I.

Bank Deposit
1.BANK OF THE PHILIPPINE ISLANDS,
petitioner,
vs.
HON. COURT OF APPEALS, EASTERN
PLYWOOD CORP. and BENIGNO D. LIM,
respondents.
The petitioner urges us to review and set
aside the amended Decision 1 of 6 March
1992 of respondent Court of Appeals in CAG.R. CV No. 25739 which modified the
Decision of 15 November 1990 of Branch 19
of the Regional Trial Court (RTC) of Manila
in Civil Case No. 87-42967, entitled Bank of
the Philippine Islands (successor-in-interest
of Commercial Bank and Trust Company)
versus Eastern Plywood Corporation and
Benigno D. Lim. The Court of Appeals had
affirmed the dismissal of the complaint but
had granted the defendants' counterclaim
for P331,261.44 which represents the
outstanding balance of their account with the
plaintiff.
As culled from the records and the pleadings
of the parties, the following facts were duly
established:
Private respondents Eastern Plywood
Corporation (Eastern) and
Benigno D. Lim (Lim), an officer and
stockholder of Eastern, held at least one
joint bank account ("and/or" account) with
the Commercial Bank and Trust Co. (CBTC),
the predecessor-in-interest of petitioner
Bank of the Philippine Islands (BPI).
Sometime in March 1975, a joint checking
account ("and" account) with Lim in the
amount of P120,000.00 was opened by
Mariano Velasco with funds withdrawn from
the account of Eastern and/or Lim. Various
amounts were later deposited or withdrawn
from the joint account of Velasco and Lim.
The money therein was placed in the money
market.
Velasco died on 7 April 1977. At the time of
his death, the outstanding balance of the
account stood at P662,522.87. On 5 May
1977, by virtue of an Indemnity Undertaking
executed by Lim for himself and as
President and General Manager of Eastern,
2 one-half of this amount was provisionally

released and transferred to one of the bank

accounts of Eastern with CBTC. 3
Thereafter, on 18 August 1978, Eastern
obtained a loan of P73,000.00 from CBTC
as "Additional Working Capital," evidenced
by the "Disclosure Statement on Loan/Credit
Transaction" (Disclosure Statement) signed
by CBTC through its branch manager,
Ceferino Jimenez, and Eastern, through
Lim, as its President and General Manager.
4 The loan was payable on demand with
interest at 14% per annum.
For this loan, Eastern issued on the same
day a negotiable promissory note for
P73,000.00 payable on demand to the order
of CBTC with interest at 14% per annum. 5
The note was signed by Lim both in his own
capacity and as President and General
Manager of Eastern. No reference to any
security for the loan appears on the note. In
the Disclosure Statement, the box with the
printed word "UNSECURED" was marked
with "X" meaning unsecured, while the
line with the words "this loan is wholly/partly
secured by" is followed by the typewritten
words "Hold-Out on a 1:1 on C/A No. 2310001-42," which refers to the joint account of
Velasco and Lim with a balance of
P331,261.44.
In addition, Eastern and Lim, and CBTC
signed another document entitled "Holdout
Agreement," also dated 18 August 1978, 6
wherein it was stated that "as security for the
Loan [Lim and Eastern] have offered [CBTC]
and the latter accepts a holdout on said
[Current Account No. 2310-011-42 in the
joint names of Lim and Velasco] to the full
extent of their alleged interests therein as
these may appear as a result of final and
definitive judicial action or a settlement
between and among the contesting parties
thereto." 7 Paragraph 02 of the Agreement
provides as follows:
Eastply [Eastern] and Mr. Lim hereby confer
upon Comtrust [CBTC], when and if their
alleged interests in the Account Balance
shall have been established with finality,
ample and sufficient power as shall be
necessary to retain said Account Balance
and enable Comtrust to apply the Account
Balance for the purpose of liquidating the

