ARMANDO V.

ALANO [DECEASED], SUBSTITUTED BY On September 12, 1996, the RTC rendered its Decision [23] declaring
ELENA ALANO-TORRES,* PETITIONER, VS. PLANTER'S petitioner the owner of one-half of the subject property since an
DEVELOPMENT BANK, AS SUCCESSOR-IN-INTEREST OF implied trust exists between him and the heirs of his brother. [24] The
MAUNLAD SAVINGS AND LOAN ASSOCIATION, INC.,*** RTC, however, sustained the validity of the real estate mortgage. [25]
RESPONDENT. According to the RTC, Maunlad Savings and Loan Association, Inc.
"No one can give what he does not have" (Nemo dat quod non had the right to rely on the Torrens title as there was no reason for it
habet). to doubt the mortgagor's ownership over the subject property. [26]
Accordingly, the fallo of the decision reads:
This Amended Petition for Review on Certiorari [1] under Rule 45 of
the Rules of Court assails the June 9, 2005 Decision [2] and the WHEREFORE, premises considered, judgment is hereby rendered as
February 21, 2006 Resolution [3] of the Court of Appeals (CA) in CA follows:
G.R. CV No. 58554.
1. Declaring plaintiff Armando Alano the owner of one-half of the
Factual Antecedents property in question;

Petitioner Armando V. Alano and his brother, the late Agapito V. Alano, 2. Ordering the Register of Deeds of Quezon City to cancel TCT No.
Jr., inherited from their father a parcel of land located at Gov. Forbes 90388 issued in the name of Lydia J. Alano and the corresponding
St., Sampaloc, Manila. [4] owner's duplicate certificate and to issue a new one in the names of
Armando V. Alano, single[,] ½ share pro indiviso and Lydia Alano,
On June 30, 1988, petitioner executed a Special Power of Attorney [5] widow, ½ share pro indiviso with the corresponding mortgage lien
authorizing his brother to sell their property in Manila. From the annotation in favor of the Maunlad Savings and Loan [Association,]
proceeds of the sale, the brothers purchased on September 22, 1988 Inc. upon finality of this decision;
a residential house located at No. 60 Encarnacion St., BF Homes,
Quezon City. [6] The title of the Quezon City property, however, was 3. Ordering the defendant Maunlad Savings and Loan [Association,]
not immediately transferred to them because the duplicate and Inc. to surrender [the] owner's duplicate copy of TCT No. 90388 to the
original copies of the title were destroyed by a fire that gutted the Register of Deeds of Quezon City for cancellation upon finality of this
Quezon City Hall Building. [7] decision;

On June 27, 1990, Agapito V. Alano, Jr. died leaving behind his wife, 4. Ordering defendants Lydia J. Alano and Melecio Javier to jointly
Lydia J. Alano (Lydia), and four legitimate children, who adjudicated to and severally pay the plaintiff the sum of P20,000.00 as attorney's
themselves the property in Quezon City. [8] Consequently, title to the fees and to pay the costs of suit.
said property was reconstituted as Transfer Certificate of Title (TCT)
No. 18990 and registered solely in the names of Lydia and her four SO ORDERED. [27]
children. [9] This prompted petitioner to execute an Affidavit of
Adverse Claim [10] which was annotated on TCT No. 18990. [11] But Dissatisfied, petitioner moved for partial reconsideration [28] but the
because of the assurance of his nieces that they would put things RTC denied the same in its Order [29] dated February 24, 1997.
right, petitioner agreed to delay the filing of a case in court. [12]
Ruling of the Court of Appeals
Meanwhile, Lydia filed with the Register of Deeds of Quezon City an
Affidavit of Cancellation of Adverse Claim, [13] which caused the Petitioner appealed [30] to the CA but to no avail. The CA found
cancellation of the adverse claim annotated on TCT No. 18990. [14] Maunlad Savings and Loan Association, Inc. to be a mortgagee in
Thereafter, by virtue of a Deed of Absolute Sale [15] allegedly good faith since it took the necessary precautions to ascertain the
executed by her children in her favor, TCT No. 18990 was cancelled status of the property sought to be mortgaged as well as the identity
and a new one, TCT No. 90388, was issued solely in her name. [16] of the mortgagor by conducting an ocular inspection of the property
and requiring the submission of documents, such as the latest tax
On February 8, 1994, Slumberworld, Inc., represented by its receipts and tax clearance. [31] The CA thus disposed of the appeal
President, Melecio A. Javier, and Treasurer, Lydia, obtained from as follows:
Maunlad Savings and Loan Association, Inc. a loan of P2.3 million,
secured by a Real Estate Mortgage [17] over the property covered by WHEREFORE, premises considered, the appeal is hereby
TCT No. 90388. [18] DISMISSED for lack of merit. The September 12, 1996 Decision of
the Regional Trial Court of Quezon City, Branch 92, is hereby
On April 20, 1994, petitioner filed a Complaint [19] against Lydia, AFFIRMED.
Melecio A. Javier, Maunlad Savings and Loan Association, Inc. and
the Register of Deeds of Quezon City before the Regional Trial Court SO ORDERED. [32]
(RTC) of Quezon City, which was raffled to Branch 92. Petitioner
sought the cancellation of TCT No. 90388, the issuance of a new title Petitioner sought reconsideration [33] but the CA denied the same in
in his name for his one-half share of the Quezon City property, and its Resolution [34] dated February 21, 2006.
the nullification of real estate mortgage insofar as his one-half share is
concerned. [20] Issues

