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[G.R.

No.

88013.

March

19,

1990.]

SIMEX INTERNATIONAL (MANILA), INCORPORATED, Petitioner, v.


THE HONORABLE COURT OF APPEALS and TRADERS ROYAL
BANK, Respondents.
CRUZ, J.:

FACTS:
The petitioner is a private corporation engaged in the exportation of food
products. It buys these products from various local suppliers and then sells
them abroad, particularly in the United States, Canada and the Middle
East. Most of its exports are purchased by the petitioner on credit.
The petitioner was a depositor of the respondent bank and maintained a
checking account in its branch at Romulo Avenue, Cubao, Quezon City.
May 25, 1981 - Petitioner deposited to its account in the said bank the
amount of P100,000.00, thus increasing its balance as of that date to
P190,380.74.
Subsequently, the petitioner issued several checks against its deposit but
was suprised to learn later that they had been dishonored for insufficient
funds.
The dishonored checks are the following:
1.

2.
3.
4.
5.
6.
7.
8.

Check No. 215391 dated May 29, 1981, in favor of California


Manufacturing Company, Inc. for P16,480.00
Check No. 215426 dated May 28, 1981, in favor of the Bureau of
Internal Revenue in the amount of P3,386.73
Check No. 215451 dated June 4, 1981, in favor of Mr. Greg
Pedreo in the amount of P7,080.00
Check No. 215441 dated June 5, 1981, in favor of Malabon
Longlife Trading Corporation in the amount of P42,906.00
Check No. 215474 dated June 10, 1981, in favor of Malabon
Longlife Trading Corporation in the amount of P12,953.00
Check No. 215477 dated June 9, 1981, in favor of Sea-Land
Services, Inc. in the amount of P27,024.45
Check No. 215412 dated June 10, 1981, in favor of Baguio Country
Club Corporation in the amount of P4,385.02: and
Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla
in the amount of P6,275.00

June 9, 1981 - California Manufacturing Corporation sent a letter of


demand to the petitioner, threatening prosecution if the dishonored check
issued to it was not made good.
June 15, 1981 - Similar letters were sent to the petitioner by the Malabon
Long Life Trading. Malabon also canceled the petitioners credit line and
demanded that future payments be made by it in cash or certified check.
June 10, 1981 - and by the G. and U. Enterprises
Meantime, action on the pending orders of the petitioner with the other
suppliers whose checks were dishonored was also deferred
June 10, 1981 - petitioner complained to the respondent bank.
Investigation disclosed that the sum of P100,000.00 deposited by the
petitioner on May 25, 1981, had not been credited to it. The error was
rectified on June 17, 1981, and the dishonored checks were paid after they
were re-deposited.
June 20, 1981 - petitioner demanded reparation from the respondent bank
for its "gross and wanton negligence." This demand was not met. The
petitioner then filed a complaint in the then Court of First Instance of Rizal
claiming from the private respondent moral damages in the sum of
P1,000,000.00 and exemplary damages in the sum of P500,000.00, plus
25% attorneys fees, and costs.
CFI of Rizal:
Judge Johnico G. Serquia rendered judgment holding that moral and
exemplary damages were not called for under the circumstances. However,
observing that the plaintiffs right had been violated, he ordered the
defendant to pay nominal damages in the amount of P20,000.00 plus
P5,000.00 attorneys fees and costs.
CA:
Affirmed in toto the decision of CFI
Hence the current petition
ISSUE:
WON petitioner is entitled to moral and exemplary damages
HELD:

Affirmative with modification


The error should not have been committed in the first place. The
respondent bank has not even explained why it was committed at all. It is
true that the dishonored checks were, as the Court of Appeals put it,
"eventually" paid. However, this took almost a month when, properly, the
checks should have been paid immediately upon presentment.
The initial carelessness of the respondent bank, aggravated by the lack of
promptitude in repairing its error, justifies the grant of moral damages.
This rather lackadaisical attitude toward the complaining depositor
constituted the gross negligence, if not wanton bad faith, that the
respondent court said had not been established by the petitioner.
The fact is that the petitioners credit line was canceled and its orders were
not acted upon pending receipt of actual payment by the suppliers. Its
business declined. Its reputation was tarnished. Its standing was reduced
in the business community. All this was due to the fault of the respondent
bank which was undeniably remiss in its duty to the petitioner.
Article 2205 of the Civil Code provides that actual or compensatory
damages may be received" (2) for injury to the plaintiffs business
standing or commercial credit." There is no question that the petitioner did
sustain actual injury as a result of the dishonored checks and that the
existence of the loss having been established "absolute certainty as to its
amount is not required.
Moral damages are not awarded to penalize the defendant but to
compensate the plaintiff for the injuries he may have suffered.

In the case at bar, the petitioner is seeking such damages for the prejudice
sustained by it as a result of the private respondents fault. The
respondent court said that the claimed losses are purely speculative and
are not supported by substantial evidence, but if failed to consider that the
amount of such losses need not be established with exactitude, precisely
because of their nature. Moral damages are not susceptible of pecuniary
estimation. Article 2216 of the Civil Code specifically provides that "no
proof of pecuniary loss is necessary in order that moral, nominal,
temperate, liquidated or exemplary damages may be adjudicated." That is
why the determination of the amount to be awarded (except liquidated
damages) is left to the sound discretion of the court, according to "the
circumstances of each case.

From every viewpoint except that of the petitioners, its claim of moral
damages in the amount of P1,000,000.00 is nothing short of preposterous.
Its business certainly is not that big, or its name that prestigious, to
sustain such an extravagant pretense. Moreover, a corporation is not as a
rule entitled to moral damages because, not being a natural person, it
cannot experience physical suffering or such sentiments as wounded
feelings, serious anxiety, mental anguish and moral shock. The only
exception to this rule is where the corporation has a good reputation that
is debased, resulting in its social humiliation.
Petitioner did suffer injury because of the private respondents negligence
caused by the dishonoring of the checks issued by it. The immediate
consequence was that its prestige was impaired because of the bouncing
checks and confidence in it as a reliable debtor was diminished.
Petitioner did suffer injury because of the private respondents negligence
caused by the dishonoring of the checks issued by it. The immediate
consequence was that its prestige was impaired because of the bouncing
checks and confidence in it as a reliable debtor was diminished.
Considering all this, we feel that the award of nominal damages in the
sum of P20,000.00 was not the proper relief to which the petitioner was
entitled. Under Article 2221 of the Civil Code, "nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated or
invaded by the defendant, may be vindicated or recognized, and not for
the purpose of indemnifying the plaintiff for any loss suffered by him." As
we have found that the petitioner has indeed incurred loss through the
fault of the private respondent, the proper remedy is the award to it of
moral damages, which we impose, in our discretion, in the same amount
of P20,000.00.
Art. 2229. Exemplary or corrective damages are imposed, by way of
example or correction for the public good, in addition to the moral,
temperate,
liquidated
or
compensatory
damages.
Art. 2232. In contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.
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. Thus, even
the humble wage-earner has not hesitated to entrust his lifes 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 business entities like the petitioner, the bank is a trusted and active
associate that can help in the running of their affairs, not only in the form
of loans when needed but more often in the conduct of their day-to-day
transactions like the issuance or encashment of checks.
In every case, the depositor expects the bank to treat his account with the
utmost fidelity, whether such account consists only of a few hundred pesos
or of millions. The bank must record every single transaction accurately,
down to the last centavo, and as promptly as possible. This has to be done
if the account is to reflect at any given time the amount of money the
depositor can dispose of as he sees fit, confident that the bank will deliver
it as and to whomever he directs. A blunder on the part of the bank, such
as the dishonor of a check without good reason, can cause the depositor
not a little embarrassment if not also financial loss and perhaps even civil
and criminal litigation.
The point is that as a business affected with public interest and because of
the nature of its functions, the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship. In the case at bar, it is obvious that
the respondent bank was remiss in that duty and violated that
relationship. What is especially deplorable is that, having been informed of
its error in not crediting the deposit in question to the petitioner, the
respondent bank did not immediately correct it but did so only one week
later or twenty-three days after the deposit was made. It bears repeating
that the record does not contain any satisfactory explanation of why the
error was made in the first place and why it was not corrected immediately
after its discovery. Such ineptness comes under the concept of the wanton
manner contemplated in the Civil Code that calls for the imposition of
exemplary
damages.
After deliberating on this particular matter, the Court, in the exercise of its
discretion, hereby imposes upon the respondent bank exemplary damages
in the amount of P50,000.00, "by way of example or correction for the
public good," in the words of the law. It is expected that this ruling will
serve as a warning and deterrent against the repetition of the ineptness

