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SECOND DIVISION

SECURITY BANK AND TRUST COMPANY, Petitioner,

- versus -

RIZAL COMMERCIAL BANKINGCORPORATION,

Respondent.

G.R. No. 170984

Present:

QUISUMBING, Acting C.J .,Chairperson,

CORONA ,

CARPIO MORALES,TINGA, andLEONARDO-DE CASTRO ,

JJ .x - - - - - - - - - - - - - - - - - - - - - - - - - x

RIZAL COMMERCIAL BANKINGCORPORATION,

Petitioner,

- versus -

SECURITY BANK AND TRUST COMPANY, Respondent.

G.R. No. 170987

Promulgated:

January 30, 2009x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

QUISUMBING, Actin g C.J .:

Before us are opposing parties’ petitions for review of the Decision[1]

dated March 29, 2005 andResolution [2] datedDecember 12, 2005 of the Court of Appeals in CA-G.R. CV No. 67387. The two petitions are

herein consolidated as they stem from the same set of factual circumstances.

The facts, as found by the trial and appellate courts, are as follows:

On January 9, 1981, Security Bank and Trust Company (SBTC) issued a manager’s check for P8 million,

payable to “CASH,” as proceeds of the loan granted to Guidon Construction and Development Corporation (GCDC). On

the same day, the P8-million check, along with other checks, was deposited by Continental Manufacturing Corporation

(CMC) in its Current Account No. 0109-022888 with Rizal Commercial Banking Corporation (RCBC). Immediately,

RCBC honored the P8-million check and allowed CMC to withdraw the same .[3]

On the next banking day, January 12, 1981, GCDC issued a “Stop Payment Order” to SBTC, claiming that

the P8-million check was released to a third party by mistake. Consequently, SBTC dishonored and returned the

manager’s check to RCBC. Thereafter, the check was returned back and forth between the two banks, resulting in

automatic debits and credits in each bank’s clearing balance .[4]

http://sc.judiciary.gov.ph/jurisprudence/2009/jan2009/170984.htm#_ftn1






















On February 13, 1981, RCBC filed a complain t [5] for damages against SBTC with the then Court of First

Instance of Rizal, Branch XXII. Said case was docketed as Civil Case No. 1081 and later transferred to the Regional

Trial Court (RTC) of Makati City, Branch 143.

Meanwhile, following the rules of the Philippine Clearing House, RCBC and SBTC stopped returning the

checks to each other. By way of a temporary arrangement pending resolution of the case, the P8-million check was

equally divided between, and credited to, RCBC and SBTC .[6]

On May 9, 2000, the RTC of Makati City, Branch 143, rendered a Decisio n [7] in favor of RCBC. The

dispositive portion of the decision reads:

PREMISES CONSIDERED, the Court renders judgment in favor of plaintiff [RCBC] andfinds defendant SBTC justly liable to [RCBC] and sentences [SBTC] to pay [RCBC] the amountof:

1. PhP4,000,000.00 as and for actual damages;

2. PhP100,000.00 as and for attorney’s fees; and, 3. the costs.

SO ORDERED .[8]

On appeal, the Court of Appeals affirmed with modification the above Decision, to wit:

WHEREFORE, the appealed Decision is AFFIRMED with MODIFICATION . AppellantSecurity Bank and Trust Co. shall pay appellee Rizal Commercial Banking Corporation not only the

principal amount of P 4,000,000.00 but also interest thereon at (6%) per annum covering appellee’sunearned income on interest computed from the time of filing of the complaint on February 13, 1981 tothe date of finality of this Decision. For lack of factual and legal basis, the award of attorney’s fees

is DELETED.

SO ORDERED .[9]

Now for our resolution are the opposing parties’ petitions for review on certiorari of the abovecited

decision. On its part, SBTC alleges the following to support its petition:

I.

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN REFUSING TO APPLYTHE LAW B ECAUSE, IN ITS OPINION, TO DO SO WOULD “RESULT IN AN INJUSTICE.”

II.

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT TODETERMINE WHETHER OR NOT A BANK IS A HOLDER IN DUE COURSE, ONLY THE

NEGOTIABLE INSTRUMENTS LAW NEED BE APPLIED TO THE EXCLUSION OFCENTRAL BANK RULES AND REGULATIONS.

III.























THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO NOTETHAT THE MANAGER’S CHECK IN QUESTION WAS ACCEPTED FOR DEPOSIT BY THERCBC AND WAS NOT ENCASHED BY THE PAYEE.

IV.

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO CONSIDER

THAT PRIOR TO THE DEPOSIT OF THE CHECKS WORTH PhP53 MILLION, RCBC WASHOLDING 43 CHECKS TOTALING P49,017,669.66 DRAWN BY CONTINENTALMANUFACTURING CORPORATION AGAINST ITS CURRENT ACCOUNT WHEN THEBALANCE OF THAT ACCOUNT WAS A MERE P573.62.

V.

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO CONSIDERTHAT THE CHECKS DEPOSITED WITH RCBC THE PROCEEDS OF WHICH WEREIMMEDIATELY WITHDRAWN TO HONOR THE 43 CHECKS TOTALING P49,017,669.66DRAWN BY CONTINENTAL MANUFACTURING CORPORATION ON ITS CURRENTACCOUNT WERE NOT ALL MANAGER’S CHECK[S] BUT INCLUDED ORDINARYCHECKS IN THE TOTAL AMOUNT OF PhP15,436,140.81.

VI.THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING TO CONSIDERTHAT EACH OF THE 43 CHECKS DRAWN BY THE CONTINENTAL MANUFACTURINGCORPORATION WERE ALL HONORED BY RCBC ON THE BASIS OF A MIXTURE OFALL THE MANAGER’S AND ORDINARY CHECKS DEPOSITED ON THAT DAY OF 9JANUARY 1981.

VII.

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT THERCBC IS A HOLDER IN DUE COURSE.

VIII.

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT SBTCWAITED FOR THREE (3) DAYS TO NOTIFY THE RCBC OF THE STOP PAYMENTORDER.

IX.

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT SBTCSHOULD HAVE FIRST ACQUIRED PERSONAL KNOWLEDGE OF THE FACTS WHICHGAVE RISE TO THE REQUEST FOR THE STOP PAYMENT ORDER BEFORE HONORINGSUCH REQUEST.

X.

THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN REFUSING TO HOLDSBTC LIABLE FOR DAMAGE CLAIMS BASED SOLELY ON SPECULATION,CONJECTURE AND GUESSWORK.

XI.

THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN HOLDING THAT RCBC IS NOT ENTITLED TO EXEMPLARY DAMAGES.



XII.

THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING SBTC LIABLEFOR THE ATTORNEY’S FEES OF RCBC [SIC] .[10]

On RCBC’s part, the following issues are submitted for resolution: I.

WHETHER OR NOT SBTC IS LIABLE FOR THE MANAGER’S CHECK IT ISSUED.

II.

WHETHER OR NOT RCBC IS ENTITLED TO COMPENSATORY DAMAGESEQUIVALENT TO THE INTEREST INCOME LOST AS A RESULT OF THE ILLEGALREFUSAL OF SBTC TO HONOR ITS OWN MANAGER’S CHECK, AS WELL AS FOREXEMPLARY DAMAGES AND ATTORNEY’S FEES .[11]

Simply stated, we find that in these consolidated petitions, the legal issues for our resolution are: (1) Is SBTC

liable to RCBC for the remaining P4 million? and (2) Is SBTC liable to pay for lost interest income on theremaining P 4 million, exemplary damages and attorney’s fees?

RCBC avers that the manager’s check issued by SBTC is substantially as good as the money it represents

because by its peculiar character, its issuance has the effect of an advance acceptance. RCBC claims that it is a

holder in due course when it credited the P8- million manager’s check to CMC’s account. Accordingly, RCBC

asserts that SBTC’s refusal to honor its obligation justifies RCBC claim for lost interest i ncome, exemplary damages

and attorney’s fees.

On the other hand, SBTC contends that RCBC violated Monetary Board Resolution No. 2202 of the

Central Bank of thePhilippines mandating all banks to verify the genuineness and validity of all checks before

allowing drawings of the same. SBTC insists that RCBC should bear the consequences of allowing CMC to

withdraw the amount of the check before it was cleared .[12]

We shall rule on the issues seriatim.

At the outset, it must be noted that the questioned check issued by SBTC is not just an ordinary check but a

manager’s check. A manager’s check is one drawn by a bank’s manager upon the bank itself. It stands on the same

footing as a certified check ,[13] which is deemed to have been accepted by the bank that certified it .[14] As the bank’s own

check, a manager’s check becomes the primary obligation of the bank and is accepted in advance by the act of its

issuance .[15]

In this case, RCBC, in immediately crediting the amount of P 8 million to CMC’s account, relied on the integrity

and honor of the check as it is regarded in commercial transactions. Where the questioned check, which was payable to

“Cash,” appeared regular on its face, and the bank found nothing unusual in the transaction, as the drawer usually issued

checks in big amounts made payable to cash, RCBC cannot be faulted in paying the value of the questioned check .[16]































In our considered view, SBTC cannot escape liability by invoking Monetary Board Resolution No. 2202

dated December 21, 1979, prohibiting drawings against uncollected deposits. For we must point out that the Central

Bank at that time issued a Memorandum dated July 9, 1980, which interpreted said Monetary Board Resolution No.

2202. In its pertinent portion, said Memorandum reads:

“MEMORANDUM TO ALL BANKS July 9, 1980

For the guidance of all concerned, Monetary Board Resolution No. 2202 dated December31, 1979 prohibiting, as a matter of policy,drawing against uncollected deposit effective July 1,1980, uncollected deposits representing manager’s cashier’s/ treasurer’s checks, treasury warrants,

postal money orders and duly funded “on us” checks which may be permitted at the discretion ofeach bank, covers drawings against demand deposits as well as withdrawals from savingsdeposits. ”[17]

Thus, it is clear from the July 9, 1980 Memorandum that banks were given the discretion to allow

immediate drawings on uncollected deposits of manager’s checks, among others. Consequently, RCBC, in allowing

the immediate withdrawal against the subject manager’s check, only exercised a prerogative expressly granted to it

by the Monetary Board.

Moreover, neither Monetary Board Resolution No. 2202 nor the July 9, 1980 Memorandum alters the

extraordinary nature of the manager’s check and the relative rights of the parties thereto. SBTC’s liability as drawer

remains the same − by drawi ng the instrument, it admits the existence of the payee and his then capacity to indorse;

and engages that on due presentment, the instrument will be accepted, or paid, or both, according to its tenor . [18]

Concerning RCBC’s claim for lost interest income on the remaining P4 million, this is already covered by

the amount of damages in the form of legal interest of 6%, based on Article 2200 [19] and 220 9[20] of the Civil Code of

the Philippines, as awarded by the Court of Appeals in its decision.

In addition to the above-mentioned award of compensatory damages, we also find merit in the need to

award exemplary damages in order to set an example for the public good. The banking system has become an

indispensable institution in the modern world and plays a vital role in the economic life of every civilized society.

Whether as mere passive entities for the safe-keeping and saving of money or as active instruments of business

and commerce, banks have attained an ubiquitous presence among the people, who have come to regard them

with respect and even gratitude and, above all, trust and confidence. In this connection, it is important that banks

should guard against injury attributable to negligence or bad faith on its part. As repeatedly emphasized, since

the banking business is impressed with public interest, the trust and confidence of the public in it is of paramount

importance. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are required of it. SBTC having failed in this respect, the award of exemplary damages to RCBC in the

amount of P50,000.00 is warranted .[21]

Pursuant to current jurisprudence, with the finding of liability for exemplary damages, attorney’s fees in the

amount ofP25,000.00 [22] must also be awarded against SBTC and in favor of RCBC.

























WHEREFORE , the assailed Decision dated March 29, 2005 and Resolution dated December 12, 2005 of

the Court of Appeals in CA-G.R. CV No. 67387 is hereby AFFIRMED with MODIFICATION . Security Bank

and Trust Company is ordered to pay Rizal Commercial Banking Corporation: (1) the remaining P4,000,000.00,

with legal interest thereon at six percent (6%) per annum from the time of filing of the complaint on February 13,

1981 to the date of finality of this Decision; (2) exemplary damages ofP 50,000.00; and (3) attorney’s fees

of P25,000.00.

No pronouncement as to costs.

SO ORDERED.

LEONARDO A. QUISUMBING Acting Chief Justice

Chairperson

WE CONCUR:

RENATO C. CORONA Associate Justice

CONCHITA CARPIO MORALES Associate Justice

DANTE O. TINGA Associate Justice

TERESITA J. LEONARDO-DE CASTRO Associate Justice

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decisionhad been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.



LEONARDO A. QUISUMBING Acting Chief Justice



FIRST DIVISION

METROPOLITAN BANK AND TRUST COMPANY,

Petitioner,

- versus -

PHILIPPINE BANK OF COMMUNICATIONS, FILIPINASORIENT FINANCE CORPORATION, PIPE MASTERCORPORATION and TAN JUAN LIAN,

Respondents.

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

G.R. No. 141408

Present:

PUNO, C.J., Chairperson,

SANDOVAL-GUTIERREZ,

CORONA,

AZCUNA, and

GARCIA, JJ.

SOLID BANK CORPORATION,

Petitioner,

- versus -

FILIPINAS ORIENT FINANCE CORPORATION, PIPEMASTER CORPORATION, TAN JUAN LIAN and/orPHILIPPINE BANK OF COMMUNICATIONS,

Respondents.

G.R. No. 141429

Promulgated:



October 18, 2007

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

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

Sometime in 1978, Pipe Master Corporation (Pipe Master) represented by Yu Kio, its president, applied for

check discounting with Filipinas Orient Finance Corporation (Filipinas Orient). The latter approved and granted the

same.

On July 1, 1978, the Board of Directors of Pipe Master issued a Board Resolution authorizing Yu Kio, in

his capacity as president, and/or Tan Juan Lian, in his capacity as vice-president, to execute, indorse, make, sign,

deliver or negotiate instruments, documents and such other papers necessary in connection with any transaction

coursed through Filipinas Orient for and in behalf of the corporation.

Tan Juan Lian then executed in favor of Filipinas Orient a continuing guaranty that he shall pay at maturity

any and all promissory notes, drafts, checks, or other instruments or evidence of indebtedness for which Pipe Master

may become liable; that the extent of his liability shall not at any one time exceed the sum of P1,000,000.00; and

that in the event of default by Pipe Master, Filipinas Orient may proceed directly against him.

On April 9, 1980, under the check discounting agreement between Pipe Master and Filipinas Orient, YuKio sold to Filipinas Orient four Metropolitan Bank and Trust Company (Metro Bank) checks amounting

to P1,000,000.00. In exchange for the four Metro Bank checks, Filipinas Orient issued to Yu Kio four Philippine

Bank of Communications (PBCom) crossed checks totalingP964,303.62, payable to Pipe Master with the statement

“for payee’s account only.”



Upon his receipt of the four PBCom checks, Yu Kio indorsed and deposited in the Metro Bank, in his

personal account, three of the checks valued at P721,596.95. As to the remaining check amounting to P242,706.67,

he deposited it in the Solid Bank Corporation (Solid Bank), also in his personal account. Eventually, PBCom paid

Metro Bank and Solid Bank the amounts of the checks. In turn, Metro Bank and Solid Bank credited the value of

the checks to the personal accounts of Yu Kio.

Subsequently, when Filipinas Orient presented the four Metro Bank checks equivalent to P1,000,000.00 it

received from Yu Kio, they were dishonored by the drawee bank. Pipe Master, the drawer, refused to pay the

amounts of the checks, claiming that it never received the proceeds of the PBCom checks as they were delivered and

paid to the wrong party, Yu Kio, who was not the named payee.

Filipinas Orient then demanded that PBCom restore to its (Filipinas Orient’s) account the value of the

PBCom checks. In turn, PBCom sought reimbursement from Metro Bank and Solid Bank, being the collecting banks, but they refused. Thus, Filipinas Orient filed with the Regional Trial Court (RTC), Branch 39, Manila a

complaint for a sum of money against Pipe Master, Tan Juan Lian and/or PBCom.

In their answer to the complaint, Pipe Master and Tan Juan Lian averred that they did not authorize Yu Kio

to negotiate and enter into discounting transaction with Filipinas Orient, and even if Yu Kio was so authorized, Pipe

Master never received the proceeds of the checks. Consequently, they filed a cross-claim against PBCom for gross

negligence for having paid the wrong party. In turn, PBCom, Pipe Master and Tan Juan Lian filed third-party

complaints against Metro Bank and Solid Bank.

On July 12, 1990, the RTC rendered a Decision against Metro Bank and Solid Bank, the dispositive portion

of which reads:

WHEREFORE, premises considered, judgment is hereby rendered:1. Ordering third-party defendant Metro Bank to pay plaintiff the amount of Seven Hundred

Twenty One Thousand Five Hundred Ninety Six Pesos and Ninety-Five Centavos(P721,596.95) plus legal interest;

2. Ordering third-party defendant Solid Bank to pay plaintiff the amount of Two Hundred Forty-Two Thousand Seven Hundred Six Pesos and Sixty-Seven Centavos (P242,706.67) plus legalinterest;

3. Ordering third-party defendants to pay the costs of suit.

SO ORDERED.



