FIRST DIVISION

[G.R. No. 138569. September 11, 2003]

THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs. COURT
OF APPEALS and L.C. DIAZ and COMPANY, CPAs, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision [1] of the Court of Appeals dated
27 October 1998 and its Resolution dated 11 May 1999. The assailed decision
reversed the Decision[2]of the Regional Trial Court of Manila, Branch 8, absolving
petitioner Consolidated Bank and Trust Corporation, now known as Solidbank
Corporation (Solidbank), of any liability. The questioned resolution of the
appellate court denied the motion for reconsideration of Solidbank but modified the
decision by deleting the award of exemplary damages, attorneys fees, expenses of
litigation and cost of suit.
The Facts
Solidbank is a domestic banking corporation organized and existing under
Philippine laws. Private respondent L.C. Diaz and Company, CPAs (L.C. Diaz), is a
professional partnership engaged in the practice of accounting.
Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank,
designated as Savings Account No. S/A 200-16872-6.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya
(Macaraya), filled up a savings (cash) deposit slip for P990 and a savings (checks)
deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre
(Calapre), to deposit the money with Solidbank. Macaraya also gave Calapre the
Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips
and the passbook. The teller acknowledged receipt of the deposit by returning to
Calapre the duplicate copies of the two deposit slips. Teller No. 6 stamped the
deposit slips with the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD
OFFICE. Since the transaction took time and Calapre had to make another deposit
for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre then
went to Allied Bank. When Calapre returned to Solidbank to retrieve the passbook,
Teller No. 6 informed him that somebody got the passbook. [3] Calapre went back to
L.C. Diaz and reported the incident to Macaraya.

Macaraya immediately prepared a deposit slip in duplicate copies with a check

of P200,000. Macaraya, together with Calapre, went to Solidbank and presented to
Teller No. 6 the deposit slip and check. The teller stamped the words DUPLICATE
and SAVING TELLER 6 SOLIDBANK HEAD OFFICE on the duplicate copy of the
deposit slip. When Macaraya asked for the passbook, Teller No. 6 told Macaraya that
someone got the passbook but she could not remember to whom she gave the
passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No.
6 answered that someone shorter than Calapre got the passbook. Calapre was then
standing beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the
deposit of a check for P90,000 drawn on Philippine Banking Corporation (PBC).
This PBC check of L.C. Diaz was a check that it had long closed. [4] PBC
subsequently dishonored the check because of insufficient funds and because the
signature in the check differed from PBCs specimen signature. Failing to get back
the passbook, Macaraya went back to her office and reported the matter to the
Personnel Manager of L.C. Diaz, Emmanuel Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer,
Luis C. Diaz (Diaz), called up Solidbank to stop any transaction using the same
passbook until L.C. Diaz could open a new account. [5] On the same day, Diaz
formally wrote Solidbank to make the same request. It was also on the same day
that L.C. Diaz learned of the unauthorized withdrawal the day before, 14 August
1991, of P300,000 from its savings account. The withdrawal slip for the P300,000
bore the signatures of the authorized signatories of L.C. Diaz, namely Diaz and
Rustico L. Murillo. The signatories, however, denied signing the withdrawal slip. A
certain Noel Tamayo received the P300,000.
In an Information[6] dated 5 September 1991, L.C. Diaz charged its messenger,
Emerano Ilagan (Ilagan) and one Roscon Verdazola with Estafa through
Falsification of Commercial Document. The Regional Trial Court of Manila dismissed
the criminal case after the City Prosecutor filed a Motion to Dismiss on 4 August
1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the
return of its money. Solidbank refused.
On 25 August 1992, L.C. Diaz filed a Complaint[7] for Recovery of a Sum of
Money against Solidbank with the Regional Trial Court of Manila, Branch 8. After
trial, the trial court rendered on 28 December 1994 a decision absolving Solidbank
and dismissing the complaint.
L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the
Court of Appeals issued its Decision reversing the decision of the trial court.

On 11 May 1999, the Court of Appeals issued its Resolution denying the motion
for reconsideration of Solidbank. The appellate court, however, modified its
decision by deleting the award of exemplary damages and attorneys fees.
The Ruling of the Trial Court
In absolving Solidbank, the trial court applied the rules on savings account
written on the passbook. The rules state that possession of this book shall raise the
presumption of ownership and any payment or payments made by the bank upon
the production of the said book and entry therein of the withdrawal shall have the
same effect as if made to the depositor personally. [9]
At the time of the withdrawal, a certain Noel Tamayo was not only in possession
of the passbook, he also presented a withdrawal slip with the signatures of the
authorized signatories of L.C. Diaz. The specimen signatures of these persons were
in the signature cards. The teller stamped the withdrawal slip with the words
Saving Teller No. 5. The teller then passed on the withdrawal slip to Genere
Manuel (Manuel) for authentication. Manuel verified the signatures on the
withdrawal slip. The withdrawal slip was then given to another officer who compared
the signatures on the withdrawal slip with the specimen on the signature cards. The
trial court concluded that Solidbank acted with care and observed the rules on
savings account when it allowed the withdrawal of P300,000 from the savings
account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C. Diaz to
prove that the signatures on the withdrawal slip were forged. The trial court
admonished L.C. Diaz for not offering in evidence the National Bureau of
Investigation (NBI) report on the authenticity of the signatures on the withdrawal
slip for P300,000. The trial court believed that L.C. Diaz did not offer this evidence
because it is derogatory to its action.
Another provision of the rules on savings account states that the depositor must
keep the passbook under lock and key. [10] When another person presents the
passbook for withdrawal prior to Solidbanks receipt of the notice of loss of the
passbook, that person is considered as the owner of the passbook. The trial court
ruled that the passbook presented during the questioned transaction was now out
of the lock and key and presumptively ready for a business transaction. [11]
Solidbank did not have any participation in the custody and care of the
passbook. The trial court believed that Solidbanks act of allowing the withdrawal
of P300,000 was not the direct and proximate cause of the loss. The trial court held
that L.C. Diazs negligence caused the unauthorized withdrawal. Three facts
establish L.C. Diazs negligence: (1) the possession of the passbook by a person
other than the depositor L.C. Diaz; (2) the presentation of a signed withdrawal
receipt by an unauthorized person; and (3) the possession by an unauthorized