Loan in respect of principal and/or accrued

interest.
And paragraph 05 thereof reads:
The acceptance of this holdout shall not
impair the right of Comtrust to declare the
loan payable on demand at any time, nor
shall the existence hereof and the nonresolution of the dispute between the
contending parties in respect of entitlement
to the Account Balance, preclude Comtrust
from instituting an action for recovery
against Eastply and/or Mr. Lim in the event
the Loan is declared due and payable and
Eastply and/or Mr. Lim shall default in
payment of all obligations and liabilities
thereunder.
In the meantime, a case for the settlement of
Velasco's estate was filed with Branch 152
of the RTC of Pasig, entitled "In re Intestate
Estate of Mariano Velasco," and docketed
as Sp. Proc. No. 8959. In the said case, the
whole balance of P331,261.44 in the
aforesaid joint account of Velasco and Lim
was being claimed as part of Velasco's
estate. On 9 September 1986, the intestate
court granted the urgent motion of the heirs
of Velasco to withdraw the deposit under the
joint account of Lim and Velasco and
authorized the heirs to divide among
themselves the amount withdrawn. 8
Sometime in 1980, CBTC was merged with
BPI. 9 On 2 December 1987, BPI filed with
the RTC of Manila a complaint against Lim
and Eastern demanding payment of the
promissory note for P73,000.00. The
complaint was docketed as Civil Case No.
87- 42967 and was raffled to Branch 19 of
the said court, then presided over by Judge
Wenceslao M. Polo. Defendants Lim and
Eastern, in turn, filed a counterclaim against
BPI for the return of the balance in the
disputed account subject of the Holdout
Agreement and the interests thereon after
deducting the amount due on the promissory
note.
After due proceedings, the trial court
rendered its decision on
15 November 1990 dismissing the complaint
because BPI failed to make out its case.
Furthermore, it ruled that "the promissory
note in question is subject to the 'hold-out'

agreement," 10 and that based on this

agreement, "it was the duty of plaintiff Bank
[BPI] to debit the account of the defendants
under the promissory note to set off the loan
even though the same has no fixed
maturity." 11 As to the defendants'
counterclaim, the trial court, recognizing the
fact that the entire amount in question had
been withdrawn by Velasco's heirs pursuant
to the order of the intestate court in Sp.
Proc. No. 8959, denied it because the "said
claim cannot be awarded without disturbing
the resolution" of the intestate court. 12
Both parties appealed from the said decision
to the Court of Appeals. Their appeal was
docketed as CA-G.R. CV No. 25739.
On 23 January 1991, the Court of Appeals
rendered a decision affirming the decision of
the trial court. It, however, failed to rule on
the defendants' (private respondents') partial
appeal from the trial court's denial of their
counterclaim. Upon their motion for
reconsideration, the Court of Appeals
promulgated on 6 March 1992 an Amended
Decision 13 wherein it ruled that the
settlement of Velasco's estate had nothing
to do with the claim of the defendants for the
return of the balance of their account with
CBTC/BPI as they were not privy to that
case, and that the defendants, as depositors
of CBTC/BPI, are the latter's creditors;
hence, CBTC/BPI should have protected the
defendants' interest in Sp. Proc. No. 8959
when the said account was claimed by
Velasco's estate. It then ordered BPI "to pay
defendants the amount of P331,261.44
representing the outstanding balance in the
bank account of defendants." 14
On 22 April 1992, BPI filed the instant
petition alleging therein that the Holdout
Agreement in question was subject to a
suspensive condition stated therein, viz.,
that the "P331,261.44 shall become a
security for respondent Lim's promissory
note only if respondents' Lim and Eastern
Plywood Corporation's interests to that
amount are established as a result of a final
and definitive judicial action or a settlement
between and among the contesting parties
thereto." 15 Hence, BPI asserts, the Court of
Appeals erred in affirming the trial court's
decision dismissing the complaint on the

