1- SIMEX INTERNATIONAL vs. THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK

Petitioner SIMEX is corporation engaged in the exportation of food products. It buys these products from various local suppliers and then sells them abroad. Most of its exports are purchased by the petitioner on credit.

SIMEX was a depositor of the respondent bank TRADERS. SIMEX deposited to its account in the said bank the amount

of P100k, thus increasing its balance as of that date to P190k. 

Subsequently, the petitioner issued several checks against its deposit but was surprised to learn later that they had been dishonored for insufficient funds.

As a consequence, one of Simex’s creditors sent a letter of demand to it, threatening prosecution if the dishonored check issued to it was not made good. It also withheld delivery of the order made by SIMEX.

Similar letters were sent to SIMEX by the other creditors and also cancelled SIMEX’s credit line and demanded that future payments be made by it in cash or certified check.

Meantime, action on the pending orders of the petitioner with the other suppliers whose checks were dishonored was also deferred.

SIMEX complained to the respondent bank.  Investigation disclosed that the sum of P100k deposited by

SIMEX on May 25, 1981, had not been credited to it. The error was rectified on June 17, 1981, and the dishonored

checks were paid after they were re-deposited. SIMEX demanded reparation from TRADERS for its "gross

and wanton negligence." This demand was not met.

SIMEX then filed a complaint (RTC) claiming from TRADERS BANK moral damages in the sum of P1M and exemplary damages in the sum of P500K, plus 25% attorney's fees, and costs.

TC ruled that moral and exemplary damages were not called for under the circumstances.

o However, observing that the plaintiff's right had been violated, he ordered the defendant to pay nominal damages of P20K plus P5K attorney's fees and costs.  

CA affirmed the decision of the TC.

Issue: Whether the decision of the RTC and CA is correct.

Held: No.

It seems that the negligence of the private respondent had been brushed off rather lightly as if it were a minor infraction requiring no more than a slap on the wrist.

It is not enough to say that TRADERS BANK rectified its records and credited the deposit in less than a month as if this were sufficient repentance.

The error should not have been committed in the first place. The respondent bank has not even explained why it was

committed at all. It is true that the dishonored checks were, as the CA put it,

"eventually" paid. However, this took almost a month when, properly, the

checks should have been paid immediately upon presentment.

As the SC sees it, the initial carelessness of the respondent bank, aggravated by the lack of promptitude in repairing its error, justifies the grant of moral damages.

This rather lackadaisical attitude toward the complaining depositor constituted the gross negligence, if not wanton bad faith, that the respondent court said had not been established by the petitioner.

While stressing the rectification made by TRADERS BANK, the decision practically ignored the prejudice suffered by the petitioner.

This was simply glossed over if not, indeed, disbelieved. The fact is that the SIMEX’s credit line was cancelled and its

orders were not acted upon pending receipt of actual payment by the suppliers.

Its business declined. Its reputation was tarnished. Its standing was reduced in the business community. All this was due to the fault of the respondent bank which was undeniably remiss in its duty to SIMEX.

Moral Damages

In the case at bar, SIMEX is seeking such damages for the prejudice sustained by it as a result of the private respondent's fault.

A corporation is not as a rule entitled to moral damages because, not being a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish and moral shock.

The only exception to this rule is where the corporation has a good reputation that is debased, resulting in its social humiliation.

The SC recognizes that the petitioner did suffer injury because of the private respondent's negligence that caused the dishonor of the checks issued by it.

The immediate consequence was that its prestige was impaired because of the bouncing checks and confidence in it as a reliable debtor was diminished.

Considering all this, we feel that the award of nominal damages in the sum of P20k was not the proper relief to which the petitioner was entitled.

As we have found that the petitioner has indeed incurred loss through the fault of the private respondent, the proper remedy is the award to it of moral damages, which we impose, in our discretion, in the same amount of P20K.

Public Policy with respect to the Banking System

As for business entities like the petitioner, the bank is a trusted and active associate that can help in the running of their affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day transactions like the issuance or encashment of checks.

The depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions.

The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible.

This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs.

A blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation.

The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.

In the case at bar, it is obvious that the respondent bank was remiss in that duty and violated that relationship.

What is especially deplorable is that, having been informed of its error in not crediting the deposit in question to the petitioner, the respondent bank did not immediately correct it but did so only one week later or twenty-three days after the deposit was made.

It bears repeating that the record does not contain any satisfactory explanation of why the error was made in the first place and why it was not corrected immediately after its discovery.

Such ineptness comes under the concept of the wanton manner contemplated in the Civil Code that calls for the imposition of exemplary damages.

Exemplary Damages

SC imposes upon the respondent bank exemplary damages in the amount of P50k "by way of example or correction for the public good," in the words of the law.

It is expected that this ruling will serve as a warning and deterrent against the repetition of the ineptness and

indefference that has been displayed here, lest the confidence of the public in the banking system be further impaired.

2- BPI vs. IAC and the SPOUSES ARTHUR CANLAS and VIVIENE CANLAS

Spouses Arthur and Vivienne Canlas opened a joint current account with Commercial Bank and Trust Company of the Philippines (CBTC).

By mistake, the "new accounts" teller of the bank miscredited the initial deposit of P2,250 to Arthur's personal account in the same branch.

The spouses subsequently deposited other amounts in their joint account.

Vivienne Canlas issued a check for Pl,639.89 and another check for P1,160.002.

One of the checks was dishonored by the bank for insufficient funds and a penalty of P20 was deducted from the account in both instances.

Respondents then filed a complaint for damages against CBTC in the CFI Pampanga

During the pendency of the case, the Bank of the Philippine Islands (BPI) and CBTC were merged.

TC – awarded the private respondents P465,000. IAC - reduced the damage-award to P105,000.

ISSUE: Whether the petitioner was guilty of gross negligence in the handling of private respondents' bank account.

Held: YES.

There is no merit in petitioner's argument that it should not be considered negligent, much less held liable for damages on account of the inadvertence of its bank employee for Article 1173 of the Civil Code only requires it to exercise the diligence of a good father of family.

In the Simex case, this Court stressed the fiduciary nature of the relationship between a bank and its depositors and the extent of diligence expected of it in handling the accounts entrusted to its care.

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions.

The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible.

This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs.

A blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation.

The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.

The bank is not expected to be infallible but, as correctly observed by respondent Appellate Court, in this instance, it must bear the blame for not discovering the mistake of its teller despite the established procedure requiring the papers

and bank books to pass through a battery of bank personnel whose duty it is to check and countercheck them for possible errors.

3- BANK OF THE PHILIPPINE ISLANDS V. COURT OF APPEALS AND NAPIZA, 326 SCRA 641 (2000)

FACTS: Private respondent Napiza deposited in a Foreign Currency Deposit Unit (FCDU) account with petitioner BPI a manager’s check from Continental Bank, payable to “cash” in the amount of $2,500. It appears the check belonged to a certain Henry asked Napiza to deposit the check in his dollar account by way of accommodation and for the purpose of clearing the same.

1. Napiza agreed to the arrangement and delivered to Chan a signed blank withdrawal slip, with the understanding that as soon as the check is cleared, both of them will withdraw the amount of the check upon presenting Napiza’s passbook to the bank

2. However, a certain Ruben Gayon used the Napiza’s blank withdrawal slip to withdraw the amount of $2,541.67 from the latter’s FCDU. Notably, the withdrawal slip shows that the amount was payable to de Guzman and was duly initiated by BPI’s assistant manager

3. Subsequently, BPI was informed by Wells Fargo bank (Drawee bank) that the check deposited by Napiza was a counterfeit. As such, BPI’s branch manager notified Napiza that the check was dishonored

4. For failure to return the amount, petitioner BPI filed an action against Napiza praying for the return of $2,500

5. Napiza, in his answer, alleged that while he did indeed signed a “blank” withdrawal slip with the understanding that the

amount deposited shall be withdrawn only after the check has been cleared. However, without his knowledge, Gayon withdrew $2,541.67 Napiza contended that the bank was grossly negligent for its apparent ignorance of routine bank rules since it accepted the encashed the check even if the account holder’s passbook was not presented

6. The lower court dismissed the complaint and ruled that incumbent upon the petitioner bank to credit the value of the check to the account of the private respondent only upon receipt of final payment and should not have authorized the withdrawal from the latter’s account of the value of the check.

7. CA affirmed the lower court’s decision citing that BPI committed clear gross negligence in allowing Gayon to withdraw the money without presenting the private respondent’s passbook. The mere deposit of a check in private respondent’s account did not mean the check was already the private respondent’s property. The check still had to be cleared and its proceeds can only be withdrawn upon presentation of a passbook in accordance with the bank’s rules and regulations.

ISSUE: WON petitioner bank was grossly negligent in allowing the withdrawal

HELD: Yes. As correctly held by the CA, in depositing the check in his name, private respondent did not become the outright owner of the amount stated therein. Under the above rule, by depositing the check with petitioner, private respondent was, in a way, merely designating petitioner 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, petitioner shall credit the amount in private respondent's 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. Again, this is in accordance with

ordinary banking practices and with this Court's pronouncement that "the collecting bank or last endorser generally suffers the loss because 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." The rule finds more meaning in this case where the check involved is drawn on a foreign bank and therefore collection is more difficult than when the drawee bank is a local one even though the check in question is a manager's check.

By the nature of its functions, a bank is under obligation to treat the accounts of its depositors "with meticulous care, always having in mind the fiduciary nature of their relationship. As such, in dealing with its depositors, a bank should exercise its functions not only with the diligence of a good father of a family but it should do so with the highest degree of care.

