Central Bank v. Citytrust Corporation

SECOND DIVISION
[G.R. No. 141835. February 4, 2009.]
CENTRAL BANK OF THE PHILIPPINES, petitioner, vs.

CITYTRUST BANKING CORPORATION, respondent.
DECISION
CARPIO MORALES, *(1) J : p
Pursuant to Republic Act No. 625, the old Central Bank Law, respondent
Citytrust Banking Corporation (Citytrust), formerly Feati Bank, maintained a
demand deposit account with petitioner Central Bank of the Philippines, now
Bangko Sentral ng Pilipinas. IDaEHS
As required, Citytrust furnished petitioner with the names and

corresponding signatures of five of its officers authorized to sign checks and serve
as drawers and indorsers for its account. And it provided petitioner with the list
and corresponding signatures of its roving tellers authorized to withdraw, sign
receipts and perform other transactions on its behalf. Petitioner later issued
security identification cards to the roving tellers one of whom was "Rounceval
Flores" (Flores).
On July 15, 1977, Flores presented for payment to petitioner's Senior Teller
Iluminada dela Cruz (Iluminada) two Citytrust checks of even date, payable to
Citytrust, one in the amount of P850,000 and the other in the amount of P900,000,
both of which were signed and indorsed by Citytrust's authorized
signatory-drawers.
After the checks were certified by petitioner's Accounting Department,

Iluminada verified them, prepared the cash transfer slip on which she affixed her
signature, stamped the checks with the notation "Received Payment" and asked
Flores to, as he did, sign on the space above such notation. Instead of signing his
name, however, Flores signed as "Rosauro C. Cayabyab" — a fact Iluminada
failed to notice.
Iluminada thereupon sent the cash transfer slip and checks to petitioner's
Copyright 1994-2019 CD Technologies Asia, Inc. Jurisprudence 1901 to 2019 First Release 1
Cash Department where an officer verified and compared the drawers' signatures
on the checks against their specimen signatures provided by Citytrust, and finding
the same in order, approved the cash transfer slip and paid the corresponding
amounts to Flores. Petitioner then debited the amount of the checks totaling
P1,750,000 from Citytrust's demand deposit account.
More than a year and nine months later, Citytrust, by letter dated April 23,
1979, alleging that the checks were already cancelled because they were stolen,
demanded petitioner to restore the amounts covered thereby to its demand deposit
account. Petitioner did not heed the demand, however.
Citytrust later filed a complaint for estafa, with reservation on the filing of a
separate civil action, against Flores. Flores was convicted.
Citytrust thereafter filed before the Regional Trial Court (RTC) of Manila a
complaint for recovery of sum of money with damages against petitioner which it
alleged erred in encashing the checks and in charging the proceeds thereof to its
account, despite the lack of authority of "Rosauro C. Cayabyab". jurcda
By Decision 1(2) of November 13, 1991, Branch 32 of the RTC of Manila

found both Citytrust and petitioner negligent and accordingly held them equally
liable for the loss. Both parties appealed to the Court of Appeals which, by
Decision 2(3) dated July 16, 1999, affirmed the trial court's decision, it holding that
both parties contributed equally to the fraudulent encashment of the checks, hence,
they should equally share the loss in consonance with Article 2179 3(4) vis a vis
Article 1172 4(5) of the Civil Code.
In arriving at its Decision, the appellate court noted that while "Citytrust
failed to take adequate precautionary measures to prevent the fraudulent
encashment of its checks", petitioner was not entirely blame-free in light of its
failure to verify the signature of Citytrust's agent authorized to receive payment.
Brushing aside petitioner's contention that it cannot be sued, the appellate

court held that petitioner's Charter specifically clothes it with the power to sue and
be sued.
Also brushing aside petitioner's assertion that Citytrust's reservation of the