On appeal, the appellate court affirmed in toto the Decision of the trial court. Metro Bank and Solid Bank

filed their respective motions for reconsideration but the same were denied.

Hence, the instant consolidated petitions for review on certiorari filed by Metro Bank and Solid Bank.

The issue for our resolution is whether Metro Bank and Solid Bank, petitioners, are liable to respondent

Filipinas Orient for accepting the PBCom crossed checks payable to Pipe Master.

Petitioner banks contend that respondents Pipe Master, Tan Juan Lian and/or PBCom should be made liable

to respondent Filipinas Orient for the value of the checks.

Respondents Pipe Master and Tan Juan Lian counter that although Yu Kio was expressly authorized to

indorse Pipe Master’s checks, such authority extended only to acts done in the ordinary course of business, not in his personal capacity. For its part, respondent Filipinas Orient contends that petitioner banks were negligent in

allowing Yu Kio to deposit the PBCom checks in his account. Respondent PBCom, as the drawee bank, maintains

that it has no liability because in clearing the checks, it relied on the express guarantee made by petitioner banks that

the checks were validly indorsed.

We find in favor of respondents.

A check is defined by law as a bill of exchange drawn on a bank payable on demand . [1] The Negotiable

Instruments Law is silent with respect to crossed checks. Nonetheless, this Court has taken judicial cognizance of

the practice that a check with two parallel lines on the upper left hand corner means that it could only be deposited

and not converted into cash .[2] The crossing of a check with the phrase “Payee’s Account Only” is a warning that

the check should be deposited in the account of the payee. It is the collecting bank which is bound to scrutinize the

check and to know its depositors before it can make the clearing indorsement, “all prior indorsements and/or lack of

indorsement guaranteed. ”[3]

Here, petitioner banks have the obligation to ensure that the PBCom checks were deposited in accordance

with the instructions stated in the checks .[4]

The four PBCom checks in question had been crossed and issued “for payee’s account only.” This could only mean that the drawer, Filipinas Orient, intended the same for deposit only

by the payee, Pipe Master. The effect of crossing a check means that the drawer had intended the check for deposit

only by the rightful person, i.e., the payee named therein [5] – Pipe Master.

As what transpired in this case, petitioner banks accommodated Yu Kio, being a valued client and the

president of Pipe Master, and accepted the crossed checks. They stamped at the back thereof that “all prior

http://sc.judiciary.gov.ph/jurisprudence/2007/october2007/141408.htm#_ftn1





















indorsements and/or lack of indorsements are guar anteed.” In so doing, they became general endorsers. Under

Section 66 of the Negotiable Instruments Law, an endorser warrants “that the instrument is genuine and in all

respects what it purports to be; that he has a good title to it; that all prior parties had capacity to contract; and

that the instrument is at the time of his indorsement valid and subsisting.”

Clearly, petitioner banks, being endorsers, cannot deny liability.

In Associated Bank v. Court of Appeals ,[6] we held that the collecting bank or last endorser generally

suffers the loss because it has the duty to ascertain the genuineness of all prior indorsements and is privy to the

depositor who negotiated the check.

PBCom, as the drawee bank, cannot be held liable since it mainly relied on the express guarantee made by

petitioners, the collecting banks, of all prior indorsements.

Evidently, petitioner banks disregarded established banking rules and procedures. They were negligent in

accepting the checks and allowing the transaction to push through. In Jai-Alai Corp. of the Phil. v. Bank of the Phil.

Islands ,[7]

we ruled that one who accepts and encashes a check from an individual knowing that the payee is acorporation does so at his peril. Therefore, petitioner banks are liable to respondent Filipinas Orient.

In fine, it must be emphasized that the law imposes on the collecting bank the duty to diligently scrutinize

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 .[8] Since petitioner banks’ negligence was the direct cause of the misappropriation of

the checks, they should bear and answer for respondent Filipinas Orient’s loss, without prejudice to their filing of anappropriate action against Yu Kio.

WHEREFORE , we DENY the petitions. The challenged Decisio n[9] and Resolution of the Court of

Appeals in CA-G.R. CV No. 30702 are AFFIRMED . Costs against petitioners.



















SO ORDERED.

ANGELINA SANDOVAL-GUTIERREZ

Associate Justice

WE CONCUR:

REYNATO S. PUNO Chief Justice

Chairperson

RENATO C. CORONA

Associate Justice

ADOLFO S. AZCUNA

Associate Justice

CANCIO C. GARCIA

Associate Justice

CERTIFICATION



Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions inthe above Decision were reached in consultation before the case was assigned to the writer of the opinion ofthe Court’s Division.

REYNATO S. PUNO Chief Justice



G.R. No. 89802 May 7, 1992

ASSOCIATED BANK and CONRADO CRUZ, petitioners,vs.HON. COURT OF APPEALS, and MERLE V. REYES, doing business under the name and style"Melissa's RTW," respondents.

Soluta, Leonidas, Marifosque, Javier, Liboon & aguila Law Offices for petitioners.

Roberto B. Lugue for private respondent.

CRUZ, J .:

The sole issue raised in this case is whether or not the private respondent has a cause of action againstthe petitioners for their encashment and payment to another person of certain crossed checks issued inher favor.

The private respondent is engaged in the business of ready-to-wear garments under the firm name"Melissa's RTW." She deals with, among other customers, Robinson's Department Store, PaylessDepartment Store, Rempson Department Store, and the Corona Bazaar.

These companies issued in payment of their respective accounts crossed checks payable to Melissa'sRTW in the amounts and on the dates indicated below:

PAYOR BANK AMOUNT DATE

Payless Solid Bank P3,960.00 January 19, 1982Robinson's FEBTC 4,140.00 December 18, 1981Robinson's FEBTC 1,650.00 December 24, 1981Robinson's FEBTC 1,980.00 January 12, 1982Rempson TRB 1,575.00 January 9, 1982Corona RCBC 2,500.00 December 22, 1981

When she went to these companies to collect on what she thought were still unpaid accounts, she wasinformed of the issuance of the above-listed crossed checks. Further inquiry revealed that the said checkshad been deposited with the Associated Bank (hereinafter, "the Bank") and subsequently paid by it to oneRafael Sayson, one of its "trusted depositors," in the words of its branch manager and co-petitioner,Conrado Cruz, Sayson had not been authorized by the private respondent to deposit and encash the saidchecks.

The private respondent sued the petitioners in the Regional Trial Court of Quezon City for recovery of thetotal value of the checks plus damages. After trial, judgment was rendered requiring them to pay theprivate respondent the total value of the subject checks in the amount of P15,805.00 plus 12% interest,P50,000.00 actual damages, P25,000.00 exemplary damages, P5,000.00 attorney's fees, and the costsof the suit. 1

The petitioners appealed to the respondent court, reiterating their argument that the private respondenthad no cause of action against them and should have proceeded instead against the companies thatissued the checks. In disposing of this contention, the Court of Appeals 2 said:



The cause of action of the appellee in the case at bar arose from the illegal, anomalousand irregular acts of the appellants in violating common banking practices to the damageand prejudice of the appellees, in allowing to be deposited and encashed as well aspaying to improper parties without the knowledge, consent, authority or endorsement ofthe appellee which totalled P15,805.00, the six (6) checks in dispute which were "crossedchecks" or "for payee's account only," the appellee being the payee.

The three (3) elements of a cause of action are present in the case at bar, namely: (1) aright in favor of the plaintiff by whatever means and under whatever law it arises or iscreated; (2) an obligation on the part of the named defendant to respect or not to violatesuch right; and (3) an act or omission on the part of such defendant violative of the rightof the plaintiff or constituting a breach thereof. (Republic Planters Bank vs. Intermediate

Appellate Court, 131 SCRA 631).

And such cause of action has been proved by evidence of great weight. The contents ofthe said checks issued by the customers of the appellee had not been questioned. Thereis no dispute that the same are crossed checks or for payee's account only, which isMelissa's RTW. The appellee had clearly shown that she had never authorized anyone todeposit the said checks nor to encash the same; that the appellants had allowed all said

checks to be deposited, cleared and paid to one Rafael Sayson in violation of theinstructions in the said crossed checks that the same were for payee's account only; andthat the appellee maintained a savings account with the Prudential Bank, Cubao Branch,Quezon City which never cleared the said checks and the appellee had been damagedby such encashment of the same.

We affirm.

Under accepted banking practice, crossing a check is done by writing two parallel lines diagonally on theleft top portion of the checks. The crossing is special where the name of a bank or a business institution iswritten between the two parallel lines, which means that the drawee should pay only with the interventionof that company. 3 The crossing is general where the words written between the two parallel lines are "andCo." or "for payee's account only," as in the case at bar. This means that the drawee bank should not

encash the check but merely accept it for deposit.4

In State Investment House vs . IAC , 5 this Court declared that "the effects of crossing a check are: (1) thatthe check may not be encashed but only deposited in the bank; (2) that the check may be negotiated onlyonce –– to one who has an account with a bank; and (3) that the act of crossing the check serves as awarning to the holder that the check has been issued for a definite purpose so that he must inquire if hehas received the check pursuant to that purpose."

The effects therefore of crossing a check relate to the mode of its presentment for payment. Under Sec.72 of the Negotiable Instruments Law, presentment for payment, to be sufficient, must be made by theholder or by some person authorized to receive payment on his behalf. Who the holder or authorizedperson is depends on the instruction stated on the face of the check.

The six checks in the case at bar had been crossed and issued "for payee's account only." This couldonly signify that the drawers had intended the same for deposit only by the person indicated, to wit,Melissa's RTW.

The petitioners argue that the cause of action for violation of the common instruction found on the face ofthe checks exclusively belongs to the issuers thereof and not to the payee. Moreover, having acted ingood faith as they merely facilitated the encashment of the checks, they cannot be made liable to theprivate respondent.



The subject checks were accepted for deposit by the Bank for the account of Rafael Sayson althoughthey were crossed checks and the payee was not Sayson but Melissa's RTW. The Bank stamped thereonits guarantee that "all prior endorsements and/or lack of endorsements (were) guaranteed." By suchdeliberate and positive act, the Bank had for all legal intents and purposes treated the said checks asnegotiable instruments and, accordingly, assumed the warranty of the endorser.

The weight of authority is to the effect that "the possession of check on a forged or unauthorizedindorsement is wrongful, and when the money is collected on the check, the bank can be held 'formoneys had and received." 6The proceeds are held for the rightful owner of the payment and may berecovered by him. The position of the bank taking the check on the forged or unauthorized indorsement isthe same as if it had taken the check and collected without indorsement at all. The act of the bankamounts to conversion of the check. 7

It is not disputed that the proceeds of the subject checks belonged to the private respondent. As she hadnot at any time authorized Rafael Sayson to endorse or encash them, there was conversion of the fundsby the Bank.

When the Bank paid the checks so endorsed notwithstanding that title had not passed to the endorser, itdid so at its peril and became liable to the payee for the value of the checks. This liability attached

whether or not the Bank was aware of the unauthorized endorsement. 8

The petitioners were negligent when they permitted the encashment of the checks by Sayson. The Bankshould have first verified his right to endorse the crossed checks, of which he was not the payee, and todeposit the proceeds of the checks to his own account. The Bank was by reason of the nature of thechecks put upon notice that they were issued for deposit only to the private respondent's account. Itsfailure to inquire into Sayson's authority was a breach of a duty it owed to the private respondent.

As the Court stressed in Banco de Oro Savings and Mortgage Bank vs . Equitable Banking Corp ., 9 "thelaw imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for thepurpose of determining their genuineness and regularity. The collecting bank, being primarily engaged inbanking, holds itself out to the public as the expert on this field, and the law thus holds it to a highstandard of conduct."

The petitioners insist that the private respondent has no cause of action against them because they haveno privity of contract with her. They also argue that it was Eddie Reyes, the private respondent's ownhusband, who endorsed the checks.

Assuming that Eddie Reyes did endorse the crossed checks, we hold that the Bank would still be liable tothe private respondent because he was not authorized to make the endorsements. And even if theendorsements were forged, as alleged, the Bank would still be liable to the private respondent for notverifying the endorser's authority. There is no substantial difference between an actual forging of a nameto a check as an endorsement by a person not authorized to make the signature and the affixing of aname to a check as an endorsement by a person not authorized to endorse it. 10

The Bank does not deny collecting the money on the endorsement. It was its responsibility to inquire as tothe authority of Rafael Sayson to deposit crossed checks payable to Melissa's RTW upon a priorendorsement by Eddie Reyes. The failure of the Bank to make this inquiry was a breach of duty thatmade it liable to the private respondent for the amount of the checks.

There being no evidence that the crossed checks were actually received by the private respondent, shewould have a right of action against the drawer companies, which in turn could go against their respectivedrawee banks, which in turn could sue the herein petitioner as collecting bank. In a similar situation, itwas held that, to simplify proceedings, the payee of the illegally encashed checks should be allowed to



recover directly from the bank responsible for such encashment regardless of whether or not the checkswere actually delivered to the payee. 11 We approve such direct action in the case at bar.

It is worth repeating that before presenting the checks for clearing and for payment, the Bank hadstamped on the back thereof the words: "All prior endorsements and/or lack of endorsementsguaranteed," and thus made the assurance that it had ascertained the genuineness of all prior

endorsements.

We find that the respondent court committed no reversible error in holding that the private respondent hada valid cause of action against the petitioners and that the latter are indeed liable to her for theirunauthorized encashment of the subject checks. We also agree with the reduction of the award of theexemplary damages for lack of sufficient evidence to support them.

WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered.

Narvasa, C.J., Griño-Aquino, Medialdea and Bellosillo, JJ., concur.



G.R. No. 75954 October 22, 1992

PEOPLE OF THE PHILIPPINES, petitioner,vs.HON. DAVID G. NITAFAN, Presiding Judge, Regional Trial Court, Branch 52, Manila, and K.T. LIMalias MARIANO LIM, respondents.

BELLOSILLO, J .:

Failing in his argument that B.P. 22, otherwise known as the "Bouncing Check Law", isunconstitutional, 1 private respondent now argues that the check he issued, a memorandum check, is inthe nature of a promissory note, hence, outside the purview of the statute. Here, his argument must alsofail.

The facts are simple. Private respondent K.T. Lim was charged before respondent court with violation ofB.P. 22 in an Information alleging ––

That on . . . January 10, 1985, in the City of Manila . . . the said accused did then andthere wilfully, unlawfully and feloniously make or draw and issue to Fatima Cortez Sasaki. . . Philippine Trust Company Check No. 117383 dated February 9, 1985 . . . in theamount of P143,000.00, . . . well knowing that at the time of issue he . . . did not havesufficient funds in or credit with the drawee bank . . . which check . . . was subsequentlydishonored by the drawee bank for insufficiency of funds, and despite receipt of notice ofsuch dishonor, said accused failed to pay said Fatima Cortez Sasaki the amount of saidcheck or to make arrangement for full payment of the same within five (5) banking daysafter receiving said notice. 2

On 18 July 1986, private respondent moved to quash the Information of the ground that the facts chargeddid not constitute a felony as B.P. 22 was unconstitutional and that the check he issued was amemorandum check which was in the nature of a promissory note, perforce, civil in nature. On 1September 1986, respondent judge, ruling that B.P. 22 on which the Information was based wasunconstitutional, issued the questioned Order quashing the Information. Hence, this petition for reviewon certiorari filed by the Solicitor General in behalf of the government.

Since the constitutionality of the "Bouncing Check Law" has already been sustained by this Courtin Lozano v .Martinez 3 and the seven (7) other cases decided jointly with it, 4 the remaining issue, as aptlystated by private respondent in his Memorandum, is whether a memorandum check issued postdated inpartial payment of a pre-existing obligation is within the coverage of B.P. 22.

Citing U.S. v . Isham , 5 private respondent contends that although a memorandum check may not differ inform and appearance from an ordinary check, such a check is given by the drawer to the payee more inthe nature of memorandum of indebtedness and, should be sued upon in a civil action.

We are not persuaded.

A memorandum check is in the form of an ordinary check, with the word "memorandum", "memo" or"mem" written across its face, signifying that the maker or drawer engages to pay the bona fide holderabsolutely, without any condition concerning its presentment. 6 Such a check is an evidence of debtagainst the drawer, and although may not be intended to be presented, 7 has the same effect as anordinary check, 8 and if passed to the third person, will be valid in his hands like any other check. 9



From the above definition, it is clear that a memorandum check, which is in the form of an ordinary check,is still drawn on a bank and should therefore be distinguished from a promissory note, which is but a merepromise to pay. If private respondent seeks to equate memorandum check with promissory note, as hedoes to skirt the provisions of B.P. 22, he could very well have issued a promissory note, and this wouldbe have exempted him form the coverage of the law. In the business community a promissory note,certainly, has less impact and persuadability than a check.