and indifference that has been displayed here, lest the confidence of the
public in the banking system be further impaired.
Appealed judgment is hereby MODIFIED and the private respondent is
ordered to pay the petitioner, in lieu of nominal damages, moral damages
in the amount of P20,000.00, and exemplary damages in the amount of
P50,000.00 plus the original award of attorneys fees in the amount of
P5,000.00,
and
costs.
SO ORDERED.

(3) Trust Receipt No. CD 83.10 dated 15 March 1983 for P251,250.
G.R. No. 127469

January 15, 2004

PHILIPPINE BANKING CORPORATION, petitioner,


vs.
COURT OF APPEALS and LEONILO MARCOS, respondents.
CARPIO, J.:
FACTS:
August 30, 1989 - Leonilo Marcos ("Marcos") filed with the trial court a
Complaint for Sum of Money with Damages3 against petitioner Philippine
Banking Corporation.
He alleged that that sometime in 1982, the BANK through Florencio B.
Pagsaligan one of the officials of the BANK and a close friend of Marcos,
persuaded him to deposit money with the BANK. Marcos yielded to
Pagsaligans persuasion and claimed he made a time deposit with the
BANK on two occasions.
First was on March 11, 1982 for P664,897.67. The BANK issued Receipt
No. 635734 for this time deposit. On March 12, 1982, Marcos claimed he
again made a time deposit with the BANK for P764,897.67. The BANK did
not issue an official receipt for this time deposit but it acknowledged a
deposit of this amount through a letter-certification Pagsaligan issued. The
time deposits earned interest at 17% per annum and had a maturity
period of 90 days.
Marcos alleged that Pagsaligan kept the various time deposit certificates
on the assurance that the BANK would take care of the certificates,
interests and renewals. Marcos claimed that from the time of the deposit,
he had not received the principal amount or its interest.
Sometime in March 1983, Marcos wanted to withdraw from the BANK his
time deposits and the accumulated interests to buy materials for his
construction business. However, the BANK through Pagsaligan convinced
Marcos to keep his time deposits intact and instead to open several
domestic letters of credit. The BANK required Marcos to give a marginal
deposit of 30% of the total amount of the letters of credit. The time
deposits of Marcos would secure 70% of the letters of credit. Since Marcos
trusted the BANK and Pagsaligan, he signed blank printed forms of the
application for the domestic letters of credit, trust receipt agreements and
promissory notes.
Marcos executed three Trust Receipt Agreements totalling P851,250,
broken down as follows:
(1) Trust Receipt No. CD 83.7 dated 8 March 1983 for P300,000;
(2) Trust Receipt No. CD 83.9 dated 15 March 1983 for P300,000; and

Marcos deposited the required 30% marginal deposit for the trust receipt
agreements. Marcos claimed that his obligation to the BANK was therefore
only P595,875 representing 70% of the letters of credit.
Marcos believed that he and the BANK became creditors and debtors of
each other. Marcos expected the BANK to offset automatically a portion of
his time deposits and the accumulated interest with the amount covered
by the three trust receipts totalling P851,250 less the 30% marginal
deposit that he had paid. Marcos argued that if only the BANK applied his
time deposits and the accumulated interest to his remaining obligation,
which is 70% of the total amount of the letters of credit, he would have
paid completely his debt. Marcos further pointed out that since he did not
apply for a renewal of the trust receipt agreements, the BANK had no right
to renew the same.
Marcos accused the BANK of unjustly demanding payment for the total
amount of the trust receipt agreements without deducting the 30%
marginal deposit that he had already made. He decried the BANKs
unlawful charging of accumulated interest because he claimed there was
no agreement as to the payment of interest. The interest arose from
numerous alleged extensions and penalties. Marcos reiterated that there
was no agreement to this effect because his time deposits served as the
collateral for his remaining obligation.
Marcos also denied that he obtained another loan from the BANK for
P500,000 with interest at 25% per annum supposedly covered by
Promissory Note No. 20-979-83 dated October 24, 1983. Marcos bewailed
the BANKs belated claim that his time deposits were applied to this void
promissory note on March 12, 1985.
September 18, 1989, summons and a copy of the complaint were served
on the BANK.
October 9, 1989, BANK filed its Answer with Counterclaim. The BANK
denied the allegations in the complaint. The BANK believed that the suit
was Marcos desperate attempt to avoid liability under several trust receipt
agreements that were the subject of a criminal complaint.
The BANK alleged that as of 12 March 1982, the total amount of the
various time deposits of Marcos has only P764,897.67 and not
P1,428,795.357 as alleged in the complaint. The P764,897.67 included the
P664,897.67 that Marcos deposited on 11 March 1982.
The BANK pointed out that Marcos delivered to the BANK the time deposit
certificates by virtue of the Deed of Assignment dated 2 June 1989.
Marcos executed the Deed of Assignment to secure his various loan
obligations. The BANK claimed that these loans are covered by Promissory
Note No. 20-756-82 dated 2 June 1982 for P420,000 and Promissory Note

No. 20-979-83 dated 24 October 1983 for P500,000. The BANK stressed
that these obligations are separate and distinct from the trust receipt
agreements.
When Marcos defaulted in the payment of Promissory Note No. 20-979-83,
the BANK debited his time deposits and applied the same to the obligation
that is now considered fully paid.8 The BANK insisted that the Deed of
Assignment authorized it to apply the time deposits in payment of
Promissory Note No. 20-979-83.
the trial court on motion of Marcos counsel issued an order declaring the
BANK in default for filing its answer five days after the 15-day period to
file the answer had lapsed.9 The trial court also held that the answer is a
mere scrap of paper because a copy was not furnished to Marcos. In the
same order, the trial court allowed Marcos to present his evidence ex parte
on 18 December 1989. On that date, Marcos testified and presented
documentary evidence. The case was then submitted for decision.
On 19 December 1989, Marcos received a copy of the BANKs Answer with
Compulsory Counterclaim.
On 29 December 1989, the BANK filed an opposition to Marcos motion to
declare the BANK in default. On 9 January 1990, the BANK filed a motion
to lift the order of default claiming that it had only then learned of the
order of default. The BANK explained that its delayed filing of the Answer
with Counterclaim and failure to serve a copy of the answer on Marcos was
due to excusable negligence. The BANK asked the trial court to set aside
the order of default because it had a valid and meritorious defense.
Trial Court issued an order setting aside the default order and admitting
the BANKs Answer with Compulsory Counterclaim. The trial court ordered
the BANK to present its evidence
BANK filed a motion praying to cross-examine Marcos who had testified
during the ex-parte hearing
Trial court denied the BANKs motion and directed the BANK to present
its evidence. Trial then ensued.
The BANK presented two witnesses, Rodolfo Sales, the Branch Manager of
the BANKs Cubao Branch since 1987, and Pagsaligan, the Branch Manager
of the same branch from 1982 to 1986.
On 24 April 1990, the counsel of Marcos cross-examined Pagsaligan. Due
to lack of material time, the trial court reset the continuation of the crossexamination and presentation of other evidence. The succeeding hearings
were postponed, specifically on 24, 27 and 28 of August 1990, because of
the BANKs failure to produce its witness, Pagsaligan. The BANK on these
scheduled hearings also failed to present other evidence.