person of a PBC check long closed by L.C. Diaz, which check was deposited on the
day of the fraudulent withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank did not follow the
precautionary procedures observed by the two parties whenever L.C. Diaz withdrew
significant amounts from its account. L.C. Diaz claimed that a letter must
accompany withdrawals of more than P20,000. The letter must request Solidbank
to allow the withdrawal and convert the amount to a managers check. The bearer
must also have a letter authorizing him to withdraw the same amount. Another
person driving a car must accompany the bearer so that he would not walk from
Solidbank to the office in making the withdrawal. The trial court pointed out that
L.C. Diaz disregarded these precautions in its past withdrawal. On 16 July 1991, L.C.
Diaz withdrewP82,554 without any separate letter of authorization or any
communication with Solidbank that the money be converted into a managers
check.
The trial court further justified the dismissal of the complaint by holding that the
case was a last ditch effort of L.C. Diaz to recover P300,000 after the dismissal of
the criminal case against Ilagan.
The dispositive portion of the decision of the trial court reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the
complaint.
The Court further renders judgment in favor of defendant bank pursuant to its
counterclaim the amount of Thirty Thousand Pesos (P30,000.00) as attorneys fees.
With costs against plaintiff.
SO ORDERED.[12]
The Ruling of the Court of Appeals
The Court of Appeals ruled that Solidbanks negligence was the proximate cause
of the unauthorized withdrawal of P300,000 from the savings account of L.C.
Diaz. The appellate court reached this conclusion after applying the provision of the
Civil Code on quasi-delict, to wit:
Article 2176. Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the parties, is
called a quasi-delict and is governed by the provisions of this chapter.
The appellate court held that the three elements of a quasi-delict are present in this
case, namely: (a) damages suffered by the plaintiff; (b) fault or negligence of the
defendant, or some other person for whose acts he must respond; and (c) the

connection of cause and effect between the fault or negligence of the defendant
and the damage incurred by the plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who received the
withdrawal slip for P300,000 allowed the withdrawal without making the necessary
inquiry. The appellate court stated that the teller, who was not presented by
Solidbank during trial, should have called up the depositor because the money to be
withdrawn was a significant amount. Had the teller called up L.C. Diaz, Solidbank
would have known that the withdrawal was unauthorized. The teller did not even
verify the identity of the impostor who made the withdrawal. Thus, the appellate
court found Solidbank liable for its negligence in the selection and supervision of its
employees.
The appellate court ruled that while L.C. Diaz was also negligent in entrusting its
deposits to its messenger and its messenger in leaving the passbook with the
teller, Solidbank could not escape liability because of the doctrine of last clear
chance. Solidbank could have averted the injury suffered by L.C. Diaz had it called
up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from Solidbank is
more than that of a good father of a family. The business and functions of banks are
affected with public interest. Banks are obligated to treat the accounts of their
depositors with meticulous care, always having in mind the fiduciary nature of their
relationship with their clients. The Court of Appeals found Solidbank remiss in its
duty, violating its fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, premises considered, the decision appealed from is hereby REVERSED
and a new one entered.
1.

Ordering defendant-appellee Consolidated Bank and Trust Corporation

to pay plaintiff-appellant the sum of Three Hundred Thousand Pesos
(P300,000.00), with interest thereon at the rate of 12% per annum
from the date of filing of the complaint until paid, the sum
of P20,000.00 as exemplary damages, and P20,000.00 as attorneys
fees and expenses of litigation as well as the cost of suit; and

2.

Ordering the dismissal of defendant-appellees counterclaim in the

amount of P30,000.00 as attorneys fees.

SO ORDERED.[13]
Acting on the motion for reconsideration of Solidbank, the appellate court affirmed
its decision but modified the award of damages. The appellate court deleted the
award of exemplary damages and attorneys fees. Invoking Article 2231 [14] of the
Civil Code, the appellate court ruled that exemplary damages could be granted if

the defendant acted with gross negligence. Since Solidbank was guilty of simple
negligence only, the award of exemplary damages was not justified. Consequently,
the award of attorneys fees was also disallowed pursuant to Article 2208 of the Civil
Code. The expenses of litigation and cost of suit were also not imposed on
Solidbank.
The dispositive portion of the Resolution reads as follows:
WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed
with modification by deleting the award of exemplary damages and attorneys fees,
expenses of litigation and cost of suit.
SO ORDERED.[15]
Hence, this petition.
The Issues
Solidbank seeks the review of the decision and resolution of the Court of
Appeals on these grounds:
I.

THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK

SHOULD SUFFER THE LOSS BECAUSE ITS TELLER SHOULD HAVE FIRST
CALLED PRIVATE RESPONDENT BY TELEPHONE BEFORE IT ALLOWED
THE WITHDRAWAL OF P300,000.00 TO RESPONDENTS MESSENGER
EMERANO ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE
PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT, NOR IS THERE
ANY BANKING LAW, WHICH MANDATES THAT A BANK TELLER SHOULD
FIRST CALL UP THE DEPOSITOR BEFORE ALLOWING A WITHDRAWAL OF
A BIG AMOUNT IN A SAVINGS ACCOUNT.

II.

THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST

CLEAR CHANCE AND IN HOLDING THAT PETITIONER BANKS TELLER
HAD THE LAST OPPORTUNITY TO WITHHOLD THE WITHDRAWAL WHEN
IT IS UNDISPUTED THAT THE TWO SIGNATURES OF RESPONDENT ON
THE WITHDRAWAL SLIP ARE GENUINE AND PRIVATE RESPONDENTS
PASSBOOK WAS DULY PRESENTED, AND CONTRARIWISE RESPONDENT
WAS NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS
MESSENGER EMERANO ILAGAN, AND IN THE SAFEKEEPING OF ITS
CHECKS AND OTHER FINANCIAL DOCUMENTS.

III.

THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT

CASE IS A LAST DITCH EFFORT OF PRIVATE RESPONDENT TO RECOVER
ITS P300,000.00 AFTER FAILING IN ITS EFFORTS TO RECOVER THE
SAME FROM ITS EMPLOYEE EMERANO ILAGAN.

IV.

THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES

AWARDED AGAINST PETITIONER UNDER ARTICLE 2197 OF THE CIVIL
CODE, NOTWITHSTANDING ITS FINDING THAT PETITIONER BANKS
NEGLIGENCE WAS ONLY CONTRIBUTORY.[16]
The Ruling of the Court

The petition is partly meritorious.

Solidbanks Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict on the application
of the law. The trial court pinned the liability on L.C. Diaz based on the provisions of
the rules on savings account, a recognition of the contractual relationship between
Solidbank and L.C. Diaz, the latter being a depositor of the former. On the other
hand, the Court of Appeals applied the law on quasi-delict to determine who
between the two parties was ultimately negligent. The law on quasi-delict or culpa
aquiliana is generally applicable when there is no pre-existing contractual
relationship between the parties.
We hold that Solidbank is liable for breach of contract due to negligence,
or culpa contractual.
The contract between the bank and its depositor is governed by the provisions
of the Civil Code on simple loan. [17] Article 1980 of the Civil Code expressly provides
that x x x savings x x x deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan. There is a debtor-creditor
relationship between the bank and its depositor. The bank is the debtor and the
depositor is the creditor. The depositor lends the bank money and the bank agrees
to pay the depositor on demand. The savings deposit agreement between the bank
and the depositor is the contract that determines the rights and obligations of the
parties.
The law imposes on banks high standards in view of the fiduciary nature of
banking. Section 2 of Republic Act No. 8791 (RA 8791), [18] which took effect on 13
June 2000, declares that the State recognizes the fiduciary nature of banking that
requires high standards of integrity and performance. [19] This new provision in the
general banking law, introduced in 2000, is a statutory affirmation of Supreme Court
decisions, starting with the 1990 case of Simex International v. Court of
Appeals,[20] holding that 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.[21]
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. Article 1172 of the Civil Code states that the degree of diligence required
of an obligor is that prescribed by law or contract, and absent such stipulation then
the diligence of a good father of a family. [22] Section 2 of RA 8791 prescribes the
statutory diligence required from banks that banks must observe high standards
of integrity and performance in servicing their depositors. Although RA 8791 took
effect almost nine years after the unauthorized withdrawal of the P300,000 from
L.C. Diazs savings account, jurisprudence [23] at the time of the withdrawal already
imposed on banks the same high standard of diligence required under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not convert
the contract between the bank and its depositors from a simple loan to a trust
agreement, whether express or implied. Failure by the bank to pay the depositor is
failure to pay a simple loan, and not a breach of trust. [24] The law simply imposes on
the bank a higher standard of integrity and performance in complying with its
obligations under the contract of simple loan, beyond those required of non-bank
debtors under a similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust
agreement because banks do not accept deposits to enrich depositors but to earn
money for themselves. The law allows banks to offer the lowest possible interest
rate to depositors while charging the highest possible interest rate on their own
borrowers. The interest spread or differential belongs to the bank and not to the
depositors who are not cestui que trust of banks. If depositors are cestui que
trust of banks, then the interest spread or income belongs to the depositors, a
situation that Congress certainly did not intend in enacting Section 2 of RA 8791.
Solidbanks Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that responsibility arising from
negligence in the performance of every kind of obligation is demandable. For
breach of the savings deposit agreement due to negligence, or culpa contractual,
the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the transaction took time
and he had to go to Allied Bank for another transaction. The passbook was still in
the hands of the employees of Solidbank for the processing of the deposit when
Calapre left Solidbank. Solidbanks rules on savings account require that the
deposit book should be carefully guarded by the depositor and kept under lock and
key, if possible. When the passbook is in the possession of Solidbanks tellers
during withdrawals, the law imposes on Solidbank and its tellers an even higher
degree of diligence in safeguarding the passbook.
Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring
that they return the passbook only to the depositor or his authorized representative.
The tellers know, or should know, that the rules on savings account provide that any
person in possession of the passbook is presumptively its owner. If the tellers give

