Banking Laws 2

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PHILIPPINE BANK OF COMMERCE vs. COURT OF APPEALSG.R. No. 97626March 14, 1997

FACTS: Romeo Lipana claims to have entrusted RMC (his corporation) funds in theform of cash totallingP304, 979.74 to his secretary Irene Yabut, for the purpose of

depositing said funds in the current accounts of RMC with PBC. It turned out, however,that these deposits, on all occasions, were not credited to RMC's account but wereinstead deposited to Account No. 53-01734-7 of Yabut's husband, Bienvenido Cotaswho likewise maintains an account with the same bank. During this period, petitioner bank had, however, been regularly furnishing private respondent with monthlystatements showing its current accounts balances. Unfortunately, it had never been thepractice of Romeo Lipana to check these monthly statements of account reposingcomplete trust and confidence on petitioner bank. A but would accomplish two copies of the deposit slip, an original and a duplicate. The original showed the name of her husband as depositor and his current account number. On the duplicate copy waswritten the account number of her husband but the name of the account holder was left

blank. PBC's teller, Azucena Mabayad, would, however, validate and stamp both theoriginal and the duplicate of these deposit slips retaining only the original copy despitethe lack of information on the duplicate slip. The second copy was kept by Irene Yabutallegedly for record purposes. After validation, Yabut would then fill up the name of RMC in the space left blank in the duplicate copy and change the account number written thereon, which is that of her husband's, and make it appear to be RMC's accountnumber, i. e., C.A. No.53-01980-3.With the daily remittance records also prepared byMs. Yabut and submitted to private respondent RMCtogether with the validatedduplicate slips with the latter's name and account number, she made her companybelieve that all the while the amounts she deposited were being credited to its accountwhen, in truth and in fact, they were being deposited by her and credited by the

petitioner bank in the account of Cotas. This went on in a span of more than one (1)year without private respondent's knowledge. Upon discovery of the loss of its funds,RMC demanded from petitioner bank the return of its money.

ISSUE: WON the proximate cause of the loss, to the tune of P304,979.74, suffered bythe private respondent RMC is petitioner bank's negligence or that of privaterespondent's?

HELD: It was this negligence of Ms. Azucena Mabayad, coupled by the negligence of the petitioner bank in the selection and supervision of its bank teller, which was theproximate cause of the loss suffered by the private respondent, and not the latter's actof entrusting cash to a dishonest employee, as insisted byte petitioners. But since RMCis also negligent, damages are mitigated.

Teller Magbayad’s negligence the proximate cause of the lossMabayad, was negligent in validating, officially stamping and signing all the deposit slipsprepared and presented by Ms. Yabut, despite the glaring fact that the duplicate copywas not completely accomplished contrary to the self-imposed procedure of the bankwith respect to the proper validation of deposit slips, original or duplicate, as testified toby Ms. Mabayad herself. The fact that the duplicate slip was not compulsorily requiredby the bank in accepting deposits should not relieve the petitioner bank of responsibility.The odd circumstance alone that such duplicate copy lacked one vital information —that of the name of the account holder — should have already put Ms. Mabayad onguard. Rather than readily validating the incomplete duplicate copy, she should haveproceeded more cautiously by being more probing as to the true reason why the nameof the account holder in the duplicate slip was left blank while that in the original wasfilled up. Even if Yabut had the fraudulent intention to misappropriate the fundsentrusted to her by plaintiff, she would not have been able to deposit those funds in her husband's current account, and then make plaintiff believe that it was in the latter'saccounts wherein she had deposited them, had it not been for bank teller Mabayad's



aforesaid gross and reckless negligence. The latter's negligence was thus theproximate, immediate and efficient cause that brought about the loss claimed by plaintiff in this case, and the failure of plaintiff to discover the same soon enough by failing toscrutinize the monthly statements of account being sent to it by appellant bank could nothave prevented the fraud and misappropriation which Irene Yabut had already

completed when she deposited plaintiff's money to the account of her husband insteadof to the latter's accounts.

Bank is also negligentNegligence here lies not only on the part of Ms. Mabayad but also on the part of thebank itself in its lackadaisical selection and supervision of Ms. Mabayad. This wasexemplified in the testimony of Mr.Romeo Bonifacio, then Manager of the Pasig Branchof the petitioner bank and now it’s Vice-President, to the effect that, while he orderedthe investigation of the incident, he never came to know that blank deposit slips werevalidated in total disregard of the bank's validation procedures.

Under doctrine of last clear chance, bank is liable Assuming that private respondent RMC was negligent in entrusting cash to a dishonestemployee, thus providing the latter with the opportunity to defraud the company, asadvanced by the petitioner, yet it cannot be denied that the petitioner bank, thru itsteller, had the last clear opportunity to avert the injury incurred by its client, simply byfaithfully observing their self-imposed validation procedure.

RMC also negligent; damages mitigated to 60-40 ratioThe foregoing notwithstanding, it cannot be denied that, indeed, private respondent waslikewise negligent in not checking its monthly statements of account. Had it done so, thecompany would have been alerted to the series of frauds being committed against RMCby its secretary. The damage would definitely not have ballooned to such an amount if only RMC, particularly Romeo Lipana, had exercised even a little vigilance in their financial affairs. This omission by RMC amounts to contributory negligence which shallmitigate the damages that may be awarded to the private respondent under Article 2179of the New Civil Code.