On 7 September 1990, the BANK moved to postpone the hearing on the


ground that Pagsaligan could not attend the hearing because of illness.
The trial court denied the motion to postpone and on motion of Marcos
counsel ruled that the BANK had waived its right to present further
evidence. The trial court considered the case submitted for decision. The
BANK moved for reconsideration, which the trial court denied.
RTC:
Court rendered its decision in favor of Marcos. Aggrieved, the BANK
appealed to the Court of Appeals

CA:
Modified the decision of the trial court by reducing the amount of actual
damages and deleting the attorneys fees awarded to Marcos.
Hence the current petition
ISSUE:
1) WHETHER OR NOT THE PETITIONER [sic] ABLE TO PROVE THE PRIVATE
RESPONDENTS OUTSTANDING OBLIGATIONS SECURED BY THE
ASSIGNMENT OF TIME DEPOSITS?
1.1) COROLLARILY, WHETHER OR NOT THE PROVISIONS OF SECTION 8
RULE 10 OF [sic] THEN REVISED RULES OF COURT BE APPLIED [sic] SO
AS TO CREATE A JUDICIAL ADMISSION ON THE GENUINENESS AND DUE
EXECUTION OF THE ACTIONABLE DOCUMENTS APPENDED TO THE
PETITIONERS ANSWER?
2) WHETHER OR NOT PETITIONER [sic] DEPRIVED OF DUE PROCESS
WHEN THE LOWER COURT HAS [sic] DECLARED PETITIONER TO HAVE
WAIVED PRESENTATION OF FURTHER EVIDENCE AND CONSIDERED THE
CASE SUBMITTED FOR RESOLUTION?19
HELD:
Negative
The BANKs Fiduciary Duty to its Depositor
The BANK is liable to Marcos for offsetting his time deposits with a
fictitious promissory note. The existence of Promissory Note No. 20-97983 could have been easily proven had the BANK presented the original
copies of the promissory note and its supporting evidence. In lieu of the
original copies, the BANK presented the "machine copies of the duplicate"
of the documents. These substitute documents have no evidentiary value.
The BANKs failure to explain the absence of the original documents and to

maintain a record of the offsetting of this loan with the time deposits bring
to fore the BANKs dismal failure to fulfill its fiduciary duty to Marcos.

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

Section 2 of Republic Act No. 8791 (General Banking Law of 2000)


expressly imposes this fiduciary duty on banks when it declares that the
State recognizes the "fiduciary nature of banking that requires high
standards of integrity and performance." This statutory declaration merely
echoes the earlier pronouncement of the Supreme Court in Simex
International (Manila) Inc. v. Court of Appeals31 requiring banks to "treat
the accounts of its depositors with meticulous care, always having in mind
the fiduciary nature of their relationship."32 The Court reiterated this
fiduciary duty of banks in subsequent cases.33

The BANK claims that it is a reputable banking institution and that it has
no reason to forge Promissory Note No. 20-979-83. The trial court and
appellate court did not rule that it was the bank that forged the promissory
note. It was Pagsaligan, the BANKs branch manager and a close friend of
Marcos, whom the trial court categorically blamed for the fictitious loan
agreements. The trial court held that Pagsaligan made up the loan
agreement to cover up his inability to account for the time deposits of
Marcos.

Although RA No. 8791 took effect only in the year 2000,34 at the time that
the BANK transacted with Marcos, jurisprudence had already imposed on
banks the same high standard of diligence required under RA No. 8791.35
This fiduciary relationship means that the banks obligation to observe
"high standards of integrity and performance" is deemed written into every
deposit agreement between a bank and its depositor.
The fiduciary nature of banking requires banks to assume a degree of
diligence higher than that of a good father of a family. Thus, the BANKs
fiduciary duty imposes upon it a higher level of accountability than that
expected of Marcos, a businessman, who negligently signed blank forms
and entrusted his certificates of time deposits to Pagsaligan without
retaining copies of the certificates.
The business of banking is imbued with public interest. The stability of
banks largely depends on the confidence of the people in the honesty and
efficiency of banks.
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.
As the BANKs depositor, Marcos had the right to expect that the BANK was
accurately recording his transactions with it. Upon the maturity of his time
deposits, Marcos also had the right to withdraw the amount due him after
the BANK had correctly debited his outstanding obligations from his time
deposits.
By the very nature of its business, the BANK should have had in its
possession the original copies of the disputed promissory note and the
records and ledgers evidencing the offsetting of the loan with the time
deposits of Marcos. The BANK inexplicably failed to produce the original

Whether it was the BANKs negligence and inefficiency or Pagsaligans


misdeed that deprived Marcos of the amount due him will not excuse the
BANK from its obligation to return to Marcos the correct amount of his
time deposits with interest. The duty to observe "high standards of
integrity and performance" imposes on the BANK that obligation. The
BANK cannot also unjustly enrich itself by keeping Marcos money.
Assuming Pagsaligan was behind the spurious promissory note, the BANK
would still be accountable to Marcos. We have held that a bank is liable for
the wrongful acts of its officers done in the interest of the bank or in their
dealings as bank representatives but not for acts outside the scope of their
authority Thus, we held:
A bank holding out its officers and agents as worthy of confidence will not
be permitted to profit by the frauds they may thus be enabled to
perpetrate in the apparent scope of their employment; nor will it be
permitted to shirk its responsibility for such frauds, even though no benefit
may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a
banking corporation is liable to innocent third persons where the
representation is made in the course of its business by an agent acting
within the general scope of his authority even though, in the particular
case, the agent is secretly abusing his authority and attempting to
perpetrate a fraud upon his principal or some other person, for his own
ultimate benefit.38
The Existence of Promissory Note No. 20-979-83 was not Proven
The BANK failed to produce the best evidence the original copies of the
loan application and promissory note. The Best Evidence Rule provides
that the court shall not receive any evidence that is merely substitutionary
in its nature, such as photocopies, as long as the original evidence can be
had.39 Absent a clear showing that the original writing has been lost,
destroyed or cannot be produced in court, the photocopy must be
disregarded, being unworthy of any probative value and being an
inadmissible piece of evidence.40

What the BANK presented were merely the "machine copies of the
duplicate" of the loan application and promissory note. No explanation was
ever offered by the BANK for its inability to produce the original copies of
the documentary evidence. The BANK also did not comply with the orders
of the trial court to submit the originals.
The purpose of the rule requiring the production of the best evidence is the
prevention of fraud.41 If a party is in possession of evidence and withholds
it, and seeks to substitute inferior evidence in its place, the presumption
naturally arises that the better evidence is withheld for fraudulent
purposes, which its production would expose and defeat.42
The absence of the original of the documentary evidence casts suspicion
on the existence of Promissory Note No. 20-979-83 considering the BANKs
fiduciary duty to keep efficiently a record of its transactions with its
depositors. Moreover, the circumstances enumerated by the trial court
bolster the conclusion that Promissory Note No. 20-979-83 is bogus. The
BANK has only itself to blame for the dearth of competent proof to
establish the existence of Promissory Note No. 20-979-83.
Total Amount Due to Marcos
The BANK and Marcos do not now dispute the ruling of the Court of
Appeals that the total amount of time deposits that Marcos placed with the
BANK is only P764,897.67 and not P1,429,795.34 as found by the trial
court. The BANK has always argued that Marcos time deposits only
totalled P764,897.67.43 What the BANK insists on in this petition is the
trial courts violation of its right to procedural due process and the absence
of any obligation to pay or return anything to Marcos. Marcos, on the other
hand, merely prays for the affirmation of either the trial court or appellate
court decision.44 We uphold the finding of the Court of Appeals as to the
amount of the time deposits as such finding is in accord with the evidence
on record.