ground that it was the duty of CBTC to debit

the account of the defendants to set off the
amount of P73,000.00 covered by the
promissory note.
Private respondents Eastern and Lim
dispute the "suspensive condition" argument
of the petitioner. They interpret the findings
of both the trial and appellate courts that the
money deposited in the joint account of
Velasco and Lim came from Eastern and
Lim's own account as a finding that the
money deposited in the joint account of Lim
and Velasco "rightfully belong[ed] to Eastern
Plywood Corporation and/or Benigno Lim."
And because the latter are the rightful
owners of the money in question, the
suspensive condition does not find any
application in this case and the bank had the
duty to set off this deposit with the loan.
They add that the ruling of the lower court
that they own the disputed amount is the
final and definitive judicial action required by
the Holdout Agreement; hence, the
petitioner can only hold the amount of
P73,000.00 representing the security
required for the note and must return the
rest. 16
The petitioner filed a Reply to the aforesaid
Comment. The private respondents filed a
Rejoinder thereto.
We gave due course to the petition and
required
the
parties
to
submit
simultaneously their memoranda.
The key issues in this case are whether BPI
can demand payment of the loan of
P73,000.00 despite the existence of the
Holdout Agreement and whether BPI is still
liable to the private respondents on the
account subject of the Holdout Agreement
after its withdrawal by the heirs of Velasco.
The collection suit of BPI is based on the
promissory note for P73,000.00. On its face,
the note is an unconditional promise to pay
the said amount, and as stated by the
respondent Court of Appeals, "[t]here is no
question that the promissory note is a
negotiable instrument." 17 It further correctly
ruled that BPI was not a holder in due
course because the note was not indorsed
to BPI by the payee, CBTC. Only a

negotiation by indorsement could have

operated as a valid transfer to make BPI a
holder in due course. It acquired the note
from CBTC by the contract of merger or sale
between the two banks. BPI, therefore, took
the note subject to the Holdout Agreement.
We disagree, however, with the Court of
Appeals in its interpretation of the Holdout
Agreement. It is clear from paragraph 02
thereof that CBTC, or BPI as its successorin-interest, had every right to demand that
Eastern and Lim settle their liability under
the promissory note. It cannot be compelled
to retain and apply the deposit in Lim and
Velasco's joint account to the payment of the
note. What the agreement conferred on
CBTC was a power, not a duty. Generally, a
bank is under no duty or obligation to make
the application. 18 To apply the deposit to
the payment of a loan is a privilege, a right
of set-off which the bank has the option to
exercise. 19
Also, paragraph 05 of the Holdout
Agreement itself states that notwithstanding
the agreement, CBTC was not in any way
precluded from demanding payment from
Eastern and from instituting an action to
recover payment of the loan. What it
provides is an alternative, not an exclusive,
method of enforcing its claim on the note.
When it demanded payment of the debt
directly from Eastern and Lim, BPI had
opted not to exercise its right to apply part of
the deposit subject of the Holdout
Agreement to the payment of the promissory
note for P73,000.00. Its suit for the
enforcement of the note was then in order
and it was error for the trial court to dismiss
it on the theory that it was set off by an
equivalent portion in C/A No. 2310-001-42
which BPI should have debited. The Court of
Appeals also erred in affirming such
dismissal.
The "suspensive condition" theory of the
petitioner is, therefore, untenable.
The Court of Appeals correctly decided on
the counterclaim. The counterclaim of
Eastern and Lim for the return of the
P331,261.44 20 was equivalent to a demand
that they be allowed to withdraw their
deposit with the bank. Article 1980 of the

