G.R. No.

154469

December 6, 2006

METROPOLITAN
BANK
AND
vs.
RENATO D. CABILZO, respondent.

TRUST

COMPANY, petitioners,

DECISION

CHICO-NAZARIO, J.:

funds and the authenticity of the signature of the drawer, Metrobank cleared
the check for encashment in accordance with the Philippine Clearing House
Corporation (PCHC) Rules.
On 16 November 1994, Cabilzos representative was at Metrobank Pasong
Tamo Branch to make some transaction when he was asked by a bank
personnel if Cabilzo had issued a check in the amount of P91,000.00 to
which the former replied in the negative. On the afternoon of the same date,
Cabilzo himself called Metrobank to reiterate that he did not issue a check in
the amount of P91,000.00 and requested that the questioned check be
returned to him for verification, to which Metrobank complied. 5
Upon receipt of the check, Cabilzo discovered that Metrobank Check No.
985988 which he issued on 12 November 1994 in the amount of P1,000.00
was altered to P91,000.00 and the date 24 November 1994 was changed to
14 November 1994.6

Before this Court is a Petition for Review on Certiorari, filed by petitioner

Metropolitan Bank and Trust Company (Metrobank) seeking to reverse and
set aside the Decision1 of the Court of Appeals dated 8 March 2002 and its
Resolution dated 26 July 2002 affirming the Decision of the Regional Trial
Court (RTC) of Manila, Branch 13 dated 4 September 1998. The dispositive
portion of the Court of Appeals Decision reads:

Hence, Cabilzo demanded that Metrobank re-credit the amount

of P91,000.00 to his account. Metrobank, however, refused reasoning that it
has to refer the matter first to its Legal Division for appropriate action.
Repeated verbal demands followed but Metrobank still failed to re-credit the
amount of P91,000.00 to Cabilzos account.7

WHEREFORE, the assailed decision dated September 4, 1998 is

AFFIRMED with modifications (sic) that the awards for exemplary
damages and attorneys fees are hereby deleted.

On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand 8 to

Metrobank for the payment of P90,000.00, after deducting the original value
of the check in the amount of P1,000.00. Such written demand
notwithstanding, Metrobank still failed or refused to comply with its obligation.

Petitioner Metrobank is a banking institution duly organized and existing as

such under Philippine laws.2
Respondent Renato D. Cabilzo (Cabilzo) was one of Metrobanks clients who
maintained a current account with Metrobank Pasong Tamo Branch. 3
On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988,
payable to "CASH" and postdated on 24 November 1994 in the amount of
One Thousand Pesos (P1,000.00). The check was drawn against Cabilzos
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

Consequently, Cabilzo instituted a civil action for damages against

Metrobank before the RTC of Manila, Branch 13. In his Complaint docketed
as Civil Case No. 95-75651, Renato D. Cabilzo v. Metropolitan Bank and
Trust Company, Cabilzo prayed that in addition to his claim for
reimbursement, actual and moral damages plus costs of the suit be awarded
in his favor.9
For its part, Metrobank countered that upon the receipt of the said check
through the PCHC on 14 November 1994, it examined the genuineness and
the authenticity of the drawers signature appearing thereon and the technical
entries on the check including the amount in figures and in words to
determine if there were alterations, erasures, superimpositions or
intercalations thereon, but none was noted. After verifying the authenticity
and propriety of the aforesaid entries, including the indorsement of the
collecting bank located at the dorsal side of the check which stated that, "all

prior indorsements and lack of indorsement guaranteed," Metrobank cleared

the check.10
Anent thereto, Metrobank claimed that as a collecting bank and the last
indorser, Westmont Bank should be held liable for the value of the check.
Westmont Bank indorsed the check as the an unqualified indorser, by virtue
of which it assumed the liability of a general indorser, and thus, among
others, warranted that the instrument is genuine and in all respect what it
purports to be.
In addition, Metrobank, in turn, claimed that Cabilzo was partly responsible in
leaving spaces on the check, which, made the fraudulent insertion of the
amount and figures thereon, possible. On account of his negligence in the
preparation and issuance of the check, which according to Metrobank, was
the proximate cause of the loss, Cabilzo cannot thereafter claim indemnity by
virtue of the doctrine of equitable estoppel.
Thus, Metrobank demanded from Cabilzo, for payment in the amount
of P100,000.00 which represents the cost of litigation and attorneys fees, for
allegedly bringing a frivolous and baseless suit. 11
On 19 April 1996, Metrobank filed a Third-Party Complaint 12 against
Westmont Bank on account of its unqualified indorsement stamped at the
dorsal side of the check which the former relied upon in clearing what turned
out to be a materially altered check.
Subsequently, a Motion to Dismiss 13 the Third-Party Complaint was then filed
by Westmont bank because another case involving the same cause of action
was pending before a different court. The said case arose from an action for
reimbursement filed by Metrobank before the Arbitration Committee of the
PCHC against Westmont Bank, and now the subject of a Petition for Review
before the RTC of Manila, Branch 19.
In an Order14 dated 4 February 1997, the trial court granted the Motion to
Dismiss the Third-Party Complaint on the ground of litis pendentia.

WHEREFORE, judgment is rendered ordering defendant

Metropolitan Bank and Trust Company to pay plaintiff Renato Cabilzo
the sum of P90,000 with legal interest of 6 percent per annum from
November 16, 1994 until payment is made plus P20,000 attorneys
fees, exemplary damages of P50,000, and costs of the suit.16
Aggrieved, Metrobank appealed the adverse decision to the Court of Appeals
reiterating its previous argument that as the last indorser, Westmont Bank
shall bear the loss occasioned by the fraudulent alteration of the check.
Elaborating, Metrobank maintained that by reason of its unqualified
indorsement, Westmont Bank warranted that the check in question is
genuine, valid and subsisting and that upon presentment the check shall be
accepted according to its tenor.
Even more, Metrobank argued that in clearing the check, it was not remiss in
the performance of its duty as the drawee bank, but rather, it exercised the
highest degree of diligence in accordance with the generally accepted
banking practice. It further insisted that the entries in the check were regular
and authentic and alteration could not be determined even upon close
examination.
In a Decision17 dated 8 March 2002, the Court of Appeals affirmed with
modification the Decision of the court a quo, similarly finding Metrobank liable
for the amount of the check, without prejudice, however, to the outcome of
the case between Metrobank and Westmont Bank which was pending before
another tribunal. The decretal portion of the Decision reads:
WHEREFORE, the assailed decision dated September 4, 1998 is
AFFIRMED with the modifications (sic) that the awards for exemplary
damages and attorneys fees are hereby deleted. 18
Similarly ill-fated was Metrobanks Motion for Reconsideration which was
also denied by the appellate court in its Resolution 19 issued on 26 July 2002,
for lack of merit.
Metrobank now poses before this Court this sole issue:

15

On 4 September 1998, the RTC rendered a Decision in favor of Cabilzo and

thereby ordered Metrobank to pay the sum of P90,000.00, the amount of the
check. In stressing the fiduciary nature of the relationship between the bank
and its clients and the negligence of the drawee bank in failing to detect an
apparent alteration on the check, the trial court ordered for the payment of
exemplary damages, attorneys fees and cost of litigation. The dispositive
portion of the Decision reads:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN

HOLDING METROBANK, AS DRAWEE BANK, LIABLE FOR THE
ALTERATIONS ON THE SUBJECT CHECK BEARING THE
AUTHENTIC SIGNATURE OF THE DRAWER THEREOF.
We resolve to deny the petition.

An alteration is said to be material if it changes the effect of the instrument. It

means that an unauthorized change in an instrument that purports to modify
in any respect the obligation of a party or an unauthorized addition of words
or numbers or other change to an incomplete instrument relating to the
obligation of a party.20 In other words, a material alteration is one which
changes the items which are required to be stated under Section 1 of the
Negotiable Instruments Law.
Section 1 of the Negotiable Instruments Law provides:
Section 1. Form of negotiable instruments. - An instrument to be
negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand or at a fixed determinable future
time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
Also pertinent is the following provision in the Negotiable Instrument Law
which states:
Section 125. What constitutes material alteration. Any alteration
which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relation of the parties;
(e) The medium or currency in which payment is to be made;

Or which adds a place of payment where no place of payment is

specified, or any other change or addition which alters the effect of
the instrument in any respect is a material alteration.
In the case at bar, the check was altered so that the amount was increased
from P1,000.00 to P91,000.00 and the date was changed from 24 November
1994 to 14 November 1994. Apparently, since the entries altered were
among those enumerated under Section 1 and 125, namely, the sum of
money payable and the date of the check, the instant controversy therefore
squarely falls within the purview of material alteration.
Now, having laid the premise that the present petition is a case of material
alteration, it is now necessary for us to determine the effect of a materially
altered instrument, as well as the rights and obligations of the parties
thereunder. The following provision of the Negotiable Instrument Law will
shed us some light in threshing out this issue:
Section 124. Alteration of instrument; effect of. Where a negotiable
instrument is materially altered without the assent of all parties liable
thereon, it is avoided, except as against a party who has
himself made,authorized, and assented
to
the
alteration and subsequent indorsers.
But when the instrument has been materially altered and is in the
hands of a holder in due course not a party to the alteration, he may
enforce the payment thereof according to its original tenor.
(Emphasis ours.)
Indubitably, Cabilzo was not the one who made nor authorized the alteration.
Neither did he assent to the alteration by his express or implied acts. There is
no showing that he failed to exercise such reasonable degree of diligence
required of a prudent man which could have otherwise prevented the loss. As
correctly ruled by the appellate court, Cabilzo was never remiss in the
preparation and issuance of the check, and there were no indicia of evidence
that would prove otherwise. Indeed, Cabilzo placed asterisks before and after
the amount in words and figures in order to forewarn the subsequent holders
that nothing follows before and after the amount indicated other than the one
specified between the asterisks.
The degree of diligence required of a reasonable man in the exercise of his
tasks and the performance of his duties has been faithfully complied with by
Cabilzo. In fact, he was wary enough that he filled with asterisks the spaces
between and after the amounts, not only those stated in words, but also
those in numerical figures, in order to prevent any fraudulent insertion, but
unfortunately, the check was still successfully altered, indorsed by the

collecting bank, and cleared by the drawee bank, and encashed by the
perpetrator of the fraud, to the damage and prejudice of Cabilzo.
Verily, Metrobank cannot lightly impute that Cabilzo was negligent and is
therefore prevented from asserting his rights under the doctrine of equitable
estoppel when the facts on record are bare of evidence to support such
conclusion. The doctrine of equitable estoppel states that when one of the
two innocent persons, each guiltless of any intentional or moral wrong, must
suffer a loss, it must be borne by the one whose erroneous conduct, either by
omission or commission, was the cause of injury.21 Metrobanks reliance on
this dictum, is misplaced. For one, Metrobanks representation that it is an
innocent party is flimsy and evidently, misleading. At the same time,
Metrobank cannot asseverate that Cabilzo was negligent and this negligence
was the proximate cause22 of the loss in the absence of even a scintilla proof
to buttress such claim. Negligence is not presumed but must be proven by
the one who alleges it.23
Undoubtedly, Cabilzo was an innocent party in this instant controversy. He
was just an ordinary businessman who, in order to facilitate his business
transactions, entrusted his money with a bank, not knowing that the latter
would yield a substantial amount of his deposit to fraud, for which Cabilzo
can never be faulted.
We never fail to stress the remarkable significance of a banking institution to
commercial transactions, in particular, and to the countrys economy in
general. The banking system is an indispensable institution in the modern
world and plays a vital role in the economic life of every civilized nation.
Whether as mere passive entities for the safekeeping and saving of money
or as active instruments of business and commerce, banks have become an
ubiquitous presence among the people, who have come to regard them with
respect and even gratitude and, most of all, confidence. 24
Thus, even the humble wage-earner does not hesitate to entrust his life's
savings to the bank of his choice, knowing that they will be safe in its custody
and will even earn some interest for him. The ordinary person, with equal
faith, usually maintains a modest checking account for security and
convenience in the settling of his monthly bills and the payment of ordinary
expenses. As for a businessman like the respondent, the bank is a trusted
and active associate that can help in the running of his affairs, not only in the
form of loans when needed but more often in the conduct of their day-to-day
transactions like the issuance or encashment of checks. 25
In every case, the depositor expects the bank to treat his account with the
utmost fidelity, whether such account consists only of a few hundred pesos or
of millions. The bank must record every single transaction accurately, down

to the last centavo, and as promptly as possible. This has to be done if the
account is to reflect at any given time the amount of money the depositor can
dispose of as he sees fit, confident that the bank will deliver it as and to
whomever he directs.26
The point is that as a business affected with public interest and because of
the nature of its functions, the bank is under obligation to treat the accounts
of its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship. The appropriate degree of diligence required of a
bank must be a high degree of diligence, if not the utmost diligence. 27
In the present case, it is obvious that Metrobank was remiss in that duty and
violated that relationship. As observed by the Court of Appeals, there are
material alterations on the check that are visible to the naked eye. Thus:
x x x The number "1" in the date is clearly imposed on a white figure
in the shape of the number "2". The appellants employees who
examined the said check should have likewise been put on guard as
to why at the end of the amount in words, i.e., after the word "ONLY",
there are 4 asterisks, while at the beginning of the line or before said
phrase, there is none, even as 4 asterisks have been placed before
and after the word "CASH" in the space for payee. In addition, the 4
asterisks before the words "ONE THOUSAND PESOS ONLY" have
noticeably been erased with typing correction paper, leaving white
marks, over which the word "NINETY" was superimposed. The same
can be said of the numeral "9" in the amount "91,000", which is
superimposed over a whitish mark, obviously an erasure, in lieu of
the asterisk which was deleted to insert the said figure. The
appellants employees should have again noticed why only 2
asterisks were placed before the amount in figures, while 3 asterisks
were placed after such amount. The word "NINETY" is also typed
differently and with a lighter ink, when compared with the words
"ONE THOUSAND PESOS ONLY." The letters of the word "NINETY"
are likewise a little bigger when compared with the letters of the
words "ONE THOUSAND PESOS ONLY".28
Surprisingly, however, Metrobank failed to detect the above alterations which
could not escape the attention of even an ordinary person. This negligence
was exacerbated by the fact that, as found by the trial court, the check in
question was examined by the cash custodian whose functions do not
include the examinations of checks indorsed for payment against drawers
accounts.29 Obviously, the employee allowed by Metrobank to examine the
check was not verse and competent to handle such duty. These factual
findings of the trial court is conclusive upon this court especially when such
findings was affirmed the appellate court.30

Apropos thereto, we need to reiterate that by the very nature of their work the
degree of responsibility, care and trustworthiness expected of their
employees and officials is far better than those of ordinary clerks and
employees. Banks are expected to exercise the highest degree of diligence
in the selection and supervision of their employees. 31
In addition, the bank on which the check is drawn, known as the drawee
bank, is under strict liability to pay to the order of the payee in accordance
with the drawers instructions as reflected on the face and by the terms of the
check. Payment made under materially altered instrument is not payment
done in accordance with the instruction of the drawer.
When the drawee bank pays a materially altered check, it violates the terms
of the check, as well as its duty to charge its clients account only for bona
fide disbursements he had made. Since the drawee bank, in the instant case,
did not pay according to the original tenor of the instrument, as directed by
the drawer, then it has no right to claim reimbursement from the drawer,
much less, the right to deduct the erroneous payment it made from the
drawers account which it was expected to treat with utmost fidelity.
Metrobank vigorously asserts that the entries in the check were carefully
examined: The date of the instrument, the amount in words and figures, as
well as the drawers signature, which after verification, were found to be
proper and authentic and was thus cleared. We are not persuaded.
Metrobanks negligence consisted in the omission of that degree of diligence
required of a bank owing to the fiduciary nature of its relationship with its
client. Article 1173 of the Civil Code provides:
The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and
of the place. x x x.
Beyond question, Metrobank failed to comply with the degree required by the
nature of its business as provided by law and jurisprudence. If indeed it was
not remiss in its obligation, then it would be inconceivable for it not to detect
an evident alteration considering its vast knowledge and technical expertise
in the intricacies of the banking business. This Court is not completely
unaware of banks practices of employing devices and techniques in order to
detect forgeries, insertions, intercalations, superimpositions and alterations in
checks and other negotiable instruments so as to safeguard their authenticity
and negotiability. Metrobank cannot now feign ignorance nor claim diligence;
neither can it point its finger at the collecting bank, in order to evade liability.

Metrobank argues that Westmont Bank, as the collecting bank and the last
indorser, shall bear the loss. Without ruling on the matter between the
drawee bank and the collecting bank, which is already under the jurisdiction
of another tribunal, we find that Metrobank cannot rely on such indorsement,
in clearing the questioned check. The corollary liability of such indorsement,
if any, is separate and independent from the liability of Metrobank to Cabilzo.
The reliance made by Metrobank on Westmont Banks indorsement is clearly
inconsistent, if not totally offensive to the dictum that being impressed with
public interest, banks should exercise the highest degree of diligence, if not
utmost diligence in dealing with the accounts of its own clients. It owes the
highest degree fidelity to its clients and should not therefore lightly rely on the
judgment of other banks on occasions where its clients money were involve,
no matter how small or substantial the amount at stake.
Metrobanks contention that it relied on the strength of collecting banks
indorsement may be merely a lame excuse to evade liability, or may be
indeed an actual banking practice. In either case, such act constitutes a
deplorable banking practice and could not be allowed by this Court bearing in
mind that the confidence of public in general is of paramount importance in
banking business.
What is even more deplorable is that, having been informed of the alteration,
Metrobank did not immediately re-credit the amount that was erroneously
debited from Cabilzos account but permitted a full blown litigation to push
through, to the prejudice of its client. Anyway, Metrobank is not left with no
recourse for it can still run after the one who made the alteration or with the
collecting bank, which it had already done. It bears repeating that the records
are bare of evidence to prove that Cabilzo was negligent. We find no
justifiable reason therefore why Metrobank did not immediately reimburse his
account. Such ineptness comes within the concept of wanton manner
contemplated under the Civil Code which warrants the imposition of
exemplary damages, "by way of example or correction for the public good,"
in the words of the law. It is expected that this ruling will serve as a stern
warning in order to deter the repetition of similar acts of negligence, lest the
confidence of the public in the banking system be further eroded. 32
WHEREFORE, premises considered, the instant Petition is DENIED. The
Decision dated 8 March 2002 and the Resolution dated 26 July 2002 of the
Court of Appeals are AFFIRMED with modification that exemplary damages
in the amount of P50,000.00 be awarded. Costs against the petitioner.
SO ORDERED.

expressly excluded from the auction since the lots were sufficient to pay for
all the mortgage debts. A Certificate of Sale (Annex F, Records, Vol. I, pp. 2328) was issued by then Provincial Sheriff Nicanor D. Salaysay.

