Spec Com First Batch

8/12/2019 Spec Com First Batch

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SECOND DIVISION

[G.R. No. 176434. June 25, 2008.]

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. LIFETIME MARKETING CORPORATION, respondent.

D E C I S I O N

TINGA, J p:

The Bank of the Philippine Islands (BPI) seeks the reversal of the Decision 1 of the Court of Appealsdated 31 July 2006 in CA-G.R. CV No. 62769 which ordered it to pay Lifetime Marketing Corporation(LMC) actual damages in the amount of P2,075,695.50 on account of its gross negligence in handlingLMC's account. aHCSTD

The following facts, quoted from the decision of the Court of Appeals, are undisputed:

On October 22, 1981, Lifetime Marketing Corporation (LMC, for brevity), opened a current account withthe Bank of the Philippine Islands (BPI, for brevity), Greenhills-Edsa branch, denominated as Account No.3101-0680-63. In this account, the "sales agents" of LMC would have to deposit their collections orpayments to the latter. As a result, LMC and BPI, made a special arrangement that the former's agentswill accomplish three (3) copies of the deposit slips, the third copy to be retained and held by the telleruntil LMC's authorized representatives, Mrs. Virginia Mongon and Mrs. Violeta Ancajas, shall retrievethem on the following banking day.

Sometime in 1986, LMC availed of the BPI's inter-branch banking network services in Metro Manila,whereby the former's agents could make [a] deposit to any BPI branch in Metro Manila under the sameaccount. Under this system, BPI's bank tellers were no longer obliged to retain the extra copy of thedeposit slips instead, they will rely on the machine-validated deposit slip, to be submitted by LMC'sagents. For its part, BPI would send to LMC a monthly bank statement relating to the subject account.This practice was observed and complied with by the parties. AHCcET

As a business practice, the registered sales agents or the Lifetime Educational Consultants of LMC, canget the books from the latter on consignment basis, then they would go directly to their clients to sell.These agents or Lifetime Educational Consultants would then pay to LMC, seven (7) days after they pickup all the books to be sold. Since LMC have several agents around the Philippines, it required to remittheir payments through BPI, where LMC maintained its current account. It has been LMC's practice torequire its agents to present a validated deposit slip and, on that basis, LMC would issue to the latter anacknowledgement receipt.

Alice Laurel, is one of LMC's "Educational Consultants" or agents. On various dates covering the periodfrom May, [sic] 1991 up to August, 1992, Alice Laurel deposited checks to LMC's subject account atdifferent branches of BPI, specifically: at the Harrison/Buendia branch-8 checks; at Arrangue branch-4checks; at Araneta branch-1 check; at Binondo branch-3 checks; at Ermita branch-5 checks; at CubaoShopping branch-1 check; at Escolta branch-4 checks; at the Malate branch-2 checks; at Taft Avenue


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branch-2 checks; at Paseo de Roxas branch-1 check; at J. Ruiz, San Juan branch