Defendants Maunlad Savings and Loan Association, Inc. and the
Register of Deeds of Quezon City filed their respective Answers. [21]
Defendants Lydia and Melecio A. Javier, however, failed to file their
respective Answers. Thus, the RTC in an Order [22] dated August 29,
1994 declared them in default.
Ruling of the Regional Trial Court
Hence, the present recourse, petitioner raising the following issues:
WHETHER THE REAL ESTATE MORTGAGE EXECUTED BY
DEFENDANT LYDIA J. ALANO WAS VALID AND BINDING WITH
RESPECT TO PETITIONER'S CO-OWNER'S SHARE IN THE
SUBJECT PROPERTY.
WHETHER DEFENDANT MAUNLAD SAVINGS AND LOAN title to determine the real owner or owners thereof. [50] Failure to do
ASSOCIATION, INC. WAS AN INNOCENT MORTGAGEE IN GOOD so makes them mortgagees in bad faith.
FAITH.
In this case, petitioner contends that Maunlad Savings and Loan
WHETHER PETITIONER MAY RIGHTFULLY BE MADE TO SUFFER Association, Inc. failed to exercise due diligence in inspecting and
THE CONSEQUENCES OF DEFENDANT LYDIA J. ALANO'S ascertaining the status of the mortgaged property because during the
WRONGFUL ACT OF MORTGAGING THE SUBJECT PROPERTY. ocular inspection, the credit investigator failed to ascertain the actual
[35] occupants of the subject property and to discover petitioner's
apartment at the back portion of the subject property. [51]
Petitioner's Arguments
Indeed, the existence of petitioner's apartment at the back portion of
Petitioner insists that Maunlad Savings and Loan Association, Inc. is the subject property was never brought up before the trial court and
not a mortgagee in good faith as it failed to exercise due diligence in the appellate court. Nevertheless, we find petitioner's allegation of
inspecting and ascertaining the status of the mortgaged property. negligence substantiated by the testimony of the credit investigator, to
Petitioner calls attention to the testimony of Credit Investigator Carlos wit:
S. Mañosca, who admitted that when he inspected the mortgaged Q-You said also that you inspected the property that was offered as
property, he only checked the finishing of the house and the number collateral which is a house and lot located at Encarnacion Street, BF
of rooms. [36] Hence, he failed to see petitioner's apartment at the Homes. Did you enter the property?
back portion of the property. [37] Moreover, the fact that there was an A-Yes, ma'am.
adverse claim annotated on the previous title of the property should Q-And then you found out that the property was the home of Mrs.
have alerted Maunlad Savings and Loan Association, Inc. to conduct Lydia Alano and her children?
further investigation to verify the ownership of the mortgaged property. A-Yes, ma'am.
[38] All these prove that Maunlad Savings and Loan Association, Inc. ATTY. JAVELLANA
was not a mortgagee in good faith. Corollarily, pursuant to Articles Q-And you also saw that her brother-in-law Armando Alano was also
2085 [39] and 493 [40] of the Civil Code, the real estate mortgage residing there?
executed by Lydia is void insofar as petitioner's share in the A-I do not recall if he was there, ma'am.
mortgaged property is concerned. [41] Q-You did not see him there?
A-When we went there ma'am, we only checked on the finishing of
Respondent's Arguments the house and also checked as to the number of bedrooms and
number of CR, ma'am.
Respondent contends that the issue of whether Maunlad Savings and Q-You did not verify who were actually residing there?
Loan Association, Inc. is a mortgagee in good faith is a question of A-No, ma'am.
fact, which is beyond the jurisdiction of this Court. [42] As to Q-You said that you also conducted a neighborhood checking, did you
petitioner's allegation that there was a separate apartment at the back ask the neighbor who were residing in that property?
portion of the property, respondent claims that this was never raised A-Yes, and we were told that Lydia Alano was the one residing there,
during the trial or on appeal. [43] Hence, it is barred by estoppel. [44] ma'am.
Q-You did not verify from them as to whether anybody else was
Respondent further claims that Maunlad Savings and Loan residing there?
Association, Inc. has no obligation to look beyond the title considering A-No, ma'am. [52] (Emphasis supplied).
that there was no adverse claim annotated on TCT No. 90388
covering the mortgaged property. [45] And since the mortgaged Clearly, while the credit investigator conducted an ocular inspection of
property was occupied by the mortgagor Lydia, there was also no the property as well as a "neighborhood checking" and found the
need for Maunlad Savings and Loan Association, Inc. to verify the subject property occupied by the mortgagor Lydia and her children,
extent of her possessory rights. [46] [53] he, however, failed to ascertain whether the property was
occupied by persons other than the mortgagor. Had he done so, he
Our Ruling would have discovered that the subject property is co-owned by
petitioner and the heirs of his brother. Since Maunlad Savings and
The petition has merit. Loan Association, Inc. was remiss in its duty in ascertaining the status
of the property to be mortgaged and verifying the ownership thereof, it
The instant case is an exception to the is deemed a mortgagee in bad faith. Consequently, the real estate
rule that factual issues may not be raised in a mortgage executed in its favor is valid only insofar as the share of the
petition under Rule 45 of the Rules of Court. mortgagor Lydia in the subject property. We need not belabor that
under Article 493 [54] of the Civil Code, a co-owner can alienate only
The rule that only questions of law may be raised in a petition for his pro indiviso share in the co-owned property, and not the share of
review on certiorari under Rule 45 of the Rules of Court is not without his co-owners.
exception. A review of factual issues is allowed when there is a
misapprehension of facts or when the inference drawn from the facts WHEREFORE, the petition is hereby GRANTED. The assailed June
is manifestly mistaken. [47] This case falls under exception. 9, 2005 Decision and the February 21, 2006 Resolution of the Court
of Appeals in CA G.R. CV No. 58554 are SET ASIDE. The September
Maunlad Savings and Loan Association, 12, 1996 Decision of the Regional Trial Court of Quezon City, Branch
Inc. is not a mortgagee in good faith. 92, is hereby MODIFIED by declaring the mortgage in favor of
respondent Maunlad Savings and Loan Association, Inc. NULL and
The general rule that a mortgagee need not look beyond the title does VOID insofar as the ½ share of petitioner in the subject property is
not apply to banks and other financial institutions as greater care and concerned, and ordering the annotation of the mortgage lien in favor
due diligence is required of them. [48] Imbued with public interest, of respondent only on the ½ share of Lydia J. Alano in the subject
they "are expected to be more cautious than ordinary individuals." [49] property.
Thus, before approving a loan, the standard practice for banks and
other financial institutions is to conduct an ocular inspection of the SO ORDERED.
property offered to be mortgaged and verify the genuineness of the
[G.R. No. 132390. May 21, 2004] SO ORDERED.
BPI FAMILY SAVINGS BANK, INC., petitioner, vs. FIRST
METRO INVESTMENT CORPORATION, respondent. On appeal by both parties, the Court of Appeals rendered a Decision
For our resolution is the instant petition for review on certiorari under affirming the assailed Decision with modification, thus:
Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing
the Decision[1] dated July 4, 1997 and Resolution[2] dated January WHEREFORE, considering all the foregoing, this Court hereby
28, 1998 of the Court of Appeals in CA-G.R. CV No. 44986, First modifies the decision of the trial court and adjudges BPI Family Bank
Metro Investment Corporation vs. BPI Family Bank. liable to First Metro Investment Corporation for the amount of
P65,332,321.99 plus interest at 17% per annum from August 29, 1989
The facts as found by the trial court and affirmed by the Court of until fully restored. Further, this 17% interest shall itself earn interest
Appeals are as follows: at 12% from October 4, 1989 until fully paid.

First Metro Investment Corporation (FMIC), respondent, is an SO ORDERED.

investment house organized under Philippine laws. Petitioner, Bank of
Philippine Islands Family Savings Bank, Inc. is a banking corporation BPI FB then filed a motion for reconsideration but was denied by the
also organized under Philippine laws. Court of Appeals.

On August 25, 1989, FMIC, through its Executive Vice President
Antonio Ong, opened current account no. 8401-07473-0 and
deposited METROBANK check no. 898679 of P100 million with BPI
Family Bank* (BPI FB) San Francisco del Monte Branch (Quezon
City). Ong made the deposit upon request of his friend, Ador de Asis,
a close acquaintance of Jaime Sebastian, then Branch Manager of
BPI FB San Francisco del Monte Branch. Sebastians aim was to
increase the deposit level in his Branch.
In the instant petition, BPI FB ascribes to the Appellate Court the
following assignments of error:
A. IN VALIDATING A CLEARLY ILLEGAL AND VOID AGREEMENT
BETWEEN FMIC AND AN OVERSTEPPING BRANCH MANAGER
OF BPI FB, THE COURT OF APPEALS DECIDED THE APPEALED
CASE IN A MANNER NOT IN ACCORDANCE WITH LAW OR THE
APPLICAPLE DECISIONS OF THE HONORABLE COURT.

BPI FB, through Sebastian, guaranteed the payment of B. THE COURT OF APPEALS TOTALLY IGNORED THE JUDICIAL
P14,667,687.01 representing 17% per annum interest of P100 million ADMISSIONS MADE BY FMIC WHEN IT CHARACTERIZED THE
deposited by FMIC. The latter, in turn, assured BPI FB that it will TRANSACTION BETWEEN FMIC AND BPI FB AS A TIME DEPOSIT
maintain its deposit of P100 million for a period of one year on WHEN IN FACT IT WAS AN INTEREST-BEARING CURRENT
condition that the interest of 17% per annum is paid in advance. ACCOUNT WHICH, UNDER THE EXISTING BANK REGULATIONS,
WAS AN ILLEGAL TRANSACTION.
This agreement between the parties was reached through their
communications in writing. C. THE COURT OF APPEALS COMMITTED AN EGREGIOUS
ERROR IN RULING THAT BPI FB CLOTHED ITS BRANCH
Subsequently, BPI FB paid FMIC 17% interest or P14,667,687.01 MANAGER WITH APPARENT AUTHORITY TO ENTER INTO SUCH
upon clearance of the latters check deposit. A PATENTLY ILLEGAL ARRANGEMENT.