[G.R. No. 155206. October 28, 2003]

GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner, vs.
EDUARDO M. SANTIAGO, substituted by his widow ROSARIO
ENRIQUEZ VDA. DE SANTIAGO, respondent.
DECISION
CALLEJO, SR., J.:
Before the Court is the petition for review on certiorari filed by the
Government Service Insurance System (GSIS), seeking to reverse and set
aside the Decision[1] dated February 22, 2002 of the Court of Appeals (CA) in
CA-G.R. CV No. 62309 and its Resolution dated September 5, 2002 denying
its motion for reconsideration.
The antecedent facts of the case, as culled from the assailed CA
decision and that of the trial court, are as follows:
Deceased spouses Jose C. Zulueta and Soledad Ramos obtained various
loans from defendant GSIS for (the) period September, 1956 to October,
1957 in the total amount of P3,117,000.00 secured by real estate mortgages
over parcels of land covered by TCT Nos. 26105, 37177 and 50365. The
Zuluetas failed to pay their loans to defendant GSIS and the latter foreclosed
the real estate mortgages dated September 25, 1956, March 6, 1957, April 4,
1957 and October 15, 1957.
On August 14, 1974, the mortgaged properties were sold at public auction by
defendant GSIS submitting a bid price of P5,229,927.84. Not all lots covered
by the mortgaged titles, however, were sold. Ninety-one (91) lots were

The Certificate of Sale dated August 14, 1974 had been annotated and
inscribed in TCT Nos. 26105, 37177 and 50356, with the following notations:
(T)he following lots which form part of this title (TCT No. 26105) are not
covered by the mortgage contract due to sale to third parties and donation to
the government: 50-H-5-C-9-J-65-H-8, 50-H-5-C-9J-M-7; 50-H-5-C-9-J-65-H5; 1 lots Nos. 1 to 13, Block No. 1 -6,138 sq.m. 2. Lots Nos. 1 to 11, Block
No. 2 4,660 sq.m. 3. Lot No. 15, Block No. 3 487 sq.m. 4. Lot No. 17, Block
No. 4 263 sq.m. 5. Lot No. 1, Block No. 7 402 sq.m.6. Road Lots Nos. 1, 2, 3,
& 4 2,747 sq.m.
In another NOTE: The following lots in the Antonio Subdivision were already
released by the GSIS and therefore are not included in this sale,
namely: LOT NO. 1, 6, 7, 8, 9, 10, and 13 (Old Plan) Block I; 1, 3, 4, 5, 7, 8
and 10 (Old Plan) Block II; 3, 10, 12 and 13 (New Plan) Block I (Old Plan)
Block III; 7, 14 and 20 (New Plan) Block III (Old Plan) Block V; 13 and 20
(New Plan) Block IV (Old Plan) Block VI; 1, 2, 3 and 10 (New Plan) Block V
(Old Plan) Block VII; 1, 5, 8, 15, 26 and 27 (New Plan) Block VI (Old Plan)
Block VIII; 7, 12 and 20 (New Plan) Block VII (Old Plan) Block II; 1, 4 and 6
(New Plan) Block VIII (Old Plan) Block X; 5 (New Plan) Block X (Old Plan)
Block ZXII; 6 (New Plan) Block XI (Old Plan) Block XII; 1, Block 9; 12 Block
1; 11 Block 2; 19 Block 1; 10 Block 6; 23 Block 3.
And the lots on ADDITIONAL EXCLUSION FROM PUBLIC SALE are LOTS
NO. 6 Block 4; 2 Block 2; 5 Block 5; 1, 2 and 3 Block 11, 1, 2, 3 and 4 Block
10; 5 Block 11 (New); 1 Block 3; 5 Block 1; 15 Block 7; 11 Block 9; 13 Block
5; 12 Block 5; 3 Block 10; 6.
On November 25, 1975, an Affidavit of Consolidation of Ownership (Annex
G, Records, Vol. I, pp. 29-31) was executed by defendant GSIS over
Zuluetas lots, including the lots, which as earlier stated, were already
excluded from the foreclosure.
On March 6, 1980, defendant GSIS sold the foreclosed properties to
Yorkstown Development Corporation which sale was disapproved by the
Office of the President of the Philippines. The sold properties were returned
to defendant GSIS.

The Register of Deeds of Rizal cancelled the land titles issued to Yorkstown
Development Corporation. On July 2, 1980, TCT No. 23552 was issued
cancelling TCT No. 21926; TCT No. 23553 cancelled TCT No. 21925; and
TCT No. 23554 cancelling TCT No. 21924, all in the name of defendant
GSIS.
After defendant GSIS had re-acquired the properties sold to Yorkstown
Development Corporation, it began disposing the foreclosed lots including
the excluded ones.
On April 7, 1990, representative Eduardo Santiago and then plaintiff Antonio
Vic Zulueta executed an agreement whereby Zulueta transferred all his rights
and interests over the excluded lots.Plaintiff Eduardo Santiagos lawyer, Atty.
Wenceslao B. Trinidad, wrote a demand letter dated May 11, 1989 (Annex H,
Records, Vol. I, pp. 32-33) to defendant GSIS asking for the return of the
eighty-one (81) excluded lots.[2]
On May 7, 1990, Antonio Vic Zulueta, represented by Eduardo M.
Santiago, filed with the Regional Trial Court (RTC) of Pasig City, Branch 71, a
complaint for reconveyance of real estate against the GSIS. Spouses Alfeo
and Nenita Escasa, Manuel III and Sylvia G. Urbano, and Marciana P.
Gonzales and the heirs of Mamerto Gonzales moved to be included as
intervenors and filed their respective answers in intervention. Subsequently,
the petitioner, as defendant therein, filed its answer alleging inter alia that the
action was barred by the statute of limitations and/or laches and that the
complaint stated no cause of action. Subsequently, Zulueta was substituted
by Santiago as the plaintiff in the complaint a quo. Upon the death
of Santiago on March 6, 1996, he was substituted by his widow, Rosario
Enriquez Vda. de Santiago, as the plaintiff.

a. Lot Nos. 1, 6, 7, 8, 0, 10, 13, Block I (Old Plan).

b. Lot Nos. 1, 3, 4, 5, 7, 8 and 10, Block II (Old
Plan).
c. Lot Nos. 3, 10, 12, and 13, Block I (New Plan),
Block III (Old Plan),
d. Lot Nos. 7, 14 and 20, Block III (New Plan), Block
V (Old Plan).
e. Lot Nos. 13 and 20, Block IV (New Plan), Block VI
(Old Plan).
f. Lot Nos. 1, 2, 3 and 10, Block V (New Plan), Block
VII (Old Plan).
g. Lot Nos. 1, 5, 8, 15, 26 and 27, Block VI (New
Plan), Block VIII (Old Plan).
h. Lot Nos. 7 and 12, Block VII (New Plan), Block II
(Old Plan).
i. Lot Nos. 1, 4 and 6, Block VIII (New Plan), Block X
(Old Plan).
j. Lot 5, Block X (New Plan), Block XII (Old Plan).
k. Lot 6, Block XI (New Plan), Block XII (Old Plan).

After due trial, the RTC rendered judgment against the petitioner
ordering it to reconvey to the respondent, Rosario Enriquez Vda. de
Santiago, in substitution of her deceased husband Eduardo, the seventyeight lots excluded from the foreclosure sale. The dispositive portion of the
RTC decision reads:

l. Lots 2, 5, 12 and 15, Block I.

m. Lots 6, 9 and 11, Block 2.
n. Lots 1, 5, 6, 7, 16 and 23, Block 3.

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against

the defendant:
1. Ordering defendant to reconvey to plaintiff the seventy-eight (78) lots
released and excluded from the foreclosure sale including the additional
exclusion from the public sale, namely:

o. Lot 6, Block 4.
p. Lots 5, 12, 13 and 24, Block 5.
q. Lots 10 and 16, Block 6.

r. Lots 6 and 15, Block 7.

SUPPORT SUCH CONCLUSION;

PRESCRIPTION IN THIS CASE.[5]

AND

B)

THERE

WAS

NO

s. Lots 13, 24, 28 and 29, Block 8.

t. Lots 1, 11, 17 and 22, Block 9.
u. Lots 1, 2, 3 and 4, Block 10.
v. Lots 1, 2, 3 and 5 (New), Block 11.
2. Ordering defendant to pay plaintiff, if the seventy-eight (78) excluded lots
could not be reconveyed, the fair market value of each of said lots.
3. Ordering the Registry of Deeds of Pasig City to cancel the land titles
covering the excluded lots in the name of defendant or any of its successorsin-interest including all derivative titles therefrom and to issue new land titles
in plaintiffs name.
4. Ordering the Registry of Deeds of Pasig City to cancel the Notices of Lis
Pendens inscribed in TCT No. PT-80342 under Entry No. PT-12267/T-23554;
TCT No. 81812 under Entry No. PT-12267/T-23554; and TCT No. PT-84913
under Entry No. PT-12267/T-23554.
5. Costs of suit.[3]
The petitioner elevated the case to the CA which rendered the assailed
decision affirming that of the RTC. The dispositive portion of the assailed
decision reads:
WHEREFORE, premises considered, the herein appeal is DISMISSED for
lack of merit. The Decision of December 17, 1997 of Branch 71 of
the Regional Trial Court of Pasig City is hereby AFFIRMED.[4]
The petitioner moved for a reconsideration of the aforesaid decision but
the same was denied in the assailed CA Resolution of September 5, 2002.
The petitioner now comes to this Court alleging that:
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN
RULING THAT A) PETITIONER WAS GUILTY OF BAD FAITH WHEN IN
TRUTH AND IN FACT, THERE WAS NO SUFFICIENT GROUND TO

In its petition, the petitioner maintains that it did not act in bad faith when
it erroneously included in its certificate of sale, and subsequently
consolidated the titles in its name over the seventy-eight lots (subject lots)
that were excluded from the foreclosure sale. There was no proof of bad faith
nor could fraud or malice be attributed to the petitioner when it erroneously
caused the issuance of certificates of title over the subject lots despite the
fact that these were expressly excluded from the foreclosure sale.
The petitioner asserts that the action for reconveyance instituted by the
respondent had already prescribed after the lapse of ten years
from November 25, 1975 when the petitioner consolidated its ownership over
the subject lots. According to the petitioner, an action for reconveyance
based on implied or constructive trust prescribes in ten years from the time of
its creation or upon the alleged fraudulent registration of the property. In this
case, when the action was instituted on May 7, 1990, more than fourteen
years had already lapsed. Thus, the petitioner contends that the same was
already barred by prescription as well as laches.
The petitioner likewise takes exception to the holding of the trial court
and the CA that it (the petitioner) failed to apprise or return to the Zuluetas,
the respondents predecessors-in-interest, the seventy-eight lots excluded
from the foreclosure sale because the petitioner had no such obligation
under the pertinent loan and mortgage agreement.
The petitioners arguments fail to persuade.
At the outset, it bears emphasis that the jurisdiction of this Court in a
petition for review on certiorari under Rule 45 of the Rules of Court, as
amended, is limited to reviewing only errors of law. This Court is not a trier of
facts. Case law has it that the findings of the trial court especially when
affirmed by the CA are binding and conclusive upon this Court. Although
there are exceptions to the said rule, we find no reason to deviate therefrom.
[6]
By assailing the findings of facts of the trial court as affirmed by the CA,
that it acted in bad faith, the petitioner thereby raised questions of facts in its
petition.
Nonetheless, even if we indulged the petition and delved into the factual
issues, we find the petition barren of merit.

That the petitioner acted in bad faith in consolidating ownership and

causing the issuance of titles in its name over the subject lots,
notwithstanding that these were expressly excluded from the foreclosure sale
was the uniform ruling of the trial court and appellate court. As declared by
the CA:
The acts of defendant-appellant GSIS in concealing from the Zuluetas [the
respondents predecessors-in-interest] the existence of these lots, in failing to
notify or apprise the spouses Zulueta about the excluded lots from the time it
consolidated its titles on their foreclosed properties in 1975, in failing to
inform them when it entered into a contract of sale of the foreclosed
properties to Yorkstown Development Corporation in 1980 as well as when
the said sale was revoked by then President Ferdinand E. Marcos during the
same year demonstrated a clear effort on its part to defraud the spouses
Zulueta and appropriate for itself the subject properties. Even if titles over the
lots had been issued in the name of the defendant-appellant, still it could not
legally claim ownership and absolute dominion over them because
indefeasibility of title under the Torrens system does not attach to titles
secured by fraud or misrepresentation. The fraud committed by defendantappellant in the form of concealment of the existence of said lots and failure
to return the same to the real owners after their exclusion from the
foreclosure sale made defendant-appellant holders in bad faith. It is wellsettled that a holder in bad faith of a certificate of title is not entitled to the
protection of the law for the law cannot be used as a shield for fraud. [7]
The Court agrees with the findings and conclusion of the trial court and
the CA. The petitioner is not an ordinary mortgagee. It is a government
financial institution and, like banks, is expected to exercise greater care and
prudence in its dealings, including those involving registered lands. [8] The
Courts ruling in Rural Bank of Compostela v. CA[9] is apropos:
Banks, indeed, should exercise more care and prudence in dealing even with
registered lands, than private individuals, for their business is one affected
with public interest, keeping in trust money belonging to their depositors,
which they should guard against loss by not committing any act of negligence
which amounts to lack of good faith by which they would be denied the
protective mantle of land registration statute, Act [No.] 496, extended only to
purchasers for value and in good faith, as well as to mortgagees of the same
character and description.[10]
Due diligence required of banks extend even to persons, or institutions
like the petitioner, regularly engaged in the business of lending money
secured by real estate mortgages.[11]

In this case, the petitioner executed an affidavit in consolidating its

ownership and causing the issuance of titles in its name over the subject lots
despite the fact that these were expressly excluded from the foreclosure
sale. By so doing, the petitioner acted in gross and evident bad faith. It
cannot feign ignorance of the fact that the subject lots were excluded from
the sale at public auction. At the least, its act constituted gross negligence
amounting to bad faith. Further, as found by the CA, the petitioners acts of
concealing the existence of these lots, its failure to return them to the
Zuluetas and even its attempt to sell them to a third party is proof of the
petitioners intent to defraud the Zuluetas and appropriate for itself the subject
lots.
On the issue of prescription, generally, an action for reconveyance of
real property based on fraud prescribes in four years from the discovery of
fraud; such discovery is deemed to have taken place upon the issuance of
the certificate of title over the property. Registration of real property is a
constructive notice to all persons and, thus, the four-year period shall be
counted therefrom.[12] On the other hand, Article 1456 of the Civil Code
provides:
Art. 1456. If property is acquired through mistake or fraud, the person
obtaining it is, by force of law, considered a trustee of an implied trust for the
benefit of the person from whom the property comes.
An action for reconveyance based on implied or constructive trust
prescribes in ten years from the alleged fraudulent registration or date of
issuance of the certificate of title over the property.[13]
The petitioners defense of prescription is untenable. As held by the CA,
the general rule that the discovery of fraud is deemed to have taken place
upon the registration of real property because it is considered a constructive
notice to all persons does not apply in this case. The CA correctly cited the
cases of Adille v. Court of Appeals[14] and Samonte v. Court of Appeals,
[15]
where this Court reckoned the prescriptive period for the filing of the action
for reconveyance based on implied trust from the actual discovery of fraud.
In ruling that the action had not yet prescribed despite the fact that more
than ten years had lapsed between the date of registration and the institution
of the action for reconveyance, the Court in Adille ratiocinated:
It is true that registration under the Torrens system is constructive notice of
title, but it has likewise been our holding that the Torrens title does not furnish

a shield for fraud. It is therefore no argument to say that the act of

registration is equivalent to notice of repudiation, assuming there was one,
notwithstanding the long-standing rule that registration operates as a
universal notice of title.
For the same reason, we cannot dismiss private respondents claims
commenced in 1974 over the estate registered in 1955. While actions to
enforce a constructive trust prescribes in ten years, reckoned from the date
of the registration of the property, we, as we said, are not prepared to count
the period from such a date in this case. We note the petitioners sub
rosa efforts to get hold of the property exclusively for himself beginning with
his fraudulent misrepresentation in his unilateral affidavit of extrajudicial
settlement that he is the only heir and child of his mother Feliza with the
consequence that he was able to secure title in his name
[alone]. Accordingly, we hold that the right of the private respondents
commenced from the time they actually discovered the petitioners act of
defraudation. According to the respondent Court of Appeals, they came to
know [of it] apparently only during the progress of the litigation. Hence,
prescription is not a bar.[16]

Contrary to its claim, the petitioner unarguably had the legal duty to
return the subject lots to the Zuluetas. The petitioners attempts to justify its
omission by insisting that it had no such duty under the mortgage contract is
obviously clutching at straw. Article 22 of the Civil Code explicitly provides
that every person who, through an act of performance by another, or any
other means, acquires or comes into possession of something at the
expense of the latter without just or legal ground, shall return the same to
him.
WHEREFORE, the petition is DENIED for lack of merit. The assailed
Decision dated February 22, 2002 and Resolution dated September 5, 2002
of the Court of Appeals in CA-G.R. CV No. 62309 are AFFIRMED IN
TOTO. Costs against the petitioner.
SO ORDERED.

The above ruling was reiterated in the more recent case of Samonte. In
this case, as established by the CA, the respondent actually discovered the
fraudulent act of the petitioner only in 1989:
... [T]he prescriptive period of the action is to be reckoned from the time
plaintiff-appellee (then Eduardo M. Santiago) had actually discovered the
fraudulent act of defendant-appellant which was, as borne out by the records,
only in 1989. Plaintiff-appellee Eduardo M. Santiago categorically testified
(TSN of July 11, 1995, pp. 14-15) that he came to know that there were 91
excluded lots in Antonio Village which were foreclosed by the GSIS and
included in its consolidation of ownership in 1975 when, in 1989, he and
Antonio Vic Zulueta discussed it and he was given by Zulueta a special
power of attorney to represent him to recover the subject properties from
GSIS. The complaint for reconveyance was filed barely a year from the
discovery of the fraud.[17]
Following the Courts pronouncements in Adille and Samonte, the
institution of the action for reconveyance in the court a quo in 1990 was thus
well within the prescriptive period. Having acted in bad faith in securing titles
over the subject lots, the petitioner is a holder in bad faith of certificates of
title over the subject lots. The petitioner is not entitled to the protection of the
law for the law cannot be used as a shield for frauds. [18]

SPS. EDGAR AND DINAH G.R. No. 161319

OMENGAN,
Petitioners, Present:
PUNO, C.J.,
SANDOVAL-GUTIERREZ,
Working Chairperson,
- v e r s u s - CORONA,
AZCUNA and
GARCIA, JJ.
PHILIPPPINE NATIONAL BANK,
HENRY M. MONTALVO AND
MANUEL S. ACIERTO,*
Respondents. Promulgated:
January 23, 2007
DECISION

This refers to the land at Appas, Tabuk in the name of our

brother, Edgar Omengan, which was mortgaged to [the]
Bank in the amount of Three Million Pesos (P3,000,000.00),
the sum of [P2.5 Million] had already been released and
received by our brother, Edgar.

CORONA, J.

This petition for review on certiorari [1] seeks a review and reversal of the

In this connection, it is requested that the remaining

unreleased balance of [half a million pesos] be held in
abeyance pending an understanding by the rest of the
brothers and sisters of Edgar. Please be informed that the
property
mortgaged,
while
in
the
name
of
Edgar Omengan, is owned in co-ownership by all the
children of the late Roberto and Elnora Omengan. The
lawyer who drafted the document registering the subject
property under Edgars name can attest to this fact. We
had a prior understanding with Edgar in allowing him to
make use of the property as collateral, but he refuses to
comply with such arrangement. Hence, this letter.
(emphasis ours)

Court of Appeals (CA) decision[2] and resolution[3] in CA-G.R. CV No. 71302.

In October 1996, the Philippine National Bank (PNB) Tabuk (Kalinga) Branch
approved petitioners-spouses application for a revolving credit line of P3
million. The loan was secured by two residential lots in Tabuk, KalingaApayao covered by Transfer Certificate of Title (TCT) Nos. 12954 and
12112. The certificates of title, issued by the Registry of Deeds of the
Province of Kalinga-Apayao, were in the name of Edgar [4] Omengan married

Very truly yours,

to Dinah Omengan.

(Sgd.) Shirley O. Gamon (Sgd.) Imogene O. Bangao

(Sgd.) Caroline O. Salicob (Sgd.) Alice O. Claver[5]

The first P2.5 million was released by Branch Manager Henry Montalvo on
three separate dates. The release of the final half million was, however,
withheld by Montalvo because of a letter allegedly sent by Edgars sisters. It

Montalvo was

eventually

replaced

as

branch

manager

by

Manuel Acierto who released the remaining half million pesos to petitioners

read:
Appas, Tabuk
Kalinga
7 November 1996
The Manager
Philippine National Bank
Tabuk Branch
Poblacion, Tabuk
Kalinga
Sir:

on May 2, 1997. Acierto also recommended the approval of a P2 million

increase in their credit line to the Cagayan Valley Business Center Credit
Committee in Santiago City.
The credit committee approved the increase of petitioners credit line (from P3
million

to P5

million),

provided

Edgars

sisters

gave

their

conformity. Acierto informed petitioners of the conditional approval of their

The CA, however, on June 18, 2003, reversed and set aside the

credit line.