Verily, a memorandum check comes within the meaning of Sec. 185 of the Negotiable Instruments Lawwhich defines a check as "a bill of exchange drawn on a bank payable on demand." A check is alsodefined as " [a] written order or request to a bank or persons carrying on the business of banking, by aparty having money in their hands, desiring them to pay, on presentment, to a person therein named orbearer, or to such person or order, a named sum of money," citing 2 Dan. Neg. Inst. 528; Blairv . Wilson, 28 Gratt. (Va.) 170; Deener v . Brown, 1 MacArth. (D.C.) 350; In re Brown, 2 Sto. 502, Fed. Cas.No. 1,985. See Chapman v . White, 6 N.Y. 412, 57 Am. Dec 464. 10 Another definition of check is that is"[a] draft drawn upon a bank and payable on demand, signed by the maker or drawer, containing anunconditional promise to pay a sum certain in money to the order of the payee," citing Statev .Perrigoue, 81 Wash, 2d 640, 503 p. 2d 1063, 1066. 11

A memorandum check must therefore fall within the ambit of B.P. 22 which does not distinguish but

merely provides that "[a]ny person who makes or draws and issues any check knowing at the time ofissue that he does not have sufficient funds in or credit with the drawee bank . . . which check issubsequently dishonored . . . shall be punished by imprisonment . . ." (Emphasis supplied ). 12 Ubi lex nodistinguit nec nos distinguere debemus .

But even if We retrace the enactment of the "Bouncing Check Law" to determine the parameters of theconcept of "check", We can easily glean that the members of the then Batasang Pambansa intended it tobe comprehensive as to include all checks drawn against banks. This was particularly the ratiocination ofMar. Estelito P. Mendoza, co-sponsor of Cabinet Bill No. 9 which later became B.P. 22, when in responseto the interpellation of Mr. Januario T. Seño, Mr. Mendoza explained that the draft or order must beaddressed to a bank or depository, 13 and accepted the proposed amendment of Messrs. Antonio P.Roman and Arturo M. Tolentino that the words "draft or order", and certain terms which technically meantpromissory notes, wherever they were found in the text of the bill, should be deleted since the bill was

mainly directed against the pernicious practice of issuing checks with insufficient or no funds, and not todrafts which were not drawn against banks. 14

A memorandum check, upon presentment, is generally accepted by the bank. Hence it does not matterwhether the check issued is in the nature of a memorandum as evidence of indebtedness or whether itwas issued is partial fulfillment of a pre-existing obligation, for what the law punishes is the issuance itselfof a bouncing check 15 and not the purpose for which it was issuance. The mere act of issuing a worthlesscheck, whether as a deposit, as a guarantee, or even as an evidence of a pre-existing debt, is malum

prohibitum . 16

We are not unaware that a memorandum check may carry with it the understanding that it is not bepresented at the bank but will be redeemed by the maker himself when the loan fall due. Thisunderstanding may be manifested by writing across the check "Memorandum", "Memo" or "Mem."

However, with the promulgation of B.P. 22, such understanding or private arrangement may no longerprevail to exempt it from penal sanction imposed by the law. To require that the agreement surroundingthe issuance of check be first looked into and thereafter exempt such issuance from the punitive provisionof B.P. 22 on the basis of such agreement or understanding would frustrate the very purpose for whichthe law was enacted — to stem the proliferation of unfunded checks. After having effectively reduced theincidence of worthless checks changing hands, the country will once again experience the limitlesscirculation of bouncing checks in the guise of memorandum checks if such checks will be consideredexempt from the operation of B.P. 22. It is common practice in commercial transactions to require debtorsto issue checks on which creditors must rely as guarantee of payment. To determine the reasons forwhich checks are issued, or the terms and conditions for their issuance, will greatly erode the faith the



public responses in the stability and commercial value of checks as currency substitutes, and bring abouthavoc in trade and in banking communities. 17

WHEREFORE, the petition is GRANTED and the Order of respondent Judge of 1 September 1986 is SET ASIDE. Consequently, respondent Judge, or whoever presides over the Regional Trial Court of Manila,Branch 52, is hereby directed forthwith to proceed with the hearing of the case until terminated.

SO ORDERED.

Gutierrez, Jr., Cruz, Feliciano, Padilla, Bidin, Griño-Aquino, Medialdea, Regalado, Davide, Jr., Romero,Nocon, Bellosillo and Melo, JJ., concur.

Narvasa, C.J., is on leave.



G.R. No. 105836 March 7, 1994

SPOUSES GEORGE MORAN and LIBRADA P. MORAN, petitioners,vs.THE HON. COURT OF APPEALS and CITYTRUST BANKING CORPORATION, respondents.

Gonzales, Batiller, Bilog & Associates for petitioners.

Agcaoli & Associates for private respondent.

REGALADO, J .:

Petitioner spouses George and Librada Moran are the owners of the Wack-Wack Petron gasoline stationlocated at Shaw Boulevard, corner Old Wack-Wack Road, Mandaluyong, Metro Manila. They regularlypurchased bulk fuel and other related products from Petrophil Corporation on cash on delivery (COD)basis. Orders for bulk fuel and other related products were made by telephone and payments wereeffected by personal checks upon delivery. 1

Petitioners maintained three joint accounts, namely one current account (No. 37-00066-7) and twosavings accounts, (Nos. 1037002387 and 1037001372) with the Shaw Boulevard branch of CitytrustBanking Corporation. As a special privilege to the Morans, whom it considered as valued clients, the bankallowed them to maintain a zero balance in their current account. Transfers from Saving Account No.1037002387 to their current account could be made only with their prior authorization, but they gavewritten authority to Citytrust to automatically transfer funds from their Savings Account No. 1037001372 totheir Current Account No. 37-00066-7 at any time whenever the funds in their current account wereinsufficient to meet withdrawals from said current account. Such arrangement for automatic transfer offunds was called a pre-authorized transfer (PAT) agreement. 2

The PAT letter-agreement entered into by the parties on March 19, 1982 contained the following

provisions:

xxx xxx xxx

1. The transfer may be effected on the day following the overdrawing of the currentaccount, but the check/s would be honored if the savings account has sufficient balanceto cover the overdraft .

2. The regular charges on overdraft, and activity fees will be imposed by the Bank.

3. This is merely an accommodation on our part and we have the right, at all times andfor any reason whatsoever, to refuse to effect transfer of funds at our sole and absoluteoption and discretion, reserving our right to terminate this arrangement at any timewithout written notice to you.

4. You hold CITYTRUST free and harmless for any and all omissions or oversight inexecuting this automatic transfer of funds ; . . . 3

xxx xxx xxx

On December 12, 1983, petitioners, through Librada Moran, drew a check (Citytrust No. 041960) forP50,576.00 payable to Petrophil



Corporation. 4 The next day, December 13, 1983, petitioners, again through Librada Moran, issuedanother check (Citytrust No. 041962) in the amount of P56,090.00 in favor of the same corporation. 5 Thetotal sum of the two checks was P106,666.00.

On December 14, 1983, Petrophil Corporation deposited the two aforementioned checks to its accountwith the Pandacan branch of the Philippine National Bank (PNB), the collecting bank. In turn, PNB,

Pandacan branch presented them for clearing with the Philippine Clearing House Corporation in theafternoon of the same day. The records show that on December 14, 1983, Current Account No. 37-00066-7 had a zero balance, while Savings Account No. 1037001372 (covered by the PAT) had anavailable balance ofP26,104.30 6 and Savings Account No. 1037002387 had an available balance of P43,268.39. 7

At about ten o'clock in the morning of the following day, December 15, 1983, petitioner George Moranwent to the bank, as was his regular practice, to personally oversee their daily transactions with the bank.He deposited in their Savings Account No. 1037002387 the amounts of P10,874.58 and P6,754.25, 8 andhe likewise deposited in their Savings Account No. 1037001372 the amounts of P5,900.00, P35,100.00and 30.00. 9 The amount of P40,000.00 was then transferred by him from Saving Account No.1037002387 to their current account by means of a pro forma withdrawal form (a debit memorandum),which was provided by the bank, authorizing the latter to make the necessary transfer. At the same time,

the amount of P66,666.00 was transferred from Savings Account No. 1037001372 to the same currentaccount through the pre-authorized transfer (PAT) agreement. 10

Sometime on December 15 or 16, 1983 George Moran was informed by his wife Librada, that Petrophilrefused to deliver their orders on a credit basis because the two checks they had previously issued weredishonored upon presentment for payment. Apparently, the bank dishonored the checks due to"insufficiency of funds." 11 The non-delivery of gasoline forced petitioners to temporarily stop businessoperations, allegedly causing them to suffer loss of earnings. In addition, Petrophil cancelled their creditaccommodation, forcing them to pay for their purchases in cash. 12 George Moran, furious and upset,demanded an explanation from Raul Diaz, the branch manager. Failing to get a sufficient explanation, hetalked to a certain Villareal, a bank officer, who allegedly told him that Amy Belen Ragodo, the customerservice officer, had committed a "grave error". 13

On December 16 or 17, 1983, Diaz went to the Moran residence to get the signatures of the petitionerson an application for a manager's check so that the dishonored checks could be redeemed. Diaz thenwent to Petrophil to personally present the checks in payment for the two dishonored checks. 14

In a chance meeting around May or June, 1984, George Moran learned from one Constancio Magno,credit manager of Petrophil, that the latter received from Citytrust, through Diaz, a letter dated December16, 1983, notifying them that the two aforementioned checks were "inadvertently dishonored . . . due tooperational error." Said letter was received by Petrophil on January 4, 1984. 15

On July 24, 1984, or a little over six months after the incident, petitioners, through counsel, wrote Citytrustclaiming that the bank's dishonor of the checks caused them besmirched business and personalreputation, shame and anxiety, hence they were contemplating the filing of the necessary legal actionsunless the bank issued a certification clearing their name and paid them P1,000,000.00 as moral

damages.16

The bank did not act favorably on their demands, hence petitioners filed a complaint for damages onSeptember 8, 1984, with the Regional Trial Court, Branch 159 at Pasig, Metro Manila, which wasdocketed therein as Civil Case No. 51549. In turn, Citytrust filed a counterclaim for damages, alleging thatthe case filed against it was unfounded and unjust.



After trial, a decision dated October 9, 1989 was rendered by the trial court dismissing both the complaintand the counterclaim. 17 On appeal, the Court of Appeals rendered judgment in CA-G.R. CV No. 25009on October 9, 1989 affirming the decision of the trial court. 18

We start some basic and accepted rules, statutory and doctrinal. A check is a bill of exchange drawn on abank payable on demand. 19 Thus, a check is a written order addressed to a bank or persons carrying on

the business of banking, by a party having money in their hands, requesting them to pay on presentment,to a person named therein or to bearer or order, a named sum of money. 20

Fixed savings and current deposits of money in banks and similar institutions shall be governed by theprovisions concerning simple loan. 21 In other words, the relationship between the bank and the depositoris that of a debtor and creditor. 22 By virtue of the contract of deposit between the banker and itsdepositor, the banker agrees to pay checks drawn by the depositor provided that said depositor hasmoney in the hands of the bank. 23

Hence, where the bank possesses funds of a depositor, it is bound to honor his checks to the extent ofthe amount of his deposits. The failure of a bank to pay the check of a merchant or a trader, when thedeposit is sufficient, entitles the drawer to substantial damages without any proof of actualdamages. 24

Conversely, a bank is not liable for its refusal to pay a check on account of insufficient funds,notwithstanding the fact that a deposit may be made later in the day. 25 Before a bank depositor maymaintain a suit to recover a specific amount from his bank, he must first show that he had on depositsufficient funds to meet his demand. 26

The present action for damages accordingly hinges on the resolution of the inquiry as to whether or notpetitioners had sufficient funds in their accounts when the bank dishonored the checks in question. Inview of the factual findings of the two lower courts the correctness of which are challenged by whatappear to be plausible, arguments, we feel that the same should properly be resolved by us. This wouldnecessarily require us to inquire into both the savings and current accounts of petitioners in relation to thePAT arrangement.

On December 14, 1983, when PNB, Pandacan branch, presented the checks for collection, the availablebalance for Savings Account No. 1037001372 was P26,104.30 while Current Account No. 37-00066-7expectedly had a zero balance. On December 15, 1983, at approximately ten o'clock in the morning,petitioners, through George Moran, learned that P66,666.00 from Saving Account No. 1037001372 wastransferred to their current account. Another P40,000.00 was transferred from Saving Accounts No.1037002387 to the current account. Considering that the transfers were by then sufficient to cover the twochecks, it is asserted by petitioners that such fact should have prevented the dishonor of the checks. Itappears, however, that it was not so.

As explained by respondent court in its decision, Gerard E. Rionisto, head of the centralized clearing unitof Citytrust, detailed on the witness stand the standard clearing procedure adopted by respondent bankand the Philippine Clearing House Corporation, to wit:.

Q: Let me again re-phase the question. Most of (sic) these two checksissued by Mrs. Librada Moran under the accounts of the plaintiffs withCitytrust Banking Corporation were drawn dated December 12, 1983 andDecember 13, 1983(and) these two (2) checks were made payable toPetrophil Corporation. On record, Petrophil Corporation presented thesetwo (2) checks for clearing with PNB Pandacan Branch on December 14,1983. Now in accordance with the bank, what would happen with thesechecks drawn with (sic) PNB on December 14, 1983?.



A: So these checks will now be presented by PNB with the PhilippineClearing House on December 14, and then the Philippine ClearingHouse will process it until midnight of December 14. Citytrust will send aclearing representative to the Philippine Clearing House at around 2:00o'clock in the morning of December 15 and then get the checks. Thechecks will now be processed at the Citytrust Computer at around 3:00o'clock in the morning of December 14 (sic)but it will be processed forbalance of Citytrust as of December 14 because for one, we have notopened on December 15 at 3:00 o'clock. Under the clearing house rules,we are supposed to process it on the date it was presented for clearing .(tsn, September 9, 1988, pp. 9-10). 27

Considering the clearing process adopted, as explained in the aforequoted testimony, it is clear that theavailable balance on December 14, 1983 was used by the bank in determining whether or not there wassufficient cash deposited to fund the two checks, although what was stamped on the dorsal side of thetwo checks in question was "DAIF/12-15-83," since December 15, 1983 was the actual date when thechecks were processed. As earlier stated, when petitioners' checks were dishonored due to insufficiencyof funds, the available balance of Savings Account No. 1037001372, which was the subject of the PATagreement, was not enough to cover either of the two checks. On December 14, 1983, when PNB,Pandacan branch presented the checks for collection, the available balance for Savings Account No.1037001372, to repeat, was only P26,104.30 while Current Account No. 37-0006-7 had no availablebalance. It was only on December 15, 1983 at around ten o'clock in the morning that the necessary fundswere deposited, which unfortunately was too late to prevent the dishonor of the checks.

Petitioners argue that public respondent, by relying heavily on Rionisto's testimony, failed to consider thefact that the witness himself admitted that he had no personal knowledge surrounding the dishonor of thetwo checks in question. Thus, although he knew the standard clearing procedure, it does not necessarilymean that the same procedure was adopted with regard to the two checks.

We do not agree. Section 3(q), Rule 131 of the Rules of Court provides a disputable presumption in lawthat the ordinary course of business has been followed. In the absence of a contrary showing, it ispresumed that the acts in question were in conformity with the usual conduct of business. In the case at

bar, petitioners failed to present countervailing evidence to rebut the presumption that the checksinvolved underwent the same regular process for clearing of checks followed by the bank since 1983.

Petitioner had no reason to complain, for they alone were at fault. A drawer must remember hisresponsibilities every time he issues a check. He must personally keep track of his available balance inthe bank and not rely on the bank to notify him of the necessity to fund certain check she previouslyissued. A check, as distinguished from an ordinary bill of exchange, is supposed to be drawn againsta previous deposit of funds for it is ordinarily intended for immediately payment. 28

Moreover, between the time of the issuance of said checks on December 12 and 13 and the time of theirpresentment on December 14, petitioners had, at the very least, twenty-four hours to replenish theirbalance in the bank.

As previously noted, it was only during business hours in the morning of December 15, 1983, thatP66,666.00 was automatically transferred from Savings Account No. 1037001372 to Current Account No.37-00066-7, and another P40,000.00 was transferred from Savings Account No. 1037002387 to the samecurrent by a debit memorandum. Petitioners argue that if indeed the checks were dishonored in the earlymorning of December 15, 1983, the bank would not have automatically transferred P66,666.00 to saidcurrent account. They theorize that the checks having already been dishonored, there was no necessityto put into effect the pre-authorized transfer agreement.



In the early morning of every business day, prior to banking hours, the various branches of Citytrustwould receive a computer printout called the "rejected transactions" report from the head office. Thereport contains, among others, a listing of "checks to be funded." When Citytrust, Shaw Boulevardbranch, received said report in the early morning of December 15, 1983, the two checks involved wereincluded in the "checks to be funded." That report was used by the bank as its basis in dishonoring thetwo checks in question. Petitioner contends that the bank erred when it did so because on previousoccasions, the report was merely used by the bank as a basis for determining whether or not it wasnecessary to notify them of the need to deposit certain amounts in their accounts.

Amy Belen Rogado, a bank employee, testified that she would normally copy the details stated in thereport and transfer in on a "pink slip." These pink slips were then given to George Moran. In turn, GeorgeMoran testified that he would deposit the necessary funds stated in the pink slips. As a matter of fact, sopetitioner asseverated, not a single check written on the notices was ever dishonored after he had fundedsaid checks with the bank. Thus, petitioner argues, the checks were not yet dishonored after the bankreceived the report in the early morning of December 15, 1983.