However, on August 29, 1989, on the basis of an Authority to Debit
signed by Ong and Ma. Theresa David, Senior Manager of FMIC, BPI
FB transferred P80 million from FMICs current account to the savings
account of Tevesteco Arrastre Stevedoring, Inc. (Tevesteco).
FMIC denied having authorized the transfer of its funds to Tevesteco,
claiming that the signatures of Ong and David were falsified.
Thereupon, to recover immediately its deposit, FMIC, on September
12, 1989, issued BPI FB check no. 129077 for P86,057,646.72
payable to itself and drawn on its deposit with BPI FB SFDM branch.
But upon presentation for payment on September 13, 1989, BPI FB
dishonored the check as it was drawn against insufficient funds
(DAIF).
Consequently, FMIC filed with the Regional Trial Court, Branch 146,
Makati City Civil Case No. 89-5280 against BPI FB. FMIC likewise
caused the filing by the Office of the State Prosecutors of an
Information for estafa against Ong, de Asis, Sebastian and four
others. However, the Information was dismissed on the basis of a
demurrer to evidence filed by the accused.
On October 1, 1993, the trial court rendered its Decision in Civil Case deposited by respondent FMIC. Petitioner insists that respondents
No. 89-5280, the dispositive portion of which reads:
Premises considered, judgment is rendered in favor of plaintiff, from earning interest under Central Bank Circular 777. Petitioner
ordering defendant to pay:
a. the amount of P80 million with interest at the legal rate from the entering into such an agreement with respondents Executive Vice
time this complaint was filed less P14,667,678.01;
b. the amount of P100,000.00 as reasonable attorneys fees; and
c. the cost.
D. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR
WHEN IT REFUSED TO CONSIDER THE NEGLIGENT ACTS
COMMITTED BY FMIC ITSELF WHICH LED TO THE TRANSFER
OF THE P80 MILLION FROM THE FMIC ACCOUNT TO THE
TEVESTECO ACCOUNT.
E. THE COURT OF APPEALS DID NOT ADHERE TO SETTLED
JURISPRUDENCE WHEN IT ADJUDGED BPI FB LIABLE TO FMIC
FOR AN AMOUNT WHICH WAS MORE THAN WHAT WAS
CONTEMPLATED OR PRAYED FOR IN FMICS COMPLAINT,
MOTION FOR RECONSIDERATION OF THE TRIAL COURTS
DECISION AND APPEAL BRIEF.
F. IN SUPPORT OF ITS ALTERNATIVE PRAYER, PETITIONER
SUBMITS THAT THE COURT OF APPEALS COMMITTED
REVERSIBLE ERROR IN NOT ORDERING THE CONSOLIDATION
OF THE INSTANT CASE WITH THE TEVESTECO CASE WHICH IS
STILL PENDING BEFORE THE MAKATI REGIONAL TRIAL COURT.
Petitioner BPI FB contends that the Court of Appeals erred in
awarding the 17% per annum interest corresponding to the amount
deposit is not a special savings account similar to a time deposit, but
actually a demand deposit, withdrawable upon demand, proscribed
further contends that the transaction is not valid as its Branch
Manager, Jaime Sebastian, clearly overstepped his authority in
President.
We hold that the parties did not intend the deposit to be treated as a dealt in good faith with the corporation through such agent, be
demand deposit but rather as an interest-earning time deposit not estopped from denying such authority.[5] We reiterated this doctrine in
withdrawable any time. This is quite obvious from the communications Prudential Bank vs. Court of Appeals,[6] thus:
between Jaime Sebastian, petitioners Branch Manager, and Antonio
Ong, respondents Executive Vice President. Both agreed that the A bank holding out its officers and agent as worthy of confidence will
deposit of P100 million was non-withdrawable for one year upon not be permitted to profit by the frauds they may thus be enabled to
payment in advance of the 17% per annum interest. Respondents perpetrate in the apparent scope of their employment; nor will it be
time deposit of P100 million was accepted by petitioner as shown by a permitted to shirk its responsibility for such frauds, even though no
deposit slip prepared and signed by Ong himself who indicated benefit may accrue to the bank therefrom. Accordingly, a banking
therein the account number to which the deposit is to be credited, the corporation is liable to innocent third persons where the
name of FMIC as depositor or account holder, the date of deposit, and representation is made in the course of its business by an agent
the amount of P100 million as deposit in check. Clearly, when acting within the general scope of his authority even though the agent
respondent FMIC invested its money with petitioner BPI FB, they is secretly abusing his authority and attempting to perpetrate a fraud
intended the P100 million as a time deposit, to earn 17% per annum upon his principal or some other person for his own ultimate benefit.
interest and to remain intact until its maturity date one year thereafter.
In Francisco vs. Government Service Insurance System,[7] we ruled:
Ordinarily, a time deposit is defined as one the payment of which
cannot legally be required within such a specified number of days.[3] Corporate transactions would speedily come to a standstill were every
person dealing with a corporation held duty-bound to disbelieve every
In contrast, demand deposits are all those liabilities of the Bangko act of its responsible officers, no matter how regular they should
Sentral and of other banks which are denominated in Philippine appear on their face. This Court has observed in Ramirez vs.
currency and are subject to payment in legal tender upon demand by Orientalist Co., 38 Phil. 634, 654-655, that
the presentation of (depositors) checks.[4]
In passing upon the liability of a corporation in cases of this kind it is
While it may be true that barely one month and seven days from the always well to keep in mind the situation as it presents itself to the
date of deposit, respondent FMIC demanded the withdrawal of third party with whom the contract is made. Naturally he can have little
P86,057,646.72 through the issuance of a check payable to itself, the or no information as to what occurs in corporate meetings; and he
same was made as a result of the fraudulent and unauthorized must necessarily rely upon the external manifestations of corporate
transfer by petitioner BPI FB of its P80 million deposit to Tevestecos consent. The integrity of commercial transactions can only be
savings account. Certainly, such was a normal reaction of respondent maintained by holding the corporation strictly to the liability fixed upon
as a depositor to petitioners failure in its fiduciary duty to treat its it by its agents in accordance with law; and we would be sorry to
account with the highest degree of care. announce a doctrine which would permit the property of a man in the
city of Paris to be whisked out of his hands and carried into a remote
Under this circumstance, the withdrawal of deposit by respondent quarter of the earth without recourse against the corporation whose
FMIC before the one-year maturity date did not change the nature of name and authority had been used in the manner disclosed in this
its time deposit to one of demand deposit. case. As already observed, it is familiar doctrine that if a corporation
knowingly permits one of its officers, or any other agent, to do acts
On another tack, petitioners argument that Central Bank regulations within the scope of an apparent authority, and thus holds him out to
prohibit demand deposit from earning interest is bereft of merit. the public as possessing power to do those acts, the corporation will,
as against any one who has in good faith dealt with the corporation
Under Central Bank Circular No. 22, Series of 1994, demand deposits through such agent, be estopped from denying his authority; and
shall not be subject to any interest rate ceiling. This, in effect, is an where it is said if the corporation permits, this means the same as if
open authority to pay interest on demand deposits, such interest not the thing is permitted by the directing power of the corporation.
being subject to any rate ceiling.
Petitioner maintains that respondent should have first inquired
Likewise, time deposits are not subject to interest rate ceiling. In fact, whether the deposit of P100 Million and the fixing of the interest rate
the rate ceiling was abolished and even allowed to float depending on were pursuant to its (petitioners) internal procedures. Petitioners
the market conditions. Sections 1244 and 1244.1 of the Manual of stance is a futile attempt to evade an obligation clearly established by
Regulations of the Central Bank of the Philippines provide: the intent of the parties. What transpires in the corporate board room
is entirely an internal matter. Hence, petitioner may not impute
Sec. 1244. Interest on time deposit. Time deposits shall not be negligence on the part of respondents representative in failing to find
subject to any interest rate ceiling. out the scope of authority of petitioners Branch Manager. Indeed, the
public has the right to rely on the trustworthiness of bank managers
Sec. 1244.1. Time of payment. Interest on time deposit may be paid and their acts. Obviously, confidence in the banking system, which
at maturity or upon withdrawal or in advance. Provided, however, That necessarily includes reliance on bank managers, is vital in the
interest paid in advance shall not exceed the interest for one year. economic life of our society.