RTC decision dated April 21, 2001.[7]

But petitioners failed to secure the consent of Edgars sisters; hence, PNB put

Petitioners now contend that the CA erred when it did not sustain the finding

on hold the release of the additional P2 million.

of breach of contract by the RTC. [8]

On October 7, 1998, Edgar Omengan demanded the release of the P2

The existence of breach of contract is a factual matter not usually reviewed in
million. He claimed that the condition for its release was not part of his credit
a petition filed under Rule 45. But since the RTC and the CA had
line agreement with PNB because it was added without his consent. PNB
contradictory findings, we are constrained to rule on this issue.
denied his request.
Was there a breach of contract? There was none.
On March 3, 1999, petitioners filed a complaint for breach of contract and
damages against PNB with the Regional Trial Court (RTC), Branch 25

Breach of contract is defined as follows:

[It] is the failure without legal reason to comply with the
terms of a contract. It is also defined as the [f]ailure, without
legal excuse, to perform any promise which forms the whole
or part of the contract.[9]

in Tabuk, Kalinga. After trial, the court decided in favor of petitioners.

Accordingly, judgment is hereby rendered finding in favor of
[petitioners.] [PNB is ordered]:
1)
To release without delay in favor of [petitioners]
the
amount
of P2,000,000.00
to
complete
the P5,000,000.00 credit line agreement;

In this case, the parties agreed on a P3 million credit line. This sum was

2)
To pay [petitioners] the amount of P2,760,000.00
representing the losses and/or expected income of the
[petitioners] for three years;

completely released to petitioners who subsequently applied [10] for an

3)
To pay lawful interest, until the amount
aforementioned on paragraphs 1 and 2 above are fully
paid; and

committee. For all intents and purposes, petitioners sought an additional

4)

The condition attached to the increase in credit line requiring petitioners to

To pay the costs.

SO ORDERED.[6]

increase in their credit line. This was conditionally approved by PNBs credit

loan.

acquire the conformity of Edgars sisters was never acknowledged and

accepted by petitioners. Thus, as to the additional loan, no meeting of the

minds actually occurred and no breach of contract could be attributed to

Here, PNB had acquired information sufficient to induce a reasonably

PNB. There was no perfected contract over the increase in credit line.

prudent person to inquire into the status of the title over the subject
property. Instead of defending their position, petitioners merely insisted that

[T]he business of a bank is one affected with public interest, for which reason
reliance on the face of the certificate of title (in their name) was
the bank should guard against loss due to negligence or bad faith. In
sufficient. This principle, as already mentioned, was not applicable to
approving the loan of an applicant, the bank concerns itself with proper
financial institutions like PNB.
[information] regarding its debtors.[11] Any investigation previously conducted
In truth, petitioners had every chance to turn the situation in their
on the property offered by petitioners as collateral did not preclude PNB from
favor if, as they said, they really owned the subject property alone, to the
considering new information on the same property as security for a
exclusion of any other owner(s). Unfortunately, all they offered were bare
subsequent loan. The credit and property investigation for the original loan
denials of the co-ownership claimed by Edgars sisters.
of P3 million did not oblige PNB to grant and release any additional loan. At
the time the original P3 million credit line was approved, the title to the

PNB exercised reasonable prudence in requiring the above-

property appeared to pertain exclusively to petitioners. By the time the

mentioned condition for the release of the additional loan. If the condition

application for an increase was considered, however, PNB already had

proved unacceptable to petitioners, the parties could have discussed other

reason to suspect petitioners claim of exclusive ownership.

terms instead of making an obstinate and outright demand for the release of

A mortgagee can rely on what appears on the certificate of

title presented by the mortgagor and an innocent mortgagee
is not expected to conduct an exhaustive investigation on the
history of the mortgagors title. This rule is strictly applied to
banking institutions. xxx

the additional amount. If the alleged co-ownership in fact had no leg to stand

Banks, indeed, should exercise more care and prudence

in dealing even with registered lands, than private
individuals, as their business is one affected with public
interest. xxx Thus, this Court clarified that the rule that
persons dealing with registered lands can rely solely on
the certificate of title does not apply to banks.
[12]
(emphasis supplied)

Since PNB did not breach any contract and since it exercised the

on, petitioners could have introduced evidence other than a simple denial of
its existence.

degree of diligence expected of it, it cannot be held liable for damages.

WHEREFORE, the decision and resolution of the Court of Appeals in CAG.R. CV No. 71302 are hereby AFFIRMED.

Costs against petitioners.

SO ORDERED.

[G.R. No. 142668. August 31, 2004]

UNITED
COCONUT
PLANTERS
BANK
and
LUIS
MA.
ONGSIAPCO, petitioners, vs. RUBEN E. BASCO, respondent.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari assailing the Decision[1] of the
Court of Appeals dated March 30, 2000, affirming, with modifications, the
Decision[2] of the Regional Trial Court (RTC), Makati City, Branch 146, which
found the petitioner bank liable for payment of damages and attorneys fees.

The Case for the Respondent

Respondent Ruben E. Basco had been employed with the petitioner
United Coconut Planters Bank (UCPB) for seventeen (17) years. [3] He was
also a stockholder thereof and owned 804 common shares of stock at
the par value of P1.00.[4] He likewise maintained a checking account with the
bank at its Las Pias Branch under Account No. 117-001520-6. [5] Aside from
his employment with the bank, the respondent also worked as an underwriter
at the United Coconut Planters Life Association (Coco Life), a subsidiary of
UCPB since December, 1992.[6] The respondent also solicited insurance
policies from UCPB employees.
On June 19, 1995, the respondent received a letter from the UCPB
informing him of the termination of his employment with the bank for grave
abuse of discretion and authority, and breach of trust in the conduct of his job
as Bank Operations Manager of its Olongapo Branch. The respondent
thereafter filed a complaint for illegal dismissal, non-payment of salaries, and
damages against the bank in the National Labor Relations Commission
(NLRC), docketed as NLRC Cases Nos. 00-09-05354-92 and 00-09-0535493.However, the respondent still frequented the UCPB main office
in Makati City to solicit insurance policies from the employees thereat. He
also discussed the complaint he filed against the bank with the said
employees.[7]
The respondent was also employed by All-Asia Life Insurance Company
as an underwriter. At one time, the lawyers of the UCPB had an informal
conference with him at the head office of the bank, during which the
respondent was offered money so that the case could be amicably
settled. The respondent revealed the incident to some of the bank
employees.[8]
On November 15, 1995, Luis Ma. Ongsiapco, UCPB First VicePresident, Human Resource Division, issued a Memorandum to Jesus
Belanio, the Vice-President of the Security Department, informing him that
the respondents employment had been terminated as of June 19, 1995, that
the latter filed charges against the bank and that the case was still on-going.
Ongsiapco instructed Belanio not to allow the respondent access to all bank
premises.[9] Attached to the Memorandum was a passport-size picture of the
respondent. The next day, the security guards on duty were directed to
strictly impose the security procedure in conformity with Ongsiapcos
Memorandum.[10]

On December 7, 1995, the respondent, through counsel, wrote

Ongsiapco, requesting that such Memorandum be reconsidered, and that he
be allowed entry into the bank premises.[11] His counsel emphasized that
In the meantime, we are more concerned with your denying Mr. Basco
access to all bank premises. As you may know, he is currently connected
with Cocolife as insurance agent. Given his 17-year tenure with your bank,
he has established good relationships with many UCPB employees, who
comprise
the
main
source
of
his
solicitations. In
the
course of his work as insurance agent, he needs free access to your bank
premises, within reason, to add the unnecessary. Your memorandum has
effectively curtailed his livelihood and he is once again becoming a victim of
another illegal termination, so to speak. And Shakespeare said: You take his
life when you do take the means whereby he lives.
Mr. Bascos work as an insurance agent directly benefits UCPB, Cocolifes
mother company. He performs his work in your premises peacefully without
causing any disruption of bank operations. To deny him access to your
premises for no reason except the pendency of the labor case, the outcome
of which is still in doubt his liability, if any, certainly has not been proven is a
clear abuse of right in violation of our clients rights. Denying him access to
the bank, which is of a quasi-public nature, is an undue restriction on his
freedom of movement and right to make a livelihood, comprising gross
violations of his basic human rights. (This is Human Rights Week, ironically).
We understand that Mr. Basco has been a stockholder of record of 804
common shares of the capital stock of UCPB since July 1983. As such, he
certainly deserves better treatment than the one he has been receiving from
your office regarding property he partly owns. He is a particle of corporate
sovereignty. We doubt that you can impose the functional equivalent of the
penalty of destierroon our client who really wishes only to keep his small
place in the sun, to survive and breathe. No activity can be more legitimate
than to toil for a living. Let us live and let live.[12]
In his reply dated December 12, 1995, Ongsiapco informed the
respondent that his request could not be granted:
As you understand, we are a banking institution; and as such, we deal with
matters involving confidences of clients. This is among the many reasons
why we, as a matter of policy, do not allow non-employees to have free
access to areas where our employees work. Of course, there are places
where visitors may meet our officers and employees to discuss business

matters; unfortunately, we have limited areas where our officers and

employees can entertain non-official matters.
Furthermore, in keeping with good business practices, the Bank prohibits
solicitation, peddling and selling of goods, service and other commodities
within its premises as it disrupts the efficient performance and function of the
employees.
Please be assured that it is farthest from our intention to discriminate against
your client. In the same vein, it is highly improper for us to carve exceptions
to our policies simply to accommodate your clients business ventures. [13]
The respondent was undaunted. At 5:30 p.m. of December 21, 1995, he
went to the office of Junne Cacay, the Assistant Manager of the Makati
Branch. Cacay was then having a conference with Bong Braganza, an officer
of the UCPB Sucat Branch. Cacay entertained the respondent although the
latter did have an appointment. Cacay even informed him that he had a
friend who wanted to procure an insurance policy.[14] Momentarily, a security
guard of the bank approached the respondent and told him that it was
already past office hours. He was also reminded not to stay longer than he
should in the bank premises.[15] Cacay told the guard that the respondent
would be leaving shortly.[16]The respondent was embarrassed and told Cacay
that he was already leaving.[17]
At 1:30 p.m. of January 31, 1996, the respondent went to the UCPB
Makati Branch to receive a check from Rene Jolo, a bank employee, and to
deposit money with the bank for a friend. [18] He seated himself on a sofa
fronting the tellers booth[19] where other people were also seated.
[20]
Meanwhile, two security guards approached the respondent. The guards
showed him the Ongsiapcos Memorandum and told him to leave the bank
premises. The respondent pleaded that he be allowed to finish his
transaction before leaving. One of the security guards contacted the
management and was told to allow the respondent to finish his transaction
with the bank.
Momentarily, Jose Regino Casil, an employee of the bank who was in
the 7th floor of the building, was asked by Rene Jolo to bring a check to the
respondent, who was waiting in the lobby in front of the tellers booth. [21] Casil
agreed and went down to the ground floor of the building, through the
elevator. He was standing in the working area near the Automated Teller
Machine (ATM) Section[22] in the ground floor when he saw the respondent
standing near the sofa[23] near the two security guards. [24] He motioned the

respondent to come and get the check, but the security guard tapped the
respondent on the shoulder and prevented the latter from approaching
Casil. The latter then walked towards the respondent and handed him the
check from Jolo.
Before leaving, the respondent requested the security guard to log his
presence in the logbook. The guard did as requested and the respondents
presence was recorded in the logbook.[25]
On March 11, 1996, the respondent filed a complaint for damages
against the petitioners UCPB and Ongsiapco in the RTC of Manila,
alleging inter alia, that
12. It is readily apparent from this exchange of correspondence that
defendant bank' acknowledged reason for barring plaintiff from its premises the pending labor case is a mere pretense for its real vindictive and invidious
intent: to prevent plaintiff, and plaintiff alone, from carrying out his trade as an
insurance agent among defendant banks employees, a practice openly and
commonly allowed and tolerated (encouraged even, for some favored
proverbial sacred cows) in the bank premises, now being unjustly denied to
plaintiff on spurious grounds.
13. Defendants, to this day, have refused to act on plaintiffs claim to be
allowed even in only the limited areas where [the banks] officers and
employees can entertain non-official matters and have maintained the policy
banning plaintiff from all bank premises. As he had dared exercised his legal
right to question his dismissal, he is being penalized with a variation
of destierro, available in criminal cases where the standard however, after
proper hearing, is much more stringent and based on more noble grounds
than mere pique or vindictiveness.
14. This appallingly discriminatory policy resulted in an incident on January
31, 1996 at 1:30 p.m. at defendant banks branch located at its head office,
which caused plaintiff tremendous undeserved humiliation, embarrassment,
and loss of face.[26]
15. Defendants memorandum and the consequent acts of defendants
security guards, together with defendant Ongsiapcos disingenuous letter of
December 12, 1995, are suggestive of malice and bad faith in derogation of
plaintiffs right and dignity as a human being and citizen of this country, which
acts have caused him considerable undeserved embarrassment. Even if
defendants, for the sake of argument, may be acting within their rights, they

cannot exercise same abusively, as they must, always, act with justice and in
good faith, and give plaintiff his due.[27]

c. Gross negligence or dereliction of duty in the

implementation of bank policies or valid orders from management.

The respondent prayed that, after trial, judgment be rendered in his

favor, as follows:

d. Direct refusal or willful failure to perform, or delay in

performing, an assigned task.

WHEREFORE, it is respectfully prayed that judgment issue ordering

defendants:

e. Fraud or willful breach of trust in the conduct of his work.

f. Falsification or forgery of bank records/documents.

1. To rescind the directive to its agents barring plaintiff from all bank premises
as embodied in the memorandum of November 15, 1995, and allow plaintiff
access to the premises of defendant bank, including all its branches, which
are open to members of the general public, during reasonable hours, to be
able to conduct lawful business without being subject to invidious
discrimination; and

10. Plaintiff thereafter decided to contest his termination by filing an action for
illegal dismissal against the bank.

2. To pay plaintiff P100,000.00 as moral damages, P100,000.00 as

exemplary damages, and P50,000.00 by way of attorneys fees.

Despite the pendency of this litigation, plaintiff was reported visiting

employees of the bank in their place of work during work hours, and
circulating false information concerning the status of his case against the
bank, including alleged offers by management of a monetary settlement for
his illegal dismissal.

Plaintiff likewise prays for costs, interest, the disbursements of this action,
and such other further relief as may be deemed just and equitable in the
premises.[28]

11. Defendants acted to protect the banks interest by preventing plaintiffs

access to the banks offices, and at the same time informing him of that
decision.

In their Answer to the complaint, the petitioners interposed the following

affirmative defenses:

Plaintiff purported to insist on seeing and talking to the banks employees

despite this decision, claiming he needed to do this in connection with his
insurance solicitation activities, but the bank has not reconsidered.

9. Plaintiff had been employed as Branch Operations Officer, Olongapo

Branch, of defendant United Coconut Planters Bank.
In or about the period May to June 1992, he was, together with other fellow
officers and employees, investigated by the bank in connection with various
anomalies. As a result of the investigation, plaintiff was recommended
terminated on findings of fraud and abuse of discretion in the performance of
his work. He was found by the banks Committee on Employee Discipline to
have been guilty of committing or taking part in the commission of the
following:
a. Abuse of discretion in connection with actions taken
beyond or outside the limits of his authority.
b. Borrowing money from a bank client.

12. The complaint states, and plaintiff has, no cause of action against
defendants.[29]
The petitioners likewise interposed compulsory counterclaims for
damages.
The Case for the Petitioners
The petitioners adduced evidence that a day or so before November 15,
1995, petitioner Ongsiapco was at the 10 th floor of the main office of the bank
where the training room of the Management Development Training Office
was located. Some of the banks management employees were then
undergoing training. The bank also kept important records in the said
floor. When Ongsiapco passed by, he saw the respondent talking to some of
the trainees. Ongsiapco was surprised because non-participants in the

training were not supposed to be in the premises. [30] Besides, the respondent
had been dismissed and had filed complaints against the bank with the
NLRC. Ongsiapco was worried that bank records could be purloined and
employees could be hurt.
The next day, Ongsiapco contacted the training supervisor and inquired
why the respondent was in the training room the day before. The supervisor
replied that he did not know why.[31] Thus, on November 15, 1995, Ongsiapco
issued a Memorandum to Belanio, the Vice-President for Security Services,
directing the latter not to allow the respondent access to the bank premises
near the working area.[32] The said Memorandum was circulated by the Chief
of Security to the security guards and bank employees.
At about 12:30 p.m. on January 31, 1996, Security Guard Raul Caspe, a
substitute for the regular guard who was on leave, noticed the respondent
seated on the sofa in front of the tellers booth. [33] Caspe notified his superior
of the respondents presence, and was instructed not to confront the
respondent if the latter was going to make a deposit or withdrawal. [34] Caspe
was also instructed not to allow the respondent to go to the upper floors of
the building.[35] The respondent went to the tellers booth and, after a while,
seated himself anew on the sofa. Momentarily, Caspe noticed Casil, another
employee of the bank who was at the working section of the Deposit Service
Department (DSD), motioning to the respondent to get the check. The latter
stood up and proceeded in the direction of Casils workstation. After the
respondent had taken about six to seven paces from the sofa, Caspe and the
company guard approached him. The guards politely showed Ongsiapcos
Memorandum to the respondent and told the latter that he was not allowed to
enter the DSD working area; it was lunch break and no outsider was allowed
in that area.[36] The respondent looked at the Memorandum and complied.
On May 29, 1998, the trial court rendered judgment in favor of the
respondent. The fallo of the decision reads:

4) Cost of suit.
Defendants counterclaim is dismissed for lack of merit.
SO ORDERED.[37]
The trial court held that the petitioners abused their right; hence, were
liable to the respondent for damages under Article 19 of the New Civil Code.
The petitioners appealed the decision to the Court of Appeals and raised
the following issues:
4.1 Did the appellants abuse their right when they issued the Memorandum?
4.2 Did the appellants abuse their right when Basco was asked to leave the
bank premises, in implementation of the Memorandum, on 21 December
1995?
4.3. Did the appellants abuse their right when Basco was asked to leave the
bank premises, in implementation of the Memorandum, on 31 January 1995?
4.4. Is Basco entitled to moral and exemplary damages and attorneys fees?
4.5. Are the appellants entitled to their counterclaim? [38]
The CA rendered a Decision on March 30, 2000, affirming the decision
of the RTC with modifications. The CA deleted the awards for moral and
exemplary damages, but ordered the petitioner bank to pay nominal
damages on its finding that latter abused its right when its security guards
stopped the respondent from proceeding to the working area near the ATM
section to get the check from Casil. The decretal portion of the decision
reads:

WHEREFORE, premises considered, defendants are hereby adjudged liable

to plaintiff and orders them to rescind and set-aside the Memorandum of
November 15, 1995 and orders them to pay plaintiff the following:

WHEREFORE, the Decision of the Regional Trial Court dated May 29, 1998
is hereby MODIFIED as follows:

1) the amount of P100,000.00 as moral damages;

1. The awards for moral and exemplary damages are deleted;

2) the amount of P50,000.00 as exemplary damages;

3) P50,000.00 for and as attorneys fees;

2. The award for attorneys fees is deleted;

3. The order rescinding Memorandum dated November 15, 1995 is set aside;
and

may use such force as may be reasonably necessary to repel or prevent an

actual or threatened unlawful physical invasion or usurpation of his property.

4. UCPB is ordered to pay nominal damages in the amount of P25,000.00 to

plaintiff-appellee.