BPI vs. CA 326 SCRA 641 (2000)

Facts: Private respondent Benjamin Napiza deposited in his foreign current deposit with

BPI a dollar check owned by Henry Chan in which he affixed his signature at the dorsal

side thereof. For this purpose, Napiza gave Chan a signed blank withdrawal slip.However, Gayon Jr. got hold of the withdrawal slip and used it to withdraw the proceeds

of the dollar check, even before the check was cleared and without the presentation of

the bank passbook.

Issues:

(1) Whether or not petitioner can hold private respondent liable for the proceeds of the

check for having affixed his signature at the dorsal side as indorser; and

(2) Whether or not the bank was negligent as the proximate cause of the loss and

should be held liable.

Held:

(1) No. Ordinarily, private respondent may be held liable as an indorser of the check or

even as an accommodation party. However, to hold him liable would result in an

injustice. The interest of justice thus demands looking into the events that led to the

encashment of the check.

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Under the rules appearing in the passbook that BPI issued to private respondent, to be

able to withdraw under the Philippine foreign currency deposit system, two requisites

must be presented to petitioner BPI by the person withdrawing an amount:

1) A duly filled-up withdrawal slip; and

2) The depositor’s passbook.

Petitioner bank alleged that had private respondent indicated therein the person

authorized to receive the money, then Gayon could not have withdrawn any amount.

However, the withdrawal slip itself indicates a special instruction that the amount is

payable to “Ramon de Guzman and/or Agnes de Guzman”. Such being the case,

petitioner’s personnel should have been duly warned that Gayon was not the proper

payee of the proceeds of the check. Moreover, the fact that private respondent’s

passbook was not presented during the withdrawal is evidenced by the entries therein

showing that the last transaction that he made was when he deposited the subject

check.

(2) Yes. A bank is under obligation to treat the accounts of its depositors “with

meticulous care, always having in mind the fiduciary nature of their relationship”.

Petitioner failed to exercise the diligence of a good father of a family. In total disregard

of its own rules, petitioner’s personnel negligently handled private respondent’s account

to petitioner’s detriment.

The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on

petitioner’s part was its personnel’s negligence in allowing such withdrawal in disregard

of its own rules and the clearing requirement in the banking system. In so doing,petitioner assumed the risk of incurring a loss on account of a forged

or counterfeit foreign check and hence, it should suffer the resulting damage.

G.R. No. 84281 May 27, 1994CITYTRUST BANKING CORPORATION, Petitioner , vs. THE INTERMEDIATEAPPELLATE COURT and EMME HERRERO, Respondents.

FACTS: Private respondent Emme Herrero filed a complaint for damages againstpetitioner Citytrust Banking Corporation. In her complaint, private respondent averredthat she, a businesswoman, made regular deposits, starting September of 1979, with

petitioner Citytrust Banking Corporation. She deposited with petitioner the amount of Thirty One Thousand Five Hundred Pesos (P31,500.00), in cash, in order to amplycover six (6) postdated checks she issued. When presented for encashment uponmaturity, all the checks were dishonored due to "insufficient funds." The last check No.007400, however, was personally redeemed by private respondent in cash before itcould be redeposited. Petitioner, in its answer, asserted that it was due to privaterespondent's fault that her checks were dishonored. It averred that instead of stating her correct account number, i.e., 29000823, in her deposit slip, she inaccurately wrote2900823. The Regional Trial Court dismissed the complaint for lack of merit. Privaterespondent went to the Court of Appeals, which found the appeal meritorious. Hence, itrendered judgment reversing the trial court's decision.

ISSUE: Whether or not the bank is liable for damages.

RULING: Yes. Private respondent is entitled to nominal damages. In Simex International (Manila), Inc . vs . Court of Appeals, 183 SCRA 360, reiteratedin Bank of Philippine Islands vs. Intermediate Appellate Court, 206 SCRA



408, we similarly said, in cautioning depository banks on their fiduciary responsibility,that -

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

must record every single transaction accurately, down to the last centavo, and aspromptly as possible. This has to be done if the account is to reflect at any given timethe amount of money the depositor can dispose of as he sees fit, confident that thebank will deliver it as and to whomever he directs. A blunder on the part of the bank,such as the dishonor of a check without good reason, can cause the depositor not alittle embarrassment if not also financial loss and perhaps even civil and criminallitigation.

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

We agree with petitioner, however, that it is wrong to award, along with nominaldamages, temperate or moderate damages. The two awards are incompatible andcannot be granted concurrently. Nominal damages are given in order that a right of theplaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered byhim (Art. 2221, New Civil Code; Manila Banking Corp. vs . Intermediate AppellateCourt, 131 SCRA 271). Temperate or moderate damages, which are more thannominal but less than compensatory damages, on the other hand, may be recoveredwhen the court finds that some pecuniary loss has been suffered but its amount cannot,from the nature of the case, be proved with reasonable certainty (Art. 2224, New Civil

Code).c

BANK OF THE PHILIPPINE ISLANDS v IAC, 206 SCRA 408 (1992)

DOCTRINE: The is no merit in the argument that a bank should not beconsidered negligent, much less held liable for damages on account of theinadvertence of its bank employees for Article 1173 of the Civil Code onlyrequires it to exercise the diligence of a good father of the family. While the bank’snegligence may not have been attended with malice and bad faith, nevertheless,it caused serious anxiety, embarrassment and humiliation to the depositors for which they are entitled to reasonable moral damages.