Thus, even assuming that respondents account with petitioner is a Significantly, the transaction was actually acknowledged and ratified
demand deposit, still it would earn interest. by petitioner when it paid respondent in advance the interest for one
year. Thus, petitioner is estopped from denying that it authorized its
Going back to the unauthorized transfer of respondents funds to Branch Manager to enter into an agreement with respondents
Tevesteco, in its attempt to evade any liability therefor, petitioner now Executive Vice President concerning the deposit with the
impugns the validity of the subject agreement on the ground that its corresponding 17% interest per annum.
Branch Manager, Jaime Sebastian, overstepped the limits of his
authority in accepting respondents deposit with 17% interest per Anent the award of interest, petitioner contends that such award is not
annum. We have held that if a corporation knowingly permits its in order as it had not been prayed for by respondent in its complaint
officer, or any other agent, to perform acts within the scope of an nor was it an issue agreed upon by the parties during the pre-trial of
apparent authority, holding him out to the public as possessing power the case. Nonetheless, the rule is well settled that when the obligation
to do those acts, the corporation will, as against any person who has is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which honored and paid by the defendant. This singular circumstance made
may have been stipulated in writing, as in this case. Furthermore, the plaintiff believe [sic] and relied [sic] on the fact that the succeeding
interest due shall itself earn legal interest from the time it is judicially special withdrawal slips drawn upon the defendant would be equally
demanded.[8] Besides, the matter of how much interest respondent is sufficiently funded. Relying on such confidence and belief and as a
entitled to falls squarely within the issues framed by the parties in their direct consequence thereof, plaintiff extended to Fojas-Arca other
respective pleadings filed with the court a quo. At any rate, courts may purchases on credit of its products.
indeed grant the relief warranted by the allegations and proof even if
no such specific relief is prayed for if only to conclude a complete and On the following dates Fojas-Arca purchased Firestone products on
thorough resolution of the issues involved.[9] credit (Exh. M, I, J, K) and delivered to plaintiff the corresponding
special withdrawal slips in payment thereof drawn upon the
Finally, petitioner faults the Court of Appeals in not ordering the defendant, to wit:
consolidation of Civil Case No. 89-4996 (filed by petitioner against
Tevesteco) with Civil Case No. 89-5280 (the instant case). According DATE June 15, 1978
to petitioner, had there been consolidation of these two cases, it WITHDRAWAL SLIP NO. 42127
would have been shown that the P80 Million transferred to Tevestecos AMOUNT P1,198,092.80
account were proceeds of a loan extended by respondent FMIC to
Tevesteco. Suffice it to state that as found by both the trial court and July 15, 1978
the Appellate Court, petitioners transfer of respondents P80M to 42128
Tevesteco was unauthorized and tainted with fraud. 940,190.00

At this point, we must emphasize that this Court is not a trier of facts. Aug. 15, 1978
Thus, we uphold the finding of both lower courts that petitioner failed 42129
to exercise that degree of diligence required by the nature of its 880,000.00
obligations to its depositors. A bank is under obligation to treat the
accounts of its depositors with meticulous care, whether such account Sep. 15, 1978
consists only of a few hundred pesos or of million of pesos.[10] Here, 42130
petitioner cannot claim it exercised such a degree of care required of 981,500.00
it and must, therefore, bear the consequence.
These were likewise deposited by plaintiff in its current account with
WHEREFORE, the petition is DENIED. The assailed Decision dated Citibank and in turn the Citibank forwarded it [sic] to the defendant for
July 4, 1997 and the Resolution dated January 28, 1998 of the Court payment and collection, as it had done in respect of the previous
of Appeals in CA-G.R. CV No. 44986 are hereby AFFIRMED. Costs special withdrawal slips. Out of these four (4) withdrawal slips only
against petitioner. withdrawal slip No. 42130 in the amount of P981,500.00 was honored
and paid by the defendant in October 1978. Because of the absence
SO ORDERED. for a long period coupled with the fact that defendant honored and
paid withdrawal slips No. 42128 dated July 15, 1978, in the amount of
G.R. No. 113236 March 5, 2001FIRESTONE TIRE & P981,500.00 plaintiff's belief was all the more strengthened that the
RUBBER COMPANY OF THE PHILIPPINES, petitioner, vs. other withdrawal slips were likewise sufficiently funded, and that it had
COURT OF APPEALS and LUZON DEVELOPMENT BANK, received full value and payment of Fojas-Arca's credit purchased then
respondents. outstanding at the time. On this basis, plaintiff was induced to
This petition assails the decision 1 dated December 29, 1993 of the continue extending to Fojas-Arca further purchase on credit of its
Court of Appeals in CA-G.R. CV No. 29546, which affirmed the products as per agreement (Exh. "B").
judgment 2 of the Regional Trial Court of Pasay City, Branch 113 in
Civil Case No. PQ-7854-P, dismissing Firestone's complaint for However, on December 14, 1978, plaintiff was informed by Citibank
damages. that special withdrawal slips No. 42127 dated June 15, 1978 for
P1,198,092.80 and No. 42129 dated August 15, 1978 for P880,000.00
The facts of this case, adopted by the CA and based on findings by were dishonored and not paid for the reason 'NO ARRANGEMENT.'
the trial court, are as follows: As a consequence, the Citibank debited plaintiff's account for the total
sum of P2,078,092.80 representing the aggregate amount of the
. . . [D]efendant is a banking corporation. It operates under a above-two special withdrawal slips. Under such situation, plaintiff
certificate of authority issued by the Central Bank of the Philippines, averred that the pecuniary losses it suffered is caused by and directly
and among its activities, accepts savings and time deposits. Said attributable to defendant's gross negligence.
defendant had as one of its client-depositors the Fojas-Arca
Enterprises Company ("Fojas-Arca" for brevity). Fojas-Arca On September 25, 1979, counsel of plaintiff served a written demand
maintaining a special savings account with the defendant, the latter upon the defendant for the satisfaction of the damages suffered by it.
authorized and allowed withdrawals of funds therefrom through the And due to defendant's refusal to pay plaintiff's claim, plaintiff has
medium of special withdrawal slips. These are supplied by the been constrained to file this complaint, thereby compelling plaintiff to
defendant to Fojas-Arca. incur litigation expenses and attorney's fees which amount are
recoverable from the defendant.
In January 1978, plaintiff and Fojas-Arca entered into a "Franchised
Dealership Agreement" (Exh. B) whereby Fojas-Arca has the privilege Controverting the foregoing asseverations of plaintiff, defendant
to purchase on credit and sell plaintiff's products. asserted, inter alia that the transactions mentioned by plaintiff are that
of plaintiff and Fojas-Arca only, [in] which defendant is not involved;
On January 14, 1978 up to May 15, 1978. Pursuant to the aforesaid Vehemently, it was denied by defendant that the special withdrawal
Agreement, Fojas-Arca purchased on credit Firestone products from slips were honored and treated as if it were checks, the truth being
plaintiff with a total amount of P4,896,000.00. In payment of these that when the special withdrawal slips were received by defendant, it
purchases, Fojas-Arca delivered to plaintiff six (6) special withdrawal only verified whether or not the signatures therein were authentic, and
slips drawn upon the defendant. In turn, these were deposited by the whether or not the deposit level in the passbook concurred with the
plaintiff with its current account with the Citibank. All of them were savings ledger, and whether or not the deposit is sufficient to cover
the withdrawal; if plaintiff treated the special withdrawal slips paid by information came about six months from the time Fojas-Arca
Fojas-Arca as checks then plaintiff has to blame itself for being purchased tires from petitioner using the subject withdrawal slips.
grossly negligent in treating the withdrawal slips as check when it is Citibank then debited the amount of these withdrawal slips from
clearly stated therein that the withdrawal slips are non-negotiable; that petitioner's account, causing the alleged pecuniary damage subject of
defendant is not a privy to any of the transactions between Fojas-Arca petitioner's cause of action.
and plaintiff for which reason defendant is not duty bound to notify nor
give notice of anything to plaintiff. If at first defendant had given notice
At the outset, we note that petitioner admits that the withdrawal slips
to plaintiff it is merely an extension of usual bank courtesy to ain question were non-negotiable.9 Hence, the rules governing the
prospective client; that defendant is only dealing with its depositor
giving of immediate notice of dishonor of negotiable instruments do
Fojas-Arca and not the plaintiff. In summation, defendant categorically
not apply in this case.10 Petitioner itself concedes this point.11 Thus,
stated that plaintiff has no cause of action against it (pp. 1-3, Dec.; pp.
respondent bank was under no obligation to give immediate notice
368-370, id).3 that it would not make payment on the subject withdrawal slips.
Citibank should have known that withdrawal slips were not negotiable
Petitioner's complaint4 for a sum of money and damages with the instruments. It could not expect these slips to be treated as checks by
Regional Trial Court of Pasay City, Branch 113, docketed as Civil other entities. Payment or notice of dishonor from respondent bank
Case No. 29546, was dismissed together with the counterclaim of could not be expected immediately, in contrast to the situation
defendant. involving checks.