The petitioners contend that the provision which enunciates the principle
of self-help applies when there is a legitimate necessity to personally or
through another, prevent not only an unlawful, actual, but also a threatened
unlawful aggression or usurpation of its properties and records, and its
personnel and customers/clients who are in its premises.The petitioners
assert that petitioner Ongsiapco issued his Memorandum dated November
15, 1995 because the respondent had been dismissed from his employment
for varied grave offenses; hence, his presence in the premises of the bank
posed a threat to the integrity of its records and to the persons of its
personnel. Besides, the petitioners contend, the respondent, while in the
bank premises, conversed with bank employees about his complaint for
illegal dismissal against the petitioner bank then pending before the Labor
Arbiter, including negotiations with the petitioner banks counsels for an
amicable settlement of the said case.

Costs de oficio.[39]
The Present Petition
The petitioners now raise the following issues before this Court:
I. Whether or not the appellate court erred when it found that UCPB
excessively exercised its right to self-help to the detriment of
Basco as a depositor, when on January 31, 1996, its security
personnel stopped respondent from proceeding to the area
restricted to UCPBs employees.
II. Whether or not the appellate court erred when it ruled that
respondent is entitled to nominal damages.
III.

Whether or not the appellate court erred when it did

not award the petitioners valid and lawful counterclaim. [40]

The core issues are the following: (a) whether or not the petitioner bank
abused its right when it issued, through petitioner Ongsiapco, the
Memorandum barring the respondent access to all bank premises; (b)
whether or not petitioner bank is liable for nominal damages in view of the
incident involving its security guard Caspe, who stopped the respondent from
proceeding to the working area of the ATM section to get the check from
Casil; and (c) whether or not the petitioner bank is entitled to damages on its
counterclaim.
The Ruling of the Court
On the first issue, the petitioners aver that the petitioner bank has the
right to prohibit the respondent from access to all bank premises under
Article 429 of the New Civil Code, which provides that:
Art. 429. The owner or lawful possessor of a thing has the right to exclude
any person from the enjoyment and disposal thereof. For this purpose, he

The respondent, for his part, avers that Article 429 of the New Civil
Code does not give to the petitioner bank the absolute right to exclude him, a
stockholder and a depositor, from having access to the bank premises,
absent any clear and convincing evidence that his presence therein posed an
imminent threat or peril to its property and records, and the persons of its
customers/clients.
We agree with the respondent bank that it has the right to exclude
certain individuals from its premises or to limit their access thereto as to time,
to protect, not only its premises and records, but also the persons of its
personnel and its customers/clients while in the premises. After all, by its
very nature, the business of the petitioner bank is so impressed with public
trust; banks are mandated to exercise a higher degree of diligence in the
handling of its affairs than that expected of an ordinary business enterprise.
[41]
Banks handle transactions involving millions of pesos and properties worth
considerable sums of money. The banking business will thrive only as long
as it maintains the trust and confidence of its customers/clients. Indeed, the
very nature of their work, the degree of responsibility, care and
trustworthiness expected of officials and employees of the bank is far greater
than those of ordinary officers and employees in the other business firms.
[42]
Hence, no effort must be spared by banks and their officers and
employees to ensure and preserve the trust and confidence of the general
public and its customers/clients, as well as the integrity of its records and the
safety and well being of its customers/clients while in its premises. For the
said purpose, banks may impose reasonable conditions or limitations to

access by non-employees to its premises and records, such as the exclusion

of non-employees from the working areas for employees, even absent any
imminent or actual unlawful aggression on or an invasion of its properties or
usurpation thereof, provided that such limitations are not contrary to the law.
[43]

In view of this, he should not be allowed access to all bank premises.

(Sgd.) LUIS MA. ONGSIAPCO
First Vice President

It bears stressing that property rights must be considered, for many

purposes, not as absolute, unrestricted dominions but as an aggregation of
qualified privileges, the limits of which are prescribed by the equality of rights,
and the correlation of rights and obligations necessary for the highest
enjoyment of property by the entire community of proprietors. [44] Indeed,
in Rellosa vs. Pellosis,[45] we held that:
Petitioner might verily be the owner of the land, with the right to enjoy and to
exclude any person from the enjoyment and disposal thereof, but the
exercise of these rights is not without limitations. The abuse of rights rule
established in Article 19 of the Civil Code requires every person to act with
justice, to give everyone his due; and to observe honesty and good faith.
When right is exercised in a manner which discards these norms resulting in
damage to another, a legal wrong is committed for which the actor can be
held accountable.

Human Resource Division

16
Novemb
er 1995
TO: ALL GUARDS
ON DUTY
Strictly adhere/impose Security Procedure RE: Admission to Bank premises.
For your compliance.

Rights of property, like all other social and conventional rights, are
subject to such reasonable limitations in their enjoyment and to such
reasonable restraints established by law.[46]
In this case, the Memorandum of the petitioner Ongsiapco dated
November 15, 1995, reads as follows:
MEMO TO : MR. JESUS M. BELANIO
Vice President
Security Department

(
Sign
ature
) 11/1
6/95
JO
SE
G.
TO
RIA
GA[
47]

D A T E : 15 November 1995
R E : MR. RUBEN E. BASCO
Please be advised that Mr. Ruben E. Basco was terminated for a cause by
the Bank on 19 June 1992. He filed charges against the bank and the case is
still on-going.

On its face, the Memorandum barred the respondent, a stockholder of

the petitioner bank and one of its depositors, from gaining access to all bank
premises under all circumstances. The said Memorandum is all-embracing
and admits of no exceptions whatsoever. Moreover, the security guards were
enjoined to strictly implement the same.

We agree that the petitioner may prohibit non-employees from entering

the working area of the ATM section. However, under the said Memorandum,
even if the respondent wished to go to the bank to encash a check drawn
and issued to him by a depositor of the petitioner bank in payment of an
obligation, or to withdraw from his account therein, or to transact business
with the said bank and exercise his right as a depositor, he could not do so
as he was barred from entry into the bank. Even if the respondent wanted to
go to the petitioner bank to confer with the corporate secretary in connection
with his shares of stock therein, he could not do so, since as stated in the
Memorandum of petitioner Ongsiapco, he would not be allowed access to all
the bank premises. The said Memorandum, as worded, violates the right of
the respondent as a stockholder or a depositor of the petitioner bank, for
being capricious and arbitrary.
The Memorandum even contravenes Article XII, paragraph 4 (4.1 and
4.2) of the Code of Ethics issued by the petitioner bank itself, which provides
that one whose employment had been terminated by the petitioner bank may,
nevertheless, be allowed access to bank premises, thus:
4.1 As a client of the Bank in the transaction of a regular bank-client activity.
4.2 When the offending party is on official business concerning his
employment with the Bank with the prior approval and supervision of the
Head of HRD or of the Division Head, or of the Branch Head in case of
branches.[48]
For another, the Memorandum, as worded, is contrary to the intention of
the petitioners. Evidently, the petitioners did not intend to bar the respondent
from access to all bank premises under all circumstances. When he testified,
petitioner Ongsiapco admitted that a bank employee whose services had
been terminated may be allowed to see an employee of the bank and may be
allowed access to the bank premises under certain conditions, viz:

bank before they are allowed access or entry, they call up the
department or the division.
Q So I want to clarify, Mr. Witness. Former bank employees are not
allowed within the bank premises until after the security guard
call, which ever department they are headed for, and that they
give the permission and they tell the security guard to allow
the person?
A Yes, Sir, that is the usual procedure.
Q If an employee resigned from the bank, same treatment?
A Yes, Sir.
Q If an employee was terminated by the bank for cause, same
treatment?
A Yes, Sir.
Q Outsiders who are not employees or who were never employees
of the bank also must ask permission?
A Yes, Sir. Because there is a security control at the lobby.
Q You mentioned that this is a general rule?
A Yes, Sir.
Q Is this rule written down in black and white anywhere?
A I think this is more of a security procedure.

ATTY. R. ALIKPALA
Q So the permission you are referring to is merely a permission to
be granted by the security guard?

Q But being a huge financial institution, we expect Cocobank has

its procedure written down in black and white?
ATTY. A. BATUHAN

A No, sir, not the security guard. The security will call the office
where they are going. Because this is the same procedure
they do for visitors. Anybody who wants to see anybody in the

Your Honor, objection. Argumentative, Your Honor.

There is no question posed at all, Your Honor.

COURT
Answer. Is there any guideline?
A There must be a guideline of the security.
Q But you are not very familiar about the security procedures?
A Yes, Sir.
ATTY. R. ALIKPALA
Q Mr. Ongsiapco, the agency that you hired follows certain
procedures?

Q But he is not yet a client when he enters the bank premises. He

only becomes you know because you do not all these people,
you do not know every client of the bank so you just allow
them inside the bank?
A Yes, the premises.[49]
Petitioner Ongsiapco also testified that a former employee who is a
customer/client of the petitioner bank also has access to the bank
premises, except those areas reserved for its officers and employees,
such as the working areas:
ATTY. R. ALIKPALA

A Yes, Sir.

Q So Mr. Witness, just for the sake of clarity. The ground floor area
is where the regular consumer banking services are
held? What do you call this portion?

Q Which of course are under the direct control and supervision of

the bank?

A That is the Deposit Servicing Department.

A Yes, Sir.

Q Where the .

Q And did the security agency have any of this procedure written
down?

A Where the people transact business.

A It will be given to them by the Security Department, because they

are under the Security Department.
Q But if an employee is only entering the ground floor bank area,
where customers of the bank are normally allowed, whether
depositors or not, they dont need to ask for express
permission, is that correct?
A Yes, if they are client.
Q Even if they are not client, but let us say they have to encash a
check paid to them by someone?
A He is a client then.

ATTY. R. ALIKAPALA
Q They are freely allowed in this area?
A Yes, Sir.
Q This is the area where there are counters, Teller, where a
person would normally go to let us say open a bank account
or to request for managers check, is that correct?
A Yes, Sir.
Q So, in this portion, no, I mean beyond this portion, meaning the
working areas and second floor up, outsiders will have to ask
express permission from the security guard?
A Yes, Sir.

Q And you say that the security guards are instructed to verify the
purpose of every person who goes into this area?
A As far as I know, sir.[50]
It behooved the petitioners to revise such Memorandum to conform to
its Code of Ethics and their intentions when it was issued, absent facts and
circumstances that occurred pendente lite which warrant the retention of the
Memorandum as presently worded.
On the second issue, the Court of Appeals ruled that the petitioner bank
is liable for nominal damages to the respondent despite its finding that the
petitioners had the right to issue the Memorandum. The CA ratiocinated that
the petitioner bank should have allowed the respondent to walk towards the
restricted area of the ATM section until they were sure that he had entered
such area, and only then could the guards enforce the Memorandum of
petitioner Ongsiapco. The Court of Appeals ruled that for such failure of the
security guards, the petitioner bank thereby abused its right of self-help and
violated the respondent's right as one of its depositors:
With respect, however, to the second incident on January 31, 1996, it
appears that although according to UCPB security personnel they tried to
stop plaintiff-appellee from proceeding to the stairs leading to the upper
floors, which were limited to bank personnel only (TSN, pp. 6-9, June 4,
1997), the said act exposed plaintiff-appellee to humiliation considering that it
was done in full view of other bank customers. UCPB security personnel
should have waited until they were sure that plaintiff-appellee had entered
the restricted areas and then implemented the memorandum order by asking
him to leave the premises. Technically, plaintiff-appellee was still in the
depositing area when UCPB security personnel approached him. In this
case, UCPBs exercise of its right to self-help was in excess and abusive to
the detriment of the right of plaintiff-appellee as depositor of said Bank,
hence, warranting the award of nominal damages in favor of plaintiffappellee. Nominal damages are adjudicated in order that a right of a plaintiff,
which has been violated or invaded by the defendant, may be vindicated or
recognized and not for the purpose of indemnifying any loss suffered by him
(Japan Airlines vs. Court of Appeals, 294 SCRA 19).[51]
The petitioners contend that the respondent is not entitled to nominal
damages and that the appellate court erred in so ruling for the following
reasons: (a) the respondent failed to prove that the petitioner bank violated
any of his rights; (b) the respondent did not suffer any humiliation because of

the overt acts of the security guards; (c) even if the respondent did suffer
humiliation, there was no breach of duty committed by the petitioner bank
since its security guards politely asked the respondent not to proceed to the
working area of the ATM section because they merely acted pursuant to the
Memorandum of petitioner Ongsiapco, and accordingly, under Article 429 of
the New Civil Code, this is a case of damnum absque injuria;[52] and (d) the
respondent staged the whole incident so that he could create evidence to file
suit against the petitioners.
We rule in favor of the petitioners.
The evidence on record shows that Casil was in the working area of the
ATM section on the ground floor when he motioned the respondent to
approach him and receive the check. The respondent then stood up and
walked towards the direction of Casil. Indubitably, the respondent was set to
enter the working area, where non-employees were prohibited entry; from
there, the respondent could go up to the upper floors of the banks premises
through the elevator or the stairway. Caspe and the company guard had no
other recourse but prevent the respondent from going to and entering such
working area. The security guards need not have waited for the respondent
to actually commence entering the working area before stopping the
latter. Indeed, it would have been more embarrassing for the respondent to
have started walking to the working area only to be halted by two uniformed
security guards and disallowed entry, in full view of bank customers. It bears
stressing that the security guards were polite to the respondent and even
apologized for any inconvenience caused him. The respondent could have
just motioned to Casil to give him the check at the lobby near the tellers
booth, instead of proceeding to and entering the working area himself, which
the respondent knew to be an area off-limits to non-employees. He did not.
The respondent failed to adduce evidence other than his testimony that
people in the ground floor of the petitioner bank saw him being stopped from
proceeding to the working area of the bank. Evidently, the respondent did not
suffer embarrassment, inconvenience or discomfort which, however,
partakes of the nature of damnum absque injuria, i.e.damage without injury
or damage inflicted without injustice, or loss or damage without violation of
legal rights, or a wrong due to a pain for which the law provides no remedy.
[53]
Hence, the award of nominal damages by the Court of Appeals should be
deleted.
On the third issue, we now hold that the petitioner bank is not entitled to
damages and attorneys fees as its counterclaim. There is no evidence on
record that the respondent acted in bad faith or with malice in filing his

complaint against the petitioners. Well-settled is the rule that the

commencement of an action does not per se make the action wrongful and
subject the action to damages, for the law could not have meant to impose a
penalty on the right to litigate.
We reiterate case law that if damages result from a partys exercise of a
right, it is damnum absque injuria.[54]
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The
assailed Decision of the Court of Appeals is REVERSED and SET
ASIDE. The complaint of the respondent in the trial court and the
counterclaims of the petitioners are DISMISSED.
No costs.
SO ORDERED.

[G.R. No. 129015. August 13, 2004]

SAMSUNG
CONSTRUCTION
COMPANY
PHILIPPINES,
INC., petitioner, vs. FAR EAST BANK AND TRUST COMPANY
AND COURT OF APPEALS, respondents.
DECISION
TINGA, J.:
Called to fore in the present petition is a classic textbook question if a
bank pays out on a forged check, is it liable to reimburse the drawer from
whose account the funds were paid out? The Court of Appeals, in reversing a
trial court decision adverse to the bank, invoked tenuous reasoning to acquit
the bank of liability. We reverse, applying time-honored principles of law.
The salient facts follow.
Plaintiff Samsung Construction Company Philippines, Inc. (Samsung
Construction), while based in Bian, Laguna, maintained a current account
with defendant Far East Bank and Trust Company[1] (FEBTC) at the latters
Bel-Air, Makati branch.[2] The sole signatory to Samsung Constructions
account was Jong Kyu Lee (Jong), its Project Manager,[3] while the checks
remained in the custody of the companys accountant, Kyu Yong Lee (Kyu). [4]
On 19 March 1992, a certain Roberto Gonzaga presented for payment
FEBTC Check No. 432100 to the banks branch in Bel-Air, Makati. The check,
payable to cash and drawn against Samsung Constructions current account,
was in the amount of Nine Hundred Ninety Nine Thousand Five Hundred
Pesos (P999,500.00). The bank teller, Cleofe Justiani, first checked the
balance of Samsung Constructions account. After ascertaining there were
enough funds to cover the check,[5] she compared the signature appearing on
the check with the specimen signature of Jong as contained in the specimen
signature card with the bank. After comparing the two signatures, Justiani
was satisfied as to the authenticity of the signature appearing on the
check. She then asked Gonzaga to submit proof of his identity, and the latter
presented three (3) identification cards.[6]
At the same time, Justiani forwarded the check to the branch Senior
Assistant Cashier Gemma Velez, as it was bank policy that two bank branch
officers approve checks exceeding One Hundred Thousand Pesos, for
payment or encashment. Velez likewise counterchecked the signature on the

check as against that on the signature card. He too concluded that the check
was indeed signed by Jong. Velez then forwarded the check and signature
card to Shirley Syfu, another bank officer, for approval. Syfu then noticed that
Jose Sempio III (Sempio), the assistant accountant of Samsung
Construction, was also in the bank. Sempio was well-known to Syfu and the
other bank officers, he being the assistant accountant of Samsung
Construction. Syfu showed the check to Sempio, who vouched for the
genuineness of Jongs signature. Confirming the identity of Gonzaga, Sempio
said that the check was for the purchase of equipment for Samsung
Construction. Satisfied with the genuineness of the signature of Jong, Syfu
authorized the banks encashment of the check to Gonzaga.
The following day, the accountant of Samsung Construction, Kyu,
examined the balance of the bank account and discovered that a check in
the amount of Nine Hundred Ninety Nine Thousand Five Hundred Pesos
(P999,500.00) had been encashed. Aware that he had not prepared such a
check for Jongs signature, Kyu perused the checkbook and found that the
last blank check was missing.[7] He reported the matter to Jong, who then
proceeded to the bank. Jong learned of the encashment of the check, and
realized that his signature had been forged. The Bank Manager reputedly
told Jong that he would be reimbursed for the amount of the check. [8] Jong
proceeded to the police station and consulted with his lawyers.
[9]
Subsequently, a criminal case for qualified theft was filed against Sempio
before the Laguna court.[10]
In a letter dated 6 May 1992, Samsung Construction, through counsel,
demanded that FEBTC credit to it the amount of Nine Hundred Ninety Nine
Thousand Five Hundred Pesos (P999,500.00), with interest.[11] In response,
FEBTC said that it was still conducting an investigation on the matter.
Unsatisfied, Samsung Construction filed a Complaint on 10 June 1992 for
violation of Section 23 of the Negotiable Instruments Law, and prayed for the
payment of the amount debited as a result of the questioned check plus
interest, and attorneys fees.[12] The case was docketed as Civil Case No. 9261506 before the Regional Trial Court (RTC) of Manila, Branch 9.[13]
During the trial, both sides presented their respective expert witnesses
to testify on the claim that Jongs signature was forged. Samsung
Corporation, which had referred the check for investigation to the NBI,
presented Senior NBI Document Examiner Roda B. Flores. She testified that
based on her examination, she concluded that Jongs signature had been
forged on the check. On the other hand, FEBTC, which had sought the
assistance of the Philippine National Police (PNP), [14] presented Rosario C.