CAB: BPI, in allowing the withdrawal of private respondent's deposit, failed to exercise the diligence of a good father of a family. In total disregard of its own rules, petitioner's personnel negligently handled private respondent's account to petitioner's detriment.

While it is true that private respondent's having signed a blank withdrawal slip set in motion the events that resulted in the withdrawal and encashment of the counterfeit check, the negligence of petitioner's personnel was the proximate cause of the loss that petitioner sustained. Proximate cause, which is determined by a mixed consideration of logic, common sense, policy and precedent, 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." The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on petitioner's part was its personnel's negligence in allowing such withdrawal in disregard of its own rules and the clearing requirement

in the banking system. In so doing, petitioner assumed the risk of incurring a loss on account of a forged or counterfeit foreign check and hence, it should suffer the resulting damage.

4- CONSOLIDATED BANK vs. COURT OF APPEALS

1. L.C. Diaz opened a savings account with Solidbank. L.C. Diaz through its cashier, 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 , to deposit the money with Solidbank. Macaraya also gave Calapre the Solidbank passbook.

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

3. The following day, 15 August 1991, L.C. Diaz, called up Solidbank to stop any transaction using the same passbook until L.C. Diaz could open a new account. 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, 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. The signatories, however, denied signing the withdrawal slip. A certain Noel Tamayo received the P300,000.

4. L.C. Diaz through its counsel demanded from Solidbank the return of its money.  Solidbank refused.

5. L.C. Diaz filed a Complaint for Recovery of a Sum of Money against Solidbank. The trial courts absolved Solidbank and dismissed the complaint. It found LC Diaz to be negligent in handling its passbook. The loss of the P300k was not the result of Solidbank’s negligence.

6. The Court of Appeals reversed the decision of the trial court. The CA used the rules on quasi-delict.

ISSUE: Whether or not the relations between Solidbank and LC Diaz, the depositor, is governed by quasi-delict in determining the liability of Solidbank.

HELD: Solidbank’s 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. There is a debtor-creditor relationship between the bank and its depositor.  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 RA 8791 declares that the State recognizes the “fiduciary nature of banking that requires high standards of integrity and performance.” This new provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of Appeals, holding that “the bank is under obligation to treat the accounts of its depositors with  meticulous care, always having in mind the fiduciary nature of their relationship.”

This fiduciary relationship means that the bank’s obligation to observe “high standards of integrity and performance” is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Although RA 8791 took effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C. Diaz’s savings account, jurisprudence at the time of the withdrawal already imposed on banks the same high standard of diligence required under RA No. 8791.

However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors from a simple loan to a trust agreement, whether express or implied.  Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust. The law 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.

Solidbank’s Breach of its Contractual Obligation- 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.  Solidbank’s 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 Solidbank’s tellers during withdrawals, the law imposes on Solidbank and its tellers an even higher degree of diligence in safeguarding the passbook.

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.

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.

Proximate Cause of the Unauthorized Withdrawal- 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. Solidbank’s failure to return the passbook to Calapre made possible the withdrawal of the P300,000 by the impostor who took possession of the passbook.  

Doctrine of Last Clear Chance- We do not apply the doctrine of last clear chance to the present case.  Solidbank is liable for breach of contract due to negligence in the performance of its contractual obligation to L.C. Diaz. This is a case of culpa contractual, where neither the contributory negligence of the plaintiff nor his last clear chance to avoid the loss, would exonerate the defendant from liability. Such contributory negligence or last clear chance by the plaintiff merely serves to reduce the recovery of damages by the plaintiff but does not exculpate the defendant from his breach of contract.

Mitigated 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.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION.  Petitioner Solidbank Corporation shall pay private respondent L.C. Diaz and Company, CPA’s only 60% of the actual damages awarded by the Court of Appeals.  The remaining 40% of the actual damages shall be borne by private respondent L.C. Diaz and Company, CPA’s.   Proportionate costs.

5- PHILIPPINE BANKING CORPORATION vs. COURT OF APPEALS and LEONILO MARCOS, respondents.

Marcos filed with the trial court a Complaint for Sum of Money against petitioner BANK.

He alleged that sometime in 1982, the BANK through Pagsaligan, one of the officials of the BANK and a close friend, persuaded him to deposit money with the BANK.

Marcos yielded to Pagsaligan’s persuasion and claimed he made a time deposit with the BANK on two occasions.

o The first for P664K. The BANK issued a receipt for this time deposit.

o The second for P764K. The BANK did not issue an official receipt for this time deposit but it acknowledged a deposit of this amount through a letter-certification Pagsaligan issued. (Take Note)

o The time deposits earned interest at 17% per annum and had a maturity period of 90 days.

Marcos alleged that Pagsaligan kept the various time deposit certificates on the assurance that the BANK would take care of the certificates, interests and renewals.

Marcos claimed that from the time of the deposit, he had not received the principal amount or its interest.

Sometime in March 1983, Marcos wanted to withdraw from the BANK his time deposits and the accumulated interests to buy materials for his construction business.

However, the BANK through Pagsaligan convinced Marcos to keep his time deposits intact and instead to open several domestic letters of credit.

Marcos executed 3 Trust Receipt Agreements totalling P851K.

Marcos deposited the required 30% marginal deposit for the trust receipt agreements.

Marcos claimed that his obligation to the BANK was therefore only P595K. representing 70% of the letters of credit.

Marcos believed that he and the BANK became creditors and debtors of each other.

Marcos expected the BANK to offset automatically a portion of his time deposits and the accumulated interest with the amount covered by the three trust receipts totalling P851K less the 30% marginal deposit that he had paid.

Marcos argued that if only the BANK applied his time deposits and the accumulated interest to his remaining obligation, which is 70% of the total amount of the letters of credit, he would have paid completely his debt.

Marcos further pointed out that since he did not apply for a renewal of the trust receipt agreements, the BANK had no right to renew the same.

Marcos also denied that he obtained another loan from the BANK for   P 500K with interest at 25%   per annum supposedly covered by a Promissory Note dated 24 October 1983. (Take Note)

Marcos bewailed the BANK’s belated claim that his time deposits were applied to this void promissory note on 12 March 1985.

TC ruled in favour of Marcos. CA affirmed the ruling of the lower court. Hence, this petition.

Issue: Whether the Bank was remiss of its duty to its depositor.

Held: Yes.

The BANK’s Fiduciary Duty to its Depositor

The BANK is liable to Marcos for offsetting his time deposits with a fictitious promissory note.

The existence of the Promissory Note could have been easily proven had the BANK presented the original copies of the promissory note and its supporting evidence.

In lieu of the original copies, the BANK presented the "machine copies of the duplicate" of the documents.

These substitute documents have no evidentiary value. The BANK’s failure to explain the absence of the original

documents and to maintain a record of the offsetting of this loan with the time deposits bring to fore the BANK’s dismal failure to fulfill its fiduciary duty to Marcos.

Section 2 of General Banking Law of 2000 expressly imposes this fiduciary duty on banks when it declares that the State recognizes the "fiduciary nature of banking that requires high standards of integrity and performance."

This statutory declaration merely echoes the earlier pronouncement of the Supreme Court in Simex Case (1 st

case) requiring banks to "treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship." 

Although RA No. 8791 took effect only in the year 2000, at the time that the BANK transacted with Marcos, jurisprudence had already imposed on banks the same high standard of diligence required under RA No. 8791.

This fiduciary relationship means that the bank’s obligation to observe "high standards of integrity and performance" is deemed written into every deposit agreement between a bank and its depositor.

The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family.

Thus, the BANK’s fiduciary duty imposes upon it a higher level of accountability than that expected of Marcos, a businessman, who negligently signed blank forms and entrusted his certificates of time deposits to Pagsaligan without retaining copies of the certificates.

By the very nature of its business, the BANK should have had in its possession the original copies of the disputed promissory note and the records and ledgers evidencing the offsetting of the loan with the time deposits of Marcos.

The BANK inexplicably failed to produce the original copies of these documents.

Clearly, the BANK failed to treat the account of Marcos with meticulous care.

The trial court and appellate court did not rule that it was the bank that forged the promissory note.

It was Pagsaligan, the BANK’s branch manager and a close friend of Marcos, whom the trial court categorically blamed for the fictitious loan agreements.

The trial court held that Pagsaligan made up the loan agreement to cover up his inability to account for the time deposits of Marcos.

Whether it was the BANK’s negligence and inefficiency or Pagsaligan’s misdeed that deprived Marcos of the amount due him will not excuse the BANK from its obligation to return to Marcos the correct amount of his time deposits with interest.

The duty to observe "high standards of integrity and performance" imposes on the BANK that obligation.

The BANK cannot also unjustly enrich itself by keeping Marcos’ money.

Assuming Pagsaligan was behind the spurious promissory note, the BANK would still be accountable to Marcos.

We have held that a bank is liable for the wrongful acts of its officers done in the interest of the bank or in their dealings as bank representatives but not for acts outside the scope of their authority. 

The Existence of the Promissory Note was not Proven

What the BANK presented were merely the "machine copies of the duplicate" of the loan application and promissory note.

No explanation was ever offered by the BANK for its inability to produce the original copies of the documentary evidence.

The BANK also did not comply with the orders of the trial court to submit the originals.

The absence of the original of the documentary evidence casts suspicion on the existence of the Promissory Note considering the BANK’s fiduciary duty to keep efficiently a record of its transactions with its depositors.