FACTS: The spouses Arthur and Vivienne Canlas opened a joint account inCBTC Q.C. with an initial deposit of P2,250. Before that, Arthur Canlas had anexisting separate personal checking account there. When they opened this account, the"new accounts" teller of the bank pulled out from the bank's files the old signaturecard of Arthur Canlas for use as I D and reference. By mistake, she placed the oldpersonal account number of Arthur Canlas on the deposit slip for the new jointchecking account of the spouses so that the initial deposit of P2,250 for the jointchecking account was discredited to Arthur's personal account. The spousessubsequently deposited other amounts in their joint account. When Vivienne Canlasissued a check for Pl, 639.89 in April 1977 and another check for P1,160.00 on June 1, 1977, one of the checks was dishonored by the bankfor insufficient funds and a penalty of P20 was deducted from the account inboth instances. Thereafter, the spouses filed a case for damages against the bankfor serious anxiety, embarrassment and humiliation by reason of the dishonor of the checks. The RTC and the IAC found that the bank had been seriouslynegligent and awarded damages to the spouses Canlas.



ISSUE: Whether the mistake of the teller can be considered as seriousnegligence entitling the spouses Canlas to an award of damages.

RULING: YES. There is no merit in CBTC's argument that it was only requiredto exercise the diligence of a good father of family. The fiduciary nature of the

relationship between a bank and its depositors and the extent of diligenceexpected of it in handling the accounts entrusted to its care is a greatresponsibility. "In every case, the depositor expects the bank to treat his accountwith the utmost fidelity, whether such account consists only of a few hundredpesos\ or of millions. The bank must record every single transaction accurately, downto the last centavo, and as promptly as possible. This has to be done if the account isto reflect at any given time the amount of money the depositor can disposeof as he sees fit, confident that the bank will deliver it as and to whomever he directs. Ablunder on the part of the bank, such as the dishonor of a check without goodreason, can cause the depositor not a little embarrassment if not also financialloss and perhaps even civil and criminal litigation." The bank is not expected to

be infallible but it must bear the blame for not discovering the mistake of itsteller despite the established procedure requiring the papers and bank books topass through a battery of bank personnel whose duty it is to check andcountercheck them for possible errors. Apparently, the officials and employeestasked to do that did not perform their duties with due care, as may begathered from the testimony of the bank's lone witness, Antonio Enciso, whocasually declared that "theapproving officer does not have to see the account numbers and all thosethings. Those are very petty things for the approving manager to look into."Unfortunately, it was a "petty thing," like the incorrect account number that thebank teller wrote on the initial deposit slip for the newly-opened joint currentaccount of the Canlas spouses, that sparked this half-a-million-peso damage suitagainst the bank.

While the bank's negligence may not have been attended with malice and badfaith, nevertheless, it caused serious anxiety, embarrassment and humiliationto the private respondents for which they are entitled to recover reasonable moraldamages.

Reyes vs. Court of Appeals

G.R. No. 118492, August 15, 2001

Facts: In view of the 20th

Asian Racing Conference then scheduled to be held inSydney, Australia, the Philippine Racing Club, Inc. (PRCI) sent four delegates to thesaid conference. PRCI, through its officers, applied to the respondent bank for a foreignexchange demand draft in Australian dollars.

Godofredo, club’s chief cashier, went to respondent bank to apply for a demanddraft in the amount AU$1,610.00 payable to the order of the 20th Asian RacingConference Secretariat of Sydney, Australia. He was attended to by respondent bank'sassistant cashier, Mr. Yasis, who at first denied the application for the reason thatrespondent bank did not have an Australian dollar account in any bank in Sydney.Godofredo asked if there could be a way for respondent bank to accommodate PRCI'surgent need to remit Australian dollars to Sydney. Yasis of respondent bank then

informed Godofredo of a roundabout way of effecting the requested remittance toSydney thus: the respondent bank would draw a demand draft against Westpac Bank inSydney, Australia (Westpac-Sydney) and have the latter reimburse itself from the U.S.dollar account of the respondent in Westpac Bank in New York, U.S.A. (Westpac-NewYork). This arrangement has been customarily resorted to since the 1960's and theprocedure has proven to be problem-free. PRCI and the petitioner Gregorio H. Reyes,acting through Godofredo, agreed to this arrangement or approach in order to effect the



urgent transfer of Australian dollars payable to the Secretariat of the 20th Asian RacingConference. Pursuant thereto, respondent bank approved the said application of PRCIand issued foreign exchange demand draft in the sum applied for payable to the order of the 20th Asian Racing Conference Secretariat of Sydney, Australia, and addressed toWestpac-Sydney as the drawee bank.