Perez, a document examiner from the PNP Crime Laboratory. She testified
that her findings showed that Jongs signature on the check was genuine. [15]
Confronted with conflicting expert testimony, the RTC chose to believe
the findings of the NBI expert. In a Decision dated 25 April 1994, the RTC
held that Jongs signature on the check was forged and accordingly directed
the bank to pay or credit back to Samsung Constructions account the amount
of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00),
together with interest tolled from the time the complaint was filed, and
attorneys fees in the amount of Fifteen Thousand Pesos (P15,000.00).
FEBTC timely appealed to the Court of Appeals. On 28 November 1996,
the Special Fourteenth Division of the Court of Appeals rendered a Decision,
[16]
reversing the RTC Decision and absolving FEBTC from any liability. The
Court of Appeals held that the contradictory findings of the NBI and the PNP
created doubt as to whether there was forgery.[17] Moreover, the appellate
court also held that assuming there was forgery, it occurred due to the
negligence of Samsung Construction, imputing blame on the accountant Kyu
for lack of care and prudence in keeping the checks, which if observed would
have prevented Sempio from gaining access thereto. [18] The Court of Appeals
invoked the ruling in PNB v. National City Bank of New York [19] that, if a loss,
which must be borne by one or two innocent persons, can be traced to the
neglect or fault of either, such loss would be borne by the negligent party,
even if innocent of intentional fraud.[20]
Samsung Construction now argues that the Court of Appeals had
seriously misapprehended the facts when it overturned the RTCs finding of
forgery. It also contends that the appellate court erred in finding that it had
been negligent in safekeeping the check, and in applying the equity principle
enunciated in PNB v. National City Bank of New York.
Since the trial court and the Court of Appeals arrived at contrary findings
on questions of fact, the Court is obliged to examine the record to draw out
the correct conclusions. Upon examination of the record, and based on the
applicable laws and jurisprudence, we reverse the Court of Appeals.
Section 23 of the Negotiable Instruments Law states:
When a signature is forged or made without the authority of the person
whose signature it purports to be, it is wholly inoperative, and no right to
retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under such

signature, unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority. (Emphasis
supplied)
The general rule is to the effect that a forged signature is wholly
inoperative, and payment made through or under such signature is
ineffectual or does not discharge the instrument. [21] If payment is made, the
drawee cannot charge it to the drawers account. The traditional justification
for the result is that the drawee is in a superior position to detect a forgery
because he has the makers signature and is expected to know and compare
it.[22] The rule has a healthy cautionary effect on banks by encouraging care
in the comparison of the signatures against those on the signature cards they
have on file. Moreover, the very opportunity of the drawee to insure and to
distribute the cost among its customers who use checks makes the drawee
an ideal party to spread the risk to insurance.[23]
Brady, in his treatise The Law of Forged and Altered Checks, elucidates:
When a person deposits money in a general account in a bank, against
which he has the privilege of drawing checks in the ordinary course of
business, the relationship between the bank and the depositor is that of
debtor and creditor. So far as the legal relationship between the two is
concerned, the situation is the same as though the bank had borrowed
money from the depositor, agreeing to repay it on demand, or had bought
goods from the depositor, agreeing to pay for them on demand. The bank
owes the depositor money in the same sense that any debtor owes money to
his creditor. Added to this, in the case of bank and depositor, there is, of
course, the banks obligation to pay checks drawn by the depositor in proper
form and presented in due course. When the bank receives the deposit, it
impliedly agrees to pay only upon the depositors order. When the bank pays
a check, on which the depositors signature is a forgery, it has failed to
comply with its contract in this respect. Therefore, the bank is held liable.
The fact that the forgery is a clever one is immaterial. The forged signature
may so closely resemble the genuine as to defy detection by the depositor
himself. And yet, if a bank pays the check, it is paying out its own money and
not the depositors.
The forgery may be committed by a trusted employee or confidential
agent. The bank still must bear the loss. Even in a case where the forged
check was drawn by the depositors partner, the loss was placed upon the
bank. The case referred to is Robinson v. Security Bank, Ark., 216 S. W.

Rep. 717. In this case, the plaintiff brought suit against the defendant bank
for money which had been deposited to the plaintiffs credit and which the
bank had paid out on checks bearing forgeries of the plaintiffs signature.

Thus, the first matter of inquiry is into whether the check was indeed
forged. A document formally presented is presumed to be genuine until it is
proved to be fraudulent. In a forgery trial, this presumption must be overcome
but this can only be done by convincing testimony and effective illustrations.

xxx

[29]

It was held that the bank was liable. It was further held that the fact that the
plaintiff waited eight or nine months after discovering the forgery, before
notifying the bank, did not, as a matter of law, constitute a ratification of the
payment, so as to preclude the plaintiff from holding the bank liable. xxx
This rule of liability can be stated briefly in these words: A bank is bound to
know its depositors signature. The rule is variously expressed in the many
decisions in which the question has been considered. But they all sum up to
the proposition that a bank must know the signatures of those whose general
deposits it carries.[24]
By no means is the principle rendered obsolete with the advent of
modern commercial transactions. Contemporary texts still affirm this wellentrenched standard. Nickles, in his book Negotiable Instruments and Other
Related Commercial Paper wrote, thus:
The deposit contract between a payor bank and its customer determines who
can draw against the customers account by specifying whose signature is
necessary on checks that are chargeable against the customers account.
Therefore, a check drawn against the account of an individual customer that
is signed by someone other than the customer, and without authority from
her, is not properly payable and is not chargeable to the customers account,
inasmuch as any unauthorized signature on an instrument is ineffective as
the signature of the person whose name is signed.[25]
Under Section 23 of the Negotiable Instruments Law, forgery is a real or
absolute defense by the party whose signature is forged. [26] On the premise
that Jongs signature was indeed forged, FEBTC is liable for the loss since it
authorized the discharge of the forged check. Such liability attaches even if
the bank exerts due diligence and care in preventing such faulty
discharge. Forgeries often deceive the eye of the most cautious experts; and
when a bank has been so deceived, it is a harsh rule which compels it to
suffer although no one has suffered by its being deceived. [27] The forgery may
be so near like the genuine as to defy detection by the depositor himself, and
yet the bank is liable to the depositor if it pays the check. [28]

In ruling that forgery was not duly proven, the Court of Appeals held:
[There] is ground to doubt the findings of the trial court sustaining the alleged
forgery in view of the conflicting conclusions made by handwriting experts
from the NBI and the PNP, both agencies of the government.
xxx
These contradictory findings create doubt on whether there was indeed a
forgery. In the case of Tenio-Obsequio v. Court of Appeals, 230 SCRA 550,
the Supreme Court held that forgery cannot be presumed; it must be proved
by clear, positive and convincing evidence.
This reasoning is pure sophistry. Any litigator worth his or her salt would
never allow an opponents expert witness to stand uncontradicted, thus the
spectacle of competing expert witnesses is not unusual. The trier of fact will
have to decide which version to believe, and explain why or why not such
version is more credible than the other. Reliance therefore cannot be placed
merely on the fact that there are colliding opinions of two experts, both
clothed with the presumption of official duty, in order to draw a conclusion,
especially one which is extremely crucial. Doing so is tantamount to a
jurisprudential cop-out.
Much is expected from the Court of Appeals as it occupies the
penultimate tier in the judicial hierarchy. This Court has long deferred to the
appellate court as to its findings of fact in the understanding that it has the
appropriate skill and competence to plough through the minutiae that scatters
the factual field. In failing to thoroughly evaluate the evidence before it, and
relying instead on presumptions haphazardly drawn, the Court of Appeals
was sadly remiss. Of course, courts, like humans, are fallible, and not every
error deserves a stern rebuke. Yet, the appellate courts error in this case
warrants special attention, as it is absurd and even dangerous as a
precedent. If this rationale were adopted as a governing standard by every
court in the land, barely any actionable claim would prosper, defeated as it
would be by the mere invocation of the existence of a contrary expert
opinion.

On the other hand, the RTC did adjudge the testimony of the NBI expert
as more credible than that of the PNP, and explained its reason behind the
conclusion:
After subjecting the evidence of both parties to a crucible of analysis, the
court arrived at the conclusion that the testimony of the NBI document
examiner
is more credible because the testimony
ofthe PNP Crime
Laboratory Services document examiner reveals that there are a lot of
differences in the questioned signature as compared to the standard
specimen signature. Furthermore, as testified to by Ms. Rhoda Flores, NBI
expert, the manner of execution of the standard signatures used reveals that
it is a free rapid continuous execution or stroke as shown by the tampering
terminal stroke of the signatures whereas the questioned signature is a
hesitating slow drawn execution stroke. Clearly, the person who executed the
questioned signature was hesitant when the signature was made. [30]
During the testimony of PNP expert Rosario Perez, the RTC bluntly
noted that apparently, there [are] differences on that questioned signature
and the standard signatures.[31]This Court, in examining the signatures,
makes a similar finding. The PNP expert excused the noted differences by
asserting that they were mere variations, which are normal deviations found
in writing.[32] Yet the RTC, which had the opportunity to examine the relevant
documents and to personally observe the expert witness, clearly disbelieved
the PNP expert. The Court similarly finds the testimony of the PNP expert as
unconvincing. During the trial, she was confronted several times with
apparent differences between strokes in the questioned signature and the
genuine samples. Each time, she would just blandly assert that these
differences were just variations, [33] as if the mere conjuration of the word
would sufficiently disquiet whatever doubts about the deviations. Such
conclusion, standing alone, would be of little or no value unless supported by
sufficiently cogent reasons which might amount almost to a demonstration. [34]
The most telling difference between the questioned and genuine
signatures examined by the PNP is in the final upward stroke in the
signature, or the point to the short stroke of the terminal in the capital letter L,
as referred to by the PNP examiner who had marked it in her comparison
chart as point no. 6. To the plain eye, such upward final stroke consists of a
vertical line which forms a ninety degree (90) angle with the previous stroke.
Of the twenty one (21) other genuine samples examined by the PNP, at least
nine (9) ended with an upward stroke.[35] However, unlike the questioned
signature, the upward strokes of eight (8) of these signatures are looped,
while the upward stroke of the seventh [36] forms a severe forty-five degree

(45) with the previous stroke. The difference is glaring, and indeed, the PNP
examiner was confronted with the inconsistency in point no. 6.
Q: Now, in this questioned document point no. 6, the s stroke is
directly upwards.
A: Yes, sir.
Q: Now, can you look at all these standard signature (sic) were
(sic) point 6 is repeated or the last stroke s is pointing directly
upwards?
A: There is none in the standard signature, sir.[37]
Again, the PNP examiner downplayed the uniqueness of the final stroke
in the questioned signature as a mere variation, [38] the same excuse she
proffered for the other marked differences noted by the Court and the
counsel for petitioner.[39]
There is no reason to doubt why the RTC gave credence to the
testimony of the NBI examiner, and not the PNP experts. The NBI expert,
Rhoda Flores, clearly qualifies as an expert witness. A document examiner
for fifteen years, she had been promoted to the rank of Senior Document
Examiner with the NBI, and had held that rank for twelve years prior to her
testimony. She had placed among the top five examinees in the Competitive
Seminar
in
Question
Document
Examination,
conducted
by
the NBI Academy, which qualified her as a document examiner.[40] She had
trained with the Royal Hongkong Police Laboratory and is a member of the
International Association for Identification. [41] As of the time she testified, she
had examined more than fifty to fifty-five thousand questioned documents, on
an average of fifteen to twenty documents a day.[42] In comparison, PNP
document examiner Perez admitted to having examined only around five
hundred documents as of her testimony.[43]
In analyzing the signatures, NBI Examiner Flores utilized the scientific
comparative examination method consisting of analysis, recognition,
comparison and evaluation of the writing habits with the use of instruments
such as a magnifying lense, a stereoscopic microscope, and varied lighting
substances. She also prepared enlarged photographs of the signatures in
order to facilitate the necessary comparisons. [44] She compared the
questioned signature as against ten (10) other sample signatures of
Jong. Five of these signatures were executed on checks previously issued by

Jong, while the other five contained in business letters Jong had signed.
[45]
The NBI found that there were significant differences in the handwriting
characteristics existing between the questioned and the sample signatures,
as to manner of execution, link/connecting strokes, proportion characteristics,
and other identifying details.[46]
The RTC was sufficiently convinced by the NBI examiners testimony,
and explained her reasons in its Decisions. While the Court of Appeals
disagreed and upheld the findings of the PNP, it failed to convincingly
demonstrate why such findings were more credible than those of the NBI
expert. As a throwaway, the assailed Decision noted that the PNP, not the
NBI, had the opportunity to examine the specimen signature card signed by
Jong, which was relied upon by the employees of FEBTC in authenticating
Jongs signature. The distinction is irrelevant in establishing forgery. Forgery
can be established comparing the contested signatures as against those of
any sample signature duly established as that of the persons whose
signature was forged.
FEBTC lays undue emphasis on the fact that the PNP examiner did
compare the questioned signature against the bank signature cards. The
crucial fact in question is whether or not the check was forged, not
whether the bank could have detected the forgery. The latter issue
becomes relevant only if there is need to weigh the comparative
negligence between the bank and the party whose signature was
forged.
At the same time, the Court of Appeals failed to assess the effect of
Jongs testimony that the signature on the check was not his. [47] The assertion
may seem self-serving at first blush, yet it cannot be ignored that Jong was in
the best position to know whether or not the signature on the check was
his. While his claim should not be taken at face value, any averments he
would have on the matter, if adjudged as truthful, deserve primacy in
consideration. Jongs testimony is supported by the findings of the NBI
examiner. They are also backed by factual circumstances that support the
conclusion that the assailed check was indeed forged. Judicial notice can be
taken that is highly unusual in practice for a business establishment to draw
a check for close to a million pesos and make it payable to cash or bearer,
and not to order. Jong immediately reported the forgery upon its
discovery. He filed the appropriate criminal charges against Sempio, the
putative forger.[48]
Now for determination is whether Samsung Construction was precluded
from setting up the defense of forgery under Section 23 of the Negotiable

Instruments Law. The Court of Appeals concluded that Samsung

Construction was negligent, and invoked the doctrines that where a loss
must be borne by one of two innocent person, can be traced to the neglect or
fault of either, it is reasonable that it would be borne by him, even if innocent
of any intentional fraud, through whose means it has succeeded [49] or who put
into the power of the third person to perpetuate the wrong. [50] Applying these
rules, the Court of Appeals determined that it was the negligence of
Samsung Construction that allowed the encashment of the forged check.
In the case at bar, the forgery appears to have been made possible through
the acts of one Jose Sempio III, an assistant accountant employed by the
plaintiff Samsung [Construction] Co. Philippines, Inc. who supposedly stole
the blank check and who presumably is responsible for its encashment
through a forged signature of Jong Kyu Lee. Sempio was assistant to the
Korean accountant who was in possession of the blank checks and who
through negligence, enabled Sempio to have access to the same. Had the
Korean accountant been more careful and prudent in keeping the blank
checks Sempio would not have had the chance to steal a page thereof and to
effect the forgery. Besides, Sempio was an employee who appears to have
had dealings with the defendant Bank in behalf of the plaintiff corporation and
on the date the check was encashed, he was there to certify that it was a
genuine check issued to purchase equipment for the company.[51]
We recognize that Section 23 of the Negotiable Instruments Law bars a
party from setting up the defense of forgery if it is guilty of negligence. [52] Yet,
we are unable to conclude that Samsung Construction was guilty of
negligence in this case. The appellate court failed to explain precisely how
the Korean accountant was negligent or how more care and prudence on his
part would have prevented the forgery. We cannot sustain this tar and
feathering resorted to without any basis.
The bare fact that the forgery was committed by an employee of the
party whose signature was forged cannot necessarily imply that such partys
negligence was the cause for the forgery. Employers do not possess the
preternatural gift of cognition as to the evil that may lurk within the hearts and
minds of their employees. The Courts pronouncement in PCI Bank v. Court
of Appeals[53] applies in this case, to wit:
[T]he mere fact that the forgery was committed by a drawer-payors
confidential employee or agent, who by virtue of his position had unusual
facilities for perpetrating the fraud and imposing the forged paper upon the
bank, does not entitle the bank to shift the loss to the drawer-payor, in the
absence of some circumstance raising estoppel against the drawer.[54]

Admittedly, the record does not clearly establish what measures

Samsung Construction employed to safeguard its blank checks. Jong did
testify that his accountant, Kyu, kept the checks inside a safety box, [55] and no
contrary version was presented by FEBTC. However, such testimony cannot
prove that the checks were indeed kept in a safety box, as Jongs testimony
on that point is hearsay, since Kyu, and not Jong, would have the personal
knowledge as to how the checks were kept.
Still, in the absence of evidence to the contrary, we can conclude that
there was no negligence on Samsung Constructions part. The presumption
remains that every person takes ordinary care of his concerns, [56] and that the
ordinary course of business has been followed. [57] Negligence is not
presumed, but must be proven by him who alleges it. [58]While the complaint
was lodged at the instance of Samsung Construction, the matter it had to
prove was the claim it had alleged - whether the check was forged. It cannot
be required as well to prove that it was not negligent, because the legal
presumption remains that ordinary care was employed.
Thus, it was incumbent upon FEBTC, in defense, to prove the negative
fact that Samsung Construction was negligent. While the payee, as in this
case, may not have the personal knowledge as to the standard procedures
observed by the drawer, it well has the means of disputing the presumption
of regularity. Proving a negative fact may be a difficult office, [59] but
necessarily so, as it seeks to overcome a presumption in law. FEBTC was
unable to dispute the presumption of ordinary care exercised by Samsung
Construction, hence we cannot agree with the Court of Appeals finding of
negligence.
The assailed Decision replicated the extensive efforts which FEBTC
devoted to establish that there was no negligence on the part of the bank in
its acceptance and payment of the forged check. However, the degree of
diligence exercised by the bank would be irrelevant if the drawer is not
precluded from setting up the defense of forgery under Section 23 by his own
negligence. The rule of equity enunciated in PNB v. National City Bank of
New York, [60] as relied upon by the Court of Appeals, deserves careful
examination.
The point in issue has sometimes been said to be that of negligence. The
drawee who has paid upon the forged signature is held to bear the loss,
because he has been negligent in failing to recognize that the
handwriting is not that of his customer. But it follows obviously that if the
payee, holder, or presenter of the forged paper has himself been in default, if
he has himself been guilty of a negligence prior to that of the banker, or if by

any act of his own he has at all contributed to induce the banker's
negligence, then he may lose his right to cast the loss upon the banker. [61]
(Emphasis supplied)
Quite palpably, the general rule remains that the drawee who has paid
upon the forged signature bears the loss. The exception to this rule arises
only when negligence can be traced on the part of the drawer whose
signature was forged, and the need arises to weigh the comparative
negligence between the drawer and the drawee to determine who should
bear the burden of loss. The Court finds no basis to conclude that Samsung
Construction was negligent in the safekeeping of its checks. For one, the
settled rule is that the mere fact that the depositor leaves his check book
lying around does not constitute such negligence as will free the bank from
liability to him, where a clerk of the depositor or other persons, taking
advantage of the opportunity, abstract some of the check blanks, forges the
depositors signature and collect on the checks from the bank. [62] And for
another, in point of fact Samsung Construction was not negligent at all since
it reported the forgery almost immediately upon discovery.[63]
It is also worth noting that the forged signatures in PNB v. National City
Bank of New York were not of the drawer, but of indorsers. The same
circumstance attends PNB v. Court of Appeals,[64] which was also cited by the
Court of Appeals. It is accepted that a forged signature of the drawer differs
in treatment than a forged signature of the indorser.
The justification for the distinction between forgery of the signature of the
drawer and forgery of an indorsement is that the drawee is in a position to
verify the drawers signature by comparison with one in his hands, but has
ordinarily no opportunity to verify an indorsement. [65]
Thus, a drawee bank is generally liable to its depositor in paying a check
which bears either a forgery of the drawers signature or a forged
indorsement. But the bank may, as a general rule, recover back the money
which it has paid on a check bearing a forged indorsement, whereas it has
not this right to the same extent with reference to a check bearing a forgery
of the drawers signature.[66]
The general rule imputing liability on the drawee who paid out on the
forgery holds in this case.
Since FEBTC puts into issue the degree of care it exercised before
paying out on the forged check, we might as well comment on the banks

performance of its duty. It might be so that the bank complied with its own
internal rules prior to paying out on the questionable check. Yet, there are
several troubling circumstances that lead us to believe that the bank itself
was remiss in its duty.
The fact that the check was made out in the amount of nearly one
million pesos is unusual enough to require a higher degree of caution on the
part of the bank. Indeed, FEBTC confirms this through its own internal
procedures. Checks below twenty-five thousand pesos require only the
approval of the teller; those between twenty-five thousand to one hundred
thousand pesos necessitate the approval of one bank officer; and should the
amount exceed one hundred thousand pesos, the concurrence of two bank
officers is required.[67]
In this case, not only did the amount in the check nearly total one million
pesos, it was also payable to cash. That latter circumstance should have
aroused the suspicion of the bank, as it is not ordinary business practice for a
check for such large amount to be made payable to cash or to bearer,
instead of to the order of a specified person. [68] Moreover, the check was
presented for payment by one Roberto Gonzaga, who was not designated as
the payee of the check, and who did not carry with him any written proof that
he was authorized by Samsung Construction to encash the check. Gonzaga,
a stranger to FEBTC, was not even an employee of Samsung Construction.
[69]
These circumstances are already suspicious if taken independently, much
more so if they are evaluated in concurrence. Given the shadiness attending
Gonzagas presentment of the check, it was not sufficient for FEBTC to have
merely complied with its internal procedures, but mandatory that all earnest
efforts be undertaken to ensure the validity of the check, and of the authority
of Gonzaga to collect payment therefor.

with his account, Jong would hand the phone over to Sempio. [72] However,
the only proof of such allegations is the testimony of Gemma Velez, who also
testified that she did not know Sempio personally,[73] and had met Sempio for
the first time only on the day the check was encashed. [74] In fact, Velez had to
inquire with the other officers of the bank as to whether Sempio was actually
known to the employees of the bank. [75] Obviously, Velez had no personal
knowledge as to the past relationship between FEBTC and Sempio, and any
averments of her to that effect should be deemed hearsay
evidence. Interestingly, FEBTC did not present as a witness any other
employee of their Bel-Air branch, including those who supposedly had
transacted with Sempio before.
Even assuming that FEBTC had a standing habit of dealing with
Sempio, acting in behalf of Samsung Construction, the irregular
circumstances attending the presentment of the forged check should have
put the bank on the highest degree of alert. The Court recently emphasized
that the highest degree of care and diligence is required of banks.
Banks are engaged in a business impressed with public interest, and it is
their duty to protect in return their many clients and depositors who transact
business with them. They have the obligation to treat their clients account
meticulously and with the highest degree of care, considering the fiduciary
nature of their relationship. The diligence required of banks, therefore, is
more than that of a good father of a family.[76]
Given the circumstances, extraordinary diligence dictates that FEBTC
should have ascertained from Jong personally that the signature in the
questionable check was his.