Thank you.
Sgd. FLORENCIO B. PAGSALIGAN
Branch Manager45
The foregoing certification is clear. The total amount of time deposits of
Marcos as of 12 March 1982 is P764,897.67, inclusive of the sum of
P664,987.67 that Marcos placed on time deposit on 11 March 1982. This is
plainly seen from the use of the word "aggregate."
We are not swayed by Marcos testimony that the certification is actually
for the first time deposit that he placed on 11 March 1982. The lettercertification speaks of "various Time Deposits Certificates with an
aggregate value of P764,897.67." If the amount stated in the lettercertification is for a single time deposit only, and did not include the 11
March 1982 time deposit, then Marcos should have demanded a new letter
of certification from Pagsaligan. Marcos is a businessman. While he already
made an error in judgment in entrusting to Pagsaligan the certificates of
time deposits, Marcos should have known the importance of making the
letter-certification reflect the true nature of the transaction. Marcos is
bound by the letter-certification since he was the one who prodded
Pagsaligan to issue it.
We modify the amount that the Court of Appeals ordered the BANK to
return to Marcos. The appellate court did not offset Marcos outstanding
debt with the BANK covered by the three trust receipt agreements even
though Marcos admits his obligation under the three trust receipt
agreements. The total amount of the trust receipts is P851,250 less the
30% marginal deposit of P255,375 that Marcos had already paid the
BANK. This reduced Marcos total debt with the BANK to P595,875 under
the trust receipts.

Dear Mr. Marcos:

The trial and appellate courts found that the parties did not agree on the
imposition of interest on the loan covered by the trust receipts and thus no
interest is due on this loan. However, the records show that the three trust
receipt agreements contained stipulations for the payment of interest but
the parties failed to fill up the blank spaces on the rate of interest. Put
differently, the BANK and Marcos expressly agreed in writing on the
payment of interest46 without, however, specifying the rate of interest.
We, therefore, impose the legal interest of 12% per annum, the legal
interest for the forbearance of money,47 on each of the three trust
receipts.

This is to certify that we are taking care in your behalf various Time
Deposit Certificates with an aggregate value of PESOS: SEVEN HUNDRED
SIXTY FOUR THOUSAND EIGHT HUNDRED NINETY SEVEN AND 67/100
(P764,897.67) ONLY, issued today for 90 days at 17% p.a. with the
interest payable at maturity on June 10, 1982.

Based on Marcos testimony48 and the BANKs letter of demand,49 the


trust receipt agreements became due in March 1987. The records do not
show exactly when in March 1987 the obligation became due. In
accordance with Article 2212 of the Civil Code, in such a case the court
shall fix the period of the duration of the obligation.50 The BANKs letter of

Marcos claimed that the certificates of time deposit were with Pagsaligan
for safekeeping. Marcos was only able to present the receipt dated 11
March 1982 and the letter-certification dated 12 March 1982 to prove the
total amount of his time deposits with the BANK. The letter-certification
issued by Pagsaligan reads:
March 12, 1982

demand is dated 6 March 1989. We hold that the trust receipts became
due on 6 March 1987.

degree of diligence. The banking sector is expected to maintain at all times


this high level of meticulousness.63

Marcos payment of the marginal deposit of P255,375 for the trust receipts
resulted in the proportionate reduction of the three trust receipts. The
reduced value of the trust receipts and their respective interest as of 6
March 1987 are as follows:

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with


MODIFICATION. Petitioner Philippine Banking Corporation is ordered to
return to private respondent Leonilo Marcos P500,404.11, the remaining
principal amount of his time deposits, with interest at 17% per annum
from 30 August 1989 until full payment. Petitioner Philippine Banking
Corporation is also ordered to pay to private respondent Leonilo Marcos
P211,622.96, the accumulated interest as of 30 August 1989, plus 12%
legal interest per annum from 30 August 1989 until full payment.
Petitioner Philippine Banking Corporation is further ordered to pay
P100,000 by way of moral damages and P20,000 as exemplary damages
to private respondent Leonilo Marcos.

1. Trust Receipt No. CD 83.7 issued on 8 March 1983 originally for


P300,000 was reduced to P210,618.75 with interest of P101,027.76.51
2. Trust Receipt No. CD 83.9 issued on 15 March 1983 originally for
P300,000 was reduced to P210,618.75 with interest of P100,543.04.52
3. Trust Receipt No. CD 83.10 issued on 15 March 1983 originally for
P251,250 was reduced to P174,637.5 with interest of P83,366.68. 53
When the trust receipts became due on 6 March 1987, Marcos owed the
BANK P880,812.48. This amount included P595,875, the principal value of
the three trust receipts after payment of the marginal deposit, and
P284,937.48, the interest then due on the three trust receipts.
Upon maturity of the three trust receipts, the BANK should have
automatically deducted, by way of offsetting, Marcos outstanding debt to
the BANK from his time deposits and its accumulated interest. Marcos
time deposits of P764,897.67 had already earned interest54 of
P616,318.92 as of 6 March 1987.55 Thus, Marcos total funds with the
BANK amounted to P1,381,216.59 as of the maturity of the trust receipts.
After deducting P880,812.48, the amount Marcos owed the BANK, from
Marcos funds with the BANK of P1,381,216.59, Marcos remaining time
deposits as of 6 March 1987 is only P500,404.11. The accumulated
interest on this P500,404.11 as of 30 August 1989, the date of filing of
Marcos complaint with the trial court, is P211,622.96.56 From 30 August
1989, the interest due on the accumulated interest of P211,622.96 should
earn legal interest at 12% per annum pursuant to Article 221257 of the
Civil Code.
The BANKs dismal failure to account for Marcos money justifies the award
of moral58 and exemplary damages.59 Certainly, the BANK, as employer,
is liable for the negligence or the misdeed of its branch manager which
caused Marcos mental anguish and serious anxiety.60 Moral damages of
P100,000 is reasonable and is in accord with our rulings in similar cases
involving banks negligence with regard to the accounts of their
depositors.61
We also award P20,000 to Marcos as exemplary damages. The law allows
the grant of exemplary damages by way of example for the public good.62
The public relies on the banks fiduciary duty to observe the highest

Costs against petitioner.