Said argument does not persuade. If ever petitioners on previous occasions were given notices everytime a check was presented for clearing and payment and there were no adequate funds in theiraccounts, these were, at most, mere accommodations on the part of respondent bank. It was not a

requirement or a general banking practice, hence non-compliance therewith could not lay the bank opento blame or rebuke. Legally, the bank had all the right to dishonor the checks because there were nosufficient funds to speak of in the first place. If the demand is by check, a drawer must have to his creditenough to cover the demand. If his credit with the bank is less than the amount on the face of the check,the bank may lawfully refuse payment. 32

Pursuing this matter further, the bank could also not be faulted for not accepting either of the two checks.The first check issued was in the amount of P50,576.00, while the second one was for P56,090.00.Savings Account No. 1307001372 then had a balance of only P26,104.30. This being the case, Citytrustcould not be expected to accept for payment either one of the two checks nor partially honor one check.

A bank is under no obligation to make part payment on a check, up to only the amount of the drawer'sfunds, where the check is drawn for an amount larger than what the drawer has on deposit. Such a

practice of paying checks in part has never existed. Upon partial payment, the check holder could not becalled upon to surrender the check, and the bank would be without a voucher affording a certain means ofshowing the payment. The rule is based on commercial convenience, and any rule that would work suchmanifest inconvenience should not be recognized. A check is intended not only to transfer a right to theamount named in it, but to serve the further purpose of affording evidence for the bank of the payment ofsuch amount when the check is taken up. 33

On the other hand, assuming arguendo that Savings Account No. 1037002387, which is not covered by apre-arranged automatic transfer agreement, had enough amount deposited to cover both checks (whichis not so in this case), the bank still had no obligation to honor said checks as there was then no authoritygiven to it to make the transfer of funds. Where a depositor has two accounts with a bank, an openaccount and a savings account, and draws a check upon the open account for more money than theaccount contains, the bank may rightfully refuse to pay the check, and is under no duty to make up the

deficiency from the savings account.34

We are agree with respondent Court of Appeals in its assessment and interpretation of the nature of theletter of Citytrust to Petrophil, dated December 16, 1983. As aptly and correctly stated by said court, ". . .the letter is not an admission of liability as it was written merely to maintain the goodwill and continuedpatronage of plaintiff-appellants. (This) cannot be characterized as baseless, considering the totality ofthe circumstances surrounding its writing." 35



In the present case, the actions taken by the bank after the incident clearly show that there was neithermalice nor bad faith, but rather a clear intent to mollify an obviously agitated client. Raul Diaz, the branchmanager, even went for this purpose to the Moran residence to facilitate their application for a manager'scheck. Later, he went to the Petrophil Corporation to personally redeem the checks. Still later, the letterwas sent by respondent bank to Petrophil explaining that the dishonor of the checks was due to"operational error." However, we reiterate, it would be a mistake to construe that letter as an admission ofguilt on the part of the bank. It knew that it was confronted with a client who obviously was not willing toadmit any fault on his part, although the facts show otherwise. Thus, respondent bank ran the risk oflosing the business of an important and influential member of the financial community if it did not doanything to assuage the feelings of petitioners.

It will be recalled that the credit standing of the Morans with Petrophil Corporation was involved, whichfact, more than anything, displeased them, to say the least. On demand of petitioners that their names becleared, the bank considered it more prudent to send the letter. It never realized that it would thereafterbe used by petitioners as one of the bases of their legal action. It will be noted that there was no reasonfor the bank to send the letter to Petrophil Corporation since the latter was not a client nor was itdemanding any explanation. Clearly, therefore, the letter was merely intended to accommodate therequest of the Morans and was part of the series of damage-control measures taken by the bank toplacate petitioners.

Respondent Court of Appeals perceptively observed that "all these somehow pacified plaintiffs-appellants(herein petitioners) for they did not thereafter take immediate punitive action against the defendant-appellee (herein private respondent). As pointed out by the court a quo , it took plaintiffs-appellants aboutsix (6) months after the dishonor of the checks to demand that defendant-appellee pay themP1,000,000.00 as damages. At that time, plaintiffs-appellants had discovered the letter of Mr. Diazattributing the dishonor of their checks to 'operational error'. The attempt to unduly ride on the letter of Mr.Diaz speaks for itself." 36

On the above premises which irresistibly commend themselves to our acceptance, we find no cogent andsufficient to award actual, moral, or exemplary damages to petitioners. Although we take judicial notice ofthe fact that there is a fiduciary relationship between a bank and its depositors, as well as the extent ofdiligence expected of it in handling the accounts entrusted to its care, 37 the bank may not be held

responsible for such damages in the absence of fraud, bad faith, malice, or wanton attitude.38

WHEREFORE, finding no reversible error in the judgment appealed from, the same is hereby AFFIRMED, with costs against petitioners.

SO ORDERED.

G.R. No. 159590 October 18, 2004

HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, petitioner,vs.CECILIA DIEZ CATALAN, respondent.

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

G.R. No. 159591 October 18, 2004

HSBC INTERNATIONAL TRUSTEE LIMITED, petitioner,vs.CECILIA DIEZ CATALAN, respondent.



D E C I S I O N

AUSTRIA-MARTINEZ, J .:

Before us are two petitions for review on certiorari under Rule 45 of the Rules of Court separately filed bythe Hongkong and Shanghai Banking Corporation Limited (HSBANK) and HSBC International Trustee

Limited (HSBC TRUSTEE). They seek the reversal of the consolidated Decision,1

dated August 14, 2003,of the Court of Appeals (CA) in CA-G.R. SP Nos. 75756 and 75757, which dismissed the petitions forcertiorari of herein petitioners assailing the Order, dated May 15, 2002, of the Regional Trial Court,Branch 44, Bacolod City (RTC) in Civil Case No. 01-11372 that denied their respective motions to dismissthe amended complaint of respondent Cecilia Diez Catalan.

The factual antecedents are as follows:

On January 29, 2001, respondent filed before the RTC, a complaint for a sum of money withdamages against petitioner HSBANK, docketed as Civil Case No. 01- 11372, due to HSBANK’salleged wanton refusal to pay her the value of five HSBANK checks issued by Frederick ArthurThomson (Thomson) amounting to HK$3,200,000.00. 2

On February 7, 2001, summons was served on HSBANK at the Enterprise Center, Tower I, Ayala Avenuecorner Paseo de Roxas St., Makati City. 3 HSBANK filed a Motion for Extension of Time to File Answer orMotion to Dismiss dated February 21, 2001. 4 Then, it filed a Motion to Dismiss, dated March 8, 2001, onthe grounds that (a) the RTC has no jurisdiction over the subject matter of the complaint; (b) the RTC hasnot acquired jurisdiction for failure of the plaintiff to pay the correct filing or docket fees; (c) the RTC hasno jurisdiction over the person of HSBANK; (d) the complaint does not state a cause of action againstHSBANK; and (e) plaintiff engages in forum-shopping. 5

On September 10, 2001, Catalan filed an Amended Complaint impleading petitioner HSBC TRUSTEE asco-defendant and invoking Article 19 of the Civil Code as basis for her cause of action. 6

The Amended Complaint alleges:

Defendants HSBANK and HSBC TRUSTEE, doing business in the Philippines, are corporationsduly organized under the laws of the British Virgin Islands with head office at 1 Grenville Street,St. Helier Jersey, Channel Islands and with branch offices at Level 12, 1 Queen’s Road Central,Hongkong and may be served with summons and other court processes through their main officein Manila with address at HSBC, the Enterprise Center, Tower 1, Ayala Avenue corner Paseo deRoxas Street, Makati City.

Sometime in March 1997, Thomson issued five HSBANK checks payable to Catalan, to wit:

CHECK NO. DATE AMOUNT

807852 Mar. 15, 1997 $600,000.00

807853 Mar. 17, 1997 800,000.00

807854 Mar. 17, 1997 600,000.00

807855 Mar. 22, 1997 600,000.00

807856 Mar. 23, 1997 600,000.00

TOTAL $3,200,000.00



The checks when deposited were returned by HSBANK purportedly for reason of "payment stopped"pending confirmation, despite the fact that the checks were duly funded. On March 18, 1997, Thomsonwrote a letter to a certain Ricky Sousa 7 of HSBANK confirming the checks he issued to Catalan andrequesting that all his checks be cleared. On March 20, 1997, Thomson wrote another letter to Sousa ofHSBANK requesting an advice in writing to be sent to the Philippine National Bank, through the fastestmeans, that the checks he previously issued to Catalan were already cleared. Thereafter, Catalandemanded that HSBANK make good the checks issued by Thomson. On May 16, 1997, Marilou A.Lozada, personal secretary and attorney-in-fact of Thomson, wrote a letter to Sousa of HSBANKinforming him that HSBANK’s failure to clear all the checks had saddened Thomson and requesting thatthe clearing of the checks be facilitated. Subsequently, Thomson died and Catalan forwarded her demandto HSBC TRUSTEE. Catalan sent photocopies of the returned checks to HSBC TRUSTEE. Not satisfied,HSBC TRUSTEE through deceit and trickery, required Catalan, as a condition for the acceptance of thechecks, to submit the original copies of the returned checks, purportedly, to hasten payment of her claim.HSBC TRUSTEE succeeded in its calculated deception because on April 21, 1999, Catalan and herformer counsel went to Hongkong at their own expense to personally deliver the originals of the returnedchecks to the officers of HSBC TRUSTEE, anxious of receiving the money value of the checks but HSBCTRUSTEE despite receipt of the original checks, refused to pay Catalan’s claim. Having seen andreceived the original of the checks, upon its request, HSBC TRUSTEE is deemed to have impliedlyaccepted the checks. Moreover, the refusal of HSBANK and HSBC TRUSTEE to pay the checks isequivalent to illegal freezing of one’s deposit. On the assurance of HSBC TRUSTEE that her cl aim willsoon be paid, as she was made to believe that payments of the checks shall be made by HSBCTRUSTEE "upon sight," the unsuspecting Catalan left the originals of the checks with HSBC TRUSTEEand was given only an acknowledgment receipt. Catalan made several demands and after several morefollow ups, on August 16, 1999, Phoenix Lam, Senior Vice President of HSBC TRUSTEE, in obviousdisregard of her valid claim, informed Catalan that her claim is disapproved. No reason or explanationwhatsoever was made why her claim was disapproved, neither were the checks returned to her. Catalanappealed for fairness and understanding, in the hope that HSBC TRUSTEE would act fairly and justly onher claim but these demands were met by a stonewall of silence. On June 9, 2000, Catalan throughcounsel sent a last and final demand to HSBC TRUSTEE to remit the amount covered by the checks butdespite receipt of said letter, no payment was made. Clearly, the act of the HSBANK and HSBC

TRUSTEE in refusing to honor and pay the checks validly issued by Thomson violates the abuse of rightsprinciple under Article 19 of the Civil Code which requires that everyone must act with justice, giveeveryone his due and observe honesty and good faith. The refusal of HSBANK and HSBC TRUSTEE topay the checks without any valid reason is intended solely to prejudice and injure Catalan. When theydeclined payment of the checks despite instructions of the drawer, Thomson, to honor them, coupled withthe fact that the checks were duly funded, they acted in bad faith, thus causing damage to Catalan. Aperson may not exercise his right unjustly or in a manner that is not in keeping with honesty or good faith,otherwise he opens himself to liability for abuse of right. 8

Catalan prays that HSBANK and HSBC TRUSTEE be ordered to pay P20,864,000.00 representing thevalue of the five checks at the rate of P6.52 per HK$1 as of January 29, 2001 for the acts of HSBANKand HSBC TRUSTEE in refusing to pay the amount justly due her, in addition to moral and exemplarydamages, attorney’s fees and litigation expenses. 9

On October 2, 2001, HSBANK filed a Motion to Dismiss Amended Complaint on the grounds that: (a) theRTC has no jurisdiction over the subject matter of the complaint since the action is a money claim for adebt contracted by Thomson before his death which should have been filed in the estate or intestateproceedings of Thomson; (b) Catalan engages in forum shopping by filing the suit and at the same timefiling a claim in the probate proceeding filed with another branch of the RTC; (c) the amended complaintstates no cause of action against HSBANK since it has no obligation to pay the checks as it has notaccepted the checks and Catalan did not re-deposit the checks or make a formal protest; (d) the RTC hasnot acquired jurisdiction over the person of HSBANK for improper service of summons; and, (e) it did notsubmit to the jurisdiction of the RTC by filing a motion for extension of time to file a motion to dismiss. 10



Meanwhile, on October 17, 2001, summons for HSBC TRUSTEE was tendered to the In House Counselof HSBANK (Makati Branch) at the Enterprise Center, Tower 1, Ayala Avenue corner Paseo de Roxas,Makati. Without submitting itself to the jurisdiction of the RTC, HSBC TRUSTEE filed a Special

Appearance for Motion to Dismiss Amended Complaint, dated October 29, 2001, questioning the jurisdiction of the RTC over it. 11 HSBC TRUSTEE alleges that tender of summons through HSBANKMakati did not confer upon the RTC jurisdiction over it because: (a) it is a corporation separate anddistinct from HSBANK; (b) it does not hold office at the HSBANK Makati or in any other place in thePhilippines; (c) it has not authorized HSBANK Makati to receive summons for it; and, (d) it has no residentagent upon whom summons may be served because it does not transact business in the Philippines.

Subsequently, HSBC TRUSTEE filed a Submission, dated November 15, 2001, attaching the Affidavitexecuted in Hongkong by Phoenix Lam, Senior Vice-President of HSBC TRUSTEE, attesting to the factthat: 1) HSBC TRUSTEE has not done nor is it doing business in the Philippines; 2) it does not maintainany office in Makati or anywhere in the Philippines; 3) it has not appointed any agent in Philippines; and4) HSBANK Makati has no authority to receive any summons or court processes for HSBC TRUSTEE. 12

On May 15, 2002, the RTC issued an Order denying the two motions to dismiss. 13 The RTC held that ithas jurisdiction over the subject matter of the action because it is an action for damages under Article 19of the Civil Code for the acts of unjustly refusing to honor the checks issued by Thomson and not a

money claim against the estate of Thomson; that Catalan did not engage in forum-shopping because theelements thereof are not attendant in the case; that the question of cause of action should be threshedout or ventilated during the proceedings in the main action and after the plaintiff and defendants haveadduced evidence in their favor; that it acquired jurisdiction over the person of defendants because thequestion of whether a foreign corporation is doing business or not in the Philippines cannot be a subjectof a Motion to Dismiss but should be ventilated in the trial on the merits; and defendants voluntarilysubmitted to the jurisdiction of the RTC setting up in their Motions to Dismiss other grounds aside fromlack of jurisdiction.

HSBANK and HSBC TRUSTEE filed separate motions for reconsideration 14 but both proved futile as theywere denied by the RTC in an Order dated December 20, 2002. 15

On February 21, 2003, Catalan moved to declare HSBANK and HSBC TRUSTEE in default for failure to

file their answer to the amended complaint.

On March 5, 2003, HSBANK and HSBC TRUSTEE filed separate petitions for certiorari and/or prohibitionwith the CA, docketed as CA-G.R. SP Nos. 75756 16 and 75757, 17 respectively.

Subsequently, HSBANK and HSBC TRUSTEE filed before the RTC separate Answers ad cautelam, bothdated March 18, 2003, as a "precaution against being declared in default and without prejudice to theseparate petitions for certiorari and/or prohibition then pending with the CA." 18

Meanwhile, the two petitions for certiorari before the CA were consolidated and after responsivepleadings were filed, the cases were deemed submitted for decision.

In a consolidated Decision dated August 14, 2003, the CA dismissed the two petitions for certiorari. 19 TheCA held that the filing of petitioners’ answers before the RTC rendered moot and academic the issue ofthe RTC’s lack of jurisdiction over the person of the petitioners; that the RTC has jurisdiction over thesubject matter since it is one for damages under Article 19 of the Civil Code for the alleged unjust acts ofpetitioners and not a money claim against the estate of Thomson; and, that the amended complaint statesa cause of action under Article 19 of the Civil Code which could merit a favorable judgment if found to betrue. The CA noted that Catalan may have prayed for payment of the value of the checks but ratiocinatedthat she merely used the value as basis for the computation of the damages.

Hence, the present petitions.



In G.R. No. 159590, HSBANK submits the following assigned errors:

I.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT THECOURT A QUO, ACTING AS AN (SIC) REGULAR COURT, HAS JURISDICTION OVER

THE AMENDED COMPLAINT SEEKING TO ORDER HSBC TRUSTEE, THEEXECUTOR OF THE DECEASED FREDERICK ARTHUR THOMSON, TO PAYSUBJECT CHECKS ISSUED BY THE LATE FREDERICK ARTHUR THOMSON,

ADMITTEDLY IN PAYMENT OF HIS INDEBTEDNESS TO CATALAN.

II.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT THE AMENDED COMPLAINT DOES NOT SEEK TO ORDER HSBANK AND HSBCINTERNATIONAL TRUSTEE LIMITED TO PAY THE OBLIGATION OF THE (SIC)FREDERICK ARTHUR THOMSON AS EVIDENCED BY THE CHECKS, BUT PRAYSFOR DAMAGES EQUIVALENT OR COMPUTED ON THE BASIS OF THE VALUE OFTHE CHECKS BECAUSE THE DEFENDANTS FAILED TO COMPLY WITH THEMANDATES OF ARTICLE 19 OF THE NEW CIVIL CODE.