Moreover, the circumstances enumerated by the trial court bolster the conclusion that the Promissory Note is bogus.

The BANK has only itself to blame for the dearth of competent proof to establish the existence of the Promissory Note.

6- SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC., petitioner, 

vs. FAR EAST BANK AND TRUST COMPANY AND COURT OF APPEALS, respondents.

Samsung Construction, while based in Biñan, Laguna, maintained a current account with defendant FEBTC at the latter’s Bel-Air, Makati branch. 

The sole signatory to Samsung Construction’s account was Jong Kyu Lee ("Jong"), its Project Manager, while the checks remained in the custody of the company’s accountant, Kyu Yong Lee ("Kyu").

A certain Roberto Gonzaga presented for payment FEBTC Check payable to cash and drawn against Samsung Construction’s current account in the amount of P999K.

The bank teller was satisfied as to the authenticity of the signature appearing on the check.

Shirley Syfu, approved the encashment of the check after Jose Sempio III (whom at the time of the encashment was in the bank with Gonzaga), the assistant accountant of Samsung Construction who was well-known to Syfu and the other bank officers, vouched for the genuineness of Jong’s signature.

Kyu discovered that a check P999K had been encashed and found that the last blank check was missing. 

He reported the matter to Jong, who then proceeded to the bank and realized that his signature had been forged.

Samsung Construction demanded that FEBTC credit to it the amount encashed with interest but to no avail.

Samsung Construction filed a Complaint for violation of Section 23 of the Negotiable Instruments Law, and prayed for the payment of the amount debited as a result of the questioned check plus interest, and attorney’s fees.

ISSUE: Whether FEBTC is liable.

HELD: YES.

Even assuming that FEBTC had a standing habit of dealing with Sempio, acting in behalf of Samsung Construction, the irregular circumstances attending the presentment of the forged check should have put the bank on the highest degree of alert.

The Court recently emphasized that the highest degree of care and diligence is required of banks.

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 client’s 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.

Given the circumstances (huge amount of money involved), extraordinary diligence dictates that FEBTC should have ascertained from Jong personally that the signature in the questionable check was his.

7- PHILIPPINE NATIONAL BANK V. PIKE

FACTS: Respondent Pike, who worked in Japan, opened a US Dollar savings account with petitioner bank PNB, for which he was issued a corresponding passbook.

1. Pike filed an action for damages against the bank alleging that:

a. Sometime in 1993, he discovered that some of his valuables were missing including his PNB passbook, which led to the arrest of a Joy Manuel Davasol. Pike also learned that Davasol made 2 unauthorized withdrawals from his US Dollar Savings account

b. Pike then went to PNB and demanded the return of the amount withdrawn from his account on the ground that he never authorized the withdrawal. The bank refused to credit said amount and instead argued that it exercised due diligence in the handling of said account

2. On the other hand, PNB alleged the different set of facts:a. Sometime in 1993, Pike and Davasol went to see

PNB AVP Lorenzo Val to withdraw $2,000. Pike also instructed PNB to honor all withdrawals to be transmitted by Davasol, who shall present pre-signed withdrawal slips bearing Pike’s signature

b. Subsequently, Pike’s sister notified the bank that Pike’s PNB passbook was lost on account of robbery

and requested for a hold-order on her’s brother’s passbook

c. Pike then executed an affidavit of loss and requested PNB to replace the same and allow him to make withdrawals therein. He also stated that he was holding the bank free from any liability

3. The lower court held in favor of Pike and ruled that the bank was negligent in the exercise of its duties for allowing such a bizarre arrangement. The bank also compared the signatures on the questioned withdrawal slips with the known signature of Pike and found that said signatures do not match

4. CA affirmed the same, citing that the bank did not follow its usual procedure of requiring a depositor who is withdrawing the money through a representative to fill out the back portion of the withdrawal slips.

5. PNB argument: It cannot be liable for the loss since Pike gave verbal instructions to allow the withdrawal from his account through another person. Moreover, the fact that Pike withdrew the remaining balance from his account and executed a waiver releasing PNB from any liability due to the loss of founds negates a finding of negligence on its part

ISSUE: WON PNB should be held liable

HELD: Yes. PNB’s liability arose from the negligence exhibited by employees of PNB in the treatment of Pike’s dollar account. A bank’s liability as an obligor is not merely vicarious but primary, as banks are expected to exercise the highest degree of diligence in the selection and supervision of its employees. Ordinarily, banks allow withdrawal by someone who is not the account holder so long as the account holder authorizes his representative to withdraw and receive from his account by signing on the space provided particularly for such transactions, usually found at the back of the withdrawal slips.

With banks, the degree of diligence required, contrary to the position of PNB, is more than that of a good father of a family considering that the business of banking is imbued with public interest due to the nature of their functions. The stability of banks largely depends on the confidence of the people in the honesty and efficiency of banks. Thus, the law imposes on banks a high degree of obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of banking. Sec 2 General Banking Law makes a categorical declaration that the State recognizes “the fiduciary nature of banking that requires high standards of integrity and performance.” Art 1172 NCC provides 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 father of a family. In every case, the depositor expects the bank to treat his account with utmost fidelity, whether such accounts consist only of a few hundred pesos or millions of pesos.

8- FAR EAST BANK AND TRUST COMPANY V. PACILAN

FACTS: Respondent Pacilan opened a current account with FEBTC Bacolod branch in 1980. Since then, he has issued postdated checks to different payees drawn against the said against the said account. Sometime in 1988, respondent issued a check for P680.

1. Upon presentment, the check in question was dishonored by petitioner bank. The following day, Pacilan deposited P800 to his current account, thus increasing the balance of his account to P1,051.43

2. When Pacilan inquired with the bank about the dishonor of his check, he found out that his current account was closed on the ground that it was “improperly handled.”

3. As such, respondent wrote to petitioner bank complaining that the closure of his account was unjustified. When he did not receive a reply, he filed an action for damages against FEBTC

4. Pacilan alleged that prior to the closure of his current account, he had issue several other postdated checks. FEBTC’s act of closing his current account allegedly preempted the deposits that he intended to make to fund those checks, and exposed him to criminal prosecution for violation of BP 22. He further alleged that the closure of his account was done in malice since he was a cashier of a competitor bank

5. In its answer, FEBTC contended that under the bank’s rules and regulations, “the bank reserves the right to close an account if the depositor frequently draws checks against insufficient funds and/or uncollected deposits” and that the “bank reserves the right at any time to return checks of the depositor which are drawn against insufficient funds or for any reason

6. As evidence, the bank showed that Pacilan’s account was overdrawn 156 times in 1986, 117 in 1987 and in 1988, 26 times. The respondent also signed several checks with a different signature from the specimen on file for dubious reasons

7. When Pacilan deposited P800, it was obviously to cover the issuances made the previous day against an insufficiently funded account. When he presented the check in question, he had already incurred an overdraft. Hence, the bank rightfully dishonored the same for insufficiency of funds

8. The lower court held in favor of Pacilan ruling that the respondent as depositor, had the right to put up sufficient finds for a check that was returned due to insufficient funds the day after the check had been received from the clearing office. In previous instances, it was shown that the bank notified Pacilan when he incurred an overdraft and he would then deposit sufficient funds to cover the overdraft. Thus, the

bank acted unjustifiably when it immediately closed Pacilan’s account and deprived him of an opportunity to reclear his check or deposit sufficient funds the next day. CA affirmed the lower court’s decision

ISSUE: WON the bank had acted with malice in closing the respondent’s account

HELD: No. Under Art 19 NCC, there is abuse of rights when the following concur: (a) the existence of a legal right or duty; (b) which is exercised in bad faith; (c) for the sole intent of prejudicing or injuring another.

It is clear that FEBTC has the right to close the account of respondent based on its Rules and Regulations Governing the Establishment and Operation of Regular Demand Deposits. The same rules also provide that the depositor is not entitled, as a matter of right to overdraw on this deposit and the bank reserves the right to return the checks of the depositor drawn against insufficient funds.

The facts do not establish that, in the exercise of this right, FEBTC committed an abuse thereof. Specifically, the second and third elements of abuse of rights are not present in this case. Given that the respondent had a history of overdrawing his current account, the bank was justified in closing the same for improper handling.

Nowhere under its rules and regulations is petitioner bank required to notify the respondent or any depositor of the closure of the account for frequently drawing checks against insufficient funds. No malice or bad faith can be imputed on petitioner bank for acting as such since the records clearly show that respondent had been improperly and irregularly handling his account not just a few times but hundreds of times. Under the circumstances, FEBTC could not be faulted for exercising its right in accordance with the express rules and regulations of the bank.

Upon the opening of his account, Pacilan had agreed to be bound by these terms and conditions.

Moreover, it has not been shown that the bank had closed Pacilan’s current account with the sole intention of prejudicing and injuring the respondent. While Pacilan may have suffered injury as a result thereof, but this falls within the concept of damnum absque injuria.

9- CITIBANK vs. SPS. LUIS and CARMELITA CABAMONGAN and their sons LUISCABAMONGAN, JR. and LITO CABAMONGAN, Respondents.

On Aug. 16, 1993, Spouses Cabamongan opened a joint "and/or" foreign currency time deposit in trust for their 2 sons at the Citibank, N.A., Makati branch, in the amount of $55K for a term of 182 days at 2.5625 per cent interest per annum. 

Prior to maturity, a person claiming to be Carmelita went to the Makati branch and pre-terminated the said foreign currency time deposit by presenting a passport, a Bank of America Versatele Card, an ATM card and a Mabuhay Credit Card. 

