[G.R. No. 156940.
ASSOCIATED BANK (Now WESTMONT BANK), petitioner, vs. VICENTE HENRY TAN, respondent.
D E C I S I O N
PANGANIBAN, J.:
While banks are granted by law the right to debit the value of a dishonored check from a depositor’s account, they must do so with the highest degree of care, so as not to prejudice the depositor unduly.
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the January 27, 2003 Decision[2] of the Court of Appeals (CA) in CA-GR CV No. 56292. The CA disposed as follows:
“WHEREFORE, premises
considered, the Decision dated
The Facts
The CA narrated the antecedents as follows:
“Vicente Henry Tan (hereafter TAN) is a businessman and a regular
depositor-creditor of the Associated Bank (hereinafter referred to as the
BANK). Sometime in September 1990, he
deposited a postdated UCPB check with the said BANK in the amount of P101,000.00
issued to him by a certain Willy Cheng from Tarlac. The check was duly entered in his bank record
thereby making his balance in the amount of P297,000.00, as of P196,000.00.
Allegedly, upon advice and
instruction of the BANK that the P101,000.00 check was already cleared
and backed up by sufficient funds, TAN, on the same date, withdrew the sum of P240,000.00,
leaving a balance of P57,793.45.
A day after, TAN deposited the amount of P50,000.00 making his
existing balance in the amount of P107,793.45, because he has issued
several checks to his business partners, to wit:
CHECK NUMBERS DATE AMOUNT
a. 138814 Sept.
29, 1990 P9,000.00
b. 138804 Oct. 8, 1990 9,350.00
c. 138787 Sept. 30, 1990 6,360.00
d. 138847 Sept. 29, 1990 21,850.00
e. 167054 Sept. 29, 1990 4,093.40
f. 138792 ` Sept. 29, 1990 3,546.00
g. 138774 Oct. 2, 1990 6,600.00
h. 167072 Oct. 10, 1990 9,908.00
i. 168802 Oct. 10, 1990 3,650.00
“However, his suppliers and business partners went back to him alleging that the checks he issued bounced for insufficiency of funds. Thereafter, TAN, thru his lawyer, informed the BANK to take positive steps regarding the matter for he has adequate and sufficient funds to pay the amount of the subject checks. Nonetheless, the BANK did not bother nor offer any apology regarding the incident. Consequently, TAN, as plaintiff, filed a Complaint for Damages on December 19, 1990, with the Regional Trial Court of Cabanatuan City, Third Judicial Region, docketed as Civil Case No. 892-AF, against the BANK, as defendant.
“In his [C]omplaint, [respondent] maintained that he ha[d]
sufficient funds to pay the subject checks and alleged that his suppliers
decreased in number for lack of trust.
As he has been in the business community for quite a time and has
established a good record of reputation and probity, plaintiff claimed that he
suffered embarrassment, humiliation, besmirched reputation, mental anxieties
and sleepless nights because of the said unfortunate incident. [Respondent] further averred that he
continuously lost profits in the amount of P250,000.00. [Respondent] therefore prayed for exemplary
damages and that [petitioner] be ordered to pay him the sum of P1,000,000.00
by way of moral damages, P250,000.00 as lost profits, P50,000.00
as attorney’s fees plus 25% of the amount claimed including P1,000.00
per court appearance.
“Meanwhile, [petitioner] filed a Motion to Dismiss on P101,000.00, hence, on even date,
[respondent] deposited the amount of P50,000.00 to cover the returned
check.
“By way of affirmative defense, [petitioner] averred that
[respondent] had no cause of action against it and argued that it has all the
right to debit the account of the [respondent] by reason of the dishonor of the
check deposited by the [respondent] which was withdrawn by him prior to its
clearing. [Petitioner] further averred
that it has no liability with respect to the clearing of deposited checks as
the clearing is being undertaken by the Central Bank and in accepting [the]
check deposit, it merely obligates itself as depositor’s collecting agent
subject to actual payment by the drawee bank.