Civil Code expressly provides that "[f]ixed,

savings, and current deposits of money in
banks and similar institutions shall be
governed by the provisions concerning
simple loan." In Serrano vs. Central Bank of
the Philippines, 21 we held that bank
deposits are in the nature of irregular
deposits; they are really loans because they
earn interest. The relationship then between
a depositor and a bank is one of creditor and
debtor. The deposit under the questioned
account was an ordinary bank deposit;
hence, it was payable on demand of the
depositor. 22
The account was proved and established to
belong to Eastern even if it was deposited in
the names of Lim and Velasco. As the real
creditor of the bank, Eastern has the right to
withdraw it or to demand payment thereof.
BPI cannot be relieved of its duty to pay
Eastern simply because it already allowed
the heirs of Velasco to withdraw the whole
balance of the account. The petitioner
should not have allowed such withdrawal
because it had admitted in the Holdout
Agreement the questioned ownership of the
money deposited in the account. As early as
12 May 1979, CBTC was notified by the
Corporate Secretary of Eastern that the
deposit in the joint account of Velasco and
Lim was being claimed by them and that
one-half was being claimed by the heirs of
Velasco. 23
Moreover, the order of the court in Sp. Proc.
No. 8959 merely authorized the heirs of
Velasco to withdraw the account. BPI was
not specifically ordered to release the
account to the said heirs; hence, it was
under no judicial compulsion to do so. The
authorization given to the heirs of Velasco
cannot be construed as a final determination
or adjudication that the account belonged to
Velasco. We have ruled that when the
ownership of a particular property is
disputed, the determination by a probate
court of whether that property is included in
the estate of a deceased is merely
provisional in character and cannot be the
subject of execution. 24
Because the ownership of the deposit
remained undetermined, BPI, as the debtor
with respect thereto, had no right to pay to

persons other than those in whose favor the

obligation was constituted or whose right or
authority to receive payment is indisputable.
The payment of the money deposited with
BPI that will extinguish its obligation to the
creditor-depositor is payment to the person
of the creditor or to one authorized by him or
by the law to receive it. 25 Payment made
by the debtor to the wrong party does not
extinguish the obligation as to the creditor
who is without fault or negligence, even if
the debtor acted in utmost good faith and by
mistake as to the person of the creditor, or
through error induced by fraud of a third
person. 26 The payment then by BPI to the
heirs of Velasco, even if done in good faith,
did not extinguish its obligation to the true
depositor, Eastern.
In the light of the above findings, the
dismissal of the petitioner's complaint is
reversed and set aside. The award on the
counterclaim is sustained subject to a
modification of the interest.
WHEREFORE, the instant petition is partly
GRANTED. The challenged amended
decision in CA-G.R. CV No. 25735 is hereby
MODIFIED. As modified:
(1) Private respondents are ordered to pay
the petitioner the promissory note for
P73,000.00 with interest at:
(a) 14% per annum on the principal,
computed from
18 August 1978 until payment;
(b) 12% per annum on the interest which
had accrued up to the date of the filing of the
complaint, computed from that date until
payment pursuant to Article 2212 of the Civil
Code.
(2) The award of P331,264.44 in favor of
the private respondents shall bear interest at
the rate of 12% per annum computed from
the filing of the counterclaim.
No pronouncement as to costs.
SO ORDERED.
Cruz, Bellosillo, Quiason and Kapunan, JJ.,
concur

2.
PHILIPPINE
SAVINGS
BANK,
petitioner,
vs.
CHOWKING
FOOD
CORPORATION,
respondent.
DECISION
REYES, R.T., J.:
IT is the peculiar quality of a fool to perceive
the fault of others and to forget his own. Ang
isang kakatuwang katangian ng isang
hangal ay punahin ang kamalian ng iba at
kalimutan naman ang sa kanya.
This is a petition for review on certiorari of
the Decision1 of the Court of Appeals (CA)
reinstating the Decision of the Regional Trial
Court (RTC), Manila, Branch 5. The RTC
ordered petitioner Philippine Savings Bank
(PSBank) and its Bustos Branch Head,
Erlinda O. Santos, to reimburse respondent
Chowking Food Corporation (Chowking) the
amount corresponding to five (5) illegally
encashed checks.
The Facts
Between March 15, 1989 and August 10,
1989, Joe Kuan Food Corporation issued in
favor of Chowking five (5) PSBank checks
with the following numbers, dates and
denominations:

10 August 19892
The total amount of the subject checks
reached P556,981.86.

The signatures of the other authorized

officers of respondent corporation were
absent in the five (5) checks, contrary to
usual banking practice.4 Unexpectedly,
Manzano
absconded
with
and
misappropriated the check proceeds.5
When Chowking found out Manzano's
scheme, it demanded reimbursement from
PSBank.6 When PSBank refused to pay,
Chowking filed a complaint7 for a sum of
money with damages before the RTC.
Likewise
impleaded
were
PSBank's
president, Antonio S. Abacan, and Bustos
branch head, Santos.8
Both PSBank and Santos filed cross claims
and third party complaints against
Manzano.9 Despite all diligent efforts,
summonses were not served upon third
party defendant Manzano. Santos did not
take any further action and her third party
complaint was archived.10
Meanwhile, petitioner caused the service of
its summons on the cross-claim and third
party complaints through publication. On its
subsequent motion, Manzano was declared
in default for failure to file a responsive
pleading.11
Respondent filed a motion for summary
judgment. Petitioner opposed the motion.
On February 1, 1995, the trial court denied
the motion via an order of even date.12
In its Answer, petitioner did not controvert
the foregoing facts, but denied liability to
respondent for the encashed checks.13
Petitioner bank maintained it exercised due
diligence in the supervision of all its
employees. It even dismissed defendant
Santos after she was found guilty of
negligence in the performance of her
duties.14

On the respective due dates of each check,

Chowking's acting accounting manager,
Rino T. Manzano, endorsed and encashed
said checks with the Bustos branch of
respondent PSBank.3

Defendant Santos, on the other hand,

denied that she had been negligent in her
job. She averred that she merely followed
the bank's practice of honoring respondent's
checks even if accompanied only by
Manzano's endorsement.15

All the five checks were honored by

defendant Santos, even with only the
endorsement of Manzano approving them.

Defendant Abacan likewise denied any

liability to respondent. He alleged that, as
president and officer of petitioner bank, he

played no role in the transactions

complained of.16 Thus, respondent has no
cause of action against him.
Petitioner, Santos and Abacan were
unanimous in asserting that respondent is
estopped from claiming reimbursement and
damages since it was negligent in allowing
Manzano to take hold, endorse, and encash
its checks. Petitioner pointed out that the
proximate cause of respondent's loss was
its own negligence.17
RTC Disposition
On August 24, 1998, the RTC rendered
judgment in favor of respondent, the
dispositive portion of which reads:
WHEREFORE,
premises
considered,
judgment is hereby rendered in favor of
plaintiff and as against defendant Philippine
Savings Bank and Erlinda O. Santos
ordering the said defendants to pay plaintiff,
jointly and severally:
1. The amount of P556,981.86 plus interest
at the rate of 12% per annum from August
15, 1989 until said amount shall have been
paid;
2. 20% of the total amount due plaintiff as
attorney's fees;
3. The sum of P100,000.00 as exemplary
damages;
4. The sum of P1,000,000.00 for plaintiff's
unrealized profits.
The complaint with respect to defendant
Antonio Abacan, Jr. as well as his
counterclaim and cross claim are hereby
DISMISSED.
With respect to the cross claim of defendant
PSBank against Erlinda Santos and its thirdparty complaint against Rino T. Manzano,
both Santos and Manzano are hereby
ordered to jointly and severally, reimburse
defendant PSBank whatever amount the
latter shall be constrained to pay plaintiff in
connection with this case.
SO ORDERED.18

Aggrieved, petitioner filed a motion for

reconsideration. Through an Order dated
January 11, 1999, the RTC reversed its
earlier ruling and held that it was
respondent's own negligence that was the
proximate cause of the loss. The fallo of the
amended RTC decision now reads:
In light of the foregoing grounds and
observations, the Decision of August 24,
1998, by this Court is accordingly modified
as follows:
1. Ordering the dismissal of the complaint by
the plaintiff Chowking Food Corporation
against the defendants, Philippine Savings
Bank (PSBank) and Erlinda Santos for lack
of basis in fact and law;
2. Ordering the third party defendant,
Regino or Rino T. Manzano to pay the
plaintiff Chowking Food Corporation, the
following:
a. To reimburse the plaintiff the amount of
P556,981.86 plus interest at the rate of 12%
per annum from August 15, 1989, until said
amount has been fully satisfied;
b. To pay an attorney's fee equivalent to
20% of the total amount due the plaintiff;
c. To pay an amount of P100,000.00 the
plaintiff for actual and compensatory
damages, plus the costs of this suit.
SO ORDERED.19
Dissatisfied with the modified ruling of the
RTC, respondent appealed to the CA.
CA Disposition
In its appeal, respondent Chowking
contended, inter alia, that the RTC erred in
ruling that the proximate cause of the loss
was its own negligence; and that its claim
was barred by estoppel.
On January 31, 2007, the CA granted the
appeal, disposing as follows:
WHEREFORE, the instant appeal is
GRANTED. The order appealed from is
hereby SET ASIDE and the 24 August 1998
decision is consequently REINSTATED with
modification that the awards of attorney's