She filled up the necessary forms for pre-termination of deposits with the assistance of Account Officer San Pedro.

While the transaction was being processed, she was casually interviewed by San Pedro about her personal circumstances and investment plans.

Since the said person failed to surrender the original Certificate of Deposit, she had to execute a notarized release and waiver document in favor of Citibank, pursuant to Citibank's internal procedure, before the money was released to her. 

The release and waiver document   was not notarized on that same day but the money was nonetheless given to the person withdrawing. 

After said person left, San Pedro realized that she left behind an identification card. 

Thus, San Pedro called up Carmelita's listed address at No. 48 Ranger Street, Moonwalk Village, Las Pinas, Metro Manila on the same day to have the card picked up. 

Carmelita’s daughter-in-law received San Pedro's call and was stunned by the news that Carmelita preterminated her foreign currency time deposit because Carmelita was in the US at that time. 

The Cabamongan spouses work and reside in California. Her daughter-in-law made an overseas call to Carmelita to

inform her about what happened.  The Cabamongan spouses were shocked at the news. It seems that sometime between June 10 and 16, 1993, an

unidentified person broke in at the couple's residence in California.

Initially, they reported that only Carmelita's jewelry box was missing, but later on, they discovered that other items, such as their passports, bank deposit certificates, including the subject foreign currency deposit, and identification cards were also missing. 

It was only then that the Cabamongan spouses realized that their passports and bank deposit certificates were lost.15

Through various overseas calls, the Cabamongan spouses informed Citibank, thru San Pedro, that Carmelita was in the United States and did not preterminate their deposit and that the person who did so was an impostor who could have also been involved in the break-in of their California residence.

San Pedro told the spouses to submit the necessary documents to support their claim but Citibank concluded nonetheless that Carmelita indeed preterminated her deposit.

Citibank, refused the Cabamongan spouses' demand for payment, asserting that the subject deposit was released to Carmelita upon proper identification and verification.

The Cabamongan spouses filed a complaint against Citibank for Specific Performance.

RTC ruled in favour of the spouses. CA affirmed the ruling of the RTC. Hence, this petition.

Issue: Whether Citibank should be held liable for the release of the foreign currency time deposit of the Spouses.

Held: YES.

The Court has repeatedly emphasized that, since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of the public in general.

Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are even required, of it.

By the nature of its functions, a bank is "under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship."

In this case, it has been sufficiently shown that the signatures of Carmelita in the forms for pretermination of deposits are forgeries.

Citibank, with its signature verification procedure, failed to detect the forgery.

Its negligence consisted in the omission of that degree of diligence required of banks.

The Court has held that a bank is "bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged." Such principle equally applies here.

Citibank cannot label its negligence as mere mistake or human error.

Banks handle daily transactions involving millions of pesos. By the very nature of their works the degree of

responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. 

Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees.

The Court agrees with the observation of the CA that Citibank, thru Account Officer San Pedro, openly courted disaster when despite noticing discrepancies in the signature and photograph of the person claiming to be Carmelita and the failure to surrender the original certificate of time deposit, the pretermination of the account was allowed.

Even the waiver document was not notarized, a procedure meant to protect the bank.

For not observing the degree of diligence required of banking institutions, whose business is impressed with public interest, Citibank is liable for damages.

10- CITIBANK, N.A. (Formerly First National City Bank) and INVESTORS' FINANCE CORPORATION, doing business under the name and style of FNCB Finance, petitioners, vs. MODESTA R. SABENIANO, respondent.

Respondent claimed to have substantial deposits and money market placements with the petitioners, as well as money market placements with the Ayala Investment and Development Corporation (AIDC), the proceeds of which were supposedly deposited automatically and directly to respondent's accounts with petitioner Citibank.

Respondent alleged that petitioners refused to return her deposits and the proceeds of her money market placements despite her repeated demands, thus, compelling respondent to file a case against petitioners for "Accounting, Sum of Money and Damages."

On the other hand, petitioners admitted that respondent had deposits and money market placements with them, including dollar accounts in the Citibank branch in Geneva, Switzerland (Citibank-Geneva).

Petitioners further alleged that the respondent later obtained several loans from petitioner Citibank, for which she executed Promissory Notes (PNs), and secured by (a) a Declaration of Pledge of her dollar accounts in Citibank-Geneva, and (b) Deeds of Assignment of her money market placements with petitioner FNCB Finance.

When respondent failed to pay her loans despite repeated demands by petitioner Citibank, the latter exercised its right to off-set or compensate respondent's outstanding loans with her deposits and money market placements, pursuant to the Declaration of Pledge and the Deeds of Assignment executed by respondent in its favor.

RTC – set-off was illegal, null and void but ruled that Sabeniano is indebted to Citibank.

CA – ruled entirely in favor of Sabeniano saying that Citibank failed to establish by competent evidence the alleged indebtedness of Sabeniano.

ISSUE: Whether Citibank is liable for damages to respondent.

HELD: YES.

Citibank did commit wrong when it failed to pay and properly account for the proceeds of respondent's money market placements and when it sought the remittance of respondent's dollar accounts from Citibank-Geneva by virtue of a highly-suspect Declaration of Pledge to be applied to the remaining balance of respondent's outstanding loans.

It bears to emphasize that banking is impressed with public interest and its fiduciary character requires high standards of integrity and performance.  

A bank is under the obligation to treat the accounts of its depositors with meticulous care whether such accounts consist only of a few hundred pesos or of millions of pesos.  

The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible.

Petitioner Citibank evidently failed to exercise the required degree of care and transparency in its transactions with respondent, thus, resulting in the wrongful deprivation of her property.

SC – affirmed CA with additional payment of damages BUT Sabeniano was ordered to pay for the outstanding balance of her loan.

11- CHINA BANKING CORP V. COURT OF APPEALS AND GOTIANUY,

FACTS: Jose Gotianuy accused his daughter Mary Margaret Dee of stealing, among his other properties, US dollar deposits with Citibank NA amounting to P35 million and $864,000.

1. Dee received these amounts from Citibank through checks which she allegedly deposited at China Bank.

2. Gotianuy also accused his son-in-law, George Dee, of transferring his real properties and shares of stock in George’s name without any consideration.

3. During the pendency of the case, Gotianuy died and was substituted by his daughter, Elizabeth Gotianuy Lo.

4. Dee admitted during the trial that she withdrew funds of Citibank upon instruction of her father and the funds belonged exclusively to the latter.

5. The checks were presented as evidence during the trial. Upon motion of Gotianuy Lo, the trial court subpoenaed 2 employees of China Bank to testify on the case.

6. China Bank opposed and moved for reconsideration. The trial court held that the disclosure only as to the name or in whose name the said fund is deposited is not violative of the law. On appeal, CA affirmed the trial court. It held that what the law covers is only deposit but not the name of the depositor.

7. China Bank contended that since Jose Gotianuy is not the owner of the subject foreign currency deposit, thus he cannot

invoke the aid of the court in compelling the disclosure of someone else’s foreign currency deposit.

ISSUE: WON China Bank’s contention is correct

HELD: No. Sec 8 RA 6426 (Foreign Currency Deposit Act) provides that all foreign currency deposits are considered absolutely confidential in nature and may not be inquired into, except when the disclosure is permitted by the depositor.

Based on the facts of the case, it is clear that the source of the funds deposited by Dee is Jose Gotianuy. As the owner of the funds unlawfully taken and which are undisputably deposited with China Bank, Jose Gotianuy has the right to inquire into the said deposits.

As found by the CA: it is indubitable that the Citibank checks were drawn against the foreign currency account with Citibank. The monies subject of said checks originally came from the late Jose Gotianuy, the owner of the account. Thus, he also has legal rights and interests in the CBC account where said monies were deposited. More importantly, the Citibank checks readily demonstrate that the late Jose Gotianuy is one of the payees of said checks. Being a co-payee thereof, then he or his estate can be considered as a co-depositor of said checks. Ergo, since the late Jose Gotianuy is a co-depositor of the CBC account, then his request for the assailed subpoena is tantamount to an express permission of a depositor for the disclosure of the name of the account holder

12- BPI V. CASA MONTEOSSIR INTERNATIONALE

FACTS: CASA Montessori Internationale (CASA) opened a current account with BPI, with CASA’s president Lebron as one of its authorized signatories

1. After conducting an investigation, CASA found that 9 of its checks had been encashed by a Sonny Santos amounting to a total of P782,000.

2. It turned out the “Sonny Santos” was a fictitious name used by Yabut, who worked as an external auditor of CASA. Yabut admitted that he forged the signature of Lebron and encashed the checks.

3. CASA, then, filed an action for damages against BPI, praying that the latter be ordered to reinstate the amount of P782,500 in the current and savings account of CASA.

4. RTC held in favor of CASA. On appeal, CA apportioned the loss between BPI and CASA. CA took into account CASA’s contributory negligence that resulted in the undetected forgery.

ISSUE: WON BPI is liable in this case

HELD: Yes. Under Sec 23 NIL, a forged signature is a real or absolute defense, and a person whose signature on a negotiable instrument is forged is deemed to have never become a party thereto and to have never consented to the contract that allegedly gave rise to it. Yabut voluntarily admitted that he forged the drawer’s signature and encashed the checks.

Having established the forgery in the drawer’s signature, BPI (drawee bank) erred in making payments by virtue thereof. The forged signatures are wholly inoperative and CASA (drawer) whose authorized signatures do not appear on the checks, cannot be held liable thereon.

Since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are required.