SO ORDERED.

signing as witness. The deed was notarized by Notary Public Manolo Cruz.7
On 4 April 1963, the Kasulatan was registered with the Register of Deeds
of Bulacan.8
18 March 1981, another Deed of Sale9 conveying another portion of the
subject lot consisting of 50 square meters as right of way was executed by
Eduardo in favor of Ricardo in order to reach the portion covered by the
first sale executed in 1954 and to have access to his fishpond from the
provincial road.10 The deed was signed by Eduardo himself and his wife
Engracia Aniceto, together with Eduardo Manlapat, Jr. and Patricio
Manlapat. The same was also duly notarized on 18 July 1981 by Notary
Public Arsenio Guevarra.11

G.R. No. 125585

June 8, 2005

HEIRS OF EDUARDO MANLAPAT, represented by GLORIA


MANLAPAT-BANAAG and LEON M. BANAAG, JR., Petitioners,
vs.
HON. COURT OF APPEALS, RURAL BANK OF SAN PASCUAL, INC.,
and JOSE B. SALAZAR, CONSUELO CRUZ and ROSALINA CRUZBAUTISTA, and the REGISTER OF DEEDS of Meycauayan, Bulacan,
Respondents.
DECISION
Tinga, J.:
FACTS:
The controversy involves Lot No. 2204, a parcel of land with an area of
1,058 square meters, located at Panghulo, Obando, Bulacan. The property
had been originally in the possession of Jose Alvarez, Eduardos
grandfather, until his demise in 1916. It remained unregistered until 8
October 1976 when OCT No. P-153(M) was issued in the name of Eduardo
pursuant to a free patent issued in Eduardos name3 that was entered in
the Registry of Deeds of Meycauayan, Bulacan.4 The subject lot is adjacent
to a fishpond owned by one Ricardo Cruz (Ricardo), predecessor-ininterest of respondents Consuelo Cruz and Rosalina Cruz-Bautista
(Cruzes).5
19 December 1954, before the subject lot was titled, Eduardo sold a
portion thereof with an area of 553 square meters to Ricardo. The sale is
evidenced by a deed of sale entitled "Kasulatan ng Bilihang Tuluyan ng
Lupang Walang Titulo (Kasulatan)"6 which was signed by Eduardo himself
as vendor and his wife Engracia Aniceto with a certain Santiago Enriquez

In December 1981, Leon Banaag, Jr. (Banaag), as attorney-in-fact of his


father-in-law Eduardo, executed a mortgage with the Rural Bank of San
Pascual, Obando Branch (RBSP), for P100,000.00 with the subject lot as
collateral. Banaag deposited the owners duplicate certificate of OCT No. P153(M) with the bank.
On 31 August 1986, Ricardo died without learning of the prior issuance of
OCT No. P-153(M) in the name of Eduardo.12 His heirs, the Cruzes, were
not immediately aware of the consummated sale between Eduardo and
Ricardo.
Eduardo himself died on 4 April 1987. He was survived by his heirs,
Engracia Aniceto, his spouse; and children, Patricio, Bonifacio, Eduardo,
Corazon, Anselmo, Teresita and Gloria, all surnamed Manlapat.13 Neither
did the heirs of Eduardo (petitioners) inform the Cruzes of the prior sale in
favor of their predecessor-in-interest, Ricardo. Yet subsequently, the
Cruzes came to learn about the sale and the issuance of the OCT in the
name of Eduardo.
Upon learning of their right to the subject lot, the Cruzes immediately tried
to confront petitioners on the mortgage and obtain the surrender of the
OCT. The Cruzes, however, were thwarted in their bid to see the heirs. On
the advice of the Bureau of Lands, NCR Office, they brought the matter to
the barangay captain of Barangay Panghulo, Obando, Bulacan. During the
hearing, petitioners were informed that the Cruzes had a legal right to the
property covered by OCT and needed the OCT for the purpose of securing
a separate title to cover the interest of Ricardo. Petitioners, however, were
unwilling to surrender the OCT.14
Having failed to physically obtain the title from petitioners, in July 1989,
the Cruzes instead went to RBSP which had custody of the owners
duplicate certificate of the OCT, earlier surrendered as a consequence of
the mortgage. Transacting with RBSPs manager, Jose Salazar (Salazar),
the Cruzes sought to borrow the owners duplicate certificate for the
purpose of photocopying the same and thereafter showing a copy thereof
to the Register of Deeds. Salazar allowed the Cruzes to bring the owners

duplicate certificate outside the bank premises when the latter showed the
Kasulatan.15 The Cruzes returned the owners duplicate certificate on the
same day after having copied the same. They then brought the copy of the
OCT to Register of Deeds Jose Flores (Flores) of Meycauayan and showed
the same to him to secure his legal opinion as to how the Cruzes could
legally protect their interest in the property and register the same.16
Flores suggested the preparation of a subdivision plan to be able to
segregate the area purchased by Ricardo from Eduardo and have the same
covered by a separate title.17
Thereafter, the Cruzes solicited the opinion of Ricardo Arandilla (Arandilla),
Land Registration Officer, Director III, Legal Affairs Department, Land
Registration Authority at Quezon City, who agreed with the advice given by
Flores.18 Relying on the suggestions of Flores and Arandilla, the Cruzes
hired two geodetic engineers to prepare the corresponding subdivision
plan. The subdivision plan was presented to the Land Management Bureau,
Region III, and there it was approved by a certain Mr. Pambid of said office
on 21 July 1989.
After securing the approval of the subdivision plan, the Cruzes went back
to RBSP and again asked for the owners duplicate certificate from Salazar.
The Cruzes informed him that the presentation of the owners duplicate
certificate was necessary, per advise of the Register of Deeds, for the
cancellation of the OCT and the issuance in lieu thereof of two separate
titles in the names of Ricardo and Eduardo in accordance with the
approved subdivision plan.19 Before giving the owners duplicate
certificate, Salazar required the Cruzes to see Atty. Renato Santiago (Atty.
Santiago), legal counsel of RBSP, to secure from the latter a clearance to
borrow the title. Atty. Santiago would give the clearance on the condition
that only Cruzes put up a substitute collateral, which they did.20 As a
result, the Cruzes got hold again of the owners duplicate certificate.
After the Cruzes presented the owners duplicate certificate, along with the
deeds of sale and the subdivision plan, the Register of Deeds cancelled the
OCT and issued in lieu thereof TCT No. T-9326-P(M) covering 603 square
meters of Lot No. 2204 in the name of Ricardo and TCT No. T-9327-P(M)
covering the remaining 455 square meters in the name of Eduardo.21
On 9 August 1989, the Cruzes went back to the bank and surrendered to
Salazar TCT No. 9327-P(M) in the name of Eduardo and retrieved the title
they had earlier given as substitute collateral. After securing the new
separate titles, the Cruzes furnished petitioners with a copy of TCT No.
9327-P(M) through the barangay captain and paid the real property tax for
1989.22
The Cruzes also sent a formal letter to Guillermo Reyes, Jr., Director,
Supervision Sector, Department III of the Central Bank of the Philippines,
inquiring whether they committed any violation of existing bank laws
under the circumstances. A certain Zosimo Topacio, Jr. of the Supervision