Petitioner appealed the decision to the Court of Appeals. It averred In the case at bar, it appears that Citibank, with the knowledge that
that respondent Luzon Development Bank was liable for damages respondent Luzon Development Bank, had honored and paid the
under Article 21765 in relation to Articles 196 and 207 of the Civil previous withdrawal slips, automatically credited petitioner's current
Code. As noted by the CA, petitioner alleged the following tortious account with the amount of the subject withdrawal slips, then merely
acts on the part of private respondent: 1) the acceptance and waited for the same to be honored and paid by respondent bank. It
payment of the special withdrawal slips without the presentation of the presumed that the withdrawal slips were "good."
depositor's passbook thereby giving the impression that the
withdrawal slips are instruments payable upon presentment; 2) giving It bears stressing that Citibank could not have missed the non-
the special withdrawal slips the general appearance of checks; and 3) negotiable nature of the withdrawal slips. The essence of negotiability
the failure of respondent bank to seasonably warn petitioner that it which characterizes a negotiable paper as a credit instrument lies in
would not honor two of the four special withdrawal slips. its freedom to circulate freely as a substitute for money.12 The
withdrawal slips in question lacked this character.
On December 29, 1993, the Court of Appeals promulgated its
assailed decision. It denied the appeal and affirmed the judgment of A bank is under obligation to treat the accounts of its depositors with
the trial court. According to the appellate court, respondent bank meticulous care, whether such account consists only of a few hundred
notified the depositor to present the passbook whenever it received a pesos or of millions of pesos.13 The fact that the other withdrawal
collection note from another bank, belying petitioner's claim that slips were honored and paid by respondent bank was no license for
respondent bank was negligent in not requiring a passbook under the Citibank to presume that subsequent slips would be honored and paid
subject transaction. The appellate court also found that the special immediately. By doing so, it failed in its fiduciary duty to treat the
withdrawal slips in question were not purposely given the appearance accounts of its clients with the highest degree of care.14
of checks, contrary to petitioner's assertions, and thus should not
have been mistaken for checks. Lastly, the appellate court ruled that In the ordinary and usual course of banking operations, current
the respondent bank was under no obligation to inform petitioner of account deposits are accepted by the bank on the basis of deposit
the dishonor of the special withdrawal slips, for to do so would have slips prepared and signed by the depositor, or the latter's agent or
been a violation of the law on the secrecy of bank deposits. representative, who indicates therein the current account number to
which the deposit is to be credited, the name of the depositor or
Hence, the instant petition, alleging the following assignment of error: current account holder, the date of the deposit, and the amount of the
deposit either in cash or in check.15
25. The CA grievously erred in holding that the [Luzon
Development] Bank was free from any fault or negligence regarding The withdrawal slips deposited with petitioner's current account with
the dishonor, or in failing to give fair and timely advice of the dishonor,
Citibank were not checks, as petitioner admits. Citibank was not
of the two intermediate LDB Slips and in failing to award damages to bound to accept the withdrawal slips as a valid mode of deposit. But
Firestone pursuant to Article 2176 of the New Civil Code.8 having erroneously accepted them as such, Citibank — and petitioner
as account-holder — must bear the risks attendant to the acceptance
The issue for our consideration is whether or not respondent bank of these instruments. Petitioner and Citibank could not now shift the
should be held liable for damages suffered by petitioner, due to its risk and hold private respondent liable for their admitted mistake.
allegedly belated notice of non-payment of the subject withdrawal
slips. WHEREFORE, the petition is DENIED and the decision of the Court
of Appeals in CA-G.R. CV No. 29546 is AFFIRMED. Costs against
The initial transaction in this case was between petitioner and Fojas- petitioner.
Arca, whereby the latter purchased tires from the former with special
withdrawal slips drawn upon Fojas-Arca's special savings account SO ORDERED.
with respondent bank. Petitioner in turn deposited these withdrawal
slips with Citibank. The latter credited the same to petitioner's current G.R. No. 146918 May 2, 2006
account, then presented the slips for payment to respondent bank. It CITIBANK, N.A., Petitioner, vs.SPS. LUIS and CARMELITA
was at this point that the bone of contention arose. CABAMONGAN and their sons LUISCABAMONGAN, JR. and
LITO CABAMONGAN, Respondents.
On December 14, 1978, Citibank informed petitioner that special Before the Court is a petition for review on certiorari of the Decision1
withdrawal slips Nos. 42127 and 42129 dated June 15, 1978 and dated January 26, 2001 and the Resolution2 dated July 30, 2001 of
August 15, 1978, respectively, were refused payment by respondent the Court of Appeals (CA) in CA-G.R. CV No. 59033.
bank due to insufficiency of Fojas-Arca's funds on deposit. That
The factual background of the case is as follows: For the plaintiffs, the Cabamongan spouses themselves and Florenda
G. Negre, Documents Examiner II of the Philippine National Police
On August 16, 1993, spouses Luis and Carmelita Cabamongan (PNP) Crime Laboratory in Camp Crame, Quezon City, testified. The
opened a joint "and/or" foreign currency time deposit in trust for their Cabamongan spouses, in essence, testified that Carmelita could not
sons Luis, Jr. and Lito at the Citibank, N.A., Makati branch, with have preterminated the deposit account since she was in California at
Reference No. 60-22214372, in the amount of $55,216.69 for a term the time of the incident.21 Negre testified that an examination of the
of 182 days or until February 14, 1994, at 2.5625 per cent interest per questioned signature and the samples of the standard signatures of
annum.3 Prior to maturity, or on November 10, 1993, a person Carmelita submitted in the RTC showed a significant divergence. She
claiming to be Carmelita went to the Makati branch and pre- concluded that they were not written by one and the same person.22
terminated the said foreign currency time deposit by presenting a
passport, a Bank of America Versatele Card, an ATM card and a For the respondent, Citibank presented San Pedro and Cris
Mabuhay Credit Card.4 She filled up the necessary forms for pre- Cabalatungan, Vice-President and In-Charge of Security and
termination of deposits with the assistance of Account Officer Yeye Management Division. Both San Pedro and Cabalatungan testified
San Pedro. While the transaction was being processed, she was that proper bank procedure was followed and the deposit was
casually interviewed by San Pedro about her personal circumstances released to Carmelita only upon proper identification and
and investment plans.5 Since the said person failed to surrender the verification.23
original Certificate of Deposit, she had to execute a notarized release
and waiver document in favor of Citibank, pursuant to Citibank's On July 1, 1997, the RTC rendered a decision in favor of the
internal procedure, before the money was released to her.6 The Cabamongan spouses and against Citibank, the dispositive portion of
release and waiver document7 was not notarized on that same day which reads, thus:
but the money was nonetheless given to the person withdrawing.8
The transaction lasted for about 40 minutes.9 WHEREFORE, premises considered, defendant Citibank, N.A., is
hereby ordered to pay the plaintiffs the following:
After said person left, San Pedro realized that she left behind an
identification card.10 Thus, San Pedro called up Carmelita's listed 1) the principal amount of their Foreign Currency Deposit (Reference
address at No. 48 Ranger Street, Moonwalk Village, Las Pinas, Metro No. 6022214372) amounting to $55,216.69 or its Phil. Currency
Manila on the same day to have the card picked up.11 Marites, the equivalent plus interests from August 16, 1993 until fully paid;
wife of Lito, received San Pedro's call and was stunned by the news 2) Moral damages of P50,000.00;
that Carmelita preterminated her foreign currency time deposit 3) Attorney's fees of P50,000.00; and
because Carmelita was in the United States at that time.12 The 4) Cost of suit.
Cabamongan spouses work and reside in California. Marites made an SO ORDERED.24
overseas call to Carmelita to inform her about what happened.13 The The RTC reasoned that:
Cabamongan spouses were shocked at the news. It seems that
sometime between June 10 and 16, 1993, an unidentified person xxx Citibank, N.A., committed negligence resulting to the undue
broke in at the couple's residence at No. 3268 Baldwin Park suffering of the plaintiffs. The forgery of the signatures of plaintiff
Boulevard, Baldwin Park, California. Initially, they reported that only Carmelita Cabamongan on the questioned documents has been
Carmelita's jewelry box was missing, but later on, they discovered categorically established by the handwriting expert. xxx Defendant
that other items, such as their passports, bank deposit certificates, bank was clearly remiss in its duty and obligations to treat plaintiff's
including the subject foreign currency deposit, and identification cards account with the highest degree of care, considering the nature of
were also missing.14 It was only then that the Cabamongan spouses their relationship. Banks are under the obligation to treat the accounts
realized that their passports and bank deposit certificates were lost.15 of their depositors with meticulous care. This is the reason for their
established procedure of requiring several specimen signatures and
Through various overseas calls, the Cabamongan spouses informed recent picture from potential depositors. For every transaction, the
Citibank, thru San Pedro, that Carmelita was in the United States and depositor's signature is passed upon by personnel to check and
did not preterminate their deposit and that the person who did so was countercheck possible irregularities and therefore must bear the
an impostor who could have also been involved in the break-in of their blame when they fail to detect the forgery or discrepancy.25
California residence. San Pedro told the spouses to submit the
necessary documents to support their claim but Citibank concluded Despite the favorable decision, the Cabamongan spouses filed on
nonetheless that Carmelita indeed preterminated her deposit. In a October 1, 1997 a motion to partially reconsider the decision by
letter dated September 16, 1994, the Cabamongan spouses, through praying for an increase of the amount of the damages awarded.26
counsel, made a formal demand upon Citibank for payment of their Citibank opposed the motion.27 On November 19, 1997, the RTC
preterminated deposit in the amount of $55,216.69 with legal granted the motion for partial reconsideration and amended the
interests.16 In a letter dated November 28, 1994, Citibank, through dispositive portion of the decision as follows:
counsel, refused the Cabamongan spouses' demand for payment,
asserting that the subject deposit was released to Carmelita upon From the foregoing, and considering all the evidence laid down by the
proper identification and verification.17 parties, the dispositive portion of the court's decision dated July 1,
1997 is hereby amended and/or modified to read as follows:
On January 27, 1995, the Cabamongan spouses filed a complaint
against Citibank before the Regional Trial Court of Makati for Specific WHEREFORE, defendant Citibank, N.A., is hereby ordered to pay the
Performance with Damages, docketed as Civil Case No 95-163 and plaintiffs the following:
raffled to Branch 150 (RTC).18
1) the principal amount of their foreign currency deposit (Reference
In its Answer dated April 20, 1995, Citibank insists that it was not No. 6022214372) amounting to $55,216.69 or its Philippine currency
negligent of its duties since the subject deposit was released to equivalent (at the time of its actual payment or execution) plus legal
Carmelita only upon proper identification and verification.19 interest from Aug. 16, 1993 until fully paid.
2) moral damages in the amount of P200,000.00;
At the pre-trial conference the parties failed to arrive at an amicable 3) exemplary damages in the amount of P100,000.00;
settlement.20 Thus, trial on the merits ensued. 4) attorney's fees of P100,000.00;
5) litigation expenses of P200,000.00;
6) cost of suit. was convinced of the validity of the passport. She also considered as
decisive the fact that the impostor had a mole on her face in the same
SO ORDERED.28 way that the person in the pictures on the identification cards had a
mole. These explanations do not account for the disparity between
Dissatisfied, Citibank filed an appeal with the CA, docketed as CA- the pictures and the actual appearance of the impostor. That said
G.R. CV No. 59033.29 On January 26, 2001, the CA rendered a person was allowed to withdraw the money anyway is beyond belief.
decision sustaining the finding of the RTC that Citibank was negligent,
ratiocinating in this wise: The above circumstances point to the bank's clear negligence. Bank
transactions pass through a successive [sic] of bank personnel,
In the instant case, it is beyond dispute that the subject foreign whose duty is to check and countercheck transactions for possible
currency deposit was pre-terminated on 10 November 1993. But errors. While a bank is not expected to be infallible, it must bear the
Carmelita Cabamongan, who works as a nursing aid (sic) at the blame for failing to discover mistakes of its employees despite
Sierra View Care Center in Baldwin Park, California, had shown established bank procedure involving a battery of personnel designed
through her Certificate of Employment and her Daily Time Record to minimize if not eliminate errors. In the instant case, Yeye San
from the [sic] January to December 1993 that she was in the United Pedro, the employee who primarily dealt with the impostor, did not
States at the time of the incident. follow bank procedure when she did not have the waiver document
notarized. She also openly courted disaster by ignoring discrepancies
Defendant Citibank, N.A., however, insists that Carmelita was the one between the actual appearance of the impostor and the pictures she
who pre-terminated the deposit despite claims to the contrary. Its presented, as well as the disparities between the signatures made
basis for saying so is the fact that the person who made the during the transaction and those on file with the bank. But even if San
transaction on the incident mentioned presented a valid passport and Pedro was negligent, why must the other employees in the hierarchy
three (3) other identification cards. The attending account officer of the bank's work flow allow such thing to pass unnoticed and
examined these documents and even interviewed said person. She unrectified?30
was satisfied that the person presenting the documents was indeed
Carmelita Cabamongan. However, such conclusion is belied by these The CA, however, disagreed with the damages awarded by the RTC.
following circumstances. It held that, insofar as the date from which legal interest of 12% is to
run, it should be counted from September 16, 1994 when extrajudicial
First, the said person did not present the certificate of deposit issued demand was made. As to moral damages, the CA reduced it to
to Carmelita Cabamongan. This would not have been an P100,000.00 and deleted the awards of exemplary damages and
insurmountable obstacle as the bank, in the absence of such litigation expenses. Thus, the dispositive portion of the CA decision
certificate, allows the termination of the deposit for as long as the reads:
depositor executes a notarized release and waiver document in favor
of the bank. However, this simple procedure was not followed by the WHEREFORE, the decision of the trial court dated 01 July 1997, and
bank, as it terminated the deposit and actually delivered the money to its order dated 19 November 1997, are hereby AFFIRMED with the
the impostor without having the said document notarized on the flimsy MODIFICATION that the legal interest for actual damages awarded in
excuse that another department of the bank was in charge of the amount of $55,216.69 shall run from 16 September 1994;
notarization. The said procedure was obviously for the protection of exemplary damages amounting to P100,000.00 and litigation
the bank but it deliberately ignored such precaution. At the very least, expenses amounting to P200,000.00 are deleted; and moral damages
the conduct of the bank amounts to negligence. is reduced to P100,000.00.