However, upon due presentment of the foreign exchange demand draft, thesame was dishonored, with the notice of dishonor stating that there is “No account heldwith Westpac." Meanwhile, Wespac-New York sent a cable to respondent bankinforming the latter that its dollar account in the sum of AU$ 1,610.00 was debited. Inresponse to PRCI's complaint about the dishonor of the said foreign exchange demanddraft, respondent bank informed Westpac-Sydney of the issuance of the said demanddraft, drawn against the Wespac-Sydney and informing the latter to be reimbursed fromthe respondent bank's dollar account in Westpac-New York. The respondent bank onthe same day likewise informed Wespac-New York requesting the latter to honor thereimbursement claim of Wespac-Sydney. Upon its second presentment for payment,the demand draft was again dishonored by Westpac-Sydney for the same reason, that

is, that the respondent bank has no deposit dollar account with the drawee Wespac-Sydney.Petitioners Gregorio Reyes and Consuelo Puyat-Reyes arrived in Sydney on a

separate date and both were humiliated and embarrassed in the presence of international audience after being denied registration of the conference secretariat sincethe foreign exchange draft was dishonored. Petitioners were only able to attend theconference after promising to pay in cash instead which they fulfilled

Petitioners filed in the Regional Trial Court a complaint for damages against therespondent bank. The trial court rendered judgment in favor of the respondent bank.The appellate court affirmed the decision of the trial court.

Issue:Whether or not respondent bank is liable for damages due to the dishonor of theforeign exchange demand drafts.

Held: No. The facts as found by the courts a quo show that respondent bank did notcause an erroneous transmittal of its SWIFT cable message to Westpac-Sydney. It wasthe erroneous decoding of the cable message on the part of Westpac-Sydney thatcaused the dishonor of the subject foreign exchange demand draft.

The evidence also shows that the respondent bank exercised that degree of diligence expected of an ordinary prudent person under the circumstances obtaining;the respondent bank advised Westpac-New York to honor the reimbursement claim of Westpac-Sydney and to debit the dollar account of respondent bank with the former. Assoon as the demand draft was dishonored, the respondent bank, thinking that theproblem was with the reimbursement and without any idea that it was due tomiscommunication, re-confirmed the authority of Westpac-New York to debit its dollar account for the purpose of reimbursing Westpac-Sydney. Respondent bank also senttwo more cable messages to Westpac-New York inquiring why the demand draft wasnot honored.

The degree of diligence required of banks, is more than that of a good father of afamily where the fiduciary nature of their relationship with their depositors is concerned.In other words banks are duty bound to treat the deposit accounts of their depositorswith the highest degree of care. But the said ruling applies only to cases where banksact under their fiduciary capacity, that is, as depositary of the deposits of their depositors. But the same higher degree of diligence is not expected to be exerted bybanks in commercial transactions that do not involve their fiduciary relationship withtheir depositors. The case at bar does not involve the handling of petitioners' deposit, if any, with the respondent bank. Instead, the relationship involved was that of a buyer and seller. Wherefore, the decision of the Court of Appeals was affirmed.



Go vs. Intermediate Appellate Court | Fernan, C. J.

G.R. No. 68138, May 13, 1991 | 197 SCRA 22

FACTS

• Floverto Jazmin is an American citizen and retired employee of the United StatesFederal Government. He had been a visitor in the Philippines since 1972 residing at 34

Maravilla Street, Mangatarem, Pangasinan. As pensionado of the U.S. government, hereceived annuity checks in the amounts of $ 67.00 for disability and $ 620.00 for retirement through the Mangatarem post office. He used to encash the checks at thePrudential Bank branch at Clark Air Base, Pampanga.• In January, 1975, Jazmin failed to receive one of the checks on time thus promptinghim to inquire from the post offices at Mangatarem and Dagupan City. As the result of his inquiries proved unsatisfactory, on March 4, 1975, Jazmin wrote the U.S. CivilService Commission, Bureau of Retirement at Washington, D.C. complaining aboutthe delay in receiving his check. Thereafter, he received a substitute check which heencashed at the Prudential Bank at Clark Air Base.• Meanwhile, on April 22, 1975, Agustin Go, in his capacity as branch manager of the

then Solidbank (which later became the Consolidated Bank and Trust Corporation) inBaguio City, allowed a person named "Floverto Jazmin" to open Savings Account No.BG 5206 by depositing two (2) U. S. treasury checks Nos. 5-449-076 and 5-448-890 in the respective amounts of $1810.00 and $913.40 1 equivalent to the total amountof P 20,565.69, both payable to the order of Floverto Jasmin of Maranilla St.,Mangatarem, Pangasinan and drawn on the First National City Bank, Manila.• The savings account was opened in the ordinary course of business. Thus, the bank,through its manager Go, required the depositor to fill up the information sheet for newaccounts to reflect his personal circumstances. The depositor indicated therein that hewas Floverto Jazmin with mailing address at Mangatarem, Pangasinan andhome address at Maravilla St., Mangatarem, Pangasinan; that he was a Filipino citizen

and a security officer of the US Army with the rank of a sergeant bearing AFUS Car No.H-2711659; that he was married to Milagros Bautista; and that his initial deposit wasP3,565.35. He wrote CSA No. 138134 under remarks or instructions and left blank thespaces under telephone number, residence certificate/alien certificate of registration/passport, bank and trade performance and as to who introduced him to thebank. 2 The depositor's signature specimens werealso taken.• Thereafter, the deposited checks were sent to the drawee bank for clearance.Inasmuch as Solidbank did not receive any word from the drawee bank, after three (3)weeks, it allowed the depositor to withdraw the amount indicated in the checks.• On June 29, 1976 or more than a year later, the two dollar cheeks were returned to