III.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT ALLEGATIONS IN THE AMENDED COMPLAINT MAKE OUT A CAUSE OF ACTIONWHICH COULD MERIT A FAVORABLE JUDGMENT IF FOUND TO BE TRUE, OR INNOT HOLDING THAT THE AMENDED COMPLAINT STATES NO CAUSE OF ACTION

AGAINST HSBANK, AS DRAWEE BANK.

IV.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN DISREGARDING THEFACT THAT CATALAN ENGAGED IN FORUM SHOPPING BY FILING THE AMENDEDCOMPLAINT WHILE HER PETITION FOR THE PROBATE OF THE SUPPOSED WILLOF THE DECEASED FREDERICK ARTHUR THOMSON IS PENDING WITH ANOTHERBRANCH OF THE COURT A QUO.

V.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THATHSBANK HAD SUBMITTED TO THE JURISDICTION OF THE COURT A QUO BYSUBMITTING AN ANSWER TO THE AMENDED COMPLAINT. 20

In G.R. No. 159591, HSBC TRUSTEE also assigns the foregoing first, second and fifth errors as itsown.

21 In addition, it claims that:

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN NOT ORDERING THEDISMISSAL OF THE AMENDED COMPLAINT AGAINST HSBC TRUSTEE DESPITE THE FACTIT HAS NOT BEEN DULY SERVED WITH SUMMONS. 22

HSBANK and HSBC TRUSTEE contend in common that Catalan has no cause of action for abuse ofrights under Article 19 of the Civil Code; that her complaint, under the guise of a claim for damages, is



actually a money claim against the estate of Thomson arising from checks issued by the latter in her favorin payment of indebtedness.

HSBANK claims that the money claim should be dismissed on the ground of forum-shopping sinceCatalan also filed a petition for probate of the alleged last will of Thomson before RTC, Branch 48,Bacolod City, docketed as Spec. Proc No. 00-892. In addition, HSBANK imputes error upon the CA in

holding that by filing an answer to the amended complaint, petitioners are estopped from questioning the jurisdiction of the RTC.

HSBC TRUSTEE maintains that the RTC did not acquire jurisdiction over it for improper service ofsummons.

In her Comment, Catalan insists that her complaint is one for damages under Article 19 of the Civil Codefor the wanton refusal to honor and pay the value of five checks issued by the Thomson amounting toHK$3,200,000.00. She argues that the issue of jurisdiction has been rendered moot by petitioners’participation in the proceedings before the RTC.

Succinctly, the issues boil down to the following:

1) Does the complaint state a cause of action?

2) Did Catalan engage in forum-shopping by filing the complaint for damages when she also fileda petition for probate of the alleged last will of Thomson with another branch of the RTC? and,

3) Did the RTC acquire jurisdiction over HSBANK and HSBC TRUSTEE? Corollary thereto, didthe filing of the answer before the RTC render the issue of lack of jurisdiction moot andacademic?

We shall resolve the issue in seriatim .

Does the complaint state a cause of action against HSBANK and HSBC TRUSTEE?

The elementary test for failure to state a cause of action is whether the complaint alleges facts which iftrue would justify the relief demanded. Stated otherwise, may the court render a valid judgment upon thefacts alleged therein? 23 The inquiry is into the sufficiency, not the veracity of the material allegations. 24 Ifthe allegations in the complaint furnish sufficient basis on which it can be maintained, it should not bedismissed regardless of the defense that may be presented by the defendants. 25

Catalan anchors her complaint for damages on Article 19 of the Civil Code. It speaks of the fundamentalprinciple of law and human conduct that a person "must, in the exercise of his rights and in theperformance of his duties, act with justice, give every one his due, and observe honesty and good faith." Itsets the standards which may be observed not only in the exercise of one’s rights but also in theperformance of one’s duties. When a right is exercised in a manner which does not conform w ith thenorms enshrined in Article 19 and results in damage to another, a legal wrong is thereby committed forwhich the wrongdoer must be held responsible.

26 But a right, though by itself legal because recognized or

granted by law as such, may nevertheless become the source of some illegality. A person should beprotected only when he acts in the legitimate exercise of his right, that is, when he acts with prudence andin good faith; but not when he acts with negligence or abuse. 27 There is an abuse of right when it isexercised for the only purpose of prejudicing or injuring another. The exercise of a right must be inaccordance with the purpose for which it was established, and must not be excessive or unduly harsh;there must be no intention to injure another. 28



Thus, in order to be liable under the abuse of rights principle, three elements must concur, to wit: (a) thatthere is a legal right or duty; (b) which is exercised in bad faith; and (c) for the sole intent of prejudicing orinjuring another. 29

In this instance, after carefully examining the amended complaint, we are convinced that the allegationstherein are in the nature of an action based on tort under Article 19 of the Civil Code. It is evident that

Catalan is suing HSBANK and HSBC TRUSTEE for unjustified and willful refusal to pay the value of thechecks.

HSBANK is being sued for unwarranted failure to pay the checks notwithstanding the repeated assuranceof the drawer Thomson as to the authenticity of the checks and frequent directives to pay the valuethereof to Catalan. Her allegations in the complaint that the gross inaction of HSBANK on Thomson’sinstructions, as well as its evident failure to inform Catalan of the reason for its continued inaction andnon-payment of the checks, smack of insouciance on its part, are sufficient statements of clear abuse ofright for which it may be held liable to Catalan for any damages she incurred resulting therefrom.HSBANK’s actions, or lack thereof, prevented Catalan from seeking further redress with Tho mson for therecovery of her claim while the latter was alive.

HSBANK claims that Catalan has no cause of action because under Section 189 of the Negotiable

Instruments Law, "a check of itself does not operate as an assignment of any part of the funds to thecredit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts orcertifies it." However, HSBANK is not being sued on the value of the check itself but for how it acted inrelation to Catalan’s claim for payment despite the repeated directives of the drawer Thomson torecognize the check the latter issued. Catalan may have prayed that she be paid the value of the checksbut it is axiomatic that what determines the nature of an action, as well as which court has jurisdictionover it, are the allegations of the complaint, irrespective of whether or not the plaintiff is entitled to recoverupon all or some of the claims asserted therein. 30

Anent HSBC TRUSTEE, it is being sued for the baseless rejection of Catalan’s c laim. When Catalanparted with the checks as a requirement for the processing of her claim, even going to the extent oftraveling to Hongkong to deliver personally the checks, HSBC TRUSTEE summarily disapproved herclaim with nary a reason. HSBC TRUSTEE ga ve no heed to Catalan’s incessant appeals for an

explanation. Her pleas fell on deaf and uncaring corporate ears. Clearly, HSBC TRUSTEE’s acts areanathema to the prescription for human conduct enshrined in Article 19 of the Civil Code.

Did Catalan engage in forum-shopping?

It has been held that forum-shopping exists where a litigant sues the same party against whom anotheraction or actions for the alleged violation of the same right and the enforcement of the same relief is/arestill pending, the defense of litis pendentia in one case is a bar to the others; and, a final judgment in onewould constitute res judicata and thus would cause the dismissal of the rest. 31

Thus, there is forum-shopping when there exist: a) identity of parties, or at least such parties as representthe same interests in both actions, b) identity of rights asserted and relief prayed for, the relief beingfounded on the same facts, and c) the identity of the two preceding particulars is such that any judgmentrendered in the pending case, regardless of which party is successful would amount to res judicata in theother. 32

Applying the foregoing requisites to the case before us in relation to Spec. Proc No. 00-892, the probateproceeding brought by Catalan before RTC, Branch 48, Bacolod City, it is obvious that forum-shoppingdoes not exist.

There is no identity of parties. HSBANK is not a party in the probate proceeding. HSBC TRUSTEE is onlya party in the probate proceeding because it is the executor and trustee named in the Hongkong will of



Thomson. HSBC TRUSTEE is representing the interest of the estate of Thomson and not its owncorporate interest.

With respect to the second and third requisites, a scrutiny of the entirety of the allegations of theamended complaint in this case reveals that the rights asserted and reliefs prayed for therein are differentfrom those pleaded in the probate proceeding, such that a judgment in one case would not bar the

prosecution of the other case. Verily, there can be no forum-shopping where in one proceeding a partyraises a claim for damages based on tort and, in another proceeding a party seeks the allowance of analleged last will based on one’s claim as an heir. After all, the merits of the action for damages is not to bedetermined in the probate proceeding and vice versa. Undeniably, the facts or evidence as would supportand establish the two causes of action are not the same. 33 Consequently, HSBANK’s reliance on theprinciple of forum-shopping is clearly misplaced.

Did the RTC acquire jurisdiction over HSBANK and HSBC TRUSTEE?

The Rules of Court provides that a court generally acquires jurisdiction over a person through either avalid service of summons in the manner required by law or the person’s voluntary appearance in court. 34

In holding that it acquired jurisdiction over HSBANK and HSBC TRUSTEE, the RTC held that bothvoluntarily submitted to the jurisdiction of the court by setting up in their Motions to Dismiss other groundsaside from lack of jurisdiction. On the other hand, the CA ruled that HSBANK and HSBC TRUSTEE areestopped from challenging the jurisdiction of the RTC because they filed their respective answers beforethe RTC.

We find that both lower courts overlooked Section 20 of Rule 14 of the 1997 Rules of Civil Procedurewhich provides that "the inclusion in a motion to dismiss of other grounds aside from lack of jurisdictionover the person of the defendant shall not be deemed a voluntary appearance." Nonetheless, suchomission does not aid HSBANK’s case.

It must be noted that HSBANK initially filed a Motion for Extension of Time to File Answer or Motion toDismiss. 35HSBANK already invoked the RTC’s jurisdiction over it by praying that its motion for extensionof time to file answer or a motion to dismiss be granted. The Court has held that the filing of motionsseeking affirmative relief, such as, to admit answer, for additional time to file answer, for reconsiderationof a default judgment, and to lift order of default with motion for reconsideration, are considered voluntarysubmission to the jurisdiction of the court. 36Consequently, HSBANK’s expressed reservation in its Answerad cautelam that it filed the same "as a mere precaution against being declared in default, and withoutprejudice to the Petition for Certiorari and/or Prohibition xxx now pending before the Court of

Appeals" 37 to assail the jurisdiction of the RTC over it is of no moment. Having earlier invoked the jurisdiction of the RTC to secure affirmative relief in its motion for additional time to file answer or motionto dismiss, HSBANK, effectively submitted voluntarily to the jurisdiction of the RTC and is therebyestopped from asserting otherwise, even before this Court.

In contrast, the filing by HSBC TRUSTEE of a motion to dismiss cannot be considered a voluntarysubmission to the jurisdiction of the RTC. It was a conditional appearance, entered precisely to questionthe regularity of the service of summons. It is settled that a party who makes a special appearance incourt challenging the jurisdiction of said court, e.g., invalidity of the service of summons, cannot beconsidered to have submitted himself to the jurisdiction of the court. 38 HSBC TRUSTEE has beenconsistent in all its pleadings in assailing the service of summons and the jurisdiction of the RTC over it.Thus, HSBC TRUSTEE cannot be declared in estoppel when it filed an Answer ad cautelam before theRTC while its petition for certiorari was pending before the CA. Such answer did not render the petition forcertiorari before the CA moot and academic. The Answer of HSBC TRUSTEE was only filed to preventany declaration that it had by its inaction waived the right to file responsive pleadings.



Admittedly, HSBC TRUSTEE is a foreign corporation, organized and existing under the laws of the BritishVirgin Islands. For proper service of summons on foreign corporations, Section 12 of Rule 14 of theRevised Rules of Court provides:

SEC. 12. Service upon foreign private juridical entity. – When the defendant is a foreign private juridical entity which has transacted business in the Philippines, service may be made on its

resident agent designated in accordance with law for that purpose, or if there be no such agent,on the government official designated by law to that effect, or on any of its officers or agentswithin the Philippines.

In French Oil Mill Machinery Co., Inc. vs. Court of Appeals, 39 we had occasion to rule that it is not enoughto merely allege in the complaint that a defendant foreign corporation is doing business. For purposes ofthe rule on summons, the fact of doing business must first be "established by appropriate allegations inthe complaint" and the court in determining such fact need not go beyond the allegations therein. 40

The allegations in the amended complaint subject of the present cases did not sufficiently show the fact ofHSBC TRUSTEE’s doing business in the Philippines. It does not appear at all that HSBC TRUSTEE hadperformed any act which would give the general public the impression that it had been engaging, orintends to engage in its ordinary and usual business undertakings in the country. Absent from the

amended complaint is an allegation that HSBC TRUSTEE had performed any act in the country thatwould place it within the sphere of the court’s jurisdiction.

We have held that a general allegation, standing alone, that a party is doing business in the Philippinesdoes not make it so; a conclusion of fact or law cannot be derived from the unsubstantiated assertions ofparties notwithstanding the demands of convenience or dispatch in legal actions, otherwise, the Courtwould be guilty of sorcery; extracting substance out of nothingness. 41

Besides, there is no allegation in the amended complaint that HSBANK is the domestic agent of HSBCTRUSTEE to warrant service of summons upon it. Thus, the summons tendered to the In House Counselof HSBANK (Makati Branch) for HSBC TRUSTEE was clearly improper.

There being no proper service of summons, the RTC cannot take cognizance of the case against HSBCTRUSTEE for lack of jurisdiction over it. Any proceeding undertaken by the RTC is therefore null andvoid.42 Accordingly, the complaint against HSBC TRUSTEE should have been dismissed for lack of

jurisdiction over it.

WHEREFORE, the petition in G.R. No. 159590 is DENIED. The Decision of the Court of Appeals, dated August 14, 2003, in CA-G.R. SP No. 75757 dismissing the petition for certiorari of the Hongkong andShanghai Banking Corporation Limited is AFFIRMED .

The petition in G.R. No. 159591 is GRANTED. The Decision of the Court of Appeals, dated August 14,2003, in CA-G.R. SP No. 75756 dismissing the petition for certiorari of the HSBC International TrusteeLimited is REVERSED and SET ASIDE . The Regional Trial Court, Branch 44, Bacolod City is declaredwithout jurisdiction to take cognizance of Civil Case No. 01-11372 against the HSBC International TrusteeLimited, and all its orders and issuances with respect to the latter are hereby ANNULLED and SETASIDE . The said Regional Trial Court is hereby ORDERED to DESIST from maintaining furtherproceedings against the HSBC International Trustee Limited in the case aforestated.

SO ORDERED.

Puno, Callejo, Sr., Tinga, and Chico-Nazario *, JJ., concur.



G.R. No. 154469 December 6, 2006

METROPOLITAN BANK AND TRUST COMPANY, petitioners,vs.RENATO D. CABILZO, respondent.

D E C I S I O N

CHICO-NAZARIO, J .:

Before this Court is a Petition for Review on Certiorari , filed by petitioner Metropolitan Bank and TrustCompany (Metrobank) seeking to reverse and set aside the Decision 1 of the Court of Appeals dated 8March 2002 and its Resolution dated 26 July 2002 affirming the Decision of the Regional Trial Court(RTC) of Manila, Branch 13 dated 4 September 1998. The dispositive portion of the Court of AppealsDecision reads:

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

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

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

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

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

On 16 November 1994, Cabilzo’s representative was at Metrobank Pasong Tamo Branch to make sometransaction when he was asked by a bank personnel if Cabilzo had issued a check in the amountof P91,000.00 to which the former replied in the negative. On the afternoon of the same date, Cabilzohimself called Metrobank to reiterate that he did not issue a check in the amount of P91,000.00 andrequested that the questioned check be returned to him for verification, to which Metrobank complied .5

Upon receipt of the check, Cabilzo discovered that Metrobank Check No. 985988 which he issued on 12November 1994 in the amount of P1,000.00 was altered to P91,000.00 and the date 24 November 1994was changed to 14 November 1994 .6

Hence, Cabilzo demanded that Metrobank re-credit the amount of P91,000.00 to his account. Metrobank,however, refused reasoning that it has to refer the matter first to its Legal Division for appropriate action.

http://www.lawphil.net/judjuris/juri2006/dec2006/gr_154469_2006.html#fnt1

























Repeated verbal demands followed but Metrobank still failed to re-credit the amount of P91,000.00 toCabilzo’s account .7

On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand 8 to Metrobank for the paymentofP90,000.00, after deducting the original value of the check in the amount of P1,000.00. Such writtendemand notwithstanding, Metrobank still failed or refused to comply with its obligation.

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

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

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

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

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

On 19 April 1996, Metrobank filed a Third-Party Complain t12 against Westmont Bank on account of itsunqualified indorsement stamped at the dorsal side of the check which the former relied upon in clearingwhat turned out to be a materially altered check.

Subsequently, a Motion to Dismiss 13 the Third-Party Complaint was then filed by Westmont bank becauseanother case involving the same cause of action was pending before a different court. The said casearose from an action for reimbursement filed by Metrobank before the Arbitration Committee of the PCHCagainst Westmont Bank, and now the subject of a Petition for Review before the RTC of Manila, Branch19.

In an Orde r 14

dated 4 February 1997, the trial court granted the Motion to Dismiss the Third-PartyComplaint on the ground of litis pendentia .