filing of a separate civil action against Flores precluded Citytrust from filing the
civil action against it, the appellate court held that the "action for the recovery of
sum of money is separate and distinct and is grounded on a separate cause of
action from that of the criminal case for estafa."
Hence, the present appeal, petitioner maintaining that Flores having been an
authorized roving teller, Citytrust is bound by his acts. Also maintaining that it
was not negligent in releasing the proceeds of the checks to Flores, the failure of
its teller to properly verify his signature notwithstanding, petitioner contends that
verification could be dispensed with, Flores having been known to be an
authorized roving teller of Citytrust who had had numerous transactions with it
(petitioner) on its (Citytrust's) behalf for five years prior to the questioned
transaction.
Attributing negligence solely to Citytrust, petitioner harps on Citytrust's

allowing Flores to steal the checks and failing to timely cancel them; allowing
Flores to wear the issued identification card issued by it (petitioner); failing to
report Flores' absence from work on the day of the incident; and failing to explain
the circumstances surrounding the supposed theft and cancellation of the checks.
Drawing attention to Citytrust's considerable delay in demanding the

restoration of the proceeds of the checks, petitioners argue that, assuming
arguendo that its teller was negligent, Citytrust's negligence, which preceded that
committed by the teller, was the proximate cause of the loss or fraud.
The petition is bereft of merit.
Petitioner's teller Iluminada did not verify Flores' signature on the flimsy
excuse that Flores had had previous transactions with it for a number of years.
That circumstance did not excuse the teller from focusing attention to or at least
glancing at Flores as he was signing, and to satisfy herself that the signature he had
just affixed matched that of his specimen signature. Had she done that, she would
have readily been put on notice that Flores was affixing, not his but a fictitious
signature.
Given that petitioner is the government body mandated to supervise and

regulate banking and other financial institutions, this Court's ruling in
Consolidated Bank and Trust Corporation v. Court of Appeals 5(6) illumines: CaSAcH
The contract between the bank and its depositor is governed by the
provisions of the Civil Code on simple loan. Article 1980 of the Civil Code
expressly provides that ". . . savings . . . 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"), 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."
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, 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."
This fiduciary relationship means that the bank's 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. 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. Diaz's savings account,
jurisprudence at the time of the withdrawal already imposed on banks
the same high standard of diligence required under RA No. 8791.
(Emphasis supplied)
Citytrust's failure to timely examine its account, cancel the checks and
notify petitioner of their alleged loss/theft should mitigate petitioner's liability, in
accordance with Article 2179 of the Civil Code which provides that if the
plaintiff's negligence was only contributory, the immediate and proximate cause of
the injury being the defendant's lack of due care, the plaintiff may recover
damages, but the courts shall mitigate the damages to be awarded. For had
Citytrust timely discovered the loss/theft and/or subsequent encashment, their
proceeds or part thereof could have been recovered. cSICHD
In line with the ruling in Consolidated Bank, the Court deems it proper to
allocate the loss between petitioner and Citytrust on a 60-40 ratio.
WHEREFORE, the assailed Court of Appeals Decision of July 16, 1999 is

hereby AFFIRMED with MODIFICATION, in that petitioner and Citytrust should
bear the loss on a 60-40 ratio.
SO ORDERED.
Tinga, Velasco, Jr., Nachura **(7) and Brion, JJ., concur.

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SECOND DIVISION

[G.R. No. 141835. February 4, 2009.]

CENTRAL BANK OF THE PHILIPPINES, petitioner, vs.

CARPIO MORALES, *(1) J : p

As required, Citytrust furnished petitioner with the names and

After the checks were certified by petitioner's Accounting Department,

By Decision 1(2) of November 13, 1991, Branch 32 of the RTC of Manila

Brushing aside petitioner's contention that it cannot be sued, the appellate

Also brushing aside petitioner's assertion that Citytrust's reservation of the

Attributing negligence solely to Citytrust, petitioner harps on Citytrust's

Drawing attention to Citytrust's considerable delay in demanding the

The petition is bereft of merit.

Given that petitioner is the government body mandated to supervise and

The law imposes on banks high standards in view of the fiduciary

This fiduciary relationship means that the bank's obligation to

WHEREFORE, the assailed Court of Appeals Decision of July 16, 1999 is

Tinga, Velasco, Jr., Nachura **(7) and Brion, JJ., concur.

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