Sector sent a reply letter advising the Cruzes, since the matter is between
them and the bank, to get in touch with the bank for the final settlement
of the case.23
In October of 1989, Banaag went to RBSP, intending to tender full
payment of the mortgage obligation. It was only then that he learned of
the dealings of the Cruzes with the bank which eventually led to the
subdivision of the subject lot and the issuance of two separate titles
thereon. In exchange for the full payment of the loan, RBSP tried to
persuade petitioners to accept TCT No. T-9327-P(M) in the name of
Eduardo.24
As a result, three (3) cases were lodged, later consolidated, with the trial
court, all involving the issuance of the TCTs
As a result, three (3) cases were lodged, later consolidated, with the trial
court, all involving the issuance of the TCTs, to wit:
(1) Civil Case No. 650-M-89, for reconveyance with damages filed by the
heirs of Eduardo Manlapat against Consuelo Cruz, Rosalina Cruz-Bautista,
Rural Bank of San Pascual, Jose Salazar and Jose Flores, in his capacity as
Deputy Registrar, Meycauayan Branch of the Registry of Deeds of Bulacan;
(2) Civil Case No. 141-M-90 for damages filed by Jose Salazar against
Consuelo Cruz, et. [sic] al.; and
(3) Civil Case No. 644-M-89, for declaration of nullity of title with damages
filed by Rural Bank of San Pascual, Inc. against the spouses Ricardo Cruz
and Consuelo Cruz, et al.25
RTC of Malolos:
Rendered a decision in favor of the heirs of Eduardo

CA:
Reversed the decision of the RTC.
Hence the current petition
ISSUE:
WON the action of the bank lending the OCT to the Cruzs is valid
HELD:
Negative

Bank Liable for Nominal Damages


Of deep concern to this Court, however, is the fact that the bank lent the
owners duplicate of the OCT to the Cruzes when the latter presented the
instruments of conveyance as basis of their claim of ownership over a
portion of land covered by the title. Simple rationalization would dictate
that a mortgagee-bank has no right to deliver to any stranger any
property entrusted to it other than to those contractually and legally
entitled to its possession. Although we cannot dismiss the banks
acknowledgment of the Cruzes claim as legitimized by instruments of
conveyance in their possession, we nonetheless cannot sanction how the
bank was inveigled to do the bidding of virtual strangers. Undoubtedly, the
banks cooperative stance facilitated the issuance of the TCTs. To make
matters worse, the bank did not even notify the heirs of Eduardo. The
conduct of the bank is as dangerous as it is unthinkably negligent.
However, the aspect does not impair the right of the Cruzes to be
recognized as legitimate owners of their portion of the property.
Undoubtedly, in the absence of the banks participation, the Register of
Deeds could not have issued the disputed TCTs. We cannot find fault on
the part of the Register of Deeds in issuing the TCTs as his authority to
issue the same is clearly sanctioned by law. It is thus ministerial on the
part of the Register of Deeds to issue TCT if the deed of conveyance and
the original owners duplicate are presented to him as there appears on
theface of the instruments no badge of irregularity or nullity.55 If there is
someone to blame for the shortcut resorted to by the Cruzes, it would be
the bank itself whose manager and legal officer helped the Cruzes to
facilitate the issuance of the TCTs.1avvphi1
The bank should not have allowed complete strangers to take possession
of the owners duplicate certificate even if the purpose is merely for
photocopying for a danger of losing the same is more than imminent. They
should be aware of the conclusive presumption in
Section 53. Such act constitutes manifest negligence on the part of the
bank which would necessarily hold it liable for damages under Article 1170
and other relevant provisions of the Civil Code.56
In the absence of evidence, the damages that may be awarded may be in
the form of nominal damages. Nominal damages are adjudicated in order
that a right of the plaintiff, which has been violated or invaded by the
defendant, may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him.57 This award rests
on the mortgagors right to rely on the banks observance of the highest
diligence in the conduct of its business. The act of RBSP of entrusting to
respondents the owners duplicate certificate entrusted to it by the
mortgagor without even notifying the mortgagor and absent any prior
investigation on the veracity of respondents claim and

character is a patent failure to foresee the risk created by the act in view
of the provisions of Section 53 of P.D. No. 1529. This act runs afoul of
every banks mandate to observe the highest degree of diligence in dealing
with its clients. Moreover, a mortgagor has also the right to be afforded
due process before deprivation or diminution of his property is effected as
the OCT was still in the name of Eduardo. Notice and hearing are
indispensable elements of this right which the bank miserably ignored.

sign for and in my behalf any act of strict dominion or ownership any sale,
disposition, mortgage, lease or any other transactions including quitclaims, waiver and relinquishment of rights in and over the parcels of land
situated in General Trias, Cavite, covered by Transfer Certificates of Title
Nos. T-112254 and T-112255 of the Registry of Deeds of Cavite, in
conjunction with his co-owner and in the person ATTY. AUGUSTO F. DEL
ROSARIO;
3. To exercise any or all acts of strict dominion or ownership over the
above-mentioned properties, rights and interest therein. (Emphasis
supplied.)
On the strength of the aforesaid SPA, Julian, on 12 December 1996,
obtained a loan from the respondent in the amount of P3,000,000.00,
secured by real estate mortgage constituted on TCT No. RT-18206
(106338) which covers a parcel of land with an area of 805 square meters,
registered with the Registry of Deeds of Quezon City.

G.R. No. 171460

July 24, 2007

LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN


MERCADO, JR., represented by their Attorney-In-Fact, ALFREDO M.
PEREZ, Petitioners,
vs.
ALLIED BANKING CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:

FACTS:
Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her lifetime,
owned several pieces of real property situated in different provinces of the
Philippines.
Respondent, on the other hand, is a banking institution duly authorized as
such under the Philippine laws.
On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in
favor of her husband, Julian D. Mercado (Julian) over several pieces of real
property registered under her name, authorizing the latter to perform the
following acts:
1. To act in my behalf, to sell, alienate, mortgage, lease and deal
otherwise over the different parcels of land described hereinafter, 2. To

Still using the subject property as security, Julian obtained an additional


loan from the respondent in the sum of P5,000,000.00, evidenced by a
Promissory Note6 he executed on 5 February 1997 as another real estate
mortgage (REM).
It appears, however, that there was no property identified in the SPA as
TCT No. RT 18206 (106338) and registered with the Registry of Deeds of
Quezon City. What was identified in the SPA instead was the property
covered by TCT No. RT-106338 registered with the Registry of Deeds of
Pasig.
Subsequently, Julian defaulted on the payment of his loan obligations.
Thus, respondent initiated extra-judicial foreclosure proceedings over the
subject property which was subsequently sold at public auction wherein
the respondent was declared as the highest bidder as shown in the
Sheriffs Certificate of Sale dated 15 January 1998.
23 March 1999, petitioners initiated with the RTC an action for the
annulment of REM constituted over the subject property on the ground
that the same was not covered by the SPA and that the said SPA, at the
time the loan obligations were contracted, no longer had force and effect
since it was previously revoked by Perla on 10 March 1993, as evidenced
by the Revocation of SPA signed by the latter.8

RTC of Quezon City, Branch 220:


Declared the REM constituted over the subject property null and void, for
Julian was not authorized by the terms of the SPA to mortgage the same.

The court a quo likewise ordered that the foreclosure proceedings and the
auction sale conducted pursuant to the void REM, be nullified.
CA:
Reversed the RTC Decision and upheld the validity of the REM constituted
over the subject property on the strength of the SPA. The appellate court
declared that Perla intended the subject property to be included in the SPA
she executed in favor of Julian, and that her subsequent revocation of the
said SPA, not being contained in a public instrument, cannot bind third
persons.
MR:

Denied

Hence the current petition:


ISSUE:
WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED OVER
SUBJECT PROPERTY.