According to FEBTC Senior Assistant Cashier Gemma Velez, the bank

tried, but failed, to contact Jong over the phone to verify the check. [70] She
added that calling the issuer or drawer of the check to verify the same was
not part of the standard procedure of the bank, but an extra effort. [71] Even
assuming that such personal verification is tantamount to extraordinary
diligence, it cannot be denied that FEBTC still paid out the check despite the
absence of any proof of verification from the drawer. Instead, the bank seems
to have relied heavily on the say-so of Sempio, who was present at the bank
at the time the check was presented.

Still, even if the bank performed with utmost diligence, the drawer
whose signature was forged may still recover from the bank as long as he or
she is not precluded from setting up the defense of forgery. After all, Section
23 of the Negotiable Instruments Law plainly states that no right to enforce
the payment of a check can arise out of a forged signature. Since the drawer,
Samsung Construction, is not precluded by negligence from setting up the
forgery, the general rule should apply. Consequently, if a bank pays a forged
check, it must be considered as paying out of its funds and cannot charge
the amount so paid to the account of the depositor.[77] A bank is liable,
irrespective of its good faith, in paying a forged check. [78]

FEBTC alleges that Sempio was well-known to the bank officers, as he

had regularly transacted with the bank in behalf of Samsung Construction. It
was even claimed that everytime FEBTC would contact Jong about problems

WHEREFORE, the Petition is GRANTED. The Decision of the Court of

Appeals dated 28 November 1996 is REVERSED, and the Decision of the

Regional Trial Court of Manila, Branch 9, dated 25 April 1994 is

REINSTATED. Costs against respondent.
SO ORDERED.

ALICE A.I. SANDEJAS,

ROSITA A.I. CUSI,
PATRICIA A.I. SANDEJAS and
BENJAMIN A.I. ESPIRITU,
Petitioners,
- versus SPS. ARTURO IGNACIO, JR.
and EVELYN IGNACIO,
Respondents.
DECISION

G.R. No. 155033

Present:
YNARES-SANTIAGO,
Chairperson,
AUSTRIA-MARTINEZ,
CARPIO MORALES,*
CHICO-NAZARIO, and
NACHURA, JJ.
Promulgated:
December 19, 2007

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court assailing the Decision[1] of the Court of Appeals (CA) in CAG.R. CV No. 62404 promulgated on August 27, 2002, which affirmed with
modification the Decision of the Regional Trial Court (RTC) of Pasig City,
Branch 158, in Civil Case No. 65146 dated December 18, 1998.
The facts of the case, as summarized by the RTC, are as follows:
It appears from the plaintiffs' [petitioners] evidence that
Arturo [respondent] is the elder brother of Alice [petitioner]
and Rosita [petitioner], Benjamin [petitioner] and Patricia
[petitioner] are Arturo's nephew and niece. Arturo and his
wife Evelyn [respondent] are residents of the United States.
In October 1993, Arturo leased from Dr. Borja a
condominium
unit
identified
as
Unit
28-C
Gilmore Townhomes located
at Granada
St., Quezon City. The lease was for the benefit of Benjamin
who is the occupant of the unit. The rentals were paid by
Ignacio. The term of the lease is for one (1) year and will
expire on October 15, 1994. It appears that Arturo was
intending to renew the lease contract. As he had to leave for
the U.S., Arturo drew up a check, UCPB Check No. GRH560239 and wrote on it the name of the payee, Dr.
Manuel Borja, but left blank the date and amount. He signed
the check.The check was intended as payment for the
renewal of the lease. The date and the amount were left
blank because Arturo does not know when it will be renewed
and the new rate of the lease. The check was left with
Arturo's sister-in-law, who was instructed to deliver or give it
to Benjamin.
The check later came to the possession of Alice who felt that
Arturo cheated their sister in the amount of three million
pesos (P3,000,000.00). She believed that Arturo and Rosita
had a joint and/or money market placement in the amount of
P3 million with the UCPB branch at Ortigas Ave., San
Juan and that Ignacio preterminated the placement and ran
away with it, which rightfully belonged to Rosita. Alice then
inquired from UCPB Greenhills branch if Arturo still has an
account with them. On getting a confirmation, she together

with Rosita drew up a scheme to recover the P3 million from

Arturo. Alice filled up the date of the check with March 17,
1995 and the amount with three million only. Alice got her
driver, Kudera, to stand as the payee of the check, Dr. Borja.
Alice and Rosita came to SBC[2] Greenhills Branch together
with a man (Kudera) who[m] they introduced as Dr. Borja to
the then Assistant Cashier Luis. After introducing the said
man as Dr. Borja, Rosita, Alice and the man who was later
identified as Kudera opened a Joint Savings Account No.
271-410554-7. As initial deposit for the Joint Savings
Account, Alice, Rosita and Kudera deposited the check. No
ID card was required of Mr. Kudera because it is an internal
policy of the bank that when a valued client opens an
account, an identification card is no longer required (TSN,
April 21, 1997, pp. 15-16). SBC also allowed the check to be
deposited
without
the
endorsement
of
the
impostor Kudera. SBC officials stamped on the dorsal
portion of the check endorsement/lack of endorsement
guaranteed and sent the check for clearing to the Philippine
Clearing House Corporation.
On 21 March 1995, after the check had already been cleared
by the drawer bank UCPB, Rosita withdrew P1 million from
Joint Savings Account and deposited said amount to the
current account of Alice with SBC Greenhills Branch. On the
same date, Alice caused the transfer of P2 million from the
Joint Savings Account to two (2) Investment Savings
Account[s] in the names of Alice, Rosita and/or Patricia. ...
On April 4, 1995, a day after Evelyn and Atty. Sanz inquired
about the identity of the persons and the circumstances
surrounding the deposit and withdrawal of the check, the
three million pesos in the two investment savings account[s]
and in the current account just opened with SBC were
withdrawn by Alice and Rosita.[3]
On June 18, 1995, Arturo Ignacio, Jr. and Evelyn Ignacio (respondents) filed
a verified complaint for recovery of a sum of money and damages against
Security Bank and Trust Company (SBTC) and its officers, namely: Rene
Colin D. Gray, Manager; and Sonia Ortiz-Luis, Cashier. The complaint
also impleaded herein petitioner Benjamin A.I. Espiritu (Benjamin), a John
Doe, representing himself as Manuel N. Borja; and a Jane Doe.

On November

7,

1995,

the

complaint

was

amended

by

additionally impleading herein petitioners Alice A.I. Sandejas (Alice), Rosita

A.I. Cusi (Rosita) and Patricia A.I. Sandejas (Patricia) as defendants who
filed their respective answers and counterclaims.
After trial, the RTC rendered judgment dated December 18, 1998 with the
following dispositive portion:
WHEREFORE, in view of the foregoing, judgment is
rendered in favor of plaintiffs as against defendants Security
Bank and Trust Co., Rene Colin Gray, Sonia Ortiz Luis, Alice
A.I. Sandejas and Rosita A.I. Cusi, ordering them to pay
jointly and severally the plaintiffs the following amounts:
(1) P3,000,000.00 plus legal interest on it from March 17,
1995 until the entire amount is fully paid;
(2) P500,000.00 as moral damages;
(3) P200,000.00 as exemplary damages;
(4) P300,000.00 as attorney's fees; plus
(5) the cost of suit.

WHEREFORE, in view of the foregoing, the assailed

decision of the trial court is hereby AFFIRMED with the
MODIFICATION that the judgment shall read as follows:
The defendants-appellants Security Bank and Trust
Company, Rene Colin D. Gray, Sonia Ortiz-Luis, Alice
A.I. Sandejas, and Rosita A.I. Cusi, are hereby ordered to
jointly and severally pay the plaintiffs the following amounts:
1. P3,000,000.00 plus legal interest computed from March
17, 1995 until the entire amount is fully paid;
2. P200,000.00 as moral damages;
3. P100,000.00 as exemplary damages;
4. P50,000.00 as attorney's fees; plus
5. the costs of suit.
The award of moral damages, exemplary damages, and
attorney's fees in favor of Benjamin Espiritu is DELETED.
SO ORDERED.[6]
Petitioners and SBTC, together with Gray and Ortiz-Luis, filed their
respective petitions for review before this Court.

In turn, plaintiffs are directed to pay Benjamin

A.I. Espiritu the
amount
of P100,000.00 as
moral
damages, P50,000.00 as exemplary damages and
another P50,000.00 as attorney's fees.

However, the petition filed by SBTC, Gray and Ortiz-Luis, docketed as G.R.

The counterclaims of Patricia A.I. Sandejas are dismissed.

certification of non-forum shopping, and attach to the petition the duplicate

SO ORDERED.[4]

original or certified true copy of the assailed CA Decision. Said

No. 155038, was denied in a Resolution[7] issued by this Court on November

20, 2002, for their failure to properly verify the petition, submit a valid

Both parties appealed the RTC Decision to the CA.

Resolution became final and executory on April 9, 2003.[8]

On August 14, 1999, during the pendency of the appeal with the CA, herein

On the other hand, the instant petition was given due course. Petitioners

respondent Arturo Ignacio, Jr. (Arturo) died.[5]

enumerated the following grounds in support of their petition:

On August 27, 2002, the CA promulgated the presently assailed Decision,

disposing as follows:

I. THE COURT OF APPEALS HAD DECIDED A QUESTION

OF SUBSTANCE NOT HERETOFORE DECIDED BY THIS
COURT AND/OR HAD DECIDED IT IN A WAYPROBABLY
NOT IN ACCORD WITH EQUITY, THE LAW AND THE
APPLICABLE DECISIONS OF THIS COURT, SUCH AS:

(a) IN NOT HOLDING THAT AS BETWEEN SIBLINGS, THE

AGGRIEVED SIBLING HAS THE RIGHT TO TAKE
MEASURES OR STEPS TO PROTECT HIS OWN
INTEREST OR PROPERTY RIGHTS FROM AN ACT OF
THE GUILTY SIBLING;
(b) IN NOT HOLDING THAT THE ACT OF ROSITA AND
ALICE IN FILLING OUT THE BLANK PORTIONS OF THE
CHECK TO RECOVER WHAT ARTURO, JR. TOOK FROM
AND DUE ROSITA, DID NOT GIVE RISE TO AN
ACTIONABLE TORT;
(c) IN NOT HOLDING THAT THE CRIMINAL ACT OF
ARTURO, JR. IN SUBMITTING AN AFFIDAVIT OF LOSS
OF
THE
CERTIFICATE
OF
TIME
DEPOSIT
FOR P3,000,000 THAT RIGHTFULLY BELONGED TO
ROSITA JUST TO BE ABLE TO PRE-TERMINATE THE
TIME DEPOSIT AND GET ITS FACE VALUE, WHEN HE
KNEW IT WAS NOT LOST BUT IN FACT INTACT AND IN
THE POSSESSION OF ROSITA, IS A DISHONEST AND
REPREHENSIBLE ACT THAT JUSTIFIED ROSITA AND
ALICE IN TAKING MEANS TO REGAIN THE MONEY AND
TO DENY ARTURO, JR. ANY RIGHT TO RECOVER THE
SAID AMOUNT AS WELL AS TO AN AWARD OF
DAMAGES;
(d) IN NOT HOLDING THAT THE CRIMINAL ACT OF
ARTURO, JR. IN SUBMITTING AN AFFIDAVIT OF LOSS
OF THE OWNER'S COPY OF THE TITLE IN MORAYTA
AND IN TESTIFYING IN COURT AS TO SUCH, WHEN
THAT IS NOT THE TRUTH AS HE KNEW THAT THE
ORIGINAL OWNER'S COPY OF THE TITLE WAS WITH
ROSITA,
IS
ANOTHER
DISHONEST
AND
REPREHENSIBLE ACT THAT SHOULD NOT HAVE
ENTITLED HIM TO ANY AWARD OF DAMAGES; AND

FROM ANY LIABILITY FOR USING THE CHECK IN

RECOVERING THE AMOUNT RIGHTFULLY BELONGING
TO ROSITA;
III. THE COURT OF APPEALS HAD DEPARTED FROM
THE USUAL COURSE OF JUDICIAL PROCEEDINGS
WHEN IT REVERSED THE TRIAL COURT'S FINDING
THAT RESPONDENT WAS GUILTY OF BAD FAITH AND
MALICE THAT ENTITLED PETITIONER BENJAMIN A.I.
ESPIRITU
TO
THE
AWARD
OF
DAMAGES
NOTWITHSTANDING THAT THERE WAS AMPLE
EVIDENCE SHOWN THAT SUCH BAD FAITH AND MALICE
WAS MADE AS A LEVERAGE TO COMPEL ARTURO'S
SIBLINGS TO RETURN TO HIM THE P3,000,000 WHICH
WAS NOT HIS; and,
IV. THE COURT OF APPEALS HAD DECIDED THE CASE
NOT IN ACCORD WITH LAW WHEN IT DELETED THE
AWARD OF DAMAGES TO PETITIONER ESPIRITU AND IN
NOT HAVING RULED THAT HE WAS ENTITLED TO A
HIGHER AWARD OF DAMAGES CONSIDERING THE
CIRCUMSTANCES OF THE CASE AS WELL AS IN NOT
HAVING RULED THAT PATRICIA WAS ENTITLED TO AN
AWARD OF DAMAGES.[9]
Petitioners argue that the CA overlooked and ignored vital pieces of evidence
showing that the encashment of the subject check was not fraudulent and, on
the contrary, was justified under the circumstances; and that such
encashment did not amount to an actionable tort and that it merely called for
the application of the civil law rule on pari delicto.
In support of these arguments, petitioners contend that the principal

(e) IN NOT APPLYING THE RULE ON PARI

DELICTO UNDER ART. 1412 OF THE CIVIL CODE.

adversaries in the present case are full blooded siblings; that the law

II. THE COURT OF APPEALS HAD DEPARTED FROM THE

USUAL COURSE OF JUDICIAL PROCEEDINGS WHEN IT
FAILED TO RESOLVE IN THE APPEAL THE
COUNTERCLAIM OF ROSITA AGAINST ARTURO, JR. FOR
THE RECOVERY OF THE AMOUNTS LEGALLY HERS
THAT SHOULD JUSTIFY ALICE'S BEING ABSOLVED

earnest efforts towards a compromise be exerted before one family member

recognizes the solidarity of family which is why it is made a condition that

can institute a suit against the other; that even if Arturo previously defrauded
Rosita and deprived her of her lawful share in the sale of her property,
petitioners Rosita and Alice did not precipitately file suit against him and

instead took extra-legal measures to protect Rosita's property rights and at

and social standing of Benjamin, petitioners claim that the award of damages

the same time preserve the solidarity of their family and save it from public

and attorney's fees in his favor should be increased.

embarrassment. Petitioners

also

aver

that

Rosita's

and

Alice's

act

of encashing the subject check is not fraudulent because they did not have

Lastly, petitioners contend that the award of damages and attorney's fees to

any unlawful intent and that they merely took from Arturo what rightfully

respondents should be deleted for their failure to establish malice or bad faith

belonged to Rosita. Petitioners contend that even granting that the act of

on

Rosita and Alice amounted to an actionable tort, they could not be adjudged

the P3,000,000.00 which Arturo took from Rosita; and that it is Rosita who is

liable to return the amount to respondents or to pay damages in their favor,

entitled to damages and attorney's fees for Arturo's failure and refusal to give

because the civil law rule on pari delicto dictates that, when both parties are

her share in the sale of her property in Morayta.

the

part

of

petitioners

Alice

and

Rosita

in

recovering

at fault, neither of them could expect positive relief from courts of justice and,
instead, are left in the state where they were at the time of the filing of the

In their Memorandum, respondents simply contend that the issues raised by

case.

petitioners are factual in nature and that the settled rule is that questions of
fact are not subject to review by the Supreme Court in a petition for review

Petitioners also contend that the CA erred in failing to award damages to

on certiorari under Rule 45 of the Rules of Court. While there are exceptions

Patricia even if the appellate court sustained the trial court's finding that she

to this rule, respondents assert that petitioners failed to show that the instant

was not a party to the fraudulent acts committed by Rosita and

case falls under any of these exceptions.

Alice. Petitioners argue that even if Patricia did not bother to know the details
of the cases against her and left everything to her mother, she did not even

The Courts Ruling

know the nature of the case against her, or her superiors in the bank where
she worked did not know whether she was the plaintiff or defendant, these
were not reasons to deny her award of damages. The fact remains that she

The Court finds the petition bereft of merit. There is no compelling reason for
the Court to disturb the findings of facts of the lower courts.

had been maliciously dragged into the case, and that the suit had adversely
affected her work and caused her mental worries and anguish, besmirched
reputation, embarrassment and humiliation.

The trial court's findings are as follows: (1) Rosita failed to establish that
there is an agreement between her and Arturo that the latter will give her
one-third of the proceeds of the sale of the Morayta property; (2) petitioners

As to Benjamin, petitioners aver that the CA also erred in deleting the award
of damages and attorney's fees in his favor. Petitioners assert that the trial
court found that Benjamin suffered mental anguish, wounded feelings and
moral shock as a result of the filing of the present case. Citing the credentials

were not able to establish by clear and sufficient evidence that

the P3,000,000.00 which they took from Arturo when they encashed the
subject check was part of the proceeds of the sale of the Morayta property;
(3) Rosita's counterclaim is permissive and she failed to pay the full docket
and filing fees for her counterclaim.[10]

Petitioners' assignments of errors boil down to the basic issue of whether or

Petitioners challenge the findings of the RTC and insist that they should not

not Alice and Rosita are justified in encashing the subject check given the

be held liable for encashing the subject check because Arturo defrauded

factual circumstances established in the present case.