[Petitioner] therefore prayed that [respondent] be ordered to pay it the
amount of P1,000,000.00 by way of loss of goodwill, P7,000.00 as
acceptance fee plus P500.00 per appearance and by way of attorney’s
fees.
“Considering that Westmont Bank has taken over the management of the affairs/properties of the BANK, [respondent] on October 10, 1996, filed an Amended Complaint reiterating substantially his allegations in the original complaint, except that the name of the previous defendant ASSOCIATED BANK is now WESTMONT BANK.
“Trial ensured and thereafter, the court rendered its Decision
dated December 3, 1996 in favor of the [respondent] and against the
[petitioner], ordering the latter to pay the [respondent] the sum of P100,000.00
by way of moral damages, P75,000.00 as exemplary damages, P25,000.00
as attorney’s fees, plus the costs of this suit. In making said ruling, it was shown that
[respondent] was not officially informed about the debiting of the P101,000.00
[from] his existing balance and that the BANK merely allowed the [respondent]
to use the fund prior to clearing merely for accommodation because the BANK
considered him as one of its valued clients.
The trial court ruled that the bank manager was negligent in handling
the particular checking account of the [respondent] stating that such lapses
caused all the inconveniences to the [respondent]. The trial court also took into consideration
that [respondent’s] mother was originally maintaining with the x x x BANK [a]
current account as well as [a] time deposit, but [o]n one occasion, although
his mother made a deposit, the same was not credited in her favor but in the
name of another.”[4]
Petitioner appealed to the CA on the issues of whether it was within its rights, as collecting bank, to debit the account of its client for a dishonored check; and whether it had informed respondent about the dishonor prior to debiting his account.
Ruling of the Court of Appeals
Affirming the trial court, the CA ruled that the bank should not
have authorized the withdrawal of the value of the deposited check prior to its
clearing. Having done so, contrary to
its obligation to treat respondent’s account with meticulous care, the bank
violated its own policy. It thereby took
upon itself the obligation to officially inform respondent of the status of his
account before unilaterally debiting the amount of P101,000. Without such notice, it is estopped from
blaming him for failing to fund his account.
The CA opined that, had the P101,000 not been debited,
respondent would have had sufficient funds for the postdated checks he had
issued. Thus, the supposed accommodation
accorded by petitioner to him is the proximate cause of his business woes and
shame, for which it is liable for damages.
Because of the bank’s negligence, the CA awarded respondent moral
damages of P100,000. It also
granted him exemplary damages of P75,000 and attorney’s fees of P25,000.
Hence this Petition.[5]
In its Memorandum, petitioner raises the sole issue of “whether or not the petitioner, which is acting as a collecting bank, has the right to debit the account of its client for a check deposit which was dishonored by the drawee bank.”[6]
The Court’s Ruling
The Petition has no merit.
Sole
Issue:
Debit of Depositor’s Account
Petitioner-bank contends that its rights and obligations under the present set of facts were misappreciated by the CA. It insists that its right to debit the amount of the dishonored check from the account of respondent is clear and unmistakable. Even assuming that it did not give him notice that the check had been dishonored, such right remains immediately enforceable.
In particular, petitioner argues that the check deposit slip
accomplished by respondent on
At the outset, we stress that the trial court’s factual findings that were affirmed by the CA are not subject to review by this Court.[7] As petitioner itself takes no issue with those findings, we need only to determine the legal consequence, based on the established facts.
Right of Setoff
A bank generally has a right of setoff over the deposits therein for the payment of any withdrawals on the part of a depositor.[8] The right of a collecting bank to debit a client’s account for the value of a dishonored check that has previously been credited has fairly been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that “[f]ixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan.”