Solidbank with the notation that the amounts were altered. 3 Consequently, Go reportedthe matter to the Philippine Constabulary in Baguio City.• On August 3, 1976, Jazmin received radio messages requiring him to appear beforethe Philippine Constabulary headquarters in Benguet on September 7, 1976 for investigation regarding the complaint filed by Go against him for estafa by passingaltered dollar checks. Initially, Jazmin was investigated by constabulary officers inLingayen, Pangasinan and later, at Camp Holmes, La Trinidad, Benguet. He was shownxerox copies of U.S. Government checks Nos. 5-449-076 and 5-448-890 payable to theorder of Floverto Jasmin in the respective amounts of $1,810.00 and$913.40. The latter amount was actually for only $13.40; while the records do not showthe unaltered amount of the other treasury check.• Jazmin denied that he was the person whose name appeared on the checks; that hereceived the same and that the signature on the indorsement was his. He likewisedenied that he opened an account with Solidbank or that he deposited and encashedtherein the said checks. Eventually, the investigators found that the person named"Floverto Jazmin" who made the deposit and withdrawal with Solidbank was animpostor.



• On September 24, 1976, Jazmin filed with the then Court of First Instance of Pangasinan, Branch II at Lingayen a complaint against Agustin Y. Go and theConsolidated Bank and Trust Corporation for moral and exemplary damages in the totalamount of P90,000 plus attorney's fees of P5,000. He alleged therein that Go allowedthe deposit of the dollar checks and the withdrawal of their peso equivalent "without

ascertaining the identity of the depositor considering the highly suspiciouscircumstances under which said deposit was made; that instead of taking steps toestablish the correct identity of the depositor, Go "immediately and recklessly filed (the)complaint for estafa through alteration of dollar check" against him; that Go's complaintwas "an act of vicious and wanton recklessness and clearly intended for no other purpose than to harass and coerce the plaintiff into paying the pesoequivalent of said dollar checks to the CBTC branch office in Baguio City" so that Gowould not be "disciplined by his employer;" that by reason of said complaint, he was"compelled to present and submit himself" to investigations by the constabularyauthorities; and that he suffered humiliation and embarrassment as a result of the filingof the complaint against him as well as "great inconvenience" on account of his age (he

was a septuagenarian) and the distance between his residence and the constabularyheadquarters. He averred that his peace of mind and mental and emotional tranquilityas a respected citizen of the community would not have suffered had Go exercised "alittle prudence" in ascertaining the identity of the depositor and, for the "grosslynegligent and reckless act" of its employee, the defendant CBTC should also be heldresponsible. 4• In its decision of March 27, 1978 6 the lower court found that Go was negligent infailing to exercise "more care, caution and vigilance" in accepting the checks for depositand encashment. It noted that the checks were payable to the order of Floverto Jasmin,Maranilla St., Mangatarem, Pangasinan and not to Floverto Jazmin, Maravilla St.,Mangatarem, Pangasinan and that the differences in name and address should have

put Go on guard. It held that more care should have been exercised by Go in theencashment of the U.S. treasury checks as there was no time limit for returning them for clearing unlike in ordinary checks wherein a two to three-week limit is allowed.• Finding that the plaintiff had sufficiently shown that prejudice had been caused to himin the form of mental anguish, moral shock and social humiliation on account of thedefendants' gross negligence, the court, invoking Articles 2176, 2217 and 2219 (10) inconjunction with Article 21 of the Civil Code, ruled in favor of the plaintiff.• The defendants appealed to the Court of Appeals. On January 24, 1984, said court(then named Intermediate Appellate Court) rendered a decision 7 finding as evidentnegligence Go's failure to notice the substantial difference in the identity of the depositor and the payee in the check, concluded that Go's negligence in the

performance of his duties was "the proximate cause why appellant bank was swindled"and that denouncing the crime to the constabulary authorities "merely aggravated thesituation." It ruled that there was a cause of action against the defendants althoughJazmin had nothing to do with the alteration of the checks, because he suffereddamages due to the negligence of Go. Hence, under Article 2180 of the Civil Code, thebank shall be held liable for its manager's negligence.• The appellate court, however, disallowed the award of moral and exemplary damagesand granted nominal damages instead.• Accordingly, the appellate court ordered Go and Consolidated Bank and TrustCorporation to pay jointly and severally Floverto Jazmin only NOMINAL DAMAGES inthe sum of Three Thousand Pesos (P 3,000.00) with interest at six(6%) percent per annum until fully paid and One Thousand Pesos (P 1,000.00) asattorney's fees and costs of litigation.• Go and the bank filed a motion for the reconsideration of said decision contending thatin view of the finding of the appellate court that "denouncing a crime is not negligenceunder which a claim for moral damages is available," the award of nominal damages isunjustified as they did not violate or invade Jazmin's rights. Corollarily, there being nonegligence on the part of Go, his employer may not be held liable for nominal damages.



• The motion for reconsideration having been denied, Go and the bank interposed theinstant petition for review on certiorari arguing primarily that the employer bank may notbe held "co-equally liable" to pay nominal damages in the absence of proof that it wasnegligent in the selection of and supervision over its employee. 8

ISSUES & ARGUMENTS• W/N the respondent appellate court erred in awarding nominal damages ansattorney’s fees to private respondent.