Rosita and that he committed deceitful acts which deprived her of her rightful
share

in

the

sale

of

her

building

in Morayta;

that

the

amount

Petitioners' posture is not sanctioned by law. If they truly believe that Arturo

of P3,000,000.00 represented by the check which they encashed formed part

took advantage of and violated the rights of Rosita, petitioners should have

of the proceeds of the said sale; that Alice and Rosita were merely moved by

sought redress from the courts and should not have simply taken the law into

their desire to recover from Arturo, Rosita's supposed share in the sale of her

their own hands. Our laws are replete with specific remedies designed to

property.

provide relief for the violation of one's rights. In the instant case, Rosita could
have immediately filed an action for the nullification of the sale of the building

However, the Court agrees with respondents that only questions of law are

she owns in light of petitioners' claim that the document bearing her

entertained in petitions for review on certiorari under Rule 45 of the Rules of

conformity to the sale of the said building was taken by Arturo from her

Court.[11] The trial courts findings of fact, which the Court of Appeals affirmed,

without her knowledge and consent. Or, in the alternative, as the CA correctly

are generally binding and conclusive upon this court. [12] There are recognized

held, she could have brought a suit for the collection of a sum of money to

exceptions to this rule, among which are: (1) the conclusion is grounded on

recover her share in the sale of her property in Morayta. In a civilized society

speculations, surmises or conjectures; (2) the inference is manifestly

such as ours, the rule of law should always prevail. To allow otherwise would

mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the

be productive of nothing but mischief, chaos and anarchy. As a lawyer, who

judgment is based on a misapprehension of facts; (5) the findings of facts are

has sworn to uphold the rule of law, Rosita should know better. She must go

conflicting; (6) there is no citation of specific evidence on which the factual

to court for relief.

findings are based; (7) the finding of absence of facts is contradicted by the
presence of evidence on record; (8) the findings of the CA are contrary to the

It is true that Article 151 of the Family Code requires that earnest efforts

findings of the trial court; (9) the CA manifestly overlooked certain relevant

towards a compromise be made before family members can institute suits

and undisputed facts that, if properly considered, would justify a different

against each other.However, nothing in the law sanctions or allows the

conclusion; (10) the findings of the CA are beyond the issues of the case;

commission of or resort to any extra-legal or illegal measure or remedy in

and (11) such findings are contrary to the admissions of both parties. [13] In the

order for family members to avoid the filing of suits against another family

instant case, petitioners failed to demonstrate that their petition falls under

member for the enforcement or protection of their respective rights.

any one of the above exceptions.

Petitioners invoke the rule of pari delicto to support their contention that
respondents do not deserve any relief from the courts.

The principle of pari delicto provides that when two parties are equally at

the sale of the Morayta property is permissive in nature. The evidence

fault, the law leaves them as they are and denies recovery by either one of

needed

them.[14] Indeed, one who seeks equity and justice must come to court with

of P3,000,000.00 from petitioners is different from that required to establish

clean hands.[15] However, in the present case, petitioners were not able to

Rosita's demands for the recovery of her alleged share in the sale of the

establish

subject Morayta property. The

that

respondents

are

also

at

fault.

Thus,

the

principle

of pari delicto cannot apply.

to

prove

respondents'

claim

recovery

of

to

recover

respondents'

the

claim

amount

is

not

contingent or dependent upon the establishment of Rosita's counterclaim

such that conducting separate trials will not result in the substantial

In any case, the application of the pari delicto principle is not absolute, as

duplication of the time and effort of the court and the parties.

there are exceptions to its application.[16] One of these exceptions is where

the application of the pari delicto rule would violate well-established public

In Sun Insurance Office, Ltd., (SIOL) v. Asuncion,[19] this Court laid down the

policy.[17] The prevention of lawlessness and the maintenance of peace and

rules on the payment of filing fees, to wit:

order are established public policies. In the instant case, to deny respondents
relief on the ground of pari delicto would put a premium on the illegal act of
petitioners in taking from respondents what the former claim to be rightfully
theirs.
Petitioners also question the trial court's ruling that their counterclaim is
permissive. This Court has laid down the following tests to determine
whether a counterclaim is compulsory or not, to wit: (1) Are the issues of fact
or law raised by the claim and the counterclaim largely the same? (2)
Would res judicata bar a subsequent suit on defendants claims, absent the
compulsory counterclaim rule? (3) Will substantially the same evidence
support

or

refute

plaintiffs

claim

as

well

as

the

defendants

counterclaim? and (4) Is there any logical relation between the claim and the
counterclaim, such that the conduct of separate trials of the respective claims
of the parties would entail a substantial duplication of effort and time by the
parties and the court?[18]
Tested against the above-mentioned criteria, this Court agrees with the view
of the RTC that Rosita's counterclaim for the recovery of her alleged share in

1. It is not simply the filing of the complaint or appropriate

initiatory pleading, but the payment of the prescribed
docket fee, that vests a trial court with jurisdiction over the
subject-matter or nature of the action. Where the filing of the
initiatory pleading is not accompanied by payment of the
docket fee, the court may allow payment of the fee within a
reasonable time but in no case beyond the applicable
prescriptive or reglementary period.
2. The same rule applies to permissive counterclaims, thirdparty claims and similar pleadings, which shall not be
considered filed until and unless the filing fee
prescribed therefor is paid. The court may allow payment of
said fee within a reasonable time but also in no case beyond
its applicable prescriptive or reglementary period.
3. Where the trial court acquires jurisdiction over a claim by
the filing of the appropriate pleading and payment of the
prescribed filing fee but, subsequently, the judgment awards
a claim not specified in the pleading, or if specified the same
has been left for determination by the court, the additional
filing fee therefor shall constitute a lien on the judgment. It
shall be the responsibility of the Clerk of Court or his duly
authorized deputy to enforce said lien and assess and
collect the additional fee.[20]

In order for the trial court to acquire jurisdiction over her permissive

As to Patricia's entitlement to damages, this Court has held that while no

counterclaim, Rosita is bound to pay the prescribed docket fees. [21] Since it is

proof of pecuniary loss is necessary in order that moral damages may be

not disputed that Rosita never paid the docket and filing fees, the RTC did

awarded, the amount of indemnity being left to the discretion of the court, it is

not acquire jurisdiction over her permissive counterclaim. Nonetheless, the

nevertheless essential that the claimant should satisfactorily show the

trial court ruled on the merits of Rosita's permissive counterclaim by

existence of the factual basis of damages and its causal connection to

dismissing the same on the ground that she failed to establish that there is a

defendants acts.[24] This is so because moral damages, though incapable of

sharing agreement between her and Arturo with respect to the proceeds of

pecuniary estimation, are in the category of an award designed to

the

compensate the claimant for actual injury suffered and not to impose a

sale

of

the

subject Morayta property

of P3,000,000.00 represented

by

the

and

check

that

which

the

amount

Rosita

and

Alice encashed formed part of the proceeds of the said sale.

penalty on the wrongdoer.[25] Moreover, additional facts must be pleaded and

proven to warrant the grant of moral damages under the Civil Code, these
being, social humiliation, wounded feelings, grave anxiety, etc. that resulted

It is settled that any decision rendered without jurisdiction is a total nullity and

from the act being complained of. [26] In the present case, both the RTC and

may be struck down at any time, even on appeal before this Court. [22]

the CA were not convinced that Patricia is entitled to damages. Quoting the
RTC, the CA held thus:

In the present case, considering that the trial court did not acquire jurisdiction
over the permissive counterclaim of Rosita, any proceeding taken up by the
trial court and any ruling or judgment rendered in relation to such
counterclaim is considered null and void. In effect, Rosita may file a separate
action against Arturo for recovery of a sum of money.
However, Rosita's claims for damages and attorney's fees are compulsory as
they necessarily arise as a result of the filing by respondents of their
complaint. Being compulsory in nature, payment of docket fees is not
required.[23] Nonetheless, since petitioners are found to be liable to return to
respondents the amount of P3,000,000.00 as well as to pay moral and
exemplary damages and attorney's fees, it necessarily follows that Rosita's
counterclaim for damages and attorney's fees should be dismissed as
correctly done by the RTC and affirmed by the CA.

With respect to Patricia, she did not even bother to know the
details of the case against her, she left everything to the
hands of her mother Alice. Her attitude towards the case
appears weird, she being a banker who seems so concerned
of her reputation.
Aside from the parties to this case, her immediate superiors
in the BPI knew that she is involved in a case. They did not
however know whether she is the plaintiff or the defendant in
the case. Further, they did not know the nature of the case
that she is involved in. It appears that Patricia has not
suffered any of the injuries enumerated in Article 2217 of the
Civil Code, thus, she is not entitled to moral damages and
attorney's fees.[27]
This Court finds no cogent reason to depart from the above-quoted findings
as Patricia failed to satisfactorily show the existence of the factual basis for
granting her moral damages and the causal connection of such fact to the act
of respondents in filing a complaint against her.

In addition, and with respect to Benjamin, the Court agrees with the CA that

As to moral damages, Article 20 of the Civil Code provides that every person

in the absence of a wrongful act or omission, or of fraud or bad faith, moral

who, contrary to law, willfully or negligently causes damage to another, shall

damages cannot be awarded.[28] The adverse result of an action does not per

indemnify the latter for the same. In addition, Article 2219 (10) of the Civil

se make the action wrongful, or the party liable for it. [29] One may err, but

Code provides that moral damages may be recovered in acts or actions

error alone is not a ground for granting such damages. [30] In the absence of

referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35 of the same

malice and bad faith, the mental anguish suffered by a person for having

Code. More particularly, Article 21 of the said Code provides that any person

been made a party in a civil case is not the kind of anxiety which would

who willfully causes loss or injury to another in a manner that is contrary to

warrant the award of moral damages.[31]

morals, good customs, or public policy shall compensate the latter for the
damage. In

the

present

case,

the

act

of

Alice

and

Rosita

in

A resort to judicial processes is not, per se, evidence of ill will upon which a

fraudulently encashing the subject check to the prejudice of respondents is

claim for damages may be based.[32]

certainly a violation of law as well as of the public policy that no one should
put the law into his own hands. As to SBTC and its officers, their negligence

In China Banking Corporation v. Court of Appeals,[33] this Court held:

Settled in our jurisprudence is the rule that moral damages
cannot be recovered from a person who has filed a
complaint against another in good faith, or without malice or
bad faith (Philippine National Bank v. Court of Appeals, 159
SCRA 433 [1988]; R & B Surety and Insurance v.
Intermediate Appellate Court, 129 SCRA 736 [1984]). If
damage results from the filing of the complaint, it
is damnum absque injuria (Ilocos Norte Electrical Company
v. Court of Appeals, 179 SCRA 5 [1989]).[34]

is so gross as to amount to a willfull injury to respondents. 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. [35] Whether as
mere passive entities for the safe-keeping and saving of money or as active
instruments of business and commerce, banks have attained a ubiquitous
presence among the people, who have come to regard them with respect
and even gratitude and most of all, confidence. [36] For this reason, banks
should guard against injury attributable to negligence or bad faith on its part.
[37]

In the present case, the Court agrees with the RTC and the CA that
petitioners failed to establish that respondents were moved by bad faith or
malice in impleadingPatricia and Benjamin. Hence, Patricia and Benjamin
are not entitled to damages.
The Court sustains the award of moral and exemplary damages as well as
attorney's fees in favor of respondents.

There is no hard-and-fast rule in the determination of what would be a fair

amount of moral damages since each case must be governed by its own
peculiar facts.[38]The yardstick should be that it is not palpably and
scandalously excessive.[39] Moreover, the social standing of the aggrieved
party is essential to the determination of the proper amount of the award.
[40]

Otherwise, the goal of enabling him to obtain means, diversions, or

amusements to restore him to the status quo ante would not be achieved.

[41]

In the present case, the Court finds no cogent reason to modify the

amount of moral damages granted by the CA.

SO ORDERED.

Likewise, the Court finds no compelling reason to disturb the modifications

made by the CA on the award of exemplary damages and attorney's fees.
Under Article 2229 of the Civil Code, exemplary or corrective damages are
imposed by way of example or correction for the public good, in addition to
moral, temperate, liquidated, or compensatory damages. In the instant case,
the award of exemplary damages in favor of respondents is in order for the
purpose of deterring those who intend to enforce their rights by taking
measures or remedies which are not in accord with law and public policy. On
the part of respondent bank, the public relies on a bank's sworn profession of
diligence and meticulousness in giving irreproachable service. [42] Hence, the
level of meticulousness must be maintained at all times by the banking
sector.[43] In the present case the award of exemplary damages is justified by
the brazen acts of petitioners Rosita and Alice in violating the law coupled
with the gross negligence committed by respondent bank and its officers in
allowing the subject check to be deposited which later paved the way for its
encashment.
As to attorney's fees, Article 2208 of the same Code provides, among others,
that attorney's fees may be recovered when exemplary damages are
awarded or when the defendant's act or omission has compelled the plaintiff
to litigate with third persons or to incur expenses to protect his interest.
WHEREFORE, the instant petition is DENIED. The Decision of the Court of
Appeals dated August 27, 2002 in CA-G.R. CV No. 62404 is AFFIRMED.
Costs against the petitioners.

ECURITY BANK AND TRUST COMPANY,

Petitioner,

G.R. No. 170984

Present:

- versus RIZAL
COMMERCIAL
CORPORATION,
Respondent.

BANKING

QUISUMBING, Acting C.J.,

Chairperson,
CORONA,*
CARPIO MORALES,
TINGA, and
LEONARDO-DE CASTRO,** JJ.

RIZAL
COMMERCIAL
CORPORATION,
Petitioner,

BANKING
G.R. No. 170987

- versus Promulgated:
SECURITY BANK AND TRUST COMPANY,
Respondent.

January 30, 2009

DECISION
QUISUMBING, Acting C.J.:
Before us are opposing parties petitions for review of the
Decision[1] dated March 29, 2005 and Resolution[2] dated December 12,
2005 of the Court of Appeals in CA-G.R. CV No. 67387. The two petitions are
herein consolidated as they stem from the same set of factual circumstances.
The facts, as found by the trial and appellate courts, are as follows:
On January 9, 1981, Security Bank and Trust Company (SBTC) issued
a managers check for P8 million, payable to CASH, as proceeds of the loan
granted to Guidon Construction and Development Corporation (GCDC). On the
same day, the P8-million check, along with other checks, was deposited by
Continental Manufacturing Corporation (CMC) in its Current Account No. 0109022888 with Rizal Commercial Banking Corporation (RCBC). Immediately,
RCBC honored the P8-million check and allowed CMC to withdraw the same.[3]
On the next banking day, January 12, 1981, GCDC issued a Stop
Payment Order to SBTC, claiming that the P8-million check was released to
a third party by mistake. Consequently, SBTC dishonored and returned the
managers check to RCBC. Thereafter, the check was returned back and forth
between the two banks, resulting in automatic debits and credits in each
banks clearing balance.[4]

On February 13, 1981, RCBC filed a complaint [5] for damages

against SBTC with the then Court of First Instance of Rizal, Branch XXII.
Said case was docketed as Civil Case No. 1081 and later transferred to the
Regional Trial Court (RTC) of Makati City, Branch 143.
Meanwhile, following the rules of the Philippine Clearing House,
RCBC and SBTC stopped returning the checks to each other. By way of a
temporary arrangement pending resolution of the case, the P8-million check
was equally divided between, and credited to, RCBC and SBTC. [6]
On May 9, 2000, the RTC of Makati City, Branch 143, rendered a
Decision[7] in favor of RCBC. The dispositive portion of the decision reads:
PREMISES CONSIDERED, the Court renders judgment in
favor of plaintiff [RCBC] and finds defendant SBTC justly
liable to [RCBC] and sentences [SBTC] to pay [RCBC] the
amount of:
1.

PhP4,000,000.00
damages;

2.

PhP100,000.00 as and for attorneys fees;

and,

3.

as

and

for

actual

the costs.

SO ORDERED.[8]

On appeal, the Court of Appeals affirmed with modification the above

Decision, to wit:
WHEREFORE, the
appealed
Decision
is AFFIRMED with MODIFICATION. Appellant Security Bank
and Trust Co. shall pay appellee Rizal Commercial Banking
Corporation not only the principal amount of P4,000,000.00 but
also interest thereon at (6%) per annum covering appellees
unearned income on interest computed from the time of filing of
the complaint on February 13, 1981 to the date of finality of this
Decision. For lack of factual and legal basis, the award of
attorneys fees is DELETED.

SO ORDERED.[9]

Now for our resolution are the opposing parties petitions for review
on certiorari of the abovecited decision. On its part, SBTC alleges the
following to support its petition:
I.
THE HONORABLE COURT OF APPEALS ERRED
GRAVELY IN REFUSING TO APPLY THE LAW BECAUSE,
IN ITS OPINION, TO DO SO WOULD RESULT IN AN
INJUSTICE.
II.
THE HONORABLE COURT OF APPEALS ERRED
GRAVELY IN HOLDING THAT TO DETERMINE WHETHER
OR NOT A BANK IS A HOLDER IN DUE COURSE, ONLY
THE NEGOTIABLE INSTRUMENTS LAW NEED BE
APPLIED TO THE EXCLUSION OF CENTRAL BANK
RULES AND REGULATIONS.
III.
THE HONORABLE COURT OF APPEALS ERRED
GRAVELY IN FAILING TO NOTE THAT THE MANAGERS
CHECK IN QUESTION WAS ACCEPTED FOR DEPOSIT
BY THE RCBC AND WAS NOT ENCASHED BY THE
PAYEE.
IV.
THE HONORABLE COURT OF APPEALS ERRED
GRAVELY IN FAILING TO CONSIDER THAT PRIOR TO
THE DEPOSIT OF THE CHECKS WORTH PhP53 MILLION,
RCBC
WAS
HOLDING
43
CHECKS
TOTALING P49,017,669.66 DRAWN BY CONTINENTAL
MANUFACTURING
CORPORATION
AGAINST
ITS
CURRENT ACCOUNT WHEN THE BALANCE OF THAT
ACCOUNT WAS A MERE P573.62.
V.
THE HONORABLE COURT OF APPEALS ERRED
GRAVELY IN FAILING TO CONSIDER THAT THE CHECKS

DEPOSITED WITH RCBC THE PROCEEDS OF WHICH

WERE IMMEDIATELY WITHDRAWN TO HONOR THE 43
CHECKS
TOTALING P49,017,669.66
DRAWN
BY
CONTINENTAL MANUFACTURING CORPORATION ON
ITS CURRENT ACCOUNT WERE NOT ALL MANAGERS
CHECK[S] BUT INCLUDED ORDINARY CHECKS IN THE
TOTAL AMOUNT OF PhP15,436,140.81.
VI.
THE HONORABLE COURT OF APPEALS ERRED
GRAVELY IN FAILING TO CONSIDER THAT EACH OF THE
43
CHECKS
DRAWN
BY
THE
CONTINENTAL
MANUFACTURING CORPORATION WERE ALL HONORED
BY RCBC ON THE BASIS OF A MIXTURE OF ALL THE
MANAGERS AND ORDINARY CHECKS DEPOSITED ON
THAT DAY OF 9 JANUARY 1981.
VII.
THE HONORABLE COURT OF APPEALS ERRED
GRAVELY IN HOLDING THAT THE RCBC IS A HOLDER IN
DUE COURSE.
VIII.
THE HONORABLE COURT OF APPEALS ERRED
GRAVELY IN HOLDING THAT SBTC WAITED FOR THREE
(3) DAYS TO NOTIFY THE RCBC OF THE STOP PAYMENT
ORDER.
IX.
THE HONORABLE COURT OF APPEALS ERRED
GRAVELY IN HOLDING THAT SBTC SHOULD HAVE FIRST
ACQUIRED PERSONAL KNOWLEDGE OF THE FACTS
WHICH GAVE RISE TO THE REQUEST FOR THE STOP
PAYMENT
ORDER
BEFORE
HONORING
SUCH
REQUEST.
X.
THE HONORABLE COURT OF APPEALS RULED
CORRECTLY IN REFUSING TO HOLD SBTC LIABLE FOR
DAMAGE CLAIMS BASED SOLELY ON SPECULATION,
CONJECTURE AND GUESSWORK.