Hence, the relationship between banks and depositors has been held to be that of creditor and debtor.[9] Thus, legal compensation under Article 1278[10] of the Civil Code may take place “when all the requisites mentioned in Article 1279 are present,”[11] as follows:
“(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.”[12]
Nonetheless, the real issue here is not so much the right of
petitioner to debit respondent’s account but, rather, the manner in which it
exercised such right. The Court has held
that even while the right of setoff is conceded, separate is the question of
whether that remedy has properly been exercised.[13]
The liability of petitioner in this case ultimately revolves around the issue of whether it properly exercised its right of setoff. The determination thereof hinges, in turn, on the bank’s role and obligations, first, as respondent’s depositary bank; and second, as collecting agent for the check in question.
Obligation as
Depositary Bank
In BPI v. Casa Montessori,[14] the Court has emphasized that the banking business is impressed with public interest. “Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are even required of it. By the nature of its functions, a bank is under obligation to treat the accounts of its depositors with meticulous care.”[15]
Also affirming this long standing doctrine, Philippine Bank of Commerce v. Court of Appeals[16] has held that “the degree of diligence required of banks is more than that of a good father of a family where the fiduciary nature of their relationship with their depositors is concerned.”[17] Indeed, the banking business is vested with the trust and confidence of the public; hence the “appropriate standard of diligence must be very high, if not the highest, degree of diligence.”[18] The standard applies, regardless of whether the account consists of only a few hundred pesos or of millions.[19]
The fiduciary nature of banking, previously imposed by case law,[20] is now enshrined in Republic Act No. 8791 or the General Banking Law of 2000. Section 2 of the law specifically says that the State recognizes the “fiduciary nature of banking that requires high standards of integrity and performance.”
Did petitioner treat respondent’s account with the highest degree of care? From all indications, it did not.
It is undisputed -- nay, even admitted -- that purportedly as an act of accommodation to a valued client, petitioner allowed the withdrawal of the face value of the deposited check prior to its clearing. That act certainly disregarded the clearance requirement of the banking system. Such a practice is unusual, because a check is not legal tender or money;[21] and its value can properly be transferred to a depositor’s account only after the check has been cleared by the drawee bank.[22]
Under ordinary banking practice, after receiving a check deposit, a bank either immediately credit the amount to a depositor’s account; or infuse value to that account only after the drawee bank shall have paid such amount.[23] Before the check shall have been cleared for deposit, the collecting bank can only “assume” at its own risk -- as herein petitioner did -- that the check would be cleared and paid out.
Reasonable business practice and prudence, moreover, dictated
that petitioner should not have authorized the withdrawal by respondent of P240,000
on P196,793.45.[24]
Hence, the lower courts correctly appreciated the evidence in his favor.
Obligation as
Collecting Agent
Indeed, the bank deposit slip expressed this reservation:
“In receiving items on deposit, this Bank obligates itself only as the Depositor’s Collecting agent, assuming no responsibility beyond carefulness in selecting correspondents, and until such time as actual payments shall have come to its possession, this Bank reserves the right to charge back to the Depositor’s account any amounts previously credited whether or not the deposited item is returned. x x x."[25]
However, this reservation is not enough to insulate the bank from
any liability. In the past, we have
expressed doubt about the binding force of such conditions unilaterally imposed
by a bank without the consent of the depositor.[26]
It is indeed arguable that “in signing the deposit slip, the depositor does so
only to identify himself and not to agree to the conditions set forth at the
back of the deposit slip.”[27]
Further, by the express terms of the stipulation, petitioner took upon itself certain obligations as respondent’s agent, consonant with the well-settled rule that the relationship between the payee or holder of a commercial paper and the collecting bank is that of principal and agent.[28] Under Article 1909[29] of the Civil Code, such bank could be held liable not only for fraud, but also for negligence.
As a general rule, a bank is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course and scope of their employment.[30] Due to the very nature of their business, banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees.[31] Jurisprudence has established that the lack of diligence of a servant is imputed to the negligence of the employer, when the negligent or wrongful act of the former proximately results in an injury to a third person;[32] in this case, the depositor.