BPI’s contention that it has a signature verification procedure, in which checks are honored only when the signatures therein are verified to be the same or with similar to the specimen signatures on the signature cards. However, it still failed to detect the 8 instances of forgery. Its negligence consisted in the omission of that degree of diligence required of a bank. It cannot now feign ignorance, since it is very clear that the bank is bound to know the signature of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charged the amount so paid to the account of the depositor whose name was forged.

For allowing payment on the checks to a wrongful and fictitious payee, BPI is liable to its depositor-drawer. Since the encashing bank is one of its branches, BPI could have easily held it liable for reimbursement. It may not debit the drawer’s account and is not entitled to indemnification from the drawer.

It is well-settled that when one of two innocent persons must suffer the wrongful act of a third person, the loss must be borne by the one whose negligence is the proximate cause or who put it into the power of the third person to perpetrate the wrong.

13- PHILIPPINE BANK OF COMMERCE, now absorbed by PHILIPPINE COMMERCIAL INTERNATIONAL BANK, ROGELIO LACSON, DIGNA DE LEON, MARIA ANGELITA PASCUAL, vs. THE COURT OF APPEALS, ROMMEL'S MARKETING CORP., represented by ROMEO LIPANA, its President & General Manager, respondents.

Respondent RMC maintained 2 separate current accounts, PBC in connection with its business of selling appliances.

In some instances, 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.

For more than a year, Respondent Lipana claims to have entrusted RMC funds in the form of cash totalling P304k 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 the Account of Yabut's husband, Bienvenido Cotas who likewise maintains an account with the same bank.

During this period, PBC had, however, been regularly furnishing private respondent with monthly statements showing its current accounts balances.

Unfortunately, it had never been the practice of Lipana to check these monthly statements of account reposing complete trust and confidence on petitioner bank.

Yabut’s modus operandi

She would accomplish 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.

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 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.

RTC ruled in favour of RMC. CA affirmed the decision. Hence, this petition.

Issue: Whether the proximate cause of the loss is PBC’s negligence or RMC’s.

Held: 60-40 ratio. 60-PBC, 40- RMC’s contributory negligence.

PBC was liable under Quasi-delict.

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 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.

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.

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.  

A "reasonable man of ordinary prudence"  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 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,

It was in fact only when he testified in this case or after the lapse of more than 7 years counted from the period when the funds in question were deposited in plaintiff's accounts that bank manager 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. 

Proximate Cause

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.

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.

Doctrine of Last Clear Chance

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. 

Here, 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.

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.

RMC’s contributory negligence

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 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  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, SC believes 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.

14- PHILIPPINE SAVINGS BANK, petitioner, vs. CHOWKING FOOD CORPORATION, respondent.

It is the peculiar quality of a fool to perceive the fault of others and to forget his own. Ang isang kakatuwang katangian ng isang hangal ay punahin ang kamalian ng iba at kalimutan naman ang sa kanya.

Facts:

Joe Kuan Food Corporation issued in favor of Chowking 5 PSBank checks amounting to P556,981.86.

On the respective due dates of each check, Chowking's acting accounting manager, Rino T. Manzano, endorsed and encashed said checks with the Bustos branch of respondent PSBank.

All the five checks were honored by defendant Santos, even with only the endorsement of Manzano approving them.

The signatures of the other authorized officers of respondent corporation were absent in the 5 checks, contrary to usual banking practice. 

Unexpectedly, Manzano absconded with and misappropriated the check proceeds.

When Chowking demanded reimbursement from PSBank but to no avail.

Chowking filed a complaint for a sum of money with damages before the RTC.

Likewise impleaded were PSBank's president, Antonio S. Abacan, and Bustos branch head, Santos.

Petitioner, Santos and Abacan were unanimous in asserting that respondent is estopped from claiming reimbursement and damages since it was negligent in allowing Manzano to take hold, endorse, and encash its checks.

Petitioner pointed out that the proximate cause of respondent's loss was its own negligence.

ISSUE: Whether the respondent's negligence was the proximate cause of its own loss absolving petitioner from liability.

HELD: NO.

Petitioner failed to prove that it has observed the due diligence required of banks under the law.

Contrary to petitioner's view, its negligence is the proximate cause of respondent's loss.

It cannot be over emphasized that the banking business is impressed with public interest. 

Of paramount importance is the trust and confidence of the public in general in the banking industry.

Consequently, the diligence required of banks is more than that of a Roman pater familias or a good father of a family. The highest degree of diligence is expected.

In its declaration of policy, the General Banking Law of 2000 requires of banks the highest standards of integrity and performance.

Needless to say, a bank is "under obligation to treat the accounts of its depositors with meticulous care." 

The fiduciary nature of the relationship between the bank and the depositors must always be of paramount concern.

Petitioner, through Santos, was clearly negligent when it honored respondent's checks with the lone endorsement of Manzano.

Measured by the foregoing yardstick, the proximate cause of the loss is not respondent's alleged negligence in allowing Manzano to take hold and encash respondent's checks.

The proximate cause is petitioner's own negligence in the supervision of its employees when it overlooked the

irregular practice of encashing checks even without the requisite endorsements.

15- EUSEBIO GONZALES vs. PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK, EDNA OCAMPO, and ROBERTO NOCEDA

Facts:

1. PCIB granted a credit line to Gonzales through the execution of a Credit-On-Hand Loan Agreement (COHLA), in which the aggregate amount of the accounts of Gonzales with PCIB served as collateral for and his availment limit under the credit line. Gonzales drew from said credit line through the issuance of check. At the institution of the instant case, Gonzales had a Foreign Currency Deposit (FCD) of USD 8,715.72 with PCIB.

2. Gonzales and his wife obtained a loan for PhP 500,000. Subsequently, on December 26, 1995 and January 3, 1999, the spouses Panlilio and Gonzales obtained two additional loans from PCIB in the amounts of PhP 1,000,000 and PhP 300,000, respectively. These three loans amounting to PhP 1,800,000 were covered by three promissory notes.

3. To secure the loans, a real estate mortgage was executed by Gonzales and the spouses Panlilio. Notably, the promissory notes specified, the solidary liability of Gonzales and the Panlilio for the payment of the loans. However, it was the spouses Panlilio who received the loan proceeds of PhP 1,800,000.

4. The monthly interest dues were paid by the spouses Panlilio through the automatic debiting of their account with PCIB. But the spouses Panlilio, defaulted.

5. PCIB allegedly called the attention of Gonzales regarding the defaults and the subsequent accumulating periodic interest dues which were left still left unpaid.

6. In the meantime, Gonzales issued a check in favor of Unson for PhP 250,000 drawn against the credit line. However, upon presentment for payment, it was dishonored by due to the termination of the credit line for the unpaid periodic interest dues from the loans. PCIB likewise froze the FCD account of Gonzales.

7. Gonzales had a falling out with Unson due to the dishonor of the check. They had a heated argument, which caused great embarrassment and humiliation to Gonzales. Thereafter, Unson sent a demand letter with the threat of legal action.

8. Gonzales, wrote PCIB insisting that the check he issued had been fully funded, and demanded the return of the proceeds of his FCD as well as damages for the unjust dishonor of the check. 

9. PCIB stood its ground in freezing the accounts. Gonzales reiterated his demand, reminding PCIB that it knew well that the actual borrowers were the spouses Panlilio and he never benefited from the proceeds of the loans, which were serviced by the PCIB account of the spouses Panlilio.

10. PCIB’s refusal to heed his demands compelled Gonzales to file the instant case for damages with the RTC, on account of the alleged unjust dishonor of the check issued in favor of Unson.

11. The RTC found Gonzales solidarily liable with the spouses Panlilio on the three promissory notes relative to the outstanding REM loan. The trial court found no fault in the termination by PCIB of the COHLA with Gonzales and in freezing the latter’s accounts to answer for the past due loan. The trial court ruled that the dishonor of the check was proper considering that the credit line had already

been terminated or revoked before the presentment of the check. The CA affirmed the decision.

ISSUE: 1. Whether Gonzales is liable for the three promissory notes he made with the spouses Panlilio where a REM was constituted as security- yes

2. Whether PCIB properly dishonored the check of Gonzales drawn against the COHLA he had with the bank.- no

HELD: First Issue: Solidarily Liability on Promissory Notes

Gonzales is liable for the loans covered by the above promissory notes. 1st, Gonzales admitted that he is an accommodation party which PCIB did not dispute. 2nd, the records of PCIB bear out that the proceeds of the loan went to the spouses Panlilio. 3rd, as an accommodation party, Gonzales is solidarily liable with the spouses Panlilio for the loans.

[A]n accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person. The accommodation party is liable on the instrument to a holder for value even though the holder, at the time of taking the instrument, knew him or her to be merely an accommodation party, as if the contract was not for accommodation.

As petitioner acknowledged it to be, the relation between an accommodation party and the accommodated party is one of principal and surety—the accommodation party being the surety. As such, he is deemed an original promisor and debtor from the beginning; he is considered in law as the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter since their liabilities are interwoven as to be inseparable. Although a contract of suretyship is in essence accessory or collateral to a valid

principal obligation, the surety’s liability to the creditor is immediate, primary and absolute; he is directly and equally bound with the principal. As an equivalent of a regular party to the undertaking, a surety becomes liable to the debt and duty of the principal obligor even without possessing a direct or personal interest in the obligations nor does he receive any benefit therefrom.

Thus, the knowledge, acquiescence, or even demand by Ocampo for an accommodation by Gonzales in order to extend the credit or loan of PhP 1,800,000 to the spouses Panlilio does not exonerate Gonzales from liability on the three promissory notes.