Second, in the internal memorandum of Account Officer Yeye San Costs against defendant.
Pedro regarding the incident, she reported that upon comparing the
authentic signatures of Carmelita Cabamongan on file with the bank SO ORDERED.31
with the signatures made by the person claiming to be Cabamongan
on the documents required for the termination of the deposit, she The Cabamongan spouses filed a motion for partial reconsideration
noticed that one letter in the latter [sic] signatures was different from on the matter of the award of damages in the decision.32 On July 30,
that in the standard signatures. She requested said person to sign 2001, the
again and scrutinized the identification cards presented. Presumably,
San Pedro was satisfied with the second set of signatures made as CA granted in part said motion and modified its decision as follows:
she eventually authorized the termination of the deposit. However,
upon examination of the signatures made during the incident by the 1. The actual damages in amount of $55,216.69, representing the
Philippine National Police (PNP) Crime Laboratory, the said amount of appellees' foreign currency time deposit shall earn an
signatures turned out to be forgeries. As the qualifications of interest of 2.5625% for the period 16 August 1993 to 14 February
Document Examiner Florenda Negre were established and she 1994, as stipulated in the contract;
satisfactorily testified on her findings during the trial, we have no 2. From 16 September 1994 until full payment, the amount of
reason to doubt the validity of her findings. Again, the bank's $55,216.69 shall earn interest at the legal rate of 12% per annum,
negligence is patent. San Pedro was able to detect discrepancies in and;
the signatures but she did not exercise additional precautions to 3. The award of moral damages is reduced to P50,000.00.33
ascertain the identity of the person she was dealing with. In fact, the
entire transaction took only 40 minutes to complete despite the Dissatisfied, both parties filed separate petitions for review on
anomalous situation. Undoubtedly, the bank could have done a better certiorari with this Court. The Cabamongan spouses' petition,
job. docketed as G.R. No. 149234, was denied by the Court per its
Resolution dated October 17, 2001.34 On the other hand, Citibank's
Third, as the bank had on file pictures of its depositors, it is petition was given due course by the Court per Resolution dated
inconceivable how bank employees could have been duped by an December 10, 2001 and the parties were required to submit their
impostor. San Pedro admitted in her testimony that the woman she respective memoranda.35
dealt with did not resemble the pictures appearing on the identification
cards presented but San Pedro still went on with the sensitive Citibank poses the following errors for resolution:
transaction. She did not mind such disturbing anomaly because she
1. THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND complaint or in its appellant's brief filed with the CA. To consider the
GRAVELY ABUSED ITS DISCRETION IN UPHOLDING THE LOWER alleged facts and arguments raised belatedly in a supplemental
COURT'S DECISION WHICH IS NOT BASED ON CLEAR pleading to herein petition for review at this very late stage in the
EVIDENCE BUT ON GRAVE MISAPPREHENSION OF FACTS. proceedings would amount to trampling on the basic principles of fair
2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN play, justice and due process.391avvphil.net
UPHOLDING THE DECISION OF THE TRIAL COURT AWARDING
MORAL DAMAGES WHEN IN FACT THERE IS NO BASIS IN LAW The Court has repeatedly emphasized that, since the banking
AND FACT FOR SAID AWARD. business is impressed with public interest, of paramount importance
3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN thereto is the trust and confidence of the public in general.
RULING THAT THE PRINCIPAL AMOUNT OF US$55,216.69 Consequently, the highest degree of diligence40 is expected,41 and
SHOULD EARN INTEREST AT THE RATE OF 12% PER ANNUM high standards of integrity and performance are even required, of it.42
FROM 16 SEPTEMBER 1994 UNTIL FULL PAYMENT.36 By the nature of its functions, a bank is "under obligation to treat the
accounts of its depositors with meticulous care,43 always having in
Anent the first ground, Citibank contends that the CA erred in mind the fiduciary nature of their relationship."44
affirming the RTC's finding that it was negligent since the said courts
failed to appreciate the extra diligence of a good father of a family In this case, it has been sufficiently shown that the signatures of
exercised by Citibank thru San Pedro. Carmelita in the forms for pretermination of deposits are forgeries.
Citibank, with its signature verification procedure, failed to detect the
As to the second ground, Citibank argues that the Cabamongan forgery. Its negligence consisted in the omission of that degree of
spouses are not entitled to moral damages since moral damages can diligence required of banks. The Court has held that a bank is "bound
be awarded only in cases of breach of contract where the bank has to know the signatures of its customers; and if it pays a forged check,
acted willfully, fraudulently or in bad faith. It submits that it has not it must be considered as making the payment out of its own funds,
been shown in this case that Citibank acted willfully, fraudulently or in and cannot ordinarily charge the amount so paid to the account of the
bad faith and mere negligence, even if the Cabamongan spouses depositor whose name was forged."45 Such principle equally applies
suffered mental anguish or serious anxiety on account thereof, is not here.
a ground for awarding moral damages.
Citibank cannot label its negligence as mere mistake or human error.
On the third ground, Citibank avers that the interest rate should not be Banks handle daily transactions involving millions of pesos.46 By the
12% but the stipulated rate of 2.5625% per annum. It adds that there very nature of their works the degree of responsibility, care and
is no basis to pay the interest rate of 12% per annum from September trustworthiness expected of their employees and officials is far greater
16, 1994 until full payment because as of said date there was no legal than those of ordinary clerks and employees.47 Banks are expected
ground yet for the Cabamongan spouses to demand payment of the to exercise the highest degree of diligence in the selection and
principal and it is only after a final judgment is issued declaring that supervision of their employees.48
Citibank is obliged to return the principal amount of US$55,216.69
when the right to demand payment starts and legal interest starts to The Court agrees with the observation of the CA that Citibank, thru
run. Account Officer San Pedro, openly courted disaster when despite
noticing discrepancies in the signature and photograph of the person
On the other hand, the Cabamongan spouses contend that Citibank's claiming to be Carmelita and the failure to surrender the original
negligence has been established by evidence. As to the interest rate, certificate of time deposit, the pretermination of the account was
they submit that the stipulated interest of 2.5635% should apply for allowed. Even the waiver document was not notarized, a procedure
the 182-day contract period from August 16, 1993 to February 14, meant to protect the bank. For not observing the degree of diligence
1993; thereafter, 12% should apply. They further contend that the required of banking institutions, whose business is impressed with
RTC's award of exemplary damages of P100,000.00 should be public interest, Citibank is liable for damages.
maintained. They submit that the CA erred in treating the award of
litigation expenses as lawyer's fees since they have shown that they As to the interest rate, Citibank avers that the claim of the
incurred actual expenses in litigating their claim against Citibank. Cabamongan spouses does not constitute a loan or forbearance of
They also contend that the CA erred in reducing the award of moral money and therefore, the interest rate of 6%, not 12%, applies.
damages in view of the degree of mental anguish and emotional
fears, anxieties and nervousness suffered by them.37 The Court does not agree.