the passbook to the wrong person, they would be clothing that person presumptive
ownership of the passbook, facilitating unauthorized withdrawals by that
person. For failing to return the passbook to Calapre, the authorized representative
of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high
degree of diligence in safeguarding the passbook, and in insuring its return to the
party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a
presumption that the defendant was at fault or negligent. The burden is on the
defendant to prove that he was not at fault or negligent. In contrast, in culpa
aquiliana the plaintiff has the burden of proving that the defendant was
negligent. In the present case, L.C. Diaz has established that Solidbank breached
its contractual obligation to return the passbook only to the authorized
representative of L.C. Diaz. There is thus a presumption that Solidbank was at fault
and its teller was negligent in not returning the passbook to Calapre. The burden
was on Solidbank to prove that there was no negligence on its part or its
employees.
Solidbank failed to discharge its burden. Solidbank did not present to the trial
court Teller No. 6, the teller with whom Calapre left the passbook and who was
supposed to return the passbook to him. The record does not indicate that Teller
No. 6 verified the identity of the person who retrieved the passbook. Solidbank also
failed to adduce in evidence its standard procedure in verifying the identity of the
person retrieving the passbook, if there is such a procedure, and that Teller No. 6
implemented this procedure in the present case.
Solidbank is bound by the negligence of its employees under the principle
of respondeat superior or command responsibility. The defense of exercising the
required diligence in the selection and supervision of employees is not a complete
defense in culpa contractual, unlike in culpa aquiliana.[25]
The bank must not only exercise high standards of integrity and performance,
it must also insure that its employees do likewise because this is the only way to
insure that the bank will comply with its fiduciary duty. Solidbank failed to present
the teller who had the duty to return to Calapre the passbook, and thus failed to
prove that this teller exercised the high standards of integrity and performance
required of Solidbanks employees.
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts is the
proximate cause of the unauthorized withdrawal. The trial court believed that L.C.
Diazs negligence in not securing its passbook under lock and key was the
proximate cause that allowed the impostor to withdraw the P300,000. For the
appellate court, the proximate cause was the tellers negligence in processing the
withdrawal without first verifying with L.C. Diaz. We do not agree with either court.

Proximate cause is that cause which, in natural and continuous sequence,

unbroken by any efficient intervening cause, produces the injury and without which
the result would not have occurred. [26] Proximate cause is determined by the facts of
each case upon mixed considerations of logic, common sense, policy and precedent.
[27]

L.C. Diaz was not at fault that the passbook landed in the hands of the
impostor. Solidbank was in possession of the passbook while it was processing the
deposit. After completion of the transaction, Solidbank had the contractual
obligation to return the passbook only to Calapre, the authorized representative of
L.C. Diaz. Solidbank failed to fulfill its contractual obligation because it gave the
passbook to another person.
Solidbanks failure to return the passbook to Calapre made possible the
withdrawal of the P300,000 by the impostor who took possession of the
passbook. Under Solidbanks rules on savings account, mere possession of the
passbook raises the presumption of ownership. It was the negligent act of
Solidbanks Teller No. 6 that gave the impostor presumptive ownership of the
passbook. Had the passbook not fallen into the hands of the impostor, the loss
of P300,000 would not have happened. Thus, the proximate cause of the
unauthorized withdrawal was Solidbanks negligence in not returning the passbook
to Calapre.
We do not subscribe to the appellate courts theory that the proximate cause of
the unauthorized withdrawal was the tellers failure to call up L.C. Diaz to verify the
withdrawal. Solidbank did not have the duty to call up L.C. Diaz to confirm the
withdrawal. There is no arrangement between Solidbank and L.C. Diaz to this
effect. Even the agreement between Solidbank and L.C. Diaz pertaining to
measures that the parties must observe whenever withdrawals of large amounts are
made does not direct Solidbank to call up L.C. Diaz.
There is no law mandating banks to call up their clients whenever their
representatives withdraw significant amounts from their accounts. L.C. Diaz
therefore had the burden to prove that it is the usual practice of Solidbank to call up
its clients to verify a withdrawal of a large amount of money. L.C. Diaz failed to do
so.
Teller No. 5 who processed the withdrawal could not have been put on guard to
verify the withdrawal. Prior to the withdrawal of P300,000, the impostor deposited
with Teller No. 6 the P90,000 PBC check, which later bounced. The impostor
apparently deposited a large amount of money to deflect suspicion from the
withdrawal of a much bigger amount of money. The appellate court thus erred when
it imposed on Solidbank the duty to call up L.C. Diaz to confirm the withdrawal when
no law requires this from banks and when the teller had no reason to be suspicious
of the transaction.

Solidbank continues to foist the defense that Ilagan made the

withdrawal. Solidbank claims that since Ilagan was also a messenger of L.C. Diaz,
he was familiar with its teller so that there was no more need for the teller to verify
the withdrawal. Solidbank relies on the following statements in the Booking and
Information Sheet of Emerano Ilagan:
xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and
indicated the amount of P90,000 which he deposited in favor of L.C. Diaz and
Company. After successfully withdrawing this large sum of money, accused Ilagan
gave alias Rey (Noel Tamayo) his share of the loot. Ilagan then hired a taxicab in
the amount of P1,000 to transport him (Ilagan) to his home province at Bauan,
Batangas. Ilagan extravagantly and lavishly spent his money but a big part of his
loot was wasted in cockfight and horse racing. Ilagan was apprehended and meekly
admitted his guilt.[28] (Emphasis supplied.)
L.C. Diaz refutes Solidbanks contention by pointing out that the person who
withdrew the P300,000 was a certain Noel Tamayo. Both the trial and appellate
courts stated that this Noel Tamayo presented the passbook with the withdrawal
slip.
We uphold the finding of the trial and appellate courts that a certain Noel
Tamayo withdrew the P300,000. The Court is not a trier of facts. We find no
justifiable reason to reverse the factual finding of the trial court and the Court of
Appeals. The tellers who processed the deposit of the P90,000 check and the
withdrawal of the P300,000 were not presented during trial to substantiate
Solidbanks claim that Ilagan deposited the check and made the questioned
withdrawal. Moreover, the entry quoted by Solidbank does not categorically state
that Ilagan presented the withdrawal slip and the passbook.
Doctrine of Last Clear Chance
The doctrine of last clear chance states that where both parties are negligent
but the negligent act of one is appreciably later than that of the other, or where it is
impossible to determine whose fault or negligence caused the loss, the one who had
the last clear opportunity to avoid the loss but failed to do so, is chargeable with the
loss.[29] Stated differently, the antecedent negligence of the plaintiff does not
preclude him from recovering damages caused by the supervening negligence of
the defendant, who had the last fair chance to prevent the impending harm by the
exercise of due diligence.[30]
We do not apply the doctrine of last clear chance to the present case. Solidbank
is liable for breach of contract due to negligence in the performance of its
contractual obligation to L.C. Diaz. This is a case of culpa contractual, where neither
the contributory negligence of the plaintiff nor his last clear chance to avoid the
loss, would exonerate the defendant from liability. [31]Such contributory negligence or