4th, the solidary liability of Gonzales is clearly stipulated in the promissory notes.

Second Issue: Improper Dishonor of Check

A careful scrutiny of the records shows that the courts a quo committed reversible error in not finding negligence by PCIB in the dishonor of the PhP 250,000 check.

1st- There was no proper notice to Gonzales of the default and delinquency. While not exonerating his solidary liability, Gonzales has a right to be properly apprised of the default or delinquency of the loan precisely because he is a co-signatory of the promissory notes and of his solidary liability.

Thus, PCIB ought to have notified Gonzales about the status of the default or delinquency of the interest dues that were not paid. And such notification must be formal or in written form considering that the outstanding periodic interests became due at various dates.

2nd-PCIB was grossly negligent in not giving prior notice to Gonzales about its course of action to suspend, terminate, or revoke

the credit line, thereby violating stipulation in the COHLA.

Indeed, the business of banking is impressed with public interest and great reliance is made on the bank’s sworn profession of diligence and meticulousness in giving irreproachable service. Like a common carrier whose business is imbued with public interest, a bank should exercise extraordinary diligence to negate its liability to the depositors.  In this instance, PCIB is sorely remiss in the diligence required in treating with its client, Gonzales. It may not wantonly exercise its rights without respecting and honoring the rights of its clients.

The effectivity clause of the COHLA is crystal clear that termination of the COH should be done only upon prior notice served on the CLIENT. This is the legal duty of PCIB––to inform Gonzales of the termination.

In the instant case, PCIB was able to send a letter advising Gonzales of the unpaid interest on the loans but failed to mention anything about the termination of the COHLA. More significantly, no letter was ever sent to him about the termination of the COHLA. The failure to give prior notice on the part of PCIB is already prima facie evidence of bad faith. Therefore, it is abundantly clear that this case falls squarely within the purview of the principle of abuse of rights as embodied in Art. 19.

3rd- There is no dispute on the right of PCIB to suspend, terminate, or revoke the COHLA under the "cross default provisions" of both the promissory notes and the COHLA. However, these cross default provisions do not confer absolute unilateral right to PCIB, as they are qualified by the other stipulations in the contracts or specific circumstances, like in the instant case of an accommodation party.

Thus, due to PCIB’s negligence in not giving Gonzales proper notice relative to the delinquencies, the unjust termination, revocation, or suspension of the credit line from PCIB’s gross negligence in not honoring its obligation to give prior notice to Gonzales about such termination and in not informing Gonzales of the fact of such

termination, treating Gonzales’ account as closed and dishonoring his PhP 250,000 check, was certainly a reckless act by PCIB. This resulted in the actual injury of PhP 250,000 to Gonzales whose FCD account was frozen and had to look elsewhere for money to pay Unson.

With banks, the degree of diligence required is more than that of a good father of the family considering that the business of banking is imbued with public interest due to the nature of their function. The law imposes on banks a high degree of obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of banking. 

Third Issue: Award of Damages

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—banks have attained a ubiquitous presence among the people, who have come to regard them with respect and even gratitude and most of all, confidence, and it is for this reason, banks should guard against injury attributable to negligence or bad faith on its part.

In the present case, Gonzales had the right to be informed of the accrued interest and most especially, for the suspension of his COHLA. For failure to do so, the bank is liable to pay nominal damages. The amount of such damages is addressed to the sound discretion of the court, taking into account the relevant circumstances.

Even in the absence of malice or bad faith, a depositor still has the right to recover reasonable moral damages, if the depositor suffered mental anguish, serious anxiety, embarrassment, and humiliation. Although incapable of pecuniary estimation, moral damages are certainly recoverable if they are the proximate result of the defendant’s wrongful act or omission.

Thus, an award of PhP 50,000 is reasonable moral damages for the unjust dishonor of the check which was the proximate cause of the consequent humiliation, embarrassment, anxiety, and mental anguish suffered by Gonzales from his loss of credibility among his friends, colleagues and peers.

Furthermore, the initial carelessness of the bank’s omission in not properly informing Gonzales of the outstanding interest dues––aggravated by its gross neglect in omitting to give prior notice as stipulated under the COHLA and in not giving actual notice of the termination of the credit line––justifies the grant of exemplary damages of PhP 10,000. Such an award is imposed by way of example or correction for the public good.

Finally, an award for attorney’s fees is likewise called for from PCIB’s negligence which compelled Gonzales to litigate to protect his interest. In accordance with Art. 2208(1) of the Code, attorney’s fees may be recovered when exemplary damages are awarded. We find that the amount of PhP 50,000 as attorney’s fees is reasonable.

WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the CA Decision dated October 22, 2007 in CA-G.R. CV No. 74466 is hereby REVERSED and SET ASIDE. The Philippine Commercial and International Bank (now Banco De Oro) is ORDERED to pay Eusebio Gonzales PhP 50,000 as nominal damages, PhP 50,000 as moral damages, PhP 10,000 as exemplary damages, and PhP 50,000 as attorney’s fees.

16- CENTRAL BANK OF THE PHILIPPINES vs. CITYTRUST BANKING

1. Respondent Citytrust Banking, maintained a demand deposit account with petitioner Central Bank of the Philippines, now Bangko Sentral ng Pilipinas.

2. As required, Citytrust furnished CB with the names and corresponding signatures of 5 of its officers authorized to sign checks and serve as drawers and indorsers for its account. It also provided it with the list and corresponding signatures of its roving tellers authorized to withdraw, sign receipts and perform other transactions on its behalf. Petitioner later issued security identification cards to the roving tellers one of whom was "Rounceval Flores" (Flores).

3. Flores presented for payment to petitioner’s Senior Teller Iluminada 2 Citytrust checks, payable to Citytrust, one for P850,000 and the other for P900,000, both of which were signed and indorsed by Citytrust’s authorized signatory-drawers.

4. After the checks were certified by petitioner’s Accounting Department, Iluminada verified them, prepared the cash transfer slip on which she affixed her signature, stamped the checks with the notation "Received Payment" and asked Flores to, as he did, sign on the space above such notation. Instead of signing his name, however, Flores signed as "Rosauro C. Cayabyab" – a fact Iluminada failed to notice.

5. Iluminada thereupon sent the cash transfer slip and checks to petitioner’s Cash Department where an officer verified and compared the drawers’ signatures on the checks against their specimen signatures provided by Citytrust, and finding the same in order, approved the cash transfer slip and paid the corresponding amounts to Flores. Petitioner then debited the amount of the checks totaling P1,750,000 from Citytrust’s demand deposit account.

6. More than a year and nine months later, Citytrust, by letter, alleging that the checks were already cancelled because they were stolen, demanded petitioner to restore the amounts covered thereby to its demand deposit account. Petitioner did not heed the demand, however.

7. Citytrust later filed a complaint for estafa, with reservation on the filing of a separate civil action, against Flores. Flores was convicted.

8. Citytrust thereafter filed before the RTC a complaint for recovery of sum of money with damages against petitioner which it alleged erred in encashing the checks and in charging the proceeds thereof to its account, despite the lack of authority of "Rosauro C. Cayabyab."

9. The RTC found both Citytrust and petitioner negligent and held them equally liable for the loss. The Court of Appeals affirmed the decision, it holding that both parties contributed equally to the fraudulent encashment of the checks, hence, they should equally share the loss in consonance with Article 2179/ Article 1172 of the Civil Code.

ISSUE: Whether Both Citytrust and the Central bank should be equally liable.

HELD: The petition is bereft of merit.

Petitioner’s teller Iluminada did not verify Flores’ signature on the flimsy excuse that Flores had had previous transactions with it for a number of years. That circumstance did not excuse the teller from focusing attention to or at least glancing at Flores as he was signing, and to satisfy herself that the signature he had just affixed matched that of his specimen signature. Had she done that, she would have readily been put on notice that Flores was affixing, not his but a fictitious signature.

Given that petitioner is the government body mandated to supervise and regulate banking and other financial institutions, the law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of RA 8791, which took effect on 13 June 2000, declares that the State recognizes the "fiduciary nature of banking that requires high standards of integrity and performance."

This fiduciary relationship means that the bank’s obligation to observe "high standards of integrity and performance" is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family.

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

In line with the ruling in Consolidated Bank, the Court deems it proper to allocate the loss between petitioner and Citytrust on a 60-40 ratio.

WHEREFORE, the assailed Court of Appeals Decision of July 16, 1999 is hereby AFFIRMED with MODIFICATION, in that petitioner and Citytrust should bear the loss on a 60-40 ratio.

17- GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners, vs.

THE HON. COURT OF APPEALS and FAR EAST BANK AND TRUST COMPANY, respondents.

Petitioner Reyes, as VP for finance, racing manager, treasurer, and director of Philippine Racing Club (PRCI), sent Godofredo, to respondent FEBTC to apply for a foreign exchange demand draft (FXDD) in Australian dollars.

Godofredo went to FEBTC to apply for a demand draft in the amount of AU$1,610 payable to the order of the 20th Asian Racing Conference Secretariat of Sydney, Australia.

He was attended to by the bank's cashier, who at first denied the application for the reason that FEBTC did not have an Australian dollar account in any bank in Sydney.

Godofredo asked if there could be a way for respondent bank to accommodate PRCI's urgent need to remit Australian dollars to Sydney.

The bank’s cashier then informed Godofredo of a roundabout way of effecting the requested remittance to Sydney thus: the FEBTC would draw a demand draft against Westpac Bank in Sydney, and have the latter reimburse itself from the U.S. dollar account of the FEBTC in Westpac Bank in New York.

