000.00 attorney's fees, shall be
borne by private respondent RMC; only the balance of 60% needs to be paid by the
petitioners. The award of attorney's fees shall be borne exclusively by the petitioners.

WHEREFORE, the decision of the respondent Court of Appeals is modified by

reducing the amount of actual damages private respondent is entitled to by 40%.
Petitioners may recover from Ms. Azucena Mabayad the amount they would pay the
private respondent. Private respondent shall have recourse against Ms. Irene Yabut.
In all other respects, the appellate court's decision is AFFIRMED.

Proportionate costs.

SO ORDERED.