HOLDING & RATIO DECIDENDI

Although this Court has consistently held that there should be no penalty on the right tolitigate and that error alone in the filing of a case be it before the courts or the proper police authorities, is not a ground for moral damages, 9 we hold that under the peculiar circumstances of this case, private respondent is entitled to an award of damages.• Indeed, it would be unjust to overlook the fact that petitioners' negligence was the rootof all the inconvenience and embarrassment experienced by the private respondent

albeit they happened after the filing of the complaint with the constabulary authorities.Petitioner Go's negligence in fact led to the swindling of his employer. Had Go exercisedthe diligence expected of him as a bank officer and employee, he would have noticedthe glaring disparity between the payee's name and address on the treasury checksinvolved and the name and address of the depositor appearing in the bank's records.The situation would have been different if the treasury checks were tampered with onlyas to their amounts because the alteration would have been unnoticeable and hard todetect as the herein altered check bearing the amount of $ 913.40 shows. But the error in the name and address of the payeewas very patent and could not have escaped the trained eyes of bank officers andemployees. There is therefore, no other conclusion than that the bank through its

employees (including the tellers who allegedly conducted an identification check on thedepositor) was grossly negligent in handling the business transaction herein involved.• While at that stage of events private respondent was still out of the picture, it definitelywas the start of his consequent involvement as his name was illegally used in the illicittransaction. Again, knowing that its viability depended on the confidence reposed uponit by the public, the bank through its employees should have exercised the cautionexpected of it.• In crimes and quasi-delicts, the defendant shall be liable for all damages which are thenatural and probable consequences of the act or omission complained of. It is notnecessary that such damages have been foreseen or could have reasonably beenforeseen by the defendant. 10 As Go's negligence was the root cause of the

complained inconvenience, humiliation and embarrassment, Go is liable to privaterespondents for damages.• Anent petitioner bank's claim that it is not "co-equally liable" with Go for damages,under the fifth paragraph of Article 2180 of the Civil Code, "(E)mployers shall be liablefor the damages caused by their employees . . . acting within the scope of their assigned tasks." Pursuant to this provision, the bank is responsible for the acts of itsemployee unless there is proof that it exercised the diligence of a good father of a familyto prevent the damage. 11 Hence, the burden of proof lies upon the bank and it cannotnow disclaim liability in view of its own failure to prove not only that it exercised duediligence to prevent damage but that it was not negligent in the selection andsupervision of its employees.

Prudential Bank vs. Court of Appeals G.R. No. 125536, March 16, 2000

FACTS: Private respondent Leticia Tupasi-Valenzuela opened an account in thePetitioner Prudential bank. On June 1, 1988, herein private respondent depositedP35,271.60 drawn against the PhilippineCommercial International Bank (PCIB).Thereafter, private respondent issued Prudential Bank check in the amount of P11,500

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post-dated June 20, 1988 in favor of one Belen Legaspi. Legaspi, who wasinjewelry trade, endorsed the check to Philip Lhuiller, a businessman in the same field.When the check was deposited with the PCIB, it was dishonored for being drawnagainst insufficient funds. Private respondent asked why her check was dishonoredwhere there were sufficient funds. The bank officer told her there was no need to review

the passbook because the bank ledger was the best proof that she did not havesufficient funds. Then he abruptly faced his typewriter and started typing. Later, it wasfound out that the bank misposted private respondent’s check deposit to another account and delayed the posting of the same to the proper account. The bank admittedthat it was at fault. But since it is not the first time that private respondent experiencedthis scenario, she commenced a suit for damages.

ISSUE: Can damages be awarded to private respondent on account of the bank’snegligence?

HELD: Yes. The trial court found “that the misposting is a clear proof of lack of

supervision on the part of the defendant bank”. The appellate court also found out that“while it may be true that the bank’s negligence in dishonoring the properly fundedcheck might not have been attended with malice and bad faith, as appellee submits,nevertheless, it is the result of lack of due care and caution expected of an employee of a firm engaged in so sensitive and accurately demanding task as banking”.

In Simex International vs. CA, 183 SCRA 360,367 (1990), and BPI vs. IAC, 206 SCRA408, this court had occasion to stress the fiduciary nature of the relationship between abank and its depositors and the extent of diligence expected from the former inhandling the accounts entrusted to its care.

In the case of PNB vs. CA, we held that “a bank is under obligation to treat the

accounts of its depositors with meticulous care whether such account consists only of a

few hundred pesos or millions of pesos. Responsibility arising from negligence in

the performance of every kind of obligation is demandable. While petitioner’s negligence

in this case may not have been attended with malice and bad faith, nevertheless, it

caused serious anxiety, embarrassment and humiliation”.

Moran v CA

DOCTRINE: A bank is under no obligation to make part payment on a

check, up to only the amount of the drawer's funds, where the check is drawnfor 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 be called upon to surrender the check, and the bank would be withouta voucher affording a certain means of showing the payment. The rule is basedon commercial convenience, and any rule that would work such manifestinconvenience should not be recognized. A check is intended not only to transfer a right to the amount named in it, but to serve the further purpose of affordingevidence for the bank of the payment of such amount when the check is taken up.