On 4 September 1998, the RTC rendered a Decision 15 in favor of Cabilzo and thereby ordered Metrobankto pay the sum of P90,000.00, the amount of the check. In stressing the fiduciary nature of therelationship between the bank and its clients and the negligence of the drawee bank in failing to detect anapparent alteration on the check, the trial court ordered for the payment of exemplary damages,attorney’s fees and cost of litigation. The dispositive portion of the Decision reads:




































WHEREFORE, judgment is rendered ordering defendant Metropolitan Bank and Trust Companyto pay plaintiff Renato Cabilzo the sum of P90,000 with legal interest of 6 percent per annum fromNovember 16, 1994 until payment is made plus P 20,000 attorney’s fees, exemplary damagesof P50,000, and costs of the suit .16

Aggrieved, Metrobank appealed the adverse decision to the Court of Appeals reiterating its previous

argument that as the last indorser, Westmont Bank shall bear the loss occasioned by the fraudulentalteration of the check. Elaborating, Metrobank maintained that by reason of its unqualified indorsement,Westmont Bank warranted that the check in question is genuine, valid and subsisting and that uponpresentment the check shall be accepted according to its tenor.

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

In a Decision 17 dated 8 March 2002, the Court of Appeals affirmed with modification the Decision of thecourt a quo, similarly finding Metrobank liable for the amount of the check, without prejudice, however, tothe outcome of the case between Metrobank and Westmont Bank which was pending before another

tribunal. The decretal portion of the Decision reads:

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

Similarly ill-fated was Metrobank’s Motion for Reconsideration which was also denied by the appellatecourt in its Resolution 19 issued on 26 July 2002, for lack of merit.

Metrobank now poses before this Court this sole issue:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING METROBANK, ASDRAWEE BANK, LIABLE FOR THE ALTERATIONS ON THE SUBJECT CHECK BEARING THE

AUTHENTIC SIGNATURE OF THE DRAWER THEREOF.

We resolve to deny the petition.

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

Section 1 of the Negotiable Instruments Law provides:

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

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

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

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





















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

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicatedtherein with reasonable certainty.

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

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

(a) The date;

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

(c) The time or place of payment;

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

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

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

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

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

Section 124. Alteration of instrument; effect of. – Where a negotiable instrument is materiallyaltered without the assent of all parties liable thereon, it is avoided, except as against a party whohas himself made,authorized, and assented to the alteration and subsequent indorsers.

But when the instrument has been materially altered and is in the hands of a holder in due coursenot a party to the alteration, he may enforce the payment thereof according to its original tenor.(Emphasis ours.)

Indubitably, Cabilzo was not the one who made nor authorized the alteration. Neither did he assent to thealteration by his express or implied acts. There is no showing that he failed to exercise such reasonable

degree of diligence required of a prudent man which could have otherwise prevented the loss. Ascorrectly ruled by the appellate court, Cabilzo was never remiss in the preparation and issuance of thecheck, and there were no indicia of evidence that would prove otherwise. Indeed, Cabilzo placedasterisks before and after the amount in words and figures in order to forewarn the subsequent holdersthat nothing follows before and after the amount indicated other than the one specified between theasterisks.

The degree of diligence required of a reasonable man in the exercise of his tasks and the performance ofhis duties has been faithfully complied with by Cabilzo. In fact, he was wary enough that he filled withasterisks the spaces between and after the amounts, not only those stated in words, but also those in



numerical figures, in order to prevent any fraudulent insertion, but unfortunately, the check was stillsuccessfully altered, indorsed by the collecting bank, and cleared by the drawee bank, and encashed bythe perpetrator of the fraud, to the damage and prejudice of Cabilzo.

Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is therefore prevented fromasserting his rights under the doctrine of equitable estoppel when the facts on record are bare of

evidence to support such conclusion. The doctrine of equitable estoppel states that when one of the twoinnocent persons, each guiltless of any intentional or moral wrong, must suffer a loss, it must be borne bythe one whose erroneous conduct, either by omission or commission, was the cause ofinjury.21 Metrobank’s reliance on this dictum , is misplaced. For one, Metrobank’s representation that it isan innocent party is flimsy and evidently, misleading. At the same time, Metrobank cannot asseverate thatCabilzo was negligent and this negligence was the proximate cause 22 of the loss in the absence of even ascintilla proof to buttress such claim. Negligence is not presumed but must be proven by the one whoalleges it .23

Undoubtedly, Cabilzo was an innocent party in this instant controversy. He was just an ordinarybusinessman who, in order to facilitate his business transactions, entrusted his money with a bank, notknowing that the latter would yield a substantial amount of his deposit to fraud, for which Cabilzo cannever be faulted.

We never fail to stress the remarkable significance of a banking institution to commercial transactions, inparticular, and to the country’s economy in general. The banking system is an indispensable institution inthe modern world and plays a vital role in the economic life of every civilized nation. Whether as merepassive entities for the safekeeping and saving of money or as active instruments of business andcommerce, banks have become an ubiquitous presence among the people, who have come to regardthem with respect and even gratitude and, most of all, confidence .24

Thus, even the humble wage-earner does not hesitate to entrust his life's savings to the bank of hischoice, knowing that they will be safe in its custody and will even earn some interest for him. The ordinaryperson, with equal faith, usually maintains a modest checking account for security and convenience in thesettling of his monthly bills and the payment of ordinary expenses. As for a businessman like therespondent, the bank is a trusted and active associate that can help in the running of his affairs, not only

in the form of loans when needed but more often in the conduct of their day-to-day transactions like theissuance or encashment of checks .25

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether suchaccount consists only of a few hundred pesos or of millions. The bank must record every singletransaction accurately, down to the last centavo, and as promptly as possible. This has to be done if theaccount is to reflect at any given time the amount of money the depositor can dispose of as he sees fit,confident that the bank will deliver it as and to whomever he directs .26

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

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

x x x The number "1" in the date is clearly imposed on a white figure in the shape of the number"2". The appellant’s employees who examined the said check should have likewise been put onguard as to why at the end of the amount in words, i.e., after the word "ONLY", there are 4asterisks, while at the beginning of the line or before said phrase, there is none, even as 4






























asterisks have been placed before and after the word "CASH" in the space for payee. In addition,the 4 asterisks before the words "ONE THOUSAND PESOS ONLY" have noticeably been erasedwith typing correction paper, leaving white marks, over which the word "NINETY" wassuperimposed. The same can be said of the numeral "9" in the amount "91,000", which issuperimposed over a whitish mark, obviously an erasure, in lieu of the asterisk which was deletedto insert the said figure. The appellant’s employees should have again noticed why only 2asterisks were placed before the amount in figures, while 3 asterisks were placed after suchamount. The word "NINETY" is also typed differently and with a lighter ink, when compared withthe words "ONE THOUSAND PESOS ONLY." The letters of the word "NINETY" are likewise alittle bigger when compared with the letters of the words "ONE THOUSAND PESOS ONLY" .28

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

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

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

When the drawee bank pays a materially altered check, it violates the terms of the check, as well as itsduty to charge its client’s account only for bona fide disbursements he had made. Since the drawee bank,in the instant case, did not pay according to the original tenor of the instrument, as directed by the drawer,

then it has no right to claim reimbursement from the drawer, much less, the right to deduct the erroneouspayment it made from the drawer’s account which it was expected to treat with utmost fidelity.

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

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

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



















Metrobank argues that Westmont Bank, as the collecting bank and the last indorser, shall bear the loss.Without ruling on the matter between the drawee bank and the collecting bank, which is already under the

jurisdiction of another tribunal, we find that Metrobank cannot rely on such indorsement, in clearing thequestioned check. The corollary liability of such indorsement, if any, is separate and independent from theliability of Metrobank to Cabilzo.

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

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

What is even more deplorable is that, having been informed of the alteration, Metrobank did notimmediately re- credit the amount that was erroneously debited from Cabilzo’s account but permitted a full

blown litigation to push through, to the prejudice of its client. Anyway, Metrobank is not left with norecourse for it can still run after the one who made the alteration or with the collecting bank, which it hadalready done. It bears repeating that the records are bare of evidence to prove that Cabilzo wasnegligent. We find no justifiable reason therefore why Metrobank did not immediately reimburse hisaccount. Such ineptness comes within the concept of wanton manner contemplated under the Civil Codewhich warrants the imposition of exemplary damages, "by way of example or correction for the publicgood," in the words of the law. It is expected that this ruling will serve as a stern warning in order to deterthe repetition of similar acts of negligence, lest the confidence of the public in the banking system befurther eroded. 32

WHEREFORE , premises considered, the instant Petition is DENIED . The Decision dated 8 March 2002and the Resolution dated 26 July 2002 of the Court of Appeals are AFFIRMED with modification thatexemplary damages in the amount of P50,000.00 be awarded. Costs against the petitioner.

SO ORDERED.

Panganiban, C.J. (Chairperson), Ynares-Santiago, Austria-Martinez, and Callejo, Sr., JJ., concur.







BANK OF THE PHILIPPINEISLANDS, G.R. No. 136202

Petitioner,

- versus -

Present:

PUNO, C.J., Chairperson,

SANDOVAL-GUTIERREZ,

CORONA,

AZCUNA, and

GARCIA, JJ.

COURT OF APPEALS, ANNABELLE A. SALAZAR, andJULIO R. TEMPLONUEVO,

Respondents.Promulgated:

January 25, 2007

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

DECISION

AZCUNA, J.:

This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the

Decision [1] dated April 3, 1998, and the Resolution [2] dated November 9, 1998, of the Court of Appeals in CA-G.R.

CV No. 42241.









The fact s[3] are as follows:

A.A. Salazar Construction and Engineering Services filed an action for a sum of money with damages

against herein petitioner Bank of the Philippine Islands (BPI) on December 5, 1991 before Branch 156 of the

Regional Trial Court (RTC) of Pasig City. The complaint was later amended by substituting the name of Annabelle A.

Salazar as the real party in interest in place of A.A. Salazar Construction and Engineering Services. Private

respondent Salazar prayed for the recovery of the amount of Two Hundred Sixty-Seven Thousand, Seven Hundred

Seven Pesos and Seventy Centavos (P267,707.70) debited by petitioner BPI from her account. She likewise prayed

for damages and attorney’s fees.

Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo, third-party defendant

and herein also a private respondent , demanded from the former payment of the amount of Two Hundred Sixty-

Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty Centavos (P267,692.50) representing the aggregate value

of three (3) checks, which were allegedly payable to him, but which were deposited with the petitioner bank to

private respondent Salazar’s account (Account No. 0203 -1187-67) without his knowledge and corresponding

endorsement.

Accepting that Templonuevo’s claim was a valid one, petitioner BPI froze Account No. 0201 -0588-48 of

A.A. Salazar and Construction and Engineering Services, instead of Account No. 0203-1187-67 where the checks

were deposited, since this account was already closed by private respondent Salazar or had an insufficient balance.

Private respondent Salazar was advised to settle the matter with Templonuevo but they did not arrive at

any settlement. As it appeared that private respondent Salazar was not entitled to the funds represented by the

checks which were deposited and accepted for deposit, petitioner BPI decided to debit the amount of P267,707.70

from her Account No. 0201-0588-48 and the sum ofP 267,692.50 was paid to Templonuevo by means of a cashier’s

check. The difference between the value of the checks (P267,692.50) and the amount actually debited from her







account (P 267,707.70) represented bank charges in connection with the issuance of a cashier’s check to

Templonuevo.

In the answer to the third-party complaint, private respondent Templonuevo admitted the payment to him

of P267,692.50 and argued that said payment was to correct the malicious deposit made by private respondent

Salazar to her private account, and that petitioner bank’s negligence and toler ance regarding the matter was

violative of the primary and ordinary rules of banking. He likewise contended that the debiting or taking of the

reimbursed amount from the account of private respondent Salazar by petitioner BPI was a matter exclusively

between said parties and may be pursuant to banking rules and regulations, but did not in any way affect him. The

debiting from another account of private respondent Salazar, considering that her other account was effectively

closed, was not his concern.

After trial, the RTC rendered a decision, the dispositive portion of which reads thus:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff[private respondent Salazar] and against the defendant [petitioner BPI] and ordering the latter to

pay as follows:

1. The amount of P267,707.70 with 12% interest thereon from September 16,1991 until the said amount is fully paid;

2. The amount of P30,000.00 as and for actual damages;

3. The amount of P50,000.00 as and for moral damages;

4. The amount of P50,000.00 as and for exemplary damages;

5. The amount of P 30,000.00 as and for attorney’s fees; and

6. Costs of suit.

The counterclaim is hereby ordered DISMISSED for lack of factual basis.



The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED forlack of merit.

Third- party defendant’s *i.e., private respondent Templonuevo’s+ counterclaim is herebylikewise DISMISSED for lack of factual basis.

SO ORDERED.[4]

On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that respondent Salazar

was entitled to the proceeds of the three (3) checks notwithstanding the lack of endorsement thereon by the

payee. The CA concluded that Salazar and Templonuevo had previously agreed that the checks payable to JRT

Construction and Tradin g[5] actually belonged to Salazar and would be deposited to her account, with petitioner

acquiescing to the arrangement .[6]

Petitioner therefore filed this petition on these grounds:

I.

The Court of Appeals committed reversible error in misinterpreting Section 49 of the NegotiableInstruments Law and Section 3 (r and s) of Rule 131 of the New Rules on Evidence.

II.

The Court of Appeals committed reversible error in NOT applying the provisions of Articles 22,1278 and 1290 of the Civil Code in favor of BPI.

III.















The Court of Appeals committed a reversible error in holding, based on a misapprehension offacts, that the account from which BPI debited the amount of P267,707.70 belonged to acorporation with a separate and distinct personality.

IV.

The Court of Appeals committed a reversible error in holding, based entirely on speculations,surmises or conjectures, that there was an agreement between SALAZAR and TEMPLONUEVOthat checks payable to TEMPLONUEVO may be deposited by SALAZAR to her personal accountand that BPI was privy to this agreement.

V.

The Court of Appeals committed reversible error in holding, based entirely on speculation,surmises or conjectures, that SALAZAR suffered great damage and prejudice and that herbusiness standing was eroded.

VI.

The Court of Appeals erred in affirming instead of reversing the decision of the lower courtagainst BPI and dismissing SALAZAR’s complaint.

VII.

The Honorable Court erred in affirming the decision of the lower court dismissing the third-party complaint of BPI .[7]

The issues center on the propriety of the deductions made by petitioner from private respondent

Salazar’s account. Stated otherwise, does a collecting bank, over the objections of its depositor, have the

authority to withdraw unilaterally from such depositor’s account the amount it had previously paid upon

certain unendorsed order instruments deposited by the depositor to another account that she later closed?

Petitioner argues thus:







1. There is no presumption in law that a check payable to order, when found in the possession of

a person who is neither a payee nor the indorsee thereof, has been lawfully transferred for

value. Hence, the CA should not have presumed that Salazar was a transferee for value within

the contemplation of Section 49 of the Negotiable Instruments Law ,[8]

as the latter applies only

to a holder defined under Section 191of the same . [9]

2. Salazar failed to adduce sufficient evidence to prove that her possession of the three checks

was lawful despite her allegations that these checks were deposited pursuant to a prior internal

arrangement with Templonuevo and that petitioner was privy to the arrangement.

3. The CA should have applied the Civil Code provisions on legal compensation because in

deducting the subject amount from Salazar’s account, petitioner was merely rectifying the undue

payment it made upon the checks and exercising its prerogative to alter or modify an erroneous

credit entry in the regular course of its business.

4. The debit of the amount from the account of A.A. Salazar Construction and Engineering

Services was proper even though the value of the checks had been originally credited to the

personal account of Salazar because A.A. Salazar Construction and Engineering Services, an

unincorporated single proprietorship, had no separate and distinct personality from Salazar.

5. Assuming the ded uction from Salazar’s account was improper, the CA should not have

dismissed petitioner’s third -party complaint against Templonuevo because the latter would havethe legal duty to return to petitioner the proceeds of the checks which he previously received

from it.











6. There was no factual basis for the award of damages to Salazar.

The petition is partly meritorious.

First, the issue raised by petitioner requires an inquiry into the factual findings made by the CA. The CA’s

conclusion that the deductions from the bank account of A.A. Salazar Construction and Engineering Services were

improper stemmed from its finding that there was no ineffective payment to Salazar which would call for the

exercise of petitioner’s right to set off against the former’s bank deposits. This finding, in turn, was drawn from the

pleadings of the parties, the evidence adduced during trial and upon the admissions and stipulations of fact made

during the pre-trial, most significantly the following:

(a) That Salazar previously had in her possession the following checks:

(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the amount of P57,712.50;

(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the amount of P55,180.00;and,

(3) Equitable Banking Corporation Check No. 32380638 dated August 28, 1990 for theamount of P154,800.00;

(b) That these checks which had an aggregate amount of P267,692.50 were payable to the order of

JRT Construction and Trading, the name and style under which Templonuevo does business;



(c) That despite the lack of endorsement of the designated payee upon such checks, Salazar was

able to deposit the checks in her personal savings account with petitioner and encash the same;

(d) That petitioner accepted and paid the checks on three (3) separate occasions over a span of

eight months in 1990; and

(e) That Templonuevo only protested the purportedly unauthorized encashment of the checks

after the lapse of one year from the date of the last check .[10]

Petitioner concedes that when it credited the value of the checks to the account of private respondent

Salazar, it made a mistake because it failed to notice the lack of endorsement thereon by the designated payee.