fees, exemplary damages, and alleged

P1,000,000.00 unrealized profits of the
appellant are DELETED.
IT IS SO ORDERED.20
The CA held that both petitioner PSBank
and Santos should bear the loss. Said the
appellate court:
It is admitted that PSB cashed, over the
counter, the checks of the appellant
indorsed by Manzano alone. Since there is
no more dispute on the negligent act of
Santos in honoring the appellant's checks,
over the counter, despite the proper
indorsements, the categorical finding of
negligence
against
her,
remaining
unrebutted, is deemed established. This in
effect warrants a finding that Santos is liable
for damages to the appellant. The lower
court therefore erred in dismissing the
complaint against her.21
Further, the CA held that:
Contrary to PSB's contention that it should
not be held liable because it neither
consented to nor had knowledge of Santos'
(sic) violations, such liability of Santos is
solidary with PSB pursuant to Article 2176 in
relation to Article 2180 of the Civil Code
which states:
"Art. 2176. Whoever by act or omission
causes damage to another, there being fault
or negligence, is obliged to pay for the
damage done....
Art. 2180. The obligation imposed by Art.
2176 is demandable not only for one's own
acts or omissions but also for those of
persons for whom one is responsible.
xxxx
Employers shall be liable for the damage
caused by their employees and household
helpers acting within the scope of their
assigned tasks even though the former are
not engaged in any business or activity.
xxxx
The responsibility treated of in this article
shall cease when the persons herein
mentioned prove that they observed all the

diligence of a good father of a family to

prevent damage."
x x x However, with banks like PSB, the
degree of diligence required is more than
that of a good father of a family considering
that the business of banking is imbued with
public interest due to the nature of its
functions. Highest degree of diligence is
needed which PSB, in this case, failed to
observe.
x x x Its argument that it should no be held
responsible for the negligent acts of Santos
because those were independent acts x x x
perpetrated without its knowledge and
consent is without basis in fact and in law.
Assuming that PSB did not err in hiring
Santos for her position, its lack of
supervision over her made it solidarily liable
for the unauthorized encashment of the
checks involved. In the supervision of
employees, the employer must formulate
standard operating procedures, monitor their
implementation and impose disciplinary
measures for the breach thereof. The
appellee, in this case, presented no
evidence that it formulated rules/guidelines
for the proper performance of functions of its
employees and that it strictly implemented
and monitored compliance therewith. x x x22
The CA also disagreed with petitioner's
contention that respondent's own negligence
was the proximate cause of its loss. The CA
opined that even assuming that respondent
was also negligent in allowing Manzano to
encash its checks, petitioner had the last
clear chance to avert injury and loss to
respondent. This could have been done if
petitioner, through Santos, faithfully and
carefully observed its encashment rules and
procedures.
The CA ratiocinated:
x x x Had Santos not been remiss in
verifying the indorsements of the checks
involved, she would not have cashed the
same because Manzano, whose only
signature appears therein, is apparently not
an authorized signatory of the appellant x x
x had every means to determine the validity
of those indorsements but for one reason or
another she was neglectful of her duty x x x