last clear chance by the plaintiff merely serves to reduce the recovery of damages
by the plaintiff but does not exculpate the defendant from his breach of contract. [32]
Mitigated Damages
Under Article 1172, liability (for culpa contractual) may be regulated by the
courts, according to the circumstances. This means that if the defendant exercised
the proper diligence in the selection and supervision of its employee, or if the
plaintiff was guilty of contributory negligence, then the courts may reduce the
award of damages. In this case, L.C. Diaz was guilty of contributory negligence in
allowing a withdrawal slip signed by its authorized signatories to fall into the hands
of an impostor. Thus, the liability of Solidbank should be reduced.
In Philippine Bank of Commerce v. Court of Appeals,[33] where the Court
held the depositor guilty of contributory negligence, we allocated the damages
between the depositor and the bank on a 40-60 ratio. Applying the same ruling to
this case, we hold that L.C. Diaz must shoulder 40% of the actual damages awarded
by the appellate court. Solidbank must pay the other 60% of the actual damages.
WHEREFORE,
the
decision
of
the
Court
of
Appeals
is AFFIRMED with MODIFICATION. Petitioner Solidbank Corporation shall pay private
respondent L.C. Diaz and Company, CPAs only 60% of the actual damages awarded
by the Court of Appeals. The remaining 40% of the actual damages shall be borne
by private respondent L.C. Diaz and Company, CPAs. Proportionate costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, and Ynares-Santiago, JJ., concur.
Azcuna, J., on official leave.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-30511 February 14, 1980
MANUEL M. SERRANO, petitioner,
vs.
CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA;
EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA
RAMOS DELA RAMA, HORACIO DELA RAMA, ANTONIO B. RAMOS, FILOMENA
RAMOS LEDESMA, RODOLFO LEDESMA, VICTORIA RAMOS TANJUATCO, and
TEOFILO TANJUATCO, respondents.

Rene Diokno for petitioner.

F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the
Philippines.
Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent
Overseas Bank of Manila.
Josefina G. Salonga for all other respondents.

CONCEPCION, JR., J.:

Petition for mandamus and prohibition, with preliminary injunction, that seeks the
establishment of joint and solidary liability to the amount of Three Hundred Fifty
Thousand Pesos, with interest, against respondent Central Bank of the Philippines
and Overseas Bank of Manila and its stockholders, on the alleged failure of the
Overseas Bank of Manila to return the time deposits made by petitioner and
assigned to him, on the ground that respondent Central Bank failed in its duty to
exercise strict supervision over respondent Overseas Bank of Manila to protect
depositors and the general public. 1 Petitioner also prays that both respondent
banks be ordered to execute the proper and necessary documents to constitute all
properties fisted in Annex "7" of the Answer of respondent Central Bank of the
Philippines in G.R. No. L-29352, entitled "Emerita M. Ramos, et al vs. Central Bank
of the Philippines," into a trust fund in favor of petitioner and all other depositors of
respondent Overseas Bank of Manila. It is also prayed that the respondents be
prohibited permanently from honoring, implementing, or doing any act predicated
upon the validity or efficacy of the deeds of mortgage, assignment. and/or
conveyance or transfer of whatever nature of the properties listed in Annex "7" of
the Answer of respondent Central Bank in G.R. No. 29352. 2
A sought for ex-parte preliminary injunction against both respondent banks was not
given by this Court.
Undisputed pertinent facts are:
On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for
one year with 6% interest, of One Hundred Fifty Thousand Pesos (P150,000.00) with
the respondent Overseas Bank of Manila. 3 Concepcion Maneja also made a time
deposit, for one year with 6-% interest, on March 6, 1967, of Two Hundred
Thousand Pesos (P200,000.00) with the same respondent Overseas Bank of
Manila. 4
On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned
and conveyed to petitioner Manuel M. Serrano, her time deposit of P200,000.00 with
respondent Overseas Bank of Manila. 5