Subsequently, Citibank, thru a new counsel, submitted a
Supplemental Memorandum,38 wherein it posits that, assuming that it
was negligent, the Cabamongan spouses were guilty of contributory
negligence since they failed to notify Citibank that they had migrated
to the United States and were residents thereat and after having been
victims of a burglary, they should have immediately assessed their
loss and informed Citibank of the disappearance of the bank
certificate, their passports and other identification cards, then the
fraud would not have been perpetuated and the losses avoided. It
further argues that since the Cabamongan spouses are guilty of
contributory negligence, the doctrine of last clear chance is
inapplicable.
Citibank's assertion that the Cabamongan spouses are guilty of
contributory negligence and non-application of the doctrine of last
clear chance cannot pass muster since these contentions were raised
for the first time only in their Supplemental Memorandum. Indeed, the
records show that said contention were neither pleaded in the petition
for review and the memorandum nor in Citibank's Answer to the
The time deposit subject matter of herein petition is a simple loan.
The provisions of the New Civil Code on simple loan govern the
contract between a bank and its depositor. Specifically, Article 1980
thereof categorically provides that ". . . savings . . . deposits of money
in banks and similar institutions shall be governed by the provisions
concerning simple loan." Thus, the relationship between a bank and
its depositor is that of a debtor-creditor, the depositor being the
creditor as it lends the bank money, and the bank is the debtor which
agrees to pay the depositor on demand.
The applicable interest rate on the actual damages of $55,216.69,
should be in accordance with the guidelines set forth in Eastern
Shipping Lines, Inc. v. Court of Appeals49 to wit:
I. When an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the contravenor
can be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of
recoverable damages.
 Finally, Citibank contends that the award of attorney's fees should be
II. With regard particularly to an award of interest, in the concept of deleted since such award appears only in the dispositive portion of
actual and compensatory damages, the rate of interest, as well as the the decision of the RTC and the latter failed to elaborate, explain and
accrual thereof, is imposed, as follows: justify the same.