FACTS:Spouses Moran are the owners of the Wack-Wack Petron Gasoline. They buy

fuel and other related products from Petrophil on a cash on delivery basis.\ Theymaintain three accounts with Citytrust, one current account allowed to have zerobalance, and two savings account. One of the savings accounts was allowed tohave automatic transfer of funds whenever the current account was insufficient to paywithdrawals, and the other needs authorization to transfer funds. OnDecember 12, 1983, Librada Moran issued a check for P50, 576 payable toPetrophil. On the next day, she issued another check for 56,090, payable to the same



corporation. On December 14, 1983, the checks were deposited to PNB,which presented both for clearing. On this day, the current account hadzero balance, while the savings account covered by the automatic transfer only hadP26, 104.30, both accounts being insufficient to pay the issued checks. (Theother savings account, where authorization is needed only had P43, 268.39.) On

December 15, 1983, George Moran deposited some funds which weresupposed to be used to pay the earlier transaction. However, Libradainformed George that Petrophil refused to deliver their orders, and that thechecks issued were dishonored due to insufficiency of funds. The branchmanager tried to fix the problem by bringing a manager's check to besigned by the spouses to pay off the balance with Petrophil. The bank also triedto apologize to Petrophil, stating in the the letter that it committed "operationalerror". 6 months later, the spouses demanded that the bank pay them P1M for moraldamages, which the bank refused to pay. They filed a case, which the RTC dismissed,and affirmed by the CA.

ISSUE: Whether the spouses had sufficient funds when the bank dishonored thecheck

RULING: NO. When PNB presented the check for collection, the current accounthad zero balance, while the savings account had P26,104.30, which isinsufficient to pay off the checks. This would lead to dishonoring of thechecks. There is a presumption in law that the ordinary course of business(clearing and withdrawing) has ben followed. Where the spouses failed to showthat the checks underwent a different process of clearing, it is presumedthat the acts of clearing underwent the same process. Also, there is noobligation with the bank to release amount in the savings account, when thebalance being collected is higher. They cannot partially honor a check, beinginsufficient to pay the whole amount. Neither can they transfer from the other savings account the balance to pay off the check, since authority is neededto be able to transfer such amount. The bank had no obligation to settle thespouses account with Petrophil, but they still tried to in order that they would nothave strained relations with the spouses.

Phil. Bank of Commerce v. CA

G.R. No. 97626, March 14, 1997

The negligence must be the proximate cause of the loss

FACTS: Rommel’s Marketing Corporation (RMC) maintained two separate currentaccounts with PBC in connection with itsbusiness of selling appliances. The RMC

General Manager Lipana entrusted to his secretary, Irene Yabut, RMC fundsamounting

to P300,000+ for the purpose of depositing the same to RMC’s account with PBC.

However, it turned out that Yabut deposited the amounts in her husband’s account

instead of RMC. Lipana never checked his monthly statement of accounts regularly

furnished by PBC so that Yabut’s modus operandi went on for the span of more than

one year.

ISSUE: What is the proximate cause of the loss – Lipana’s negligence in not checking

his monthly statements or the bank’s negligence through its teller in validating the

deposit slips?

HELD: The bank teller was negligent in validating, officially stamping and signing all the

deposit slips prepared and presented by Yabut, despite the glaring fact that the

http://scire-licet.blogspot.com/2010/02/phil-bank-of-commerce-v-ca.html

http://scire-licet.blogspot.com/2010/02/phil-bank-of-commerce-v-ca.html



duplicate copy was not completely accomplished contrary to the self-imposed

procedure of the bank with respect to the proper validation of deposit slips, original or

duplicate.

The bank teller’s negligence, as well as the negligence of the bank in the selection and

supervision of its bank teller, is the proximate cause of the loss suffered by the

private respondent, not the latter’s entrusting cash to a dishonest employee. Xxx Even if

Yabut had the fraudulent intention to misappropriate the funds, she would not have

been able to deposit those funds in her husband’s current account, and then make

plaintiff believe that it was in the latter’s accounts wherein she had deposited them, had

it not been for the bank teller’s aforesaid gross and reckless negligence.

Doctrine of Last Clear Chance – where both parties are negligent, but the negligent

act of one is appreciably later in time than that of the other, or when it is impossible to

determine whose fault or negligence should be attributed to the incident, the one who

had the last clear opportunity to avoid the impending harm and failed to do so is

chargeable with the consequences thereof. It means that the antecedent negligence

of a person does not preclude the recovery of damages for the supervening negligence

of, or bar a defense against liability sought by another, if the latter, who had the last fair

chance, could have avoided the impending harm by exercise of due diligence. (Phil.

Bank of Commerce v. CA, supra)

PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK v CA, 350SCRA 446 (2001)

DOCTRINE: Banks are expected to exercise the highest degree of diligence inthe selection and supervision of their employees. By the very nature of their work, the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks andemployees.