This arrangement has been customarily resorted to since the 1960's and the procedure has proven to be problem-free.

PRCI and the petitioner Reyes, acting through Godofredo, agreed to this arrangement in order to effect the urgent transfer of Australian dollars payable to the Secretariat of the 20th Asian Racing Conference.

On July 28, 1988, FEBTC approved the said application of PRCI and issued a FXDD for AU$ 1,610, payable to the order of the 20th Asian Racing Conference Secretariat of Sydney, Australia, and addressed to Westpac-Sydney as the drawee bank.

However, upon due presentment of the FXDD, the same was dishonoured twice, with the notice of dishonor stating the following: "xxx No account held with Westpac."

Meanwhile, Wespac-New York sent a cable to FEBTC informing the latter that its dollar account in the sum of AU$ 1,610 was debited.

Petitioners then filed a complaint for damages, against FEBTC due to the dishonor of the said FXDD issued by FEBTC.

o The petitioners claim that as a result of the dishonor of the said demand draft, they were exposed to unnecessary shock, social humiliation, and deep mental anguish in a foreign country, and in the presence of an international audience.

TC ruled in favour of FEBTC

CA affirmed the ruling of the TC.

Issue: Whether FEBTC is liable for the dishonour of the FXDD.

Held: No.

The courts a quo found that FEBTC did not misrepresent that it was maintaining a deposit account with Westpac-Sydney.

FEBTC’s cashier explained to Godofredo how the transfer of Australian dollars would be effected through Westpac-New York where the respondent bank has a dollar account to Westpac-Sydney where the subject FXDD could be encashed by the payee.

Petitioner agreed to that arrangement or procedure.

The petitioners are estopped from denying the said arrangement or procedure.

Similar arrangements have been a long standing practice in banking to facilitate international commercial transactions.

In fact, the SWIFT cable message sent by FEBTC to the drawee bank, Westpac-Sydney, stated that it may claim reimbursement from its New York branch, Westpac-New York, where FEBTC has a deposit dollar account.

FEBTC did not cause an erroneous transmittal of its SWIFT cable message to Westpac-Sydney.

It was the erroneous decoding of the cable message on the part of Westpac-Sydney that caused the dishonor of the subject foreign exchange demand draft.

An employee of Westpac-Sydney in Sydney, Australia mistakenly read the printed figures in the SWIFT cable message of respondent bank as "MT799" instead of as "MT199".

As a result, Westpac-Sydney construed the said cable message as a format for a letter of credit, and not for a demand draft.

Degree of diligence exercised by FEBTC in this case

The degree of diligence required of banks, is more than that of a good father of a family where the fiduciary nature of their relationship with their depositors is concerned.

In other words banks are duty bound to treat the deposit accounts of their depositors with the highest degree of care.

But the said ruling applies only to cases where banks act under their fiduciary capacity, that is, as depositary of the deposits of their depositors.

But the same higher degree of diligence is not expected to be exerted by banks in commercial transactions that do not involve their fiduciary relationship with their depositors.

In the CAB, FEBTC was not required to exert more than the diligence of a good father of a family in regard to the sale and issuance of the subject foreign exchange demand draft.

The case at bar does not involve the handling of petitioners' deposit, if any, with the respondent bank.

Instead, the relationship involved was that of a buyer and seller, that is, between the FEBTC as the seller of the subject FXDD, and PRCI as the buyer of the same.

The evidence shows that the FEBTC did everything within its power to prevent the dishonor of the subject FXDD.

The erroneous reading of its cable message to Westpac-Sydney by an employee of the latter could not have been foreseen by FEBTC.

18- FAR EAST BANK AND TRUST COMPANY (now Bank of the Philippine Islands), Petitioner, vs. TENTMAKERS GROUP, INC., GREGORIA PILARES SANTOS and RHOEL P. SANTOS, Respondents.

The signatures of respondents, Gregoria Pilares Santos and Rhoel P. Santos, President and Treasurer of respondent Tentmakers Group, Inc. (TGI) respectively, appeared on the 3 promissory notes for loans contracted with petitioner FEBTC, now known as BP). 

Gregoria and Rhoel alleged that they did sign on "blank" promissory notes intended for future use.

After a futile demand, FEBTC filed a Complaint before the RTC for the payment of the principal of the promissory notes.

Respondents alleged that FEBTC had no right at all to demand from them the amount being claimed; it was FEBTC’s branch manager, a certain Liza Liwanag, who represented to Gregoria and Rhoel that they could avail of additional working capital for TGI by having them sign the promissory notes in advance, which were blank at the time, so they would be ready for future use.

RTC - ruled in favor of FEBTC. CA- reversed RTC

ISSUE: WON respondents are liable to FEBTC.

HELD: NO.

FEBTC miserably failed to present any document that would serve as basis for its claim that the proceeds of the 3 promissory notes were indeed credited to the account of the respondents.

Indeed, the Court finds no evidentiary basis to sustain the RTC’s finding of actual receipt by TGI of the amounts stated in the promissory notes.

Accordingly, the Court affirms the CA decision for being more in accord with the facts and evidence on record.

On a final note, FEBTC should have been more circumspect in dealing with its clients.

It cannot be over emphasized that the banking business is impressed with public interest.

Of paramount importance is the trust and confidence of the public in general in the banking industry.

Consequently, the diligence required of banks is more than that of a Roman pater familias or a good father of a family.

The highest degree of diligence is expected.  In handling loan transactions, banks are under obligation to

ensure compliance by the clients with all the documentary requirements pertaining to the approval and release of the loan applications.

For failure of its branch manager to exercise the requisite diligence in abiding by the MORB and the banking rules and practices, FEBTC was negligent in the selection and supervision of its employees. In Equitable PCI Bank v. Tan, the Court ruled:

Banks handle daily transactions involving millions of pesos. By the very nature of their works the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees.

For the loss suffered by FEBTC due to its laxity and carelessness to police its own personnel, the bank has no one to blame but itself.

19- PHILIPPINE NATIONAL BANK vs. SPOUSES CHEAH CHEE CHONG and OFELIA CAMACHO CHEAH

1. On November 4, 1992, Ofelia Cheah and her friend Adelina Guarin were having a conversation in the latter’s office when Adelina’s friend, Filipina Tuazon, approached her to ask if she could have Filipina’s check cleared and encashed for a service fee of 2.5%.

2. The check was Bank of America Check No. 190 drawn by Atty. Rosales against Bank of America California, USA, with a face amount of $300,000.00, payable to cash.

3. Because Adelina does not have a dollar account, she asked Ofelia if she could accommodate Filipina’s request since she has a joint dollar savings account with her husband Cheah Chee Chong with PNB Buendia Branch.

4. Ofelia agreed. They met with the Loans Department who referred them to PNB Division Chief Garin. Garin discussed with them the process of clearing the check and they were told that it normally takes 15 days. Assured that the deposit and subsequent clearance of the check is a normal transaction, Ofelia deposited Filipina’s check.

5. PNB then sent it for clearing through its correspondent bank, Philadelphia National Bank. 5 days later, PNB received a credit advice from Philadelphia that the proceeds of the subject check had been temporarily credited to PNB’s account as of November 6, 1992.

6. On November 16, 1992, Garin called up Ofelia to inform her that the check had already been cleared. The following day, PNB Buendia, after deducting the bank charges, credited $299,248.37 to the account of the spouses Cheah. 

7. Acting on Adelina’s instruction to withdraw the credited amount. Filipina received all the proceeds.

8. In the meantime, the Cable Division of PNB Head Office received on November 16, 1992 a SWIFT message from Philadelphia, informing PNB of the return of the check for insufficient

funds. However, the PNB Head Office could not ascertain to which branch/office it should forward the same for proper action.

9. After a few days, PNB Head Office ascertained that the SWIFT message was intended for PNB Buendia Branch.

10. Informed about the bounced check and upon demand by PNB Buendia to return the money withdrawn, Ofelia immediately contacted Filipina to get the money back. But the latter told her that all the money had already been given to several people who asked for the check’s encashment. Criminal charges were then filed against these suspect beneficiaries.

11. Subsequently, PNB sent a demand letter to spouses Cheah for the return of the amount of the check, froze their peso and dollar deposits, and filed a complaint  against them for Sum of Money with the RTC. In said complaint, PNB demanded payment of around P8,202,220.44, plus interests and attorney’s fees.

12. The RTC ruled in PNB’s favor. It held that spouses Cheah were guilty of contributory negligence. While the CA recognized the spouses Cheah as victims of a scam who nevertheless have to suffer the consequences of Ofelia’s lack of care and prudence in immediately trusting a stranger, the appellate court did not hold PNB scot-free. It declared both parties equally negligent and should suffer and shoulder the loss.

ISSUE: Whether PNB should be held liable.

HELD: PNB’s act of releasing the proceeds of the check prior to the lapse of the 15-day clearing period was the proximate cause of the loss.

Ofelia deposited the subject check on November 4, 1992. Hence, the 15th banking day from the date of said deposit should fall on November 25, 1992. However, what happened was that PNB

Buendia, upon calling up Ofelia that the check had been cleared, allowed the proceeds thereof to be withdrawn on November 17 and 18, 1992, a week before the lapse of the standard 15-day clearing period.

This Court already held that the payment of the amounts of checks without previously clearing them with the drawee bank especially so where the drawee bank is a foreign bank and the amounts involved were large is contrary to normal or ordinary banking practice. Also, in Associated Bank v. Tan, wherein the bank allowed the withdrawal of the value of a check prior to its clearing, we said that "[b]efore the check shall have been cleared for deposit, the collecting bank can only ‘assume’ at its own risk x x x that the check would be cleared and paid out."