as admitted by PSB, such over the counter

encashments are not even sanctioned by its
policies but Santos simply ignored the same.
It appears clear that Santos let the
opportunity slip by when an exercise of
ordinary prudence expected of bank
employees would have sufficed to prevent
the loss.23
Issues
Petitioner has resorted to the present
recourse and assigns to the CA the following
errors:
I
THE HONORABLE COURT OF APPEALS
ERRED
IN
NOT
RULING
THAT
RESPONDENT WAS ESTOPPED FROM
ASSERTING
ITS
CLAIM
AGAINST
PETITIONER.
II
THE HONORABLE COURT OF APPEALS
ERRED WHEN IT DID NOT RULE THAT
RESPONDENT'S NEGLIGENCE WAS THE
PROXIMATE CAUSE OF ITS OWN LOSS.
(Underscoring supplied)
Our Ruling
The doctrine of equitable estoppel or
estoppel in pais finds no application in the
present case. The equitable doctrine of
estoppel was explained by this Court in
Caltex (Philippines), Inc. v. Court of
Appeals:24
Under the doctrine of estoppel, an
admission or representation is rendered
conclusive upon the person making it, and
cannot be denied or disproved as against
the person relying thereon. A party may not
go back on his own acts and representations
to the prejudice of the other party who relied
upon them. In the law of evidence,
whenever a party has, by his own
declaration, act, or omission, intentionally
and deliberately led another to believe a
particular thing true, to act upon such belief,
he cannot, in any litigation arising out of
such declaration, act, or omission, be
permitted to falsify it.25

The principle received further elaboration in

Maneclang v. Baun:26
In estoppel by pais, as related to the party
sought to be estopped, it is necessary that
there be a concurrence of the following
requisites: (a) conduct amounting to false
representation or concealment of material
facts or at least calculated to convey the
impression that the facts are otherwise than,
and inconsistent with, those which the party
subsequently attempts to assert; (b) intent,
or at least expectation that this conduct shall
be acted upon, or at least influenced by the
other party; and (c) knowledge, actual or
constructive of the actual facts.27
Estoppel may vary somewhat in definition,
but all authorities agree that a party invoking
the doctrine must have been misled to one's
prejudice. That is the final and, in reality,
most important of the elements of equitable
estoppel.28 It is this element that is lacking
here.
We agree with the CA that Chowking did not
make
any
false
representation
or
concealment of material facts in relation to
the encashments of the previous checks. As
adverted to earlier, respondent may have
allowed Manzano to previously encash its
checks, but it has always been accompanied
with the endorsements of the other
authorized signatories. Respondent did not
allow petitioner to have its checks encashed
without the signature of all of its authorized
signatories.
The CA pointed out:
We find at the back of those checks,
whereon indorsement usually appears, the
signature of Manzano together with other
signature/signatures though mostly are
illegible. It appears then that, assuming the
appellant impliedly tolerated the act of
Manzano in indorsing the checks, it did not
allow Manzano "alone" to indorse its checks
as what actually happened in this case
because his previous indorsements were
coupled with other indorsements of the
appellant's signatories. There is, therefore,
no sufficient evidence to sustain PSB's
submission. On this score alone, the

defense
of
estoppel
must
fail.29
(Underscoring and emphasis supplied)
Neither can estoppel be appreciated in
relation to petitioner itself. In Kalalo v.
Luz,30 the Court enumerated the elements
of estoppel in this wise:
x x x As related to the party claiming the
estoppel, the essential elements are (1) lack
of knowledge and of the means of
knowledge of the truth as the facts in
question; (2) reliance, in good faith, upon the
conduct and statements of the party to be
estopped; (3) action or inaction based
thereon of such character as to change the
position or status of the party claiming the
estoppel, to his injury, detriment or
prejudice.31
Here, the first two elements are wanting.
Petitioner has knowledge of the truth and
the means to it as to the proper
endorsements necessary in encashing
respondent's checks. Respondent has an
account with petitioner bank and, as such, is
privy to the proper signatories to endorse
respondent's checks.
Neither can petitioner claim good faith.
It is elementary that estoppel cannot be
sustained in doubtful inference. Absent the
conclusive proof that its essential elements
are present, estoppel must fail. Because
estoppel, when misapplied, becomes a most
effective weapon to accomplish an injustice,
inasmuch as it shuts a man's mouth from
speaking the truth.32
Petitioner failed to prove that it has observed
the due diligence required of banks under
the law. Contrary to petitioner's view, its
negligence is the proximate cause of
respondent's loss.
It cannot be over emphasized that the
banking business is impressed with public
interest.1avvphi1 Of paramount importance
is the trust and confidence of the public in
general
in
the
banking
industry.
Consequently, the diligence required of
banks is more than that of a Roman pater
familias or a good father of a family.33 The
highest degree of diligence is expected.34