HELD:
Negative
The subject property was not among those enumerated therein. There is
no obvious reference to the subject property covered by TCT No. RT-18206
(106338) registered with the Registry of Deeds of Quezon City.
There was also nothing in the language of the SPA from which we could
deduce the intention of Perla to include the subject property therein. We
cannot attribute such alleged intention to Perla who executed the SPA
when the language of the instrument is bare of any indication suggestive
of such intention. Contrariwise, to adopt the intent theory advanced by the
respondent, in the absence of clear and convincing evidence to that effect,
would run afoul of the express tenor of the SPA and thus defeat Perlas
true intention.
In cases where the terms of the contract are clear as to leave no room for
interpretation, resort to circumstantial evidence to ascertain the true intent
of the parties, is not countenanced.
[T]he law is that if the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its
stipulation shall control. When the language of the contract is explicit,
leaving no doubt as to the intention of the drafters, the courts may not

read into it [in] any other intention that would contradict its main import.
The clear terms of the contract should never be the subject matter of
interpretation. Neither abstract justice nor the rule on liberal interpretation
justifies the creation of a contract for the parties which they did not make
themselves or the imposition upon one party to a contract or obligation not
assumed simply or merely to avoid seeming hardships. The true meaning
must be enforced, as it is to be presumed that the contracting parties
know their scope and effects.14
Equally relevant is the rule that a power of attorney must be strictly
construed and pursued. The instrument will be held to grant only those
powers which are specified therein, and the agent may neither go beyond
nor deviate from the power of attorney.15 Where powers and duties are
specified and defined in an instrument, all such powers and duties are
limited and are confined to those which are specified and defined, and all
other powers and duties are excluded.16 This is but in accord with the
disinclination of courts to enlarge the authority granted beyond the powers
expressly given and those which incidentally flow or derive therefrom as
being usual and reasonably necessary and proper for the performance of
such express powers.17
Even the commentaries of renowned Civilist Manresa18 supports a strict
and limited construction of the terms of a power of attorney:
The law, which must look after the interests of all, cannot permit a man to
express himself in a vague and general way with reference to the right he
confers upon another for the purpose of alienation or hypothecation,
whereby he might be despoiled of all he possessed and be brought to ruin,
such excessive authority must be set down in the most formal and explicit
terms, and when this is not done, the law reasonably presumes that the
principal did not mean to confer it.
In this case, we are not convinced that the property covered by TCT No.
106338 registered with the Registry of Deeds of Pasig (now Makati) is the
same as the subject property covered by TCT No. RT-18206 (106338)
registered with the Registry of Deeds of Quezon City. The records of the
case are stripped of supporting proofs to verify the respondents claim that
the two titles cover the same property. It failed to present any certification
from the Registries of Deeds concerned to support its assertion. Neither
did respondent take the effort of submitting and making part of the
records of this case copies of TCTs No. RT-106338 of the Registry of Deeds
of Pasig (now Makati) and RT-18206 (106338) of the Registry of Deeds of
Quezon City, and closely comparing the technical descriptions of the
properties covered by the said TCTs. The bare and sweeping statement of
respondent that the properties covered by the two certificates of title are
one and the same contains nothing but empty imputation of a fact that
could hardly be given any evidentiary weight by this Court.

Having arrived at the conclusion that Julian was not conferred by Perla
with the authority to mortgage the subject property under the terms of the
SPA, the real estate mortgages Julian executed over the said property are
therefore unenforceable.

application for the reason that respondent bank did not have an Australian
dollar account in any bank in Sydney. Godofredo asked if there could be a
way for respondent bank to accommodate PRCI's urgent need to remit
Australian dollars to Sydney. Yasis of respondent bank then informed
Godofredo of a roundabout way of effecting the requested remittance to
Sydney thus: the respondent bank would draw a demand draft against
Westpac Bank in Sydney, Australia (Westpac-Sydney for brevity) and have
the latter reimburse itself from the U.S. dollar account of the respondent in
Westpac Bank in New York, U.S.A. (Westpac-New York for brevity). This
arrangement has been customarily resorted to since the 1960's and the
procedure has proven to be problem-free. PRCI and the petitioner Gregorio
H. Reyes, acting through Godofredo, agreed to this arrangement or
approach in order to effect the urgent transfer of Australian dollars payable
to the Secretariat of the 20th Asian Racing Conference.
July 28, 1988, the respondent bank approved the said application of PRCI
and issued Foreign Exchange Demand Draft (FXDD) No. 209968 in the
sum applied for, that is, One Thousand Six Hundred Ten Australian Dollars
(AU$ 1,610.00), payable to the order of the 20th Asian Racing Conference
Secretariat of Sydney, Australia, and addressed to Westpac-Sydney as the
drawee bank.

G.R. No. 118492

August 15, 2001

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


vs.
THE HON. COURT OF APPEALS and FAR EAST BANK AND TRUST
COMPANY, respondents.
DE LEON, JR., J.:
FACTS:
In view of the 20th Asian Racing Conference then scheduled to be held in
September, 1988 in Sydney, Australia, the Philippine Racing Club, Inc.
(PRCI, for brevity) sent four (4) delegates to the said conference.
Petitioner Gregorio H. Reyes, as vice-president for finance, racing
manager, treasurer, and director of PRCI, sent Godofredo Reyes, the club's
chief cashier, to the respondent bank to apply for a foreign exchange
demand draft in Australian dollars.
Godofredo went to respondent bank's Buendia Branch in Makati City to
apply for a demand draft in the amount One Thousand Six Hundred Ten
Australian Dollars (AU$1,610.00) payable to the order of the 20th Asian
Racing Conference Secretariat of Sydney, Australia. He was attended to by
respondent bank's assistant cashier, Mr. Yasis, who at first denied the

August 10, 1988, upon due presentment of the foreign exchange demand
draft, denominated as FXDD No. 209968, the same was dishonored, with
the notice of dishonor stating the following: "xxx No account held with
Westpac." Meanwhile, on August 16, 1988, Wespac-New York sent a cable
to respondent bank informing the latter that its dollar account in the sum
of One Thousand Six Hundred Ten Australian Dollars (AU$ 1,610.00) was
debited. On August 19, 1988, in response to PRCI's complaint about the
dishonor of the said foreign exchange demand draft, respondent bank
informed Westpac-Sydney of the issuance of the said demand draft FXDD
No. 209968, drawn against the Wespac-Sydney and informing the latter to
be reimbursed from the respondent bank's dollar account in Westpac-New
York. The respondent bank on the same day likewise informed WespacNew York requesting the latter to honor the reimbursement claim of
Wespac-Sydney. On September 14, 1988, upon its second presentment for
payment, FXDD No. 209968 was again dishonored by Westpac-Sydney for
the same reason, that is, that the respondent bank has no deposit dollar
account with the drawee Wespac-Sydney.
September 17, 1988 and September 18, 1988, respectively, petitioners
spouses Gregorio H. Reyes and Consuelo Puyat-Reyes left for Australia to
attend the said racing conference. When petitioner Gregorio H. Reyes
arrived in Sydney in the morning of September 18, 1988, he went directly
to the lobby of Hotel Regent Sydney to register as a conference delegate.
At the registration desk, in the presence of other delegates from various
member of the conference secretariat that he could not register because
the foreign exchange demand draft for his registration fee had been
dishonored for the second time. A discussion ensued in the presence and