The CA, however, did not lend credence to this claim and concluded that petitioner’s actions were delibera te, in

view of its admission that the “mistake” was committed three times on three separate occasions, indicating

acquiescence to the internal arrangement between Salazar and Templonuevo. The CA explained thus:

It was quite apparent that the three checks which appellee Salazar deposited were notindorsed. Three times she deposited them to her account and three times the amounts borne bythese checks were credited to the same. And in those separate occasions, the bank did not returnthe checks to her so that she could have them indorsed. Neither did the bank question her as towhy she was depositing the checks to her account considering that she was not the payeethereof, thus allowing us to come to the conclusion that defendant-appellant BPI was fully awarethat the proceeds of the three checks belong to appellee.

For if the bank was not privy to the agreement between Salazar and Templonuevo, it ismost unlikely that appellant BPI (or any bank for that matter) would have accepted the checks fordeposit on three separate times nary any question. Banks are most finicky over accepting checks

for deposit without the corresponding indorsement by their payee. In fact, they hesitate to acceptindorsed checks for deposit if the depositor is not one they know very well .[11]











The CA likewise sustained Salazar’s position that she received the checks from Templonuevo pursuant to

an internal arrangement between them, ratiocinating as follows:

If there was indeed no arrangement between Templonuevo and the plaintiff over thethree questioned checks, it baffles us why it was only onAugust 31, 1991 or more than a yearafter the third and last check was deposited that he demanded for the refund of the total amountof P267,692.50.

A prudent man knowing that payment is due him would have demanded payment by hisdebtor from the moment the same became due and demandable. More so if the sum involvedruns in hundreds of thousand of pesos. By and large, every person, at the very moment he learnsthat he was deprived of a thing which rightfully belongs to him, would have created a big fuss. Hewould not have waited for a year within which to do so. It is most inconceivable thatTemplonuevo did not do this .[12]

Generally, only questions of law may be raised in an appeal by certiorari under Rule 45 of the Rules of

Court .[13] Factual findings of the CA are entitled to great weight and respect, especially when the CA affirms the

factual findings of the trial court .[14]Such questions on whether certain items of evidence should be accorded

probative value or weight, or rejected as feeble or spurious, or whether or not the proofs on one side or the other

are clear and convincing and adequate to establish a proposition in issue, are questions of fact. The same holds

true for questions on whether or not the body of proofs presented by a party, weighed and analyzed in relation to

contrary evidence submitted by the adverse party may be said to be strong, clear and convincing, or whether or

not inconsistencies in the body of proofs of a party are of such gravity as to justify refusing to give said proofs

weight – all these are issues of fact which are not reviewable by the Court .[15]

This rule, however, is not absolute and admits of certain exceptions, namely: a) when the conclusion is a

finding grounded entirely on speculations, surmises, or conjectures; b) when the inference made is manifestly

mistaken, absurd, or impossible; c) when there is a grave abuse of discretion; d) when the judgment is based on a

misapprehension of facts; e) when the findings of fact are conflicting; f) when the CA, in making its findings, went

beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee; g) when



















the findings of the CA are contrary to those of the trial court; h) when the findings of fact are conclusions without

citation of specific evidence on which they are based; i) when the finding of fact of the CA is premised on the

supposed absence of evidence but is contradicted by the evidence on record; and j) when the CA manifestly

overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a

different conclusion .[16]

In the present case, the records do not support the finding made by the CA and the trial court that a prior

arrangement existed between Salazar and Templonuevo regarding the transfer of ownership of the checks. This

fact is crucial as Salazar’s entitlement to t he value of the instruments is based on the assumption that she is a

transferee within the contemplation of Section 49 of the Negotiable Instruments Law.

Section 49 of the Negotiable Instruments Law contemplates a situation whereby the payee or indorsee

delivers a negotiable instrument for value without indorsing it, thus:

Transfer without indorsement; effect of - Where the holder of an instrument payable tohis order transfers it for value without indorsing it, the transfer vests in the transferee such titleas the transferor had therein, and the transferee acquires in addition, the right to have theindorsement of the transferor. But for the purpose of determining whether the transferee is aholder in due course, the negotiation takes effect as of the time when the indorsement is actuallymade . [17]

It bears stressing that the above transaction is an equitable assignment and the transferee acquires the

instrument subject to defenses and equities available among prior parties. Thus, if the transferor had legal title,

the transferee acquires such title and, in addition, the right to have the indorsement of the transferor and also the

right, as holder of the legal title, to maintain legal action against the maker or acceptor or other party liable to the

transferor. The underlying premise of this provision, however, is that a valid transfer of ownership of the

negotiable instrument in question has taken place.












Transferees in this situation do not enjoy the presumption of ownership in favor of holders since they are

neither payees nor indorsees of such instruments. The weight of authority is that the mere possession of a

negotiable instrument does not in itself conclusively establish either the right of the possessor to receive payment,

or of the right of one who has made payment to be discharged from liability. Thus, something more than mere

possession by persons who are not payees or indorsers of the instrument is necessary to authorize payment to

them in the absence of any other facts from which the authority to receive payment may be inferred . [18]

The CA and the trial court surmised that the subject checks belonged to private respondent Salazar based

on the pre-trial stipulation that Templonuevo incurred a one-year delay in demanding reimbursement for the

proceeds of the same. To the Court’s mind, however, such period o f delay is not of such unreasonable length as to

estop Templonuevo from asserting ownership over the checks especially considering that it was readily apparent

on the face of the instrument s [19] that these were crossed checks.

In State Investment House v. IAC ,[20] the Court enumerated the effects of crossing a check, thus: (1) that

the check may not be encashed but only deposited in the bank; (2) that the check may be negotiated only once - to

one who has an account with a bank; and (3) that the act of crossing the check serves as a warning to the holder

that the check has been issued for a definite purpose so that such holder must inquire if the check has been

received pursuant to that purpose.

Thus, even if the delay in the demand for reimbursement is taken in conjunction with Salazar’s possession

of the checks, it canno t be said that the presumption of ownership in Templonuevo’s favor as the designated

payee therein was sufficiently overcome. This is consistent with the principle that if instruments payable to named

payees or to their order have not been indorsed in blank, only such payees or their indorsees can be holders and

entitled to receive payment in their own right .[21]

The presumption under Section 131(s) of the Rules of Court stating that a negotiable instrument was

given for a sufficient consideration will not inure to the benefit of Salazar because the term “given” does not



















pertain merely to a transfer of physical possession of the instrument. The phrase “given or indorsed” in the context

of a negotiable instrument refers to the manner in which such instrument may be negotiated. Negotiable

instruments are negotiated by “transfer to one person or another in such a manner as to constitute the transferee

the holder thereof. If payable to bearer it is negotiated by delivery. If payable to order it is negotiated by the

indorsement completed by delivery. ”[22] The present case involves checks payable to order. Not being

a payee or indorsee of the checks, private respondent Salazar could not be a holder thereof.

It is an exception to the general rule for a payee of an order instrument to transfer the instrument

without indorsement. Precisely because the situation is abnormal, it is but fair to the maker and to prior holders to

require possessors to prove without the aid of an initial presumption in their favor, that they came into possession

by virtue of a legitimate transaction with the last holder .[23] Salazar failed to discharge this burden, and the return

of the check proceeds to Templonuevo was therefore warranted under the circumstances despite the fact that

Templonuevo may not have clearly demonstrated that he never authorized Salazar to deposit the checks or to

encash the same. Noteworthy also is the fact that petitioner stamped on the back of the checks the words: "All

prior endorsements and/or lack of endorsements guaranteed," thereby making the assurance that it had

ascertained the genuineness of all prior endorsements. Having assumed the liability of a general indorser,

petitioner’s liability to the designated payee cannot be de nied.

Consequently, petitioner, as the collecting bank, had the right to debit Salazar’s account for the value of

the checks it previously credited in her favor. It is of no moment that the account debited by petitioner was

different from the original account to which the proceeds of the check were credited because both admittedly

belonged to Salazar, the former being the account of the sole proprietorship which had no separate and distinct

personality from her, and the latter being her personal account.

The right of set-off was explained in Associated Bank v. Tan :[24]

A bank generally has a right of set-off over the deposits therein for the payment of anywithdrawals on the part of a depositor. The right of a collecting bank to debit a client's account for















the value of a dishonored check that has previously been credited has fairly been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that "[f]ixed, savings, andcurrent deposits of money in banks and similar institutions shall be governed by the provisionsconcerning simple loan.”

Hence, the relationship between banks and depositors has been held to be that ofcreditor and debtor. Thus, legal compensation under Article 1278 of the Civil Code may take place"when all the requisites mentioned in Article 1279 are present," as follows:

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

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

(3) That the two debts be due;

(4) That they be liquidated and demandable;

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

While, however, it is conceded that petitioner had the right of set-off over the amount it paid to

Templonuevo against the deposit of Salazar, the issue of whether it acted judiciously is an entirely different

matter .[25] As businesses affected with public interest, and because of the nature of their functions, banks are

under obligation to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary

nature of their relationship .[26] In this regard, petitioner was clearly remiss in its duty to private respondent Salazar

as its depositor.

To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious lack of

indorsement thereon, petitioner permitted the encashment of these checks three times on three separate

occasions. This negates petitioner’s claim that i t merely made a mistake in crediting the value of the checks to











Salazar’s account and instead bolsters the conclusion of the CA that petitioner recognized Salazar’s claim of

ownership of checks and acted deliberately in paying the same, contrary to ordinary banking policy and practice. It

must be emphasized that the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited

with it, for the purpose of determining their genuineness and regularity. The collecting bank, being primarily

engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high

standard of conduct .[27] The taking and collection of a check without the proper indorsement amount to a

conversion of the check by the bank .[28]

More importantly, however, solely upon the prompting of Templonuevo, and with full knowledge of the

brewing dispute between Salazar and Templonuevo, petitioner debited the account held in the name of the sole

proprietorship of Salazar without even serving due notice upon her. This ran contrary to peti tioner’s assurances to

private respondent Salazar that the account would remain untouched, pending the resolution of the controversy

between her and Templonuevo .[29] In this connection, the CA cited the letter dated September 5, 1991 of Mr.

Manuel Ablan, Senior Manager of petitioner bank’s Pasig/Ortigas branch, to private respondent Salazar informing

her that her account had been frozen, thus:

From the tenor of the letter of Manuel Ablan, it is safe to conclude that Account No.

0201-0588-48 will remain frozen or untouched until herein [Salazar] has settled matters withTemplonuevo. But, in an unexpected move, in less than two weeks (eleven days to be precise)from the time that letter was written, *petitioner+ bank issued a cashier’s check in the name ofJulio R. Templonuevo of the J.R.T. Construction and Trading for the sum of P267,692.50 (Exhibit“8”) and debited said amount from Ms. Arcilla’s account No. 02 01-0588-48 which was supposedto be frozen or controlled. Such a move by BPI is, to Our minds, a clear case of negligence, if not afraudulent, wanton and reckless disregard of the right of its depositor.

The records further bear out the fact that respondent Salazar had issued several checks drawn against the

account of A.A. Salazar Construction and Engineering Services prior to any notice of deduction being served. The

CA sustained private respondent Salazar’s claim of damages in this regard:















The act of the bank in freezing and later debiting the amount of P267,692.50 from theaccount of A.A. Salazar Construction and Engineering Services caused plaintiff-appellee greatdamage and prejudice particularly when she had already issued checks drawn against the saidaccount. As can be expected, the said checks bounced. To prove this, plaintiff-appellee presentedas exhibits photocopies of checks dated September 8, 1991,October 28, 1991, and November 14,

1991 (Exhibits “D”, “E” and “F” respectively )[30]

These checks, it must be emphasized, were subsequently dishonored, thereby causing private respondent

Salazar undue embarrassment and inflicting damage to her standing in the business community. Under the

circumstances, she was clearly not given the opportunity to protect her interest when petitioner unilaterally

withdrew the above amount from her account without informing her that it had already done so.

For the above reasons, the Court finds no reason to disturb the award of damages granted by the CA

against petitioner. This whole incident would have been avoided had petitioner adhered to the standard of

diligence expected of one engaged in the banking business. A depositor has the right to recover reasonable moral

damages even if the bank’s negligence may not have been attended with malice and bad faith, if the former

suffered mental anguish, serious anxiety, embarrassment and humiliation . [31] Moral damages are not meant to

enrich a complainant at the expense of defendant. It is only intended to alleviate the moral suffering she has

undergone. The award of exemplary damages is justified, on the other hand, when the acts of the bank are

attended by malice, bad faith or gross negligence. The award of reasonable attorney’s fees is proper where

exemplary damages are awarded. It is proper where depositors are compelled to litigate to protect their

interest .[32]

WHEREFORE, the petition is partially GRANTED.The assailed Decision dated April 3, 1998 and Resolution

dated April 3, 1998 rendered by the Court of Appeals in CA-G.R. CV No. 42241 are MODIFIED insofar as it ordered

petitioner Bank of the Philippine Islands to return the amount of Two Hundred Sixty-seven Thousand Seven















ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

Associate Justice Associate Justice

CANCIO C. GARCIA

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the aboveDecision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’sDivision.

REYNATO S. PUNO

Chief Justice

October 31, 1982



G.R. No. , ,

vs.

, .

, J. :

This is a Petition for Review on certiorari of the Decision of the Court of Appeals in CA-G.R. No. 57129-R entitled,

First National City Bank vs. Metropolitan Bank and Trust Company, which affirmed in toto the Decision of the

Court of First Instance of Manila, Branch VIII, in Civil Case No. 61488, ordering petitioner herein, Metropolitan

Bank, to reimburse respondent First National City Bank the amount of P50,000.00, with legal rate of interest from

June 25, 1965, and to pay attorney's fees of P5,000.00 and costs.

The controversy arose from the following facts:

On August 25, 1964, Check No. 7166 dated July 8, 1964 for P50,000.00, payable to CASH, drawn by Joaquin

Cunanan & Company on First National City Bank (FNCB for brevity) was deposited with Metropolitan Bank and

Trust Company (Metro Bank for short) by a certain Salvador Sales. Earlier that day, Sales had opened a current

account with Metro Bank depositing P500.00 in cash. 1 Metro Bank immediately sent the cash check to the Clearing

House of the Central Bank with the following words stamped at the back of the check:

Metropolitan Bank and Trust Company Cleared (illegible) office All prior endorsements and/or Lack of

endorsements Guaranteed. 2

The check was cleared the same day. Private respondent paid petitioner through clearing the amount of P50,000.00,

and Sales was credited with the said amount in his deposit with Metro Bank.

On August 26, 1964, Sales made his first withdrawal of P480.00 from his current account. On August 28, 1964, he

withdrew P32,100.00. Then on August 31, 1964, he withdrew the balance of P17,920.00 and closed his account with

Metro Bank.

On September 3, 1964, or nine (9) days later, FNCB returned cancelled Check No. 7166 to drawer Joaquin Cunanan

& Company, together with the monthly statement of the company's account with FNCB. That same day, the

company notified FNCB that the check had been altered. The actual amount of P50.00 was raised to P50,000.00, and

over the name of the payee, Manila Polo Club, was superimposed the word CASH.

FNCB notified Metro Bank of the alteration by telephone, confirming it the same day with a letter, which was

received by Metro Bank on the following day, September 4, 1964.



On September 10, 1964, FNCB wrote Metro Bank asking for reimbursement of the amount of P50,000.00. The latter

did not oblige, so that FNCB reiterated its request on September 29, 1964. Metro Bank was adamant in its refusal.

On June 29, 1965, FNCB filed in the Court of First Instance of Manila, Branch VIII, Civil Case No. 61488 against

Metro Bank for recovery of the amount of P50,000.00.

On January 27, 1975, the Trial Court rendered its Decision ordering Metro Bank to reimburse FNCB the amount of

P50,000.00 with legal rate of interest from June 25, 1965 until fully paid, to pay attorney's fees of P5,000.00, and

costs.

Petitioner appealed said Decision to the Court of Appeals (CA-G.R. No. 57129-R). On August 29, 1980, respondent

Appellate Court 3 affirmed in toto the judgment of the Trial Court.

Petitioner came to this instance on appeal by Certiorari , alleging:

I

The Respondent Court of Appeals erred in completely ignoring and disregarding the 24-hour clearing house rule

provided for under Central Bank Circular No. 9, as amended, although:

1. The 24-hour regulation of the Central Bank in clearing house operations is valid and banks are subject to and are

bound by the same; and

2. The 24-hour clearing house rule applies to the present case of the petitioner and the private respondent.

II

The Respondent Court of Appeals erred in relying heavily on its decision in Gallaites, et al. vs. RCA, etc.,

promulgated on October 23, 1950 for the same is not controlling and is not applicable to the present case.

III

The Respondent Court of Appeals erred in disregarding and in not applying the doctrines in the cases of Republic of

the Philippines vs. Equitable Banking Corporation (10 SCRA 8 ) and Hongkong & Shanghai Banking Corporation

vs. People's Bank and Trust Company (35 SCRA 140) for the same are controlling and apply four square to the

present case.

http://philippinelaw.info/jurisprudence/grl15894-republic-v-equitable-banking-corp.html






IV

The Respondent Court of Appeals erred in not finding the private respondent guilty of operative negligence which is

the proximate cause of the loss.

The material facts of the case are not disputed. The issue for resolution is, which bank is liable for the payment of

the altered check, the drawee bank (FNCB) or the collecting bank (Metro Bank)?