The delay in the receipt by PNB Buendia of the SWIFT message notifying it of the dishonor is of no moment, because had PNB Buendia waited for the expiration of the clearing period and had never released during that time the proceeds of the check, it would have already been duly notified of its dishonor. Clearly, PNB’s disregard of its preventive and protective measure against the possibility of being victimized by bad checks had brought upon itself the injury of losing a significant amount of money.

It bears stressing that "the diligence required of banks is more than that of a Roman pater familias or a good father of a family. The highest degree of diligence is expected."  PNB miserably failed to do its duty of exercising extraordinary diligence and reasonable business prudence. The disregard of its own banking policy amounts to gross negligence, which the law defines as "negligence characterized by the want of even slight care, acting or omitting to act in a situation where there is duty to act, not inadvertently but wilfully and intentionally with a conscious indifference to consequences in so far as other persons may be affected." With regard to collection or encashment of checks, suffice it to say that the law imposes on the collecting bank the duty to scrutinize diligently

the 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 on this field, and the law thus holds it to a high standard of conduct." A bank is expected to be an expert in banking procedures and it has the necessary means to ascertain whether a check, local or foreign, is sufficiently funded.

Incidentally, PNB obliges the spouses Cheah to return the withdrawn money under the principle of solutio indebiti.

In the case at bench, PNB cannot recover the proceeds of the check under the principle it invokes. 1st, the gross negligence of PNB, can never be equated with a mere mistake of fact, which must be something excusable and which requires the exercise of prudence. No recovery is due if the mistake done is one of gross negligence.

The spouses Cheah are guilty of contributory negligence and are bound to share the loss with the bank. "Contributory negligence is conduct on the part of the injured party, contributing as a legal cause to the harm he has suffered, which falls below the standard to which he is required to conform for his own protection."

The fact that the check was cleared after only eight banking days from the time it was deposited or contrary to what Garin told her that clearing takes 15 days should have already put Ofelia on guard. She should have first verified the regularity of such hasty clearance considering that if something goes wrong with the transaction, it is she and her husband who would be put at risk and not the accommodated party. Thus, we are one with the CA in ruling that Ofelia’s prior consultation with PNB officers is not enough to totally absolve her of any liability

In any case, the complaint against the spouses Cheah could not be dismissed. As PNB’s client, Ofelia was the one who dealt with PNB and negotiated the check such that its value was credited in her and

her husband’s account. Being the ones in privity with PNB, the spouses Cheah are therefore the persons who should return to PNB the money released to them.

All told, the Court concurs with the findings of the CA that PNB and the spouses Cheah are equally negligent and should therefore equally suffer the loss. The two must both bear the consequences of their mistakes.

WHEREFORE, premises considered, the Petitions for Review on Certiorari in G.R. No. 170865 and in G.R. No. 170892 are both DENIED. The assailed August 22, 2005 Decision and December 21, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 63948 are hereby AFFIRMED in toto.

20- EQUITABLE BANKING CORPORATION vs. SPECIAL STEEL PRODUCTS, and AUGUSTO L. PARDO

A crossed check with the notation "account payee only" can only be deposited in the named payee’s account. It is gross negligence for a bank to ignore this rule solely on the basis of a third party’s oral representations of having a good title thereto.

FACTS:

1. Respondent Special Steel Products is acorporation selling steel products. Its co-respondent Augusto L. Pardo is SSPI’s President and majority stockholder.

2. Interco is its regular customer.

3. Jose Isidoro Uy, alias Jolly Uy (Uy), is an Interco employee, in charge of the purchasing department, and the son-in-law of its majority stockholder.

4. Petitioner Equitable is engaged in banking and is the depository bank of Interco and of Uy.

5. SSPI sold welding electrodes to Interco. The invoices provided that Interco would pay interest at the rate of 36% per annum in case of delay.

6. In payment for the welding electrodes, Interco issued three checks payable to the order of SSPI. Each check was crossed with the notation "account payee only" and was drawn against Equitable.

7. The records disclose that Uy presented each crossed check to Equitable on the day of its issuance and claimed that he had good title thereto.

8. Equitable acceded to Uy’s demands on the assumption that Uy, as the son-in-law of Interco’s majority stockholder, was acting pursuant to Interco’s orders. The bank also relied on Uy’s status as a valued client. Thus, Equitable accepted the checks for deposit in Uy’s personal accounts and stamped "ALL PRIOR ENDORSEMENT AND/OR LACK OF ENDORSEMENT GUARANTEED" on their dorsal portion. Uy promptly withdrew the proceeds of the checks.

9. SSPI reminded Interco of the unpaid welding electrodes. Interco replied that it had already issued three checks payable to SSPI and drawn against Equitable. SSPI denied receipt of these checks.

10. It was determined that Uy, not SSPI, received the proceeds of the three checks that were payable to SSPI. Thus, 23 months after the issuance of the three checks, Interco finally paid the value of the three checks, plus a portion of the accrued interests. Interco refused to pay the entire accrued interest of P767,345.64 on the ground that it

was not responsible for the delay. Thus, SSPI was unable to collect P437,040.35 (at the contracted rate of 36% per annum) in interest income.

11. SSPI and its president, Pardo, filed a complaint for damages with application for a writ of preliminary attachment against Uy and Equitable Bank.

12. In his personal capacity, Pardo claimed an award of P3 million as moral damages from the defendants. He allegedly suffered hypertension, anxiety, and sleepless nights for fear that the government would charge him for tax evasion or money laundering.

13. The RTC rendered judgment in favor of plaintiffs Special Steel, and Pardo and against defendants Equitable and Uy," ordering defendants to jointly and severally pay plaintiffs. The CA affirmed the trial court’s ruling that SSPI had a cause of action for quasi-delict against Equitable. 

ISSUE: Whether SSPI has a cause of action against Equitable for quasi-delict .

HELD: This case involves a complaint for damages based on quasi-delict.

SSPI’s cause of action is not based on the three checks. SSPI does not ask Equitable or Uy to deliver to it the proceeds of the checks as the rightful payee. SSPI does not assert a right based on the undelivered checks or for breach of contract. Instead, it asserts a cause of action based on quasi-delict. Quasi-delicts exist even without a contractual relation between the parties. The courts below correctly ruled that SSPI has a cause of action for quasi-delict against Equitable.

The checks that Interco issued in favor of SSPI were all crossed, made payable to SSPI’s order, and contained the notation "account

payee only." This creates a reasonable expectation that the payee alone would receive the proceeds of the checks and that diversion of the checks would be averted. This expectation arises from the accepted banking practice that crossed checks are intended for deposit in the named payee’s account only and no other. At the very least, the nature of crossed checks should place a bank on notice that it should exercise more caution or expend more than a cursory inquiry, to ascertain whether the payee on the check has authorized the holder to deposit the same in a different account. 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."

Equitable did not observe the required degree of diligence expected of a banking institution under the existing factual circumstances.

The fact that a person, other than the named payee of the crossed check, was presenting it for deposit should have put the bank on guard. It should have verified if the payee (SSPI) authorized the holder (Uy) to present the same in its behalf, or indorsed it to him. Considering however, that the named payee does not have an account with Equitable (hence, the latter has no specimen signature of SSPI by which to judge the genuineness of its indorsement to Uy), the bank knowingly assumed the risk of relying solely on Uy’s word that he had a good title to the three checks. Such misplaced reliance on empty words is tantamount to gross negligence, which is the "absence of or failure to exercise even slight care or diligence, or the entire absence of care, evincing a thoughtless disregard of consequences without exerting any effort to avoid them."

Equitable contends that its knowledge that Uy is the son-in-law of the majority stockholder of the drawer, Interco, made it safe to

assume that the drawer authorized Uy to countermand the order appearing on the check. It is troubling that Equitable proceeded with the transaction based only on its knowledge that Uy had close relations with Interco. The bank did not even make inquiries with the drawer, Interco (whom the bank considered a "valued client"), to verify Uy’s representation. The banking system is placed in peril when bankers act out of blind faith and empty promises, without requiring proof of the assertions and without making the appropriate inquiries. Had it only exercised due diligence, Equitable could have saved both Interco and the named payee, SSPI, from the trouble that the bank’s mislaid trust wrought for them.

WHEREFORE, premises considered, the Petition is PARTIALLY GRANTED. The assailed October 13, 2006 Decision of the Court of Appeals in CA-G.R. CV No. 62425 is MODIFIED by:

1. REDUCING the award of actual damages to respondents to the rate of 6% per annum of the value of the three checks from July 1991 to June 1993 or a period of twenty-three months;

2. REDUCING the award of moral damages in favor of Augusto L. Pardo from P3,000,000.00 to P50,000.00; and

3. REVERSING the dismissal of Equitable Banking Corporation’s cross-claim against Jose Isidoro Uy, alias Jolly Uy. Jolly Uy is hereby ORDERED to REIMBURSE Equitable Banking Corporation the amounts that the latter will pay to respondents.

Additionally, the Court hereby REVERSES the dismissal of Equitable Banking Corporation’s counterclaim for damages against Special Steel Products, Inc. This Court ORDERS Special Steel Products, Inc. to PAY Equitable Banking Corporation actual damages in the total amount of P30,204.36, for the wrongful preliminary attachment of its properties.

The rest of the assailed Decision is AFFIRMED.

SO ORDERED.