Notwithstanding series of demands for encashment of the aforementioned time

deposits from the respondent Overseas Bank of Manila, dating from December 6,
1967 up to March 4, 1968, not a single one of the time deposit certificates was
honored by respondent Overseas Bank of Manila. 6
Respondent Central Bank admits that it is charged with the duty of administering
the banking system of the Republic and it exercises supervision over all doing
business in the Philippines, but denies the petitioner's allegation that the Central
Bank has the duty to exercise a most rigid and stringent supervision of banks,
implying that respondent Central Bank has to watch every move or activity of all
banks, including respondent Overseas Bank of Manila. Respondent Central Bank
claims that as of March 12, 1965, the Overseas Bank of Manila, while operating, was
only on a limited degree of banking operations since the Monetary Board decided in
its Resolution No. 322, dated March 12, 1965, to prohibit the Overseas Bank of
Manila from making new loans and investments in view of its chronic reserve
deficiencies against its deposit liabilities. This limited operation of respondent
Overseas Bank of Manila continued up to 1968. 7
Respondent Central Bank also denied that it is guarantor of the permanent solvency
of any banking institution as claimed by petitioner. It claims that neither the law nor
sound banking supervision requires respondent Central Bank to advertise or
represent to the public any remedial measures it may impose upon chronic
delinquent banks as such action may inevitably result to panic or bank "runs". In the
years 1966-1967, there were no findings to declare the respondent Overseas Bank
of Manila as insolvent. 8
Respondent Central Bank likewise denied that a constructive trust was created in
favor of petitioner and his predecessor in interest Concepcion Maneja when their
time deposits were made in 1966 and 1967 with the respondent Overseas Bank of
Manila as during that time the latter was not an insolvent bank and its operation as
a banking institution was being salvaged by the respondent Central Bank. 9
Respondent Central Bank avers no knowledge of petitioner's claim that the
properties given by respondent Overseas Bank of Manila as additional collaterals to
respondent Central Bank of the Philippines for the former's overdrafts and
emergency loans were acquired through the use of depositors' money, including
that of the petitioner and Concepcion Maneja. 10
In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the
Philippines," a case was filed by the petitioner Ramos, wherein respondent Overseas
Bank of Manila sought to prevent respondent Central Bank from closing, declaring
the former insolvent, and liquidating its assets. Petitioner Manuel Serrano in this
case, filed on September 6, 1968, a motion to intervene in G.R. No. L-29352, on the
ground that Serrano had a real and legal interest as depositor of the Overseas Bank
of Manila in the matter in litigation in that case. Respondent Central Bank in G.R.
No. L-29352 opposed petitioner Manuel Serrano's motion to intervene in that case,

on the ground that his claim as depositor of the Overseas Bank of Manila should
properly be ventilated in the Court of First Instance, and if this Court were to allow
Serrano to intervene as depositor in G.R. No. L-29352, thousands of other depositors
would follow and thus cause an avalanche of cases in this Court. In the resolution
dated October 4, 1968, this Court denied Serrano's, motion to intervene. The
contents of said motion to intervene are substantially the same as those of the
present petition. 11
This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became
final and executory on March 3, 1972, favorable to the respondent Overseas Bank of
Manila, with the dispositive portion to wit:
WHEREFORE, the writs prayed for in the petition are hereby granted
and respondent Central Bank's resolution Nos. 1263, 1290 and 1333
(that prohibit the Overseas Bank of Manila to participate in clearing,
direct the suspension of its operation, and ordering the liquidation of
said bank) are hereby annulled and set aside; and said respondent
Central Bank of the Philippines is directed to comply with its
obligations under the Voting Trust Agreement, and to desist from
taking action in violation therefor. Costs against respondent Central
Bank of the Philippines. 12
Because of the above decision, petitioner in this case filed a motion for judgment in
this case, praying for a decision on the merits, adjudging respondent Central Bank
jointly and severally liable with respondent Overseas Bank of Manila to the
petitioner for the P350,000 time deposit made with the latter bank, with all interests
due therein; and declaring all assets assigned or mortgaged by the respondents
Overseas Bank of Manila and the Ramos groups in favor of the Central Bank as trust
funds for the benefit of petitioner and other depositors. 13
By the very nature of the claims and causes of action against respondents, they in
reality are recovery of time deposits plus interest from respondent Overseas Bank of
Manila, and recovery of damages against respondent Central Bank for its alleged
failure to strictly supervise the acts of the other respondent Bank and protect the
interests of its depositors by virtue of the constructive trust created when
respondent Central Bank required the other respondent to increase its collaterals for
its overdrafts said emergency loans, said collaterals allegedly acquired through the
use of depositors money. These claims shoud be ventilated in the Court of First
Instance of proper jurisdiction as We already pointed out when this Court denied
petitioner's motion to intervene in G.R. No. L-29352. Claims of these nature are not
proper in actions for mandamus and prohibition as there is no shown clear abuse of
discretion by the Central Bank in its exercise of supervision over the other
respondent Overseas Bank of Manila, and if there was, petitioner here is not the
proper party to raise that question, but rather the Overseas Bank of Manila, as it did
in G.R. No. L-29352. Neither is there anything to prohibit in this case, since the
questioned acts of the respondent Central Bank (the acts of dissolving and

liquidating the Overseas Bank of Manila), which petitioner here intends to use as his
basis for claims of damages against respondent Central Bank, had been
accomplished a long time ago.
Furthermore, both parties overlooked one fundamental principle in the nature of
bank deposits when the petitioner claimed that there should be created a
constructive trust in his favor when the respondent Overseas Bank of Manila
increased its collaterals in favor of respondent Central Bank for the former's
overdrafts and emergency loans, since these collaterals were acquired by the use of
depositors' money.
Bank deposits are in the nature of irregular deposits. They are really loans because
they earn interest. All kinds of bank deposits, whether fixed, savings, or current are
to be treated as loans and are to be covered by the law on loans. 14 Current and
savings deposit are loans to a bank because it can use the same. The petitioner
here in making time deposits that earn interests with respondent Overseas Bank of
Manila was in reality a creditor of the respondent Bank and not a depositor. The
respondent Bank was in turn a debtor of petitioner. Failure of he respondent Bank to
honor the time deposit is failure to pay s obligation as a debtor and not a breach of
trust arising from depositary's failure to return the subject matter of the deposit
WHEREFORE, the petition is dismissed for lack of merit, with costs against
petitioner.
SO ORDERED.
Antonio, Abad Santos, JJ., concur.
Barredo (Chairman) J., concur in the judgment on the of the concurring opinion of
Justice Aquino.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 88013 March 19, 1990
SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL
BANK, respondents.
Don P. Porcuincula for petitioner.

San Juan, Gonzalez, San Agustin & Sinense for private respondent.