FACTS: Ford Philippines instituted actions against Citibank (drawee bank) and PCIBank (collecting bank)

– Action #1: Ford drew and issued a Citibank check for P4.7m in 1977 in favor of theCIR for manufacturer’s sales tax – deposited with IBAA (later merged with PCI)and cleared by CB – proceeds never reached CIR – Ford forced to make 2nd

payment to CIR which was received – check was a crossed check for ‘payee’s accountonly’ – Ford wrote separate demand letters to the banks - both banks refused topay – NBI discovered that Godofredo Rivera, General Ledger Accountant of Ford recalled the check, supposedly because there was a computation error –Rivera instructed PCI Bank to replace the check with 2 manager’s checks –syndicate members deposited MCs with Pacific Banking Corp. – Rivera couldnot be found, “fugitive from justice” – TC: Both banks liable, IBAA (PCI) shouldreimburse Citi – CA: only IBAA (PCI) liable-Action #2: Ford drew Citibank checks in 1978 (P5.851m) and 1979 (P6.311m)payable to CIR for percentage taxes – both crossed checks - never reachedCIR – though receipts were issued, considered by BIR as “fake and

spurious” – Ford paid BIR again – Godofredo Rivera (the legend returns)as Ledger Accountant prepared the check - delivered it to Remberto Castro,pro-manager of PCIB San Andres – Castro and Dulay, an assistant manager of theMeralco Branch of PCI, opened a account in the name of a fictitious “ReynaldoReyes” – deposited a worthless Bank of America check in the same amount asthe Ford check – replaced the worthless check with the Ford check for clearing – Reynaldo Reyes account was credited with amount – same



procedure with 2nd check – Castro then distributed checks drawn fromReynaldo Reyes account to other conspirators – RTC held Citibank liable,absolved PCI – CA: affirmed

ISSUE:Were the banks negligent?

RULING: YES. The direct perpetrators are fugitives – present parties must bear the burden of loss – although employees of Ford initiated the transactions, their actions are not the proximate cause of encashing the checks – BoD of ford didnot confirm Rivera’s recall of the check – PCI neglected to verify authorityof Rivera – crossed check is a warning that it should be deposited only in CIR’saccount – PCI liable for 4.7m check – although no conscious participation, PCIis responsible frauds perpetrated by its officers – Citibank should have scrutinizedthe checks: no clearing stamps, no initials – both banks negligent in selectionand supervision of their employees for 2nd and 3rd check – equally liable for the loss – by very nature of banking business, degree of responsibility, care and

trustworthiness of bank employees is far greater than those of ordinary clerks andemployees – banks are expected to exercise the highest degree of diligence inthe selection and supervision of employees.

BPI Family Savings Bank, Inc. V. First Metro Investment Corporation, 429SCRA 30 (2004)

FACTS:Respondent FMIC, through Executive VP Ong, opened an accountand deposited P100 million to petitioner BPI FB. Ong made the deposit upon requestof his friend who is a close acquaintance of Sebastian, then Branch Manager of the BPI FB branch. Sebastian’s aim was to increase the deposit level in his Branch.BPI FB, through Sebastian, guaranteed a payment of 17% per annuminterest of what was deposited by FMIC. The latter, in turn, assured BPI FB that itwill maintain its deposit for a period of one year on condition that the interest of 17%per annum is paid in advance. This agreement between the parties was reachedthrough their communications in writing. BPI FB paid FMIC 17% interest uponclearance of the latter’s check deposit. However, on the basis of an Authority toDebit signed by Ong, BPI FB transferred P80 million from FMIC’s currentaccount to the savings account of Tevesteco. FMIC denied having authorizedthe transfer of its funds to Tevesteco, claiming that the signatures werefalsified. To recover immediately its deposit, FMIC, issued a BPI FB checkpayable to itself and drawn on its deposit with BPI FB. But upon presentation for payment, BPI FB dishonored the check as it was "drawn against insufficient funds".FMIC filed with the RTC against BPI FB. The court adjudged BPI FB liable to FMIC for the amount plus interest at 17% per annum, among others. BPI FB then filed a motionfor reconsideration which was denied. Petitioner BPI FB contended that the CAerred in awarding the 17% per annum interest corresponding to the amountdeposited by respondent FMIC. Petitioner insists that respondent’s deposit is not aspecial savings account similar to a time deposit, but actually a demand deposit,withdraw able upon demand, proscribed from earning interest. It also contended thatthe transaction is not valid as its Branch Manager clearly overstepped his authority inentering into such an agreement with Ong.

ISSUE: Whether the deposit is a demand deposit or a time deposit? (Relevant) Whether the bank was bound by the acts of its Branch Manager?

RULING: It’s a time deposit. While it may be true that barely one month andseven days from the date of deposit, respondent FMIC demanded the withdrawalthrough the issuance of a check payable to itself, the same was made as aresult of the fraudulent and unauthorized transfer by petitioner BPI FB of its P80million deposit to Tevesteco’s savings account. It was a normal reaction of respondent



as a depositor to petitioner’s failure in its fiduciary duty to treat its account withthe highest degree of care. Under this circumstance, the withdrawal of deposit byrespondent FMIC before the one-year maturity date did not change the nature of itstime deposit to one of demand deposit. Petitioner bound by the act of its BranchManager. Petitioner maintains that respondent should have first inquired whether

the deposit of P100 Million and the fixing of the interest rate were pursuant toits internal procedures. Petitioner’s stance is a futile attempt to evadean obligation clearly established by the intent of the parties. What transpires in thecorporate board room is entirely an internal matter. Hence, petitioner may not imputenegligence on the part of respondent’s representative in failing to find out thescope of authority of Sebastian. Indeed, the public has the right to rely on thetrustworthiness of bank managers and their acts. Significantly, the transaction wasactually acknowledged and ratified by petitioner when it paid respondent inadvance the interest for one year. Thus, petitioner is estopped from denying thatit authorized Sebastian to enter into an agreement with Ong concerning thedeposit with the corresponding 17% interest per annum.

Documents

Banking Laws 2