1. When the obligation is breached, and it consists in the payment of Article 2208 of the New Civil Code enumerates the instances where
a sum of money, i.e., a loan or forbearance of money, the interest due such may be awarded and, in all cases, it must be reasonable, just
should be that which may have been stipulated in writing. and equitable if the same were to be granted. Attorney's fees as part
Furthermore, the interest due shall itself earn legal interest from the of damages are not meant to enrich the winning party at the expense
time it is judicially demanded. In the absence of stipulation, the rate of of the losing litigant. They are not awarded every time a party prevails
interest shall be 12% per annum to be computed from default, i.e., in a suit because of the policy that no premium should be placed on
from judicial or extrajudicial demand under and subject to the the right to litigate.55 The award of attorney's fees is the exception
provisions of Article 1169 of the Civil Code. rather than the general rule. As such, it is necessary for the court to
make findings of facts and law that would bring the case within the
2. When an obligation, not constituting a loan or forbearance of exception and justify the grant of such award. The matter of attorney's
money, is breached, an interest on the amount of damages awarded fees cannot be mentioned only in the dispositive portion of the
may be imposed at the discretion of the court at the rate of 6% per decision.56 They must be clearly explained and justified by the trial
annum. No interest, however, shall be adjudged on unliquidated court in the body of its decision. Consequently, the award of attorney's
claims or damages except when or until the demand can be fees should be deleted.
established with reasonable certainty. Accordingly, where the demand
is established with reasonable certainty, the interest shall begin to run WHEREFORE, the instant petition is PARTIALLY GRANTED. The
from the time the claim is made judicially or extrajudicially (Art. 1169, assailed Decision and Resolution are AFFIRMED with
Civil Code) but when such certainty cannot be so reasonably MODIFICATIONS, as follows:
established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which 1. The interest shall be computed as follows:
time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal a. The actual damages in principal amount of $55,216.69,
interest shall, in any case, be on the amount finally adjudged. representing the amount of foreign currency time deposit shall earn
interest at the stipulated rate of 2.5625% for the period August 16,
3. When the judgment of the court awarding a sum of money 1993 to February 14, 1994;
becomes final and executory, the rate of legal interest whether the
case falls under paragraph 1 or paragraph 2, above, shall be 12% per b. From February 15, 1994 to September 15, 1994, the principal
annum from such finality until its satisfaction, this interim period being amount of $55,216.69 and the interest earned as of February 14,
deemed to be by then an equivalent to a forbearance of credit.50 1994 shall earn interest at the rate then prevailing granted by
Citibank;
Thus, in a loan or forbearance of money, the interest due should be
that stipulated in writing, and in the absence thereof, the rate shall be c. From September 16, 1994 until full payment, the principal amount
12% per annum counted from the time of demand. Accordingly, the of $55,216.69 and the interest earned as of September 15, 1994,
stipulated interest rate of 2.562% per annum shall apply for the 182- shall earn interest at the legal rate of 12% per annum;
day contract period from August 16, 1993 to February 14, 1994. For
the period from the date of extra-judicial demand, September 16, 2. The award of attorney's fees is DELETED.
1994, until full payment, the rate of 12% shall apply. As for the
intervening period between February 15, 1994 to September 15, No pronouncement as to costs.
1994, the rate of interest then prevailing granted by Citibank shall
apply since the time deposit provided for roll over upon maturity of the SO ORDERED.
principal and interest.51

As to moral damages, in culpa contractual or breach of contract, as in

the case before the Court, moral damages are recoverable only if the
defendant has acted fraudulently or in bad faith,52 or is found guilty of
gross negligence amounting to bad faith, or in wanton disregard of his
contractual obligations.53 The act of Citibank's employee in allowing
the pretermination of Cabamongan spouses' account despite the
noted discrepancies in Carmelita's signature and photograph, the
absence of the original certificate of time deposit and the lack of
notarized waiver dormant, constitutes gross negligence amounting to
bad faith under Article 2220 of the Civil Code.

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. The yardstick should be that it is not palpably
and scandalously excessive.54 The amount of P50,000.00 awarded
by the CA is reasonable and just. Moreover, said award is deemed
final and executory insofar as respondents are concerned considering
that their petition for review had been denied by the Court in its final
and executory Resolution dated October 17, 2001 in G.R. No.
149234.