CRUZ, J.:
We are concerned in this case with the question of damages, specifically moral and
exemplary damages. The negligence of the private respondent has already been
established. All we have to ascertain is whether the petitioner is entitled to the said
damages and, if so, in what amounts.
The parties agree on the basic 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. On May 25, 1981, the
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. 1 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. Check No. 215391 dated May 29, 1981, in favor of California
Manufacturing Company, Inc. for P16,480.00:
2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of
Internal Revenue in the amount of P3,386.73:
3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreo
in the amount of P7,080.00;
4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife
Trading Corporation in the amount of P42,906.00:
5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife
Trading Corporation in the amount of P12,953.00:
6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services,
Inc. in the amount of P27,024.45:
7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country
Club Corporation in the amount of P4,385.02: and

8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in

the amount of P6,275.00. 2
As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a
letter of demand to the petitioner, threatening prosecution if the dishonored check
issued to it was not made good. It also withheld delivery of the order made by the
petitioner. Similar letters were sent to the petitioner by the Malabon Long Life
Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10, 1981.
Malabon also canceled the petitioner's credit line and demanded that future
payments be made by it in cash or certified check. Meantime, action on the pending
orders of the petitioner with the other suppliers whose checks were dishonored was
also deferred.
The petitioner complained to the respondent bank on June 10, 1981. 3 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. 4
In its letter dated June 20, 1981, the 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% attorney's fees, and
costs.
After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and
exemplary damages were not called for under the circumstances. However,
observing that the plaintiff's right had been violated, he ordered the defendant to
pay nominal damages in the amount of P20,000.00 plus P5,000.00 attorney's fees
and costs. 5 This decision was affirmed in toto by the respondent court. 6
The respondent court found with the trial court that the private respondent was
guilty of negligence but agreed that the petitioner was nevertheless not entitled to
moral damages. It said:
The essential ingredient of moral damages is proof of bad faith (De
Aparicio vs. Parogurga, 150 SCRA 280). Indeed, there was the omission
by the defendant-appellee bank to credit appellant's deposit of
P100,000.00 on May 25, 1981. But the bank rectified its records. It
credited the said amount in favor of plaintiff-appellant in less than a
month. The dishonored checks were eventually paid. These
circumstances negate any imputation or insinuation of malicious,
fraudulent, wanton and gross bad faith and negligence on the part of
the defendant-appellant.
It is this ruling that is faulted in the petition now before us.

This Court has carefully examined the facts of this case and finds that it cannot
share some of the conclusions of the lower courts. It seems to us that the
negligence of the private respondent had been brushed off rather lightly as if it
were a minor infraction requiring no more than a slap on the wrist. We feel it is not
enough to say that the private respondent rectified its records and credited the
deposit in less than a month as if this were sufficient repentance. 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.
As the Court sees it, 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.
We also note that while stressing the rectification made by the respondent bank, the
decision practically ignored the prejudice suffered by the petitioner. This was simply
glossed over if not, indeed, disbelieved. The fact is that the petitioner's 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 plaintiff s 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." 7 Such injury should bolster all
the more the demand of the petitioner for moral damages and justifies the
examination by this Court of the validity and reasonableness of the said claim.
We agree that moral damages are not awarded to penalize the defendant but to
compensate the plaintiff for the injuries he may have suffered. 8 In the case at bar,
the petitioner is seeking such damages for the prejudice sustained by it as a result
of the private respondent's 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 petitioner's, 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. 9
We shall recognize that the petitioner did suffer injury because of the private
respondent's negligence that caused the dishonor 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. The private
respondent makes much of the one instance when the petitioner was sued in a
collection case, but that did not prove that it did not have a good reputation that
could not be marred, more so since that case was ultimately settled. 10 It does not
appear that, as the private respondent would portray it, the petitioner is an
unsavory and disreputable entity that has no good name to protect.
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.
Now for the exemplary damages.
The pertinent provisions of the Civil Code are the following:
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 life's savings to the bank of his choice, knowing that they will be safe in its
custody and will even earn some interest for him. The ordinary person, with equal
faith, usually maintains a modest checking account for security and convenience in
the settling of his monthly bills and the payment of ordinary expenses. As for
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 indefference that has been displayed
here, lest the confidence of the public in the banking system be further impaired.
ACCORDINGLY, the 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 attorney's fees in the amount of P5,000.00,
and costs.

SO ORDERED.
Narvasa, Gancayco, Grino-Aquino and Medialdea, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 161319

January 23, 2007

SPS. EDGAR AND DINAH OMENGAN, Petitioners,

vs.
PHILIPPPINE NATIONAL BANK, HENRY M. MONTALVO AND MANUEL S.
ACIERTO,* Respondents.
DECISION
CORONA, J.:
This petition for review on certiorari1 seeks a review and reversal of the Court of
Appeals (CA) decision2 and resolution3 in CA-G.R. CV No. 71302.
In October 1996, the Philippine National Bank (PNB) Tabuk (Kalinga) Branch
approved petitioners-spouses application for a revolving credit line of P3 million.
The loan was secured by two residential lots in Tabuk, Kalinga-Apayao covered by
Transfer Certificate of Title (TCT) Nos. 12954 and 12112. The certificates of title,
issued by the Registry of Deeds of the Province of Kalinga-Apayao, were in the name
of Edgar4 Omengan married to Dinah Omengan.
The first P2.5 million was released by Branch Manager Henry Montalvo on three
separate dates. The release of the final half million was, however, withheld by
Montalvo because of a letter allegedly sent by Edgars sisters. It read:
Appas, Tabuk
Kalinga
7 November 1996
The Manager
Philippine National Bank
Tabuk Branch
Poblacion, Tabuk
Kalinga
Sir:

This refers to the land at Appas, Tabuk in the name of our brother, Edgar Omengan,
which was mortgaged to [the] Bank in the amount of Three Million Pesos
(P3,000,000.00), the sum of [P2.5 Million] had already been released and received
by our brother, Edgar.
In this connection, it is requested that the remaining unreleased balance of [half a
million pesos] be held in abeyance pending an understanding by the rest of the
brothers and sisters of Edgar. Please be informed that the property
mortgaged, while in the name of Edgar Omengan, is owned in coownership by all the children of the late Roberto and Elnora Omengan. The
lawyer who drafted the document registering the subject property under
Edgars name can attest to this fact. We had a prior understanding with
Edgar in allowing him to make use of the property as collateral, but he
refuses to comply with such arrangement. Hence, this letter. (emphasis ours)
Very truly yours,
(Sgd.) Shirley O. Gamon (Sgd.) Imogene O. Bangao
(Sgd.) Caroline O. Salicob (Sgd.) Alice O. Claver 5
Montalvo was eventually replaced as branch manager by Manuel Acierto who
released the remaining half million pesos to petitioners on May 2, 1997. Acierto also
recommended the approval of a P2 million increase in their credit line to the
Cagayan Valley Business Center Credit Committee in Santiago City.
The credit committee approved the increase of petitioners credit line (from P3
million to P5 million), provided Edgars sisters gave their conformity. Acierto
informed petitioners of the conditional approval of their credit line.
But petitioners failed to secure the consent of Edgars sisters; hence, PNB put on
hold the release of the additional P2 million.
On October 7, 1998, Edgar Omengan demanded the release of the P2 million. He
claimed that the condition for its release was not part of his credit line agreement
with PNB because it was added without his consent. PNB denied his request.
On March 3, 1999, petitioners filed a complaint for breach of contract and damages
against PNB with the Regional Trial Court (RTC), Branch 25 in Tabuk, Kalinga. After
trial, the court decided in favor of petitioners.
Accordingly, judgment is hereby rendered finding in favor of [petitioners.] [PNB is
ordered]:
1) To release without delay in favor of [petitioners] the amount
of P2,000,000.00 to complete theP5,000,000.00 credit line agreement;
2) To pay [petitioners] the amount of P2,760,000.00 representing the losses
and/or expected income of the [petitioners] for three years;
3) To pay lawful interest, until the amount aforementioned on paragraphs 1
and 2 above are fully paid; and

4) To pay the costs.1awphi1.net

SO ORDERED.6
The CA, however, on June 18, 2003, reversed and set aside the RTC decision dated
April 21, 2001.7
Petitioners now contend that the CA erred when it did not sustain the finding of
breach of contract by the RTC. 8
The existence of breach of contract is a factual matter not usually reviewed in a
petition filed under Rule 45. But since the RTC and the CA had contradictory
findings, we are constrained to rule on this issue.
Was there a breach of contract? There was none.
Breach of contract is defined as follows:
[It] is the "failure without legal reason to comply with the terms of a contract." It is
also defined as the "[f]ailure, without legal excuse, to perform any promise which
forms the whole or part of the contract." 9
In this case, the parties agreed on a P3 million credit line. This sum was completely
released to petitioners who subsequently applied 10 for an increase in their credit
line. This was conditionally approved by PNBs credit committee. For all intents and
purposes, petitioners sought an additional loan.
The condition attached to the increase in credit line requiring petitioners to acquire
the conformity of Edgars sisters was never acknowledged and accepted by
petitioners. Thus, as to the additional loan, no meeting of the minds actually
occurred and no breach of contract could be attributed to PNB. There was no
perfected contract over the increase in credit line.
"[T]he business of a bank is one affected with public interest, for which reason the
bank should guard against loss due to negligence or bad faith. In approving the loan
of an applicant, the bank concerns itself with proper [information] regarding its
debtors."11 Any investigation previously conducted on the property offered by
petitioners as collateral did not preclude PNB from considering new information on
the same property as security for a subsequent loan. The credit and property
investigation for the original loan of P3 million did not oblige PNB to grant and
release any additional loan. At the time the original P3 million credit line was
approved, the title to the property appeared to pertain exclusively to petitioners. By
the time the application for an increase was considered, however, PNB already had
reason to suspect petitioners claim of exclusive ownership.1avvphi1.net
A mortgagee can rely on what appears on the certificate of title presented by the
mortgagor and an innocent mortgagee is not expected to conduct an exhaustive
investigation on the history of the mortgagors title. This rule is strictly applied to
banking institutions. xxx
Banks, indeed, should exercise more care and prudence in dealing even
with registered lands, than private individuals, as their business is one

affected with public interest. xxx Thus, this Court clarified that the rule
that persons dealing with registered lands can rely solely on the
certificate of title does notapply to banks.12 (emphasis supplied)
Here, PNB had acquired information sufficient to induce a reasonably prudent
person to inquire into the status of the title over the subject property. Instead of
defending their position, petitioners merely insisted that reliance on the face of the
certificate of title (in their name) was sufficient. This principle, as already
mentioned, was not applicable to financial institutions like PNB.
In truth, petitioners had every chance to turn the situation in their favor if, as they
said, they really owned the subject property alone, to the exclusion of any other
owner(s). Unfortunately, all they offered were bare denials of the co-ownership
claimed by Edgars sisters.
PNB exercised reasonable prudence in requiring the above-mentioned condition for
the release of the additional loan. If the condition proved unacceptable to
petitioners, the parties could have discussed other terms instead of making an
obstinate and outright demand for the release of the additional amount. If the
alleged co-ownership in fact had no leg to stand on, petitioners could have
introduced evidence other than a simple denial of its existence.
Since PNB did not breach any contract and since it exercised the degree of diligence
expected of it, it cannot be held liable for damages.
WHEREFORE, the decision and resolution of the Court of Appeals in CA-G.R. CV No.
71302 are hereby AFFIRMED.