within the hearing of many delegates who were also registering. Feeling
terribly embarrassed and humiliated, petitioner Gregorio H. Reyes asked
the lady member of the conference secretariat that he be shown the
subject foreign exchange demand draft that had been dishonored as well
as the covering letter after which he promised that he would pay the
registration fees in cash. In the meantime he demanded that he be given
his name plate and conference kit. The lady member of the conference
secretariat relented and gave him his name plate and conference kit. It
was only two (2) days later, or on September 20, 1988, that he was given
the dishonored demand draft and a covering letter. It was then that he
actually paid in cash the registration fees as he had earlier promised.
September 19, 1988, petitioner Consuelo Puyat-Reyes arrived in Sydney.
She too was embarassed and humiliated at the registration desk of the
conference secretariat when she was told in the presence and within the
hearing of other delegates that she could not be registered due to the
dishonor of the subject foreign exchange demand draft. She felt herself
trembling and unable to look at the people around her. Fortunately, she
saw her husband, coming toward her. He saved the situation for her by
telling the secretariat member that he had already arranged for the
payment of the registration fee in cash once he was shown the dishonored
demand draft. Only then was petitioner Puyat-Reyes given her name plate
and conference kit.
At the time the incident took place, petitioner Consuelo Puyat-Reyes was a
member of the House of Representatives representing the lone
Congressional District of Makati, Metro Manila. She has been an officer of
the Manila Banking Corporation and was cited by Archbishop Jaime
Cardinal Sin as the top lady banker of the year in connection with her
conferment of the Pro-Ecclesia et Pontifice Award. She has also been
awarded a plaque of appreciation from the Philippine Tuberculosis Society
for her extraordinary service as the Society's campaign chairman for the
ninth (9th) consecutive year.
On November 23, 1988, the petitioners filed in the Regional Trial Court of
Makati, Metro Manila, a complaint for damages, docketed as Civil Case No.
88-2468, against the respondent bank due to the dishonor of the said
foreign exchange demand draft issued by the respondent bank. The
petitioners claim that as a result of the dishonor of the said demand draft,
they were exposed to unnecessary shock, social humiliation, and deep
mental anguish in a foreign country, and in the presence of an
international audience.
RTC of Makati:
In favor of the defendant (respondent bank) and against the plaintiffs
(herein petitioners)
CA:

Affirmed the decision of the trial court but in effect deleted the award of
attorney's fees to the defendant (herein respondent bank) and the
pronouncement as to the costs.
Hence the current petition:
ISSUE:
Whether or not respondent bank is liable for damages due to the dishonor
of the foreign exchange demand drafts.
HELD:
Negative
The courts a quo found that respondent bank did not misrepresent that it
was maintaining a deposit account with Westpac-Sydney. Respondent
bank's assistant cashier explained to Godofredo Reyes, representing PRCI
and petitioner Gregorio H. Reyes, how the transfer of Australian dollars
would be effected through Westpac-New York where the respondent bank
has a dollar account to Westpac-Sydney where the subject foreign
exchange demand draft (FXDD No. 209968) could be encashed by the
payee, the 20th Asian Racing Conference Secretariat. PRCI and its VicePresident for finance, petitioner Gregorio H. Reyes, through their said
representative, agreed to that arrangement or procedure. In other words,
the petitioners are estopped from denying the said arrangement or
procedure. Similar arrangements have been a long standing practice in
banking to facilitate international commercial transactions. In fact, the
SWIFT cable message sent by respondent bank to the drawee bank,
Westpac-Sydney, stated that it may claim reimbursement from its New
York branch, Westpac-New York, where respondent bank has a deposit
dollar account. The facts as found by the courts a quo show that
respondent bank did not cause an erroneous transmittal of its SWIFT cable
message to Westpac-Sydney. It was the erroneous decoding of the cable
message on the part of Westpac-Sydney that caused the dishonor of the
subject foreign exchange demand draft. An employee of Westpac-Sydney
in Sydney, Australia mistakenly read the printed figures in the SWIFT cable
message of respondent bank as "MT799" instead of as "MT199". As a
result, Westpac-Sydney construed the said cable message as a format for
a letter of credit, and not for a demand draft. The appellate court correct
found that "the figure before '99' can still be distinctly seen as a number
'1' and not number '7'." Indeed, the line of a "7" is in a slanting position
while the line of a "1" is in a horizontal position. Thus, the number "1" in
"MT199" cannot be construed as "7".11
The evidence also shows that the respondent bank exercised that degree
of diligence expected of an ordinary prudent person under the
circumstances obtaining. Prior to the first dishonor of the subject foreign
exchange demand draft, the respondent bank advised Westpac-New York

to honor the reimbursement claim of Westpac-Sydney and to debit the


dollar account12 of respondent bank with the former. As soon as the
demand draft was dishonored, the respondent bank, thinking that the
problem was with the reimbursement and without any idea that it was due
to miscommunication, re-confirmed the authority of Westpac-New York to
debit its dollar account for the purpose of reimbursing Westpac-Sydney.13
Respondent bank also sent two (2) more cable messages to Westpac-New
York inquiring why the demand draft was not honored.14
With these established facts, we now determine the degree of diligence
that banks are required to exert in their commercial dealings. In Philippine
Bank of Commerce v. Court of Appeals15 upholding a long standing
doctrine, we ruled that the degree of diligence required of banks, is more
than that of a good father of a family where the fiduciary nature of their
relationship with their depositors is concerned. In other words banks are
duty bound to treat the deposit accounts of their depositors with the
highest degree of care. But the said ruling applies only to cases where
banks act under their fiduciary capacity, that is, as depositary of the
deposits of their depositors. But the same higher degree of diligence is not
expected to be exerted by banks in commercial transactions that do not
involve their fiduciary relationship with their depositors.
Considering the foregoing, the respondent bank was not required to exert
more than the diligence of a good father of a family in regard to the sale
and issuance of the subject foreign exchange demand draft. The case at
bar does not involve the handling of petitioners' deposit, if any, with the
respondent bank. Instead, the relationship involved was that of a buyer
and seller, that is, between the respondent bank as the seller of the
subject foreign exchange demand draft, and PRCI as the buyer of the
same, with the 20th Asian Racing conference Secretariat in Sydney,
Australia as the payee thereof. As earlier mentioned, the said foreign
exchange demand draft was intended for the payment of the registration

fees of the petitioners as delegates of the PRCI to the 20th Asian Racing
Conference in Sydney.
The evidence shows that the respondent bank did everything within its
power to prevent the dishonor of the subject foreign exchange demand
draft. The erroneous reading of its cable message to Westpac-Sydney by
an employee of the latter could not have been foreseen by the respondent
bank. Being unaware that its employee erroneously read the said cable
message, Westpac-Sydney merely stated that the respondent bank has no
deposit account with it to cover for the amount of One Thousand Six
Hundred Ten Australian Dollar (AU $1610.00) indicated in the foreign
exchange demand draft. Thus, the respondent bank had the impression
that Westpac-New York had not yet made available the amount for
reimbursement to Westpac-Sydney despite the fact that respondent bank
has a sufficient deposit dollar account with Westpac-New York. That was
the reason why the respondent bank had to re-confirm and repeatedly
notify Westpac-New York to debit its (respondent bank's) deposit dollar
account with it and to transfer or credit the corresponding amount to
Westpac-Sydney to cover the amount of the said demand draft.
In view of all the foregoing, and considering that the dishonor of the
subject foreign exchange demand draft is not attributable to any fault of
the respondent bank, whereas the petitioners appeared to be under
estoppel as earlier mentioned, it is no longer necessary to discuss the
alleged application of Section 61 of the Negotiable Instruments Law to the
case at bar. In any event, it was established that the respondent bank
acted in good faith and that it did not cause the embarrassment of the
petitioners in Sydney, Australia. Hence, the Court of Appeals did not
commit any reversable error in its challenged decision.
WHEREFORE, the petition is hereby DENIED, and the assailed decision of
the Court of Appeals is AFFIRMED. Costs against the petitioners.

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