The transaction occurred during the effectivity of Central Bank Circular No. 9 (February 17, 1949) as amended by

Circular No. 138 (January 30, 1962), and Circular No. 169 (March 30, 1964). Section 4 of said Circular, as

amended, states:

Section 4. Clearing Procedures.

(c) Procedures for Returned Items

Items which should be returned for any reason whatsoever shall be delivered to and received through the clearing

Office in the special red envelopes and shall be considered and accounted as debits to the banks to which the items

are returned. Nothing in this section shall prevent the returned items from being settled by reinbursement to the

bank, institution or entity returning the items. All items cleared on a particular clearing shall be returned not later

than 3:30 P.M. on the following business day.

xxx xxx xxx

The facts of this case fall within said Circular. Under the procedure prescribed, the drawee bank receiving the check

for clearing from the Central Bank Clearing House must return the check to the collecting bank within the 24-hour

period if the check is defective for any reason.

Metro Bank invokes this 24-hour regulation of the Central Bank as its defense. FNCB on the other hand, relies on

the guarantee of all previous indorsements made by Metro Bank which guarantee had allegedly misled FNCB into

believing that the check in question was regular and the payee's indorsements genuine; as well as on "the general

rule of law founded on equity and justice that a drawee or payor bank which in good faith pays the amount of

materially altered check to the holder thereof is entitled to recover its payment from the said holder, even if he be an

innocent holder. 4



The validity of the 24-hour clearing house regulation has been upheld by this Court in Republic vs. Equitable

Banking Corporation, 10 SCRA 8 (1964). As held therein, since both parties are part of our banking system, and

both are subject to the regulations of the Central Bank, they are bound by the 24-hour clearing house rule of the

Central Bank.

In this case, the check was not returned to Metro Bank in accordance with the 24-hour clearing house period, but

was cleared by FNCB. Failure of FNCB, therefore, to call the attention of Metro Bank to the alteration of the check

in question until after the lapse of nine days, negates whatever right it might have had against Metro Bank in the

light of the said Central Bank Circular. Its remedy lies not against Metro Bank, but against the party responsible for

the changing the name of the payee 5 and the amount on the face of the check.

FNCB contends that the stamp reading,

Metropolitan Bank and Trust Company Cleared (illegible) office All prior endorsements and/or Lack of

endorsements Guaranteed. 6

made by Metro Bank is an unqualified representation that the endorsement on the check was that of the true payee,

and that the amount thereon was the correct amount. In that connection, this Court in the Hongkong & Shanghai

Bank case, supra , ruled:

.. But Plaintiff Bank insists that Defendant Bank is liable on its indorsement during clearing house operations. The

indorsement, itself, is very clear when it begins with words 'For clearance, clearing office In other words, such an

indorsement must be read together with the 24-hour regulation on clearing House Operations of the Central Bank.

Once that 24- hour period is over, the liability on such an indorsement has ceased. This being so, Plaintiff Bank has

not made out a case for relief. 7

Consistent with this ruling, Metro Bank can not be held liable for the payment of the altered check.

Moreover, FNCB did not deny the allegation of Metro Bank that before it allowed the withdrawal of the balance of

P17,920.00 by Salvador Sales, Metro Bank withheld payment and first verified, through its Assistant Cashier

Federico Uy, the regularity and genuineness of the check deposit from Marcelo Mirasol, Department Officer of

FNCB, because its (Metro Bank) attention was called by the fast movement of the account. Only upon being assured

that the same is not unusual' did Metro Bank allow the withdrawal of the balance.

Reliance by respondent Court of Appeals, on its own ruling in Gallaites vs. RCA, CA-G.R. No. 3805, October 23,

1950, by stating:







... The laxity of appellant in its dealing with customers, particularly in cases where the Identity of the person is new

to them (as in the case at bar) and in the obvious carelessness of the appellant in handling checks which can easily

be forged or altered boil down to one conclusion-negligence in the first order. This negligence enabled a swindler to

succeed in fraudulently encashing the chock in question thereby defrauding drawee bank (appellee) in the amount

thereof.

is misplaced not only because the factual milieu is not four square with this case but more so because it cannot

prevail over the doctrine laid down by this Court in the Hongkong & Shanghai Bank case which is more in point

and, hence, controlling:

WHEREFORE, the challenged Decision of respondent Court of Appeals of August 29, 1980 is hereby set aside, and

Civil Case No. 61488 is hereby dismissed.

Costs against private respondent The First National City Bank.

SO ORDERED.

Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.

Teehankee (Chairman), J., took no part.

G.R. No. 70145 November 13, 1986

MARCELO A. MESINA, petitioner,vs.THE HONORABLE INTERMEDIATE APPELLATE COURT, HON. ARSENIO M. GONONG, in hiscapacity as Judge of Regional Trial Court — Manila (Branch VIII), JOSE GO, and ALBERTUY, respondents.

PARAS, J .:

This is an appeal by certiorari from the decision of the then Intermediate Appellate Court (IAC for short),now the Court of Appeals (CA) in AC-G.R. S.P. 04710, dated Jan. 22, 1985, which dismissed the petitionfor certiorari and prohibition filed by Marcelo A. Mesina against the trial court in Civil Case No. 84-22515.Said case (an Interpleader) was filed by Associated Bank against Jose Go and Marcelo A. Mesinaregarding their conflicting claims over Associated Bank Cashier's Check No. 011302 for P800,000.00,dated December 29, 1983.

Briefly, the facts and statement of the case are as follows:



Respondent Jose Go, on December 29, 1983, purchased from Associated Bank Cashier's Check No.011302 for P800,000.00. Unfortunately, Jose Go left said check on the top of the desk of the bankmanager when he left the bank. The bank manager entrusted the check for safekeeping to a bank official,a certain Albert Uy, who had then a visitor in the person of Alexander Lim. Uy had to answer a phone callon a nearby telephone after which he proceeded to the men's room. When he returned to his desk, hisvisitor Lim was already gone. When Jose Go inquired for his cashier's check from Albert Uy, the checkwas not in his folder and nowhere to be found. The latter advised Jose Go to go to the bank toaccomplish a "STOP PAYMENT" order, which suggestion Jose Go immediately followed. He alsoexecuted an affidavit of loss. Albert Uy went to the police to report the loss of the check, pointing to theperson of Alexander Lim as the one who could shed light on it.

The records of the police show that Associated Bank received the lost check for clearing on December31, 1983, coming from Prudential Bank, Escolta Branch. The check was immediately dishonored by

Associated Bank by sending it back to Prudential Bank, with the words "Payment Stopped" stamped on it.However, the same was again returned to Associated Bank on January 4, 1984 and for the second time itwas dishonored. Several days later, respondent Associated Bank received a letter, dated January 9,1984, from a certain Atty. Lorenzo Navarro demanding payment on the cashier's check in question, whichwas being held by his client. He however refused to reveal the name of his client and threatened to sue, ifpayment is not made. Respondent bank, in its letter, dated January 20, 1984, replied saying the checkbelonged to Jose Go who lost it in the bank and is laying claim to it.

On February 1, 1984, police sent a letter to the Manager of the Prudential Bank, Escolta Branch,requesting assistance in Identifying the person who tried to encash the check but said bank refusedsaying that it had to protect its client's interest and the Identity could only be revealed with the client'sconformity. Unsure of what to do on the matter, respondent Associated Bank on February 2, 1984 filed anaction for Interpleader naming as respondent, Jose Go and one John Doe, Atty. Navarro's then unnamedclient. On even date, respondent bank received summons and copy of the complaint for damages of acertain Marcelo A. Mesina from the Regional Trial Court (RTC) of Caloocan City filed on January 23, 1984bearing the number C-11139. Respondent bank moved to amend its complaint, having been notified forthe first time of the name of Atty. Navarro's client and substituted Marcelo A. Mesina for John Doe.Simultaneously, respondent bank, thru representative Albert Uy, informed Cpl. Gimao of the WesternPolice District that the lost check of Jose Go is in the possession of Marcelo Mesina, herein petitioner.When Cpl. Gimao went to Marcelo Mesina to ask how he came to possess the check, he said it was paidto him by Alexander Lim in a "certain transaction" but refused to elucidate further. An information for theft(Annex J) was instituted against Alexander Lim and the corresponding warrant for his arrest was issued(Annex 6-A) which up to the date of the filing of this instant petition remains unserved because of

Alexander Lim's successful evation thereof.

Meanwhile, Jose Go filed his answer on February 24, 1984 in the Interpleader Case and moved toparticipate as intervenor in the complain for damages. Albert Uy filed a motion of intervention and answerin the complaint for Interpleader. On the Scheduled date of pretrial conference inthe interpleader case, itwas disclosed that the "John Doe" impleaded as one of the defendants is actually petitioner Marcelo A.Mesina. Petitioner instead of filing his answer to the complaint in the interpleader filed on May 17, 1984an Omnibus Motion to Dismiss Ex Abudante Cautela alleging lack of jurisdiction in view of the absence ofan order to litigate, failure to state a cause of action and lack of personality to sue. Respondent bank inthe other civil case (CC-11139) for damages moved to dismiss suit in view of the existence already of theInterpleader case.

The trial court in the interpleader case issued an order dated July 13, 1984, denying the motion to dismissof petitioner Mesina and ruling that respondent bank's complaint sufficiently pleaded a cause of action foritnerpleader. Petitioner filed his motion for reconsideration which was denied by the trial court onSeptember 26, 1984. Upon motion for respondent Jose Go dated October 31, 1984, respondent judgeissued an order on November 6, 1984, declaring petitioner in default since his period to answer hasalready expirecd and set the ex-parte presentation of respondent bank's evidence on November 7, 1984.



Petitioner Mesina filed a petition for certioari with preliminary injunction with IAC to set aside 1) order ofrespondent court denying his omnibus Motion to Dismiss 2) order of 3) the order of default against him.

On January 22, 1985, IAC rendered its decision dimissing the petition for certiorari. Petitioner Mesina filedhis Motion for Reconsideration which was also denied by the same court in its resolution dated February18, 1985.

Meanwhile, on same date (February 18, 1985), the trial court in Civil Case #84-22515 (Interpleader)rendered a decisio, the dispositive portion reading as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered ordering plaintiff Associate Bank to replace Cashier's Check No. 011302 in favor of Jose Go or its casequivalent with legal rate of itnerest from date of complaint, and with costs of suit againstthe latter.

SO ORDERED.

On March 29, 1985, the trial court in Civil Case No. C-11139, for damages, issued anorder, the pertinent portion of which states:

The records of this case show that on August 20, 1984 proceedings in this case was(were) ordered suspended because the main issue in Civil Case No. 84-22515 and in thisinstant case are the same which is: who between Marcelo Mesina and Jose Go is entitledto payment of Associated Bank's Cashier's Check No. CC-011302? Said issue havingbeen resolved already in Civil casde No. 84-22515, really this instant case has becomemoot and academic.

WHEREFORE, in view of the foregoing, the motion sholud be as it is hereby granted andthis case is ordered dismissed.

In view of the foregoing ruling no more action should be taken on the "Motion For

Reconsideration (of the order admitting the Intervention)" dated June 21, 1984 as well asthe Motion For Reconsideration dated September 10, 1984.

SO ORDERED.

Petitioner now comes to Us, alleging that:

1. IAC erred in ruling that a cashier's check can be countermanded even in the hands of a holder in duecourse.

2. IAC erred in countenancing the filing and maintenance of an interpleader suit by a party who hadearlier been sued on the same claim.

3. IAC erred in upholding the trial court's order declaring petitioner as in default when there was no properorder for him to plead in the interpleader complaint.

4. IAC went beyond the scope of its certiorari jurisdiction by making findings of facts in advance of trial.

Petitioner now interposes the following prayer:



1. Reverse the decision of the IAC, dated January 22, 1985 and set aside the February 18, 1985resolution denying the Motion for Reconsideration.

2. Annul the orders of respondent Judge of RTC Manila giving due course to the interpleader suit anddeclaring petitioner in default.

Petitioner's allegations hold no water. Theories and examples advanced by petitioner on causes andeffects of a cashier's check such as 1) it cannot be countermanded in the hands of a holder in due courseand 2) a cashier's check is a bill of exchange drawn by the bank against itself-are general principleswhich cannot be aptly applied to the case at bar, without considering other things. Petitioner failed tosubstantiate his claim that he is a holder in due course and for consideration or value as shown by theestablished facts of the case. Admittedly, petitioner became the holder of the cashier's check as endorsedby Alexander Lim who stole the check. He refused to say how and why it was passed to him. He hadtherefore notice of the defect of his title over the check from the start. The holder of a cashier's check whois not a holder in due course cannot enforce such check against the issuing bank which dishonors thesame. If a payee of a cashier's check obtained it from the issuing bank by fraud, or if there is some otherreason why the payee is not entitled to collect the check, the respondent bank would, of course, have theright to refuse payment of the check when presented by the payee, since respondent bank was aware ofthe facts surrounding the loss of the check in question. Moreover, there is no similarity in the cases cited

by petitioner since respondent bank did not issue the cashier's check in payment of its obligation. JoseGo bought it from respondent bank for purposes of transferring his funds from respondent bank toanother bank near his establishment realizing that carrying money in this form is safer than if it were incash. The check was Jose Go's property when it was misplaced or stolen, hence he stopped its payment.

At the outset, respondent bank knew it was Jose Go's check and no one else since Go had not paid orindorsed it to anyone. The bank was therefore liable to nobody on the check but Jose Go. The bank hadno intention to issue it to petitioner but only to buyer Jose Go. When payment on it was therefore stopped,respondent bank was not the one who did it but Jose Go, the owner of the check. Respondent bank couldnot be drawer and drawee for clearly, Jose Go owns the money it represents and he is therefore thedrawer and the drawee in the same manner as if he has a current account and he issued a check againstit; and from the moment said cashier's check was lost and/or stolen no one outside of Jose Go can betermed a holder in due course because Jose Go had not indorsed it in due course. The check in questionsuffers from the infirmity of not having been properly negotiated and for value by respondent Jose Gowho as already been said is the real owner of said instrument.

In his second assignment of error, petitioner stubbornly insists that there is no showing of conflictingclaims and interpleader is out of the question. There is enough evidence to establish the contrary.Considering the aforementioned facts and circumstances, respondent bank merely took the necessaryprecaution not to make a mistake as to whom to pay and therefore interpleader was its proper remedy. Ithas been shown that the interpleader suit was filed by respondent bank because petitioner and Jose Gowere both laying their claims on the check, petitioner asking payment thereon and Jose Go as thepurchaser or owner. The allegation of petitioner that respondent bank had effectively relieved itself of itsprimary liability under the check by simply filing a complaint for interpleader is belied by the willingness ofrespondent bank to issue a certificate of time deposit in the amount of P800,000 representing thecashier's check in question in the name of the Clerk of Court of Manila to be awarded to whoever wig befound by the court as validly entitled to it. Said validity will depend on the strength of the parties'respective rights and titles thereto. Bank filed the interpleader suit not because petitioner sued it butbecause petitioner is laying claim to the same check that Go is claiming. On the very day that the bankinstituted the case in interpleader, it was not aware of any suit for damages filed by petitioner against it assupported by the fact that the interpleader case was first entitled Associated Bank vs. Jose Go and JohnDoe , but later on changed to Marcelo A. Mesina for John Doe when his name became known torespondent bank.

In his third assignment of error, petitioner assails the then respondent IAC in upholding the trial court'sorder declaring petitioner in default when there was no proper order for him to plead in the interpleadercase. Again, such contention is untenable. The trial court issued an order, compelling petitioner and



respondent Jose Go to file their Answers setting forth their respective claims. Subsequently, a Pre-TrialConference was set with notice to parties to submit position papers. Petitioner argues in hismemorandum that this order requiring petitioner to file his answer was issued without jurisdiction allegingthat since he is presumably a holder in due course and for value, how can he be compelled to litigateagainst Jose Go who is not even a party to the check? Such argument is trite and ridiculous if we have toconsider that neither his name or Jose Go's name appears on the check. Following such line of argument,petitioner is not a party to the check either and therefore has no valid claim to the Check. Furthermore,the Order of the trial court requiring the parties to file their answers is to all intents and purposes an orderto interplead, substantially and essentially and therefore in compliance with the provisions of Rule 63 ofthe Rules of Court. What else is the purpose of a law suit but to litigate?

The records of the case show that respondent bank had to resort to details in support of its action forInterpleader. Before it resorted to Interpleader, respondent bank took an precautionary and necessarymeasures to bring out the truth. On the other hand, petitioner concealed the circumstances known to himand now that private respondent bank brought these circumstances out in court (which eventuallyrendered its decision in the light of these facts), petitioner charges it with "gratuitous excursions into thesenon-issues." Respondent IAC cannot rule on whether respondent RTC committed an abuse of discretionor not, without being apprised of the facts and reasons why respondent Associated Bank instituted theInterpleader case. Both parties were given an opportunity to present their sides. Petitioner chose towithhold substantial facts. Respondents were not forbidden to present their side-this is the purpose of theComment of respondent to the petition. IAC decided the question by considering both the facts submittedby petitioner and those given by respondents. IAC did not act therefore beyond the scope of the remedysought in the petition.

WHEREFORE, finding that the instant petition is merely dilatory, the same is hereby denied and theassailed orders of the respondent court are hereby AFFIRMED in toto.

SO ORDERED.

Feria (Chairman), Fernan, Alampay and Gutierrez, Jr., JJ., concur.

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