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

XII.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY
IN HOLDING SBTC LIABLE FOR THE ATTORNEYS FEES
OF RCBC [SIC].[10]

refusal to honor its obligation justifies RCBC claim for lost interest income,
exemplary damages and attorneys fees.
On the other hand, SBTC contends that RCBC violated Monetary
Board Resolution No. 2202 of the Central Bank of the Philippines mandating
all banks to verify the genuineness and validity of all checks before allowing
drawings of the same. SBTC insists that RCBC should bear the
consequences of allowing CMC to withdraw the amount of the check before it
was cleared.[12]
We shall rule on the issues seriatim.

On RCBCs part, the following issues are submitted for resolution:

I.
WHETHER OR NOT SBTC IS
MANAGERS CHECK IT ISSUED.

LIABLE

FOR

THE

II.
WHETHER OR NOT RCBC IS ENTITLED TO
COMPENSATORY DAMAGES EQUIVALENT TO THE
INTEREST INCOME LOST AS A RESULT OF THE ILLEGAL
REFUSAL OF SBTC TO HONOR ITS OWN MANAGERS
CHECK, AS WELL AS FOR EXEMPLARY DAMAGES AND
ATTORNEYS FEES.[11]

Simply stated, we find that in these consolidated petitions, the legal issues
for our resolution are: (1) Is SBTC liable to RCBC for the remaining P4
million? and (2) Is SBTC liable to pay for lost interest income on the
remaining P4 million, exemplary damages and attorneys fees?
RCBC avers that the managers check issued by SBTC is
substantially as good as the money it represents because by its peculiar
character, its issuance has the effect of an advance acceptance. RCBC
claims that it is a holder in due course when it credited the P8-million
managers check to CMCs account. Accordingly, RCBC asserts that SBTCs

At the outset, it must be noted that the questioned check issued by

SBTC is not just an ordinary check but a managers check. A managers check is
one drawn by a banks manager upon the bank itself. It stands on the same
footing as a certified check,[13] which is deemed to have been accepted by the
bank that certified it.[14] As the banks own check, a managers check becomes
the primary obligation of the bank and is accepted in advance by the act of its
issuance.[15]
In this case, RCBC, in immediately crediting the amount of P8 million to
CMCs account, relied on the integrity and honor of the check as it is regarded in
commercial transactions. Where the questioned check, which was payable to
Cash, appeared regular on its face, and the bank found nothing unusual in the
transaction, as the drawer usually issued checks in big amounts made payable
to cash, RCBC cannot be faulted in paying the value of the questioned check.[16]
In our considered view, SBTC cannot escape liability by invoking
Monetary Board Resolution No. 2202 dated December 21, 1979, prohibiting
drawings against uncollected deposits. For we must point out that the Central
Bank at that time issued a Memorandum dated July 9, 1980, which
interpreted said Monetary Board Resolution No. 2202. In its pertinent portion,
said Memorandum reads:
MEMORANDUM TO ALL BANKS

July 9, 1980

For the guidance of all concerned, Monetary Board

Resolution No. 2202 dated December 31, 1979 prohibiting,
as a matter of policy, drawing against uncollected deposit
effective
July
1,
1980, uncollected
deposits
representing managers cashiers/ treasurers checks, treasury
warrants, postal money orders and duly funded on us checks
which may be permitted at the discretion of each bank,
covers drawings against demand deposits as well as
withdrawals from savings deposits.[17]

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 publicinterest, 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]

Thus, it is clear from the July 9, 1980 Memorandum that banks

were given the discretion to allow immediate drawings on uncollected
deposits of managers checks, among others. Consequently, RCBC, in
allowing the immediate withdrawal against the subject managers check, only
exercised a prerogative expressly granted to it by the Monetary Board.

Pursuant to current jurisprudence, with the finding of liability for

exemplary damages, attorneys fees in the amount of P25,000.00[22] must
also be awarded against SBTC and in favor of RCBC.

Moreover, neither Monetary Board Resolution No. 2202 nor the July
9, 1980 Memorandum alters the extraordinary nature of the managers check
and the relative rights of the parties thereto. SBTCs liability as drawer
remains the same by drawing the instrument, it admits the existence of the
payee and his then capacity to indorse; and engages that on due
presentment, the instrument will be accepted, or paid, or both, according to
its tenor.[18]
Concerning RCBCs claim for lost interest income on the
remaining P4 million, this is already covered by the amount of damages in
the form of legal interest of 6%, based on Article 2200 [19] and 2209[20] of the
Civil Code of the Philippines, as awarded by the Court of Appeals in its
decision.
In addition to the above-mentioned award of compensatory
damages, we also find merit in the need to award exemplary damages in
order to set an example for the public good. The banking system has
become an indispensable institution in the modern world and plays a vital

WHEREFORE, the assailed Decision dated March 29, 2005 and

Resolution dated December 12, 2005 of the Court of Appeals in CA-G.R. CV
No. 67387 is hereby AFFIRMED with MODIFICATION. Security Bank and
Trust Company is ordered to pay Rizal Commercial Banking Corporation: (1)
the remaining P4,000,000.00, with legal interest thereon at six percent (6%)
per annum from the time of filing of the complaint on February 13, 1981 to
the date of finality of this Decision; (2) exemplary damages of P50,000.00;
and (3) attorneys fees of P25,000.00.
No pronouncement as to costs.
SO ORDERED.

BANK OF THE PHILIPPINEISLANDS,

G.R. No. 136202

Petitioner,
- versus -

Present:

in place of A.A. Salazar Construction and Engineering Services. Private

PUNO, C.J., Chairperson,
respondent Salazar prayed for the recovery of the amount of Two Hundred
SANDOVAL-GUTIERREZ,
CORONA,
Sixty-Seven Thousand, Seven Hundred Seven Pesos and Seventy Centavos
AZCUNA, and
GARCIA, JJ.
(P267,707.70) debited by petitioner BPI from her account. She likewise
prayed for damages and attorneys fees.

COURT OF APPEALS, ANNABELLE A.

SALAZAR, and JULIO R. TEMPLONUEVO,
Respondents.

Promulgated:
January 25, 2007

DECISION

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

AZCUNA, J.:

third-party

defendant

and

herein

also

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)

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

checks, which were allegedly payable to him, but which were deposited with

seeking the reversal of the Decision [1] dated April 3, 1998, and the

the petitioner bank to private respondent Salazars account (Account No.

Resolution[2] dated November 9, 1998, of the Court of Appeals in CA-G.R. CV

0203-1187-67) without his knowledge and corresponding endorsement.

No. 42241.

The facts[3] are as follows:

Accepting that Templonuevos 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

A.A. Salazar Construction and Engineering Services filed an action

respondent Salazar or had an insufficient balance.

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

Private respondent Salazar was advised to settle the matter with

by substituting the name of Annabelle A. Salazar as the real party in interest

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

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:

decided to debit the amount of P267,707.70 from her Account No. 02010588-48 and the sum of P267,692.50 was paid to Templonuevo by means of

1.

a cashiers check. The difference between the value of the checks

(P267,692.50)

and

the

amount

actually

debited

from

her account

(P267,707.70) represented bank charges in connection with the issuance of a

cashiers check to Templonuevo.

The amount of P267,707.70 with 12%

interest thereon from September 16,
1991 until the said amount is fully paid;

2.
actual damages;

The amount of P30,000.00 as and for

3.
moral damages;

The amount of P50,000.00 as and for

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

5.
The amount of P30,000.00 as and for
attorneys fees; and
6.

Costs of suit.

respondent Salazar to her private account, and that petitioner banks

negligence and tolerance regarding the matter was violative of the primary

The counterclaim is hereby ordered DISMISSED for

lack of factual basis.

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

The third-party complaint [filed by petitioner] is hereby

likewise ordered DISMISSED for lack of merit.

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

Third-party defendants [i.e., private respondent

Templonuevos] counterclaim is hereby likewise DISMISSED
for lack of factual basis.

concern.
SO ORDERED.[4]

After trial, the RTC rendered a decision, the dispositive portion of

which reads thus:

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

conjectures, that there was an agreement between

SALAZAR and TEMPLONUEVO that checks payable to
TEMPLONUEVO may be deposited by SALAZAR to her
personal account and that BPI was privy to this agreement.

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 Trading [5] actually

V.

belonged to Salazar and would be deposited to her account, with petitioner

acquiescing to the arrangement.

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
her business standing was eroded.

[6]

Petitioner therefore filed this petition on these grounds:

VI.
The Court of Appeals erred in affirming instead of reversing
the decision of the lower court against BPI and dismissing
SALAZARs complaint.

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

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

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.

The issues center on the propriety of the deductions made by

petitioner from private respondent Salazars account. Stated otherwise,

III.

does a collecting bank, over the objections of its depositor, have the
The Court of Appeals committed a reversible error in
holding, based on a misapprehension of facts, that the
account from which BPI debited the amount of P267,707.70
belonged to a corporation with a separate and distinct
personality.

IV.

authority to withdraw unilaterally from such depositors 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:

The Court of Appeals committed a reversible error in
holding, based entirely on speculations, surmises or

1.

There is no presumption in law that a check payable to

4.

The debit of the amount from the account of A.A.

order, when found in the possession of a person who is

Salazar Construction and Engineering Services was proper

neither a payee nor the indorsee thereof, has been lawfully

even though the value of the checks had been originally

transferred for value. Hence, the CA should not have

credited to the personal account of Salazar because A.A.

presumed that Salazar was a transferee for value within the

Salazar

contemplation of Section 49 of the Negotiable Instruments

unincorporated single proprietorship, had no separate and

Law,[8] as the latter applies only to a holder defined under

distinct personality from Salazar.

Construction

and

Engineering

Services,

an

Section 191of the same.[9]

5.
2.

Assuming the deduction from Salazars account was

Salazar failed to adduce sufficient evidence to prove

improper, the CA should not have dismissed petitioners third-

that her possession of the three checks was lawful despite

party complaint against Templonuevo because the latter

her allegations that these checks were deposited pursuant to

would have the legal duty to return to petitioner the proceeds

a prior internal arrangement with Templonuevo and that

of the checks which he previously received from it.

petitioner was privy to the arrangement.

6.
3.

There was no factual basis for the award of damages to

The CA should have applied the Civil Code provisions

on legal compensation because in deducting the subject

Salazar.

amount from Salazars account, petitioner was merely

rectifying the undue payment it made upon the checks and

The petition is partly meritorious.

exercising its prerogative to alter or modify an erroneous

credit entry in the regular course of its business.

First, the issue raised by petitioner requires an inquiry into the factual
findings made by the CA. The CAs conclusion that the deductions from the

bank account of A.A. Salazar Construction and Engineering Services were

(c)

That despite the lack of endorsement of the designated

improper stemmed from its finding that there was no ineffective payment to

payee upon such checks, Salazar was able to deposit the checks in her

Salazar which would call for the exercise of petitioners right to set off against

personal savings account with petitioner and encash the same;

the formers 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:

(d)

That petitioner accepted and paid the checks on three (3)

separate occasions over a span of eight months in 1990; and

(e)

(a)

That Salazar previously had in her possession the

Templonuevo

only

protested

the

purportedly

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

following checks:

(1)

That

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

Petitioner concedes that when it credited the value of the checks to

the account of private respondent Salazar, it made a mistake because it

(2)

Solid Bank Check No. CB898978 dated July 31,

1990 in the amount of P55,180.00; and,

failed to notice the lack of endorsement thereon by the designated payee.

(3)

Equitable Banking Corporation Check No.

32380638 dated August 28, 1990 for the amount
of P154,800.00;

petitioners actions were deliberate, in view of its admission that the mistake

The CA, however, did not lend credence to this claim and concluded that

was committed three times on three separate occasions, indicating

acquiescence

to

the

internal

arrangement

between

Salazar

Templonuevo. The CA explained thus:

(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;

It was quite apparent that the three checks which

appellee Salazar deposited were not indorsed. Three times
she deposited them to her account and three times the
amounts borne by these checks were credited to the same.
And in those separate occasions, the bank did not return the
checks to her so that she could have them indorsed. Neither
did the bank question her as to why she was depositing the

and

checks to her account considering that she was not the

payee thereof, thus allowing us to come to the conclusion
that defendant-appellant BPI was fully aware that the
proceeds of the three checks belong to appellee.

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

For if the bank was not privy to the agreement

between Salazar and Templonuevo, it is most unlikely that
appellant BPI (or any bank for that matter) would have
accepted the checks for deposit 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 accept indorsed checks for
deposit if the depositor is not one they know very well. [11]

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,

The CA likewise sustained Salazars position that she received the

clear and convincing, or whether or not inconsistencies in the body of proofs

checks from Templonuevo pursuant to an internal arrangement between

of a party are of such gravity as to justify refusing to give said proofs weight

them, ratiocinating as follows:

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

If there was indeed no arrangement between

Templonuevo and the plaintiff over the three questioned
checks, it baffles us why it was only on August 31, 1991 or
more than a year after the third and last check was deposited
that he demanded for the refund of the total amount of
P267,692.50.

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

A prudent man knowing that payment is due him

would have demanded payment by his debtor from the
moment the same became due and demandable. More so if
the sum involved runs in hundreds of thousand of pesos. By
and large, every person, at the very moment he learns that
he was deprived of a thing which rightfully belongs to him,
would have created a big fuss. He would not have waited for
a year within which to do so. It is most inconceivable that
Templonuevo did not do this.[12]

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

It bears stressing that the above transaction is an equitable

evidence but is contradicted by the evidence on record; and j) when the CA

assignment and the transferee acquires the instrument subject to defenses

manifestly overlooked certain relevant facts not disputed by the parties and

and equities available among prior parties. Thus, if the transferor had legal

which, if properly considered, would justify a different conclusion. [16]

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

In the present case, the records do not support the finding made by

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

the CA and the trial court that a prior arrangement existed between Salazar

valid transfer of ownership of the negotiable instrument in question has taken

and Templonuevo regarding the transfer of ownership of the checks. This fact

place.

is crucial as Salazars entitlement to the 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.

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

Section 49 of the Negotiable Instruments Law contemplates a

negotiable instrument does not in itself conclusively establish either the right

situation whereby the payee or indorsee delivers a negotiable instrument for

of the possessor to receive payment, or of the right of one who has made

value without indorsing it, thus:

payment to be discharged from liability. Thus, something more than mere

possession by persons who are not payees or indorsers of the instrument is

Transfer without indorsement; effect of- Where the

holder of an instrument payable to his order transfers it for
value without indorsing it, the transfer vests in the transferee
such title as the transferor had therein, and the transferee
acquires in addition, the right to have the indorsement of the
transferor. But for the purpose of determining whether the
transferee is a holder in due course, the negotiation takes
effect as of the time when the indorsement is actually
made. [17]

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 Courts mind, however, such period of delay is

inure to the benefit of Salazar because the term given does not pertain

not of such unreasonable length as to estop Templonuevo from asserting

merely to a transfer of physical possession of the instrument. The phrase

ownership over the checks especially considering that it was readily apparent

given or indorsed in the context of a negotiable instrument refers to the

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

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

In State Investment House v. IAC,[20] the Court enumerated the

negotiated by delivery. If payable to order it is negotiated by the indorsement

effects of crossing a check, thus: (1) that the check may not be encashed but

completed by delivery.[22] The present case involves checks payable to order.

only deposited in the bank; (2) that the check may be negotiated only once -

Not being a payee or indorsee of the checks, private respondent Salazar

to one who has an account with a bank; and (3) that the act of crossing the

could not be a holder thereof.

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.

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

Thus, even if the delay in the demand for reimbursement is taken in

require possessors to prove without the aid of an initial presumption in their

conjunction with Salazars possession of the checks, it cannot be said that the

favor, that they came into possession by virtue of a legitimate transaction

presumption of ownership in Templonuevos favor as the designated payee

with the last holder.[23] Salazar failed to discharge this burden, and the return

therein was sufficiently overcome. This is consistent with the principle that if

of the check proceeds to Templonuevo was therefore warranted under the

instruments payable to named payees or to their order have not been

circumstances despite the fact that Templonuevo may not have clearly

indorsed in blank, only such payees or their indorsees can be holders and

demonstrated that he never authorized Salazar to deposit the checks or to

entitled to receive payment in their own right.

[21]

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

The presumption under Section 131(s) of the Rules of Court stating

that a negotiable instrument was given for a sufficient consideration will not

endorsements guaranteed," thereby making the assurance that it had

ascertained the genuineness of all prior endorsements. Having assumed the

liability of a general indorser, petitioners liability to the designated payee

cannot be denied.

same time a principal creditor of the

other;

Salazars account for the value of the checks it previously credited in her

(2) That both debts consist in a sum of

money, or if the things due are
consumable, they be of the same
kind, and also of the same quality if
the latter has been stated;

favor. It is of no moment that the account debited by petitioner was different

(3) That the two debts be due;

from the original account to which the proceeds of the check were credited

(4) That they be liquidated and demandable;

because both admittedly belonged to Salazar, the former being the account

(5) That over neither of them there be any

retention
or
controversy,
commenced by third persons and
communicated in due time to the
debtor.

Consequently, petitioner, as the collecting bank, had the right to debit

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]

While, however, it is conceded that petitioner had the right of set-off
A bank generally has a right of set-off over the
deposits therein for the payment of any withdrawals 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, and current deposits of money
in banks and similar institutions shall be governed by the
provisions concerning simple loan.

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.

Hence, the relationship between banks and

depositors has been held to be that of creditor 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:

To begin with, the irregularity appeared plainly on the face of the

checks. Despite the obvious lack of indorsement thereon, petitioner permitted

(1) That each one of the obligors be bound

principally, and that he be at the

the encashment of these checks three times on three separate occasions.

This negates petitioners claim that it merely made a mistake in crediting the
value of the checks to Salazars account and instead bolsters the conclusion
of the CA that petitioner recognized Salazars 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

or untouched until herein [Salazar] has settled matters with

Templonuevo. 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 cashiers check in the
name of Julio 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. Arcillas account No. 0201-0588-48
which was supposed to be frozen or controlled. Such a move
by BPI is, to Our minds, a clear case of negligence, if not a
fraudulent, wanton and reckless disregard of the right of its
depositor.

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

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

conversion of the check by the bank.[28]

Construction and Engineering Services prior to any notice of deduction being

served. The CA sustained private respondent Salazars claim of damages in
More

importantly,

however,

solely

upon

the

prompting

of

this regard:

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 petitioners 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

The act of the bank in freezing and later debiting the

amount of P267,692.50 from the account of A.A. Salazar
Construction and Engineering Services caused plaintiffappellee great damage and prejudice particularly when she
had already issued checks drawn against the said account.
As can be expected, the said checks bounced. To prove this,
plaintiff-appellee presented as exhibits photocopies of checks
dated September 8, 1991, October 28, 1991, and November
14, 1991 (Exhibits D, E and F respectively)[30]

cited the letter dated September 5, 1991 of Mr. Manuel Ablan, Senior
Manager of petitioner banks Pasig/Ortigas branch, to private respondent
Salazar informing her that her account had been frozen, thus:
These checks, it must be emphasized, were subsequently
From the tenor of the letter of Manuel Ablan, it is safe
to conclude that Account No. 0201-0588-48 will remain frozen

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

It is proper where depositors are compelled to litigate to protect their interest.

opportunity to protect her interest when petitioner unilaterally withdrew the

[32]

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

WHEREFORE, the petition is partially GRANTED. The assailed

Decision dated April 3, 1998 and Resolution dated April 3, 1998 rendered by

For the above reasons, the Court finds no reason to disturb the

the Court of Appeals in CA-G.R. CV No. 42241 are MODIFIED insofar as it

award of damages granted by the CA against petitioner. This whole incident

ordered petitioner Bank of the Philippine Islands to return the amount of Two

would have been avoided had petitioner adhered to the standard of diligence

Hundred Sixty-seven Thousand Seven Hundred and Seven and 70/100

expected of one engaged in the banking business. A depositor has the right

Pesos (P267,707.70) to respondent Annabelle A. Salazar, which portion

to recover reasonable moral damages even if the banks negligence may not

is REVERSED and SET

have been attended with malice and bad faith, if the former suffered mental

are AFFIRMED.

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

No costs.

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 attorneys fees is proper where exemplary damages are awarded.

SO ORDERED.

ASIDE. In

all

other

respects,

the

same