The manager of the bank’s P101,000 from his existing balance of P170,000 on
Being the branch manager,
Let us go back to the facts as they unfolded. It is undeniable that the bank’s premature authorization of the withdrawal by respondent on October 1, 1990, triggered -- in rapid succession and in a natural sequence -- the debiting of his account, the fall of his account balance to insufficient levels, and the subsequent dishonor of his own checks for lack of funds. The CA correctly noted thus:
“x x x [T]he depositor x x x withdrew his money upon the advice by
[petitioner] that his money was already cleared. Without such advice, [respondent] would not
have withdrawn the sum of P240,000.00.
Therefore, it cannot be denied that it was [petitioner’s] fault which
allowed [respondent] to withdraw a huge sum which he believed was already his.
“To emphasize, it is beyond cavil that [respondent] had sufficient
funds for the check. Had the P101,000.00
not [been] debited, the subject checks would not have been dishonored. Hence, we can say that [respondent’s] injury
arose from the dishonor of his well-funded checks. x x x.”[35]
Aggravating matters, petitioner failed to show that it had
immediately and duly informed respondent of the debiting of his account. Nonetheless, it argues that the giving of
notice was discernible from his act of depositing P50,000 on
First, notice was proper and ought to be expected. By the bank manager’s account, respondent was considered a “valued client” whose checks had always been sufficiently funded from 1987 to 1990,[36] until the October imbroglio. Thus, he deserved nothing less than an official notice of the precarious condition of his account.
Second, under the provisions of the Negotiable Instruments Law regarding the liability of a general indorser[37] and the procedure for a notice of dishonor,[38] it was incumbent on the bank to give proper notice to respondent. In Gullas v. National Bank,[39] the Court emphasized:
“x x x [A] general indorser of a negotiable instrument engages that if the instrument – the check in this case – is dishonored and the necessary proceedings for its dishonor are duly taken, he will pay the amount thereof to the holder (Sec. 66) It has been held by a long line of authorities that notice of dishonor is necessary to charge an indorser and that the right of action against him does not accrue until the notice is given.
“x x x. The fact we believe is undeniable that prior to the mailing of notice of dishonor, and without waiting for any action by Gullas, the bank made use of the money standing in his account to make good for the treasury warrant. At this point recall that Gullas was merely an indorser and had issued checks in good faith. As to a depositor who has funds sufficient to meet payment of a check drawn by him in favor of a third party, it has been held that he has a right of action against the bank for its refusal to pay such a check in the absence of notice to him that the bank has applied the funds so deposited in extinguishment of past due claims held against him. (Callahan vs. Bank of Anderson [1904], 2 Ann. Cas., 203.) However this may be, as to an indorser the situation is different, and notice should actually have been given him in order that he might protect his interests.”[40]
Third, regarding the
deposit of P50,000 made by respondent on October 2, 1990, we fully
subscribe to the CA’s observations that it was not unusual for a well-reputed
businessman like him, who “ordinarily takes note of the amount of money he
takes and releases,” to immediately deposit money in his current account to
answer for the postdated checks he had issued.[41]
Damages
Inasmuch as petitioner does not contest the basis for the award of damages and attorney’s fees, we will no longer address these matters.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
Sandoval-Gutierrez, Carpio-Morales, and Garcia, JJ., concur.
[1] Rollo, pp. 18-42.
[2] Penned by Justice Mercedes Gozo-Dadole and concurred in by Justices B. A. Adefuin de la Cruz (then Chairman, Ninth Division) and Mariano C. del Castillo.
[3] CA Decision, p. 9; rollo, p. 92.
[4]
[5]
The Petition was deemed submitted for decision on
[6] Petitioner’s Memorandum, p. 8; rollo, p. 121.
[7] Aclon v. CA, 436 Phil. 219, 230, August 20, 2002; Reyes v. CA & Far East Bank and Trust Company, 415 Phil. 258, 267, August 15, 2001; W-Red Construction and Development Corporation v. CA, 392 Phil. 888, 894, August 17, 2000.