In its declaration of policy, the General

Banking Law of 200035 requires of banks
the highest standards of integrity and
performance. Needless to say, a bank is
"under obligation to treat the accounts of its
depositors with meticulous care."36 The
fiduciary nature of the relationship between
the bank and the depositors must always be
of paramount concern.37
Petitioner, through Santos, was clearly
negligent when it honored respondent's
checks with the lone endorsement of
Manzano. In the similar case of Philippine
Bank of Commerce v. Court of Appeals,38
an employee of Rommel's Marketing
Corporation (RMC) was able to illegally
deposit in a different account the checks of
the corporation. This Court found that it was
the bank teller's failure to exercise
extraordinary diligence to validate the
deposit slips that caused the crime to be
perpetrated.
The Court held thus:
Negligence here lies not only on the part of
Ms. Mabayad but also on the part of the
bank itself in its lackadaisical selection and
supervision of Ms. Mabayad. This was
exemplified in the testimony of Mr. Romeo
Bonifacio, then Manager of the Pasig
Branch of the petitioner bank and now its
Vice-President, to the effect that, while he
ordered the investigation of the incident, he
never came to know that blank deposit slips
were validated in total disregard of the
bank's validation procedures, viz.:
Q: Did he ever tell you that one of your
cashiers affixed the stamp mark of the bank
on the deposit slips and they validated the
same with the machine, the fact that those
deposit slips were unfilled up, is there any
report similar to that?
A: No, it was not the cashier but the teller.
Q: The teller validated the blank deposit
slip?
A: No it was not reported.
Q: You did not know that any one in the
bank tellers or cashiers validated the blank
deposit slip?

A: I am not aware of that.

Q: It is only now that you are aware of that?
A: Yes, Sir.
xxxx
It was this negligence x x x coupled by the
negligence of the petitioner bank in the
selection and supervision of its bank teller,
which was the proximate cause of the loss
suffered by private respondent, and not the
latter's act of entrusting cash to a dishonest
employee, as insisted by the petitioners.39
Proximate cause is determined by the facts
of the case. It 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.40
Measured by the foregoing yardstick, the
proximate cause of the loss is not
respondent's alleged negligence in allowing
Manzano to take hold and encash
respondent's checks. The proximate cause
is petitioner's own negligence in the
supervision of its employees when it
overlooked the irregular practice of
encashing checks even without the requisite
endorsements.
In Bank of the Philippine Islands v. Casa
Montessori Internationale,41 this Court
similarly held:
For allowing payment on the checks to a
wrongful and fictitious payee, BPI - the
drawee bank - becomes liable to its
depositor-drawer. Since the encashing bank
is one of its branches, BPI can easily go
after it and hold it liable for reimbursement. x
x x In both law and equity, when one of two
innocent persons "must suffer by the
wrongful act of a third person, the loss must
be borne by the one whose negligence was
the proximate cause of the loss or who put it
into the power of the third person to
perpetrate the wrong."42
Further, the Court ruled:
Pursuant to its prime duty to ascertain well
the genuineness of the signatures of its

client-depositors on checks being encashed,

BPI is "expected to use reasonable business
prudence." In the performance of that
obligation, it is bound by its internal banking
rules and regulations that form part of the
contract it enters into with its depositors.
Unfortunately, it failed in that regard. x x x
Without exercising the required prudence on
its part, BPI accepted and encashed the
eight checks presented to it. As a result, it
proximately contributed to the fraud and
should be held primarily liable for the
"negligence of its officers or agents when
acting within the course and scope of their
employment." It must bear the loss.43
WHEREFORE, the petition is DENIED for
lack of merit.
SO ORDERED.
3. 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.
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. L29352, 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. L29352 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. L29352, 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.