[8]
Gullas v. National Bank, 62 Phil.
519, 521,
[9] Consolidated Bank & Trust Corporation v. CA, 410 SCRA 562, 574, September 11, 2003; Guingona Jr. v. City Fiscal of Manila, 128 SCRA 577, 584, April 4, 1984; Serrano v. Central Bank of the Phils., 96 SCRA 96, 102-103, February 14, 1980.
[10] Article 1278 provides:
“Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.” (See also Bank of the Philippine Islands v. CA, 325 Phil. 930, 938-939, March 29, 1996.)
[11] Article 1290 of the Civil Code.
[12] Article 1279 of the Civil Code.
[13] Gullas v. National Bank; supra, p. 522.
[14]
GR No. 149454,
[15]
[16] 336 Phil. 667,
[17]
[18] Philippine Commercial International Bank v. CA, 350 SCRA 446, 472,
[19] Prudential Bank v. CA, 384 Phil. 817, 825, March 16, 2000; Philippine National Bank v. CA, 373 Phil. 942, 948, September 28, 1999; Simex International v. CA, supra; BPI v. Intermediate Appellate Court, 206 SCRA 408, 412-413, February 21, 1992.
[20] Simex International v. CA, supra; BPI v. IAC, supra; Metropolitan Bank & Trust Co. v. CA, 237 SCRA 761, 767, October 26, 1994.
[21] Philippine Airlines,
Inc. v. CA, 181 SCRA 557, 568,
[22]
Roman Catholic Bishop of Malolos, Inc. v.
IAC, 191 SCRA 411, 422, November 16, 1990 (cited in Bank of the Philippine
[23]
Bank of the Philippine Islands v. CA; supra, p. 554 (citing Banco Atlantico v. Auditor General, 81 SCRA 335,
340-341,
[24] This amount was computed based on the bank ledger which was submitted as Annex “A” of Respondent’s Complaint; rollo, p. 48.
[25] Petitioner’s (then Defendant-Appellant’s) Brief to the CA, pp. 5-6; rollo, pp. 62-63.
[26] Metropolitan Bank
& Trust Company v. CA, 194 SCRA
169, 175,
[27] Ibid.
[28] Philippine Commercial International Bank v. CA; supra, p. 466.
[29] Art. 1909 of the Civil Code provides:
“Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be judged with more or less rigor by the courts, according to whether the agency was or was not for compensation.”
[30] Philippine Commercial International Bank v. CA; supra at p. 470; Producers Bank of the Philippines (Now First International Bank) v. CA, 397 SCRA 651, 663, February 19, 2003. Article 2180 of the Civil Code, which embodies this principle, provides:
“Art. 2180. The obligation imposed by Article 2176 is demandable not only for one’s own acts or omissions, but also for those of persons for whom one is demandable.
x x x x x x x x x
“Employers shall be liable for the damages 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 industry.”
[31] Philippine Commercial International Bank v. CA; supra, p. 472.
[32]
[33] RTC Decision, p. 4; rollo, p. 77.
[34] BPI v. Casa Montessori Internationale; supra, p. 26.
[35] CA Decision, pp. 7-8; rollo, pp. 90-91.
[36] RTC Decision, p. 3; id., p. 76.
[37] §66 of the Negotiable Instruments Law provides:
“Sec. 66. Liability of general indorser. – Every indorser who indorses without qualification, warrants to all subsequent holders in due course:
x x x x x x x x x
“And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it.”
[38] The procedure as to the manner and the time of giving notice is outlined under §§89-118 of the said law. §89, in particular, provides as follows:
“Sec. 89. To whom notice of dishonor must be given. – Except as herein otherwise provided, when a negotiable instrument has been dishonored by non-acceptance or non-payment, notice of dishonor must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is not given is discharged.”
[39] Supra.
[40]
[41] CA Decision, p. 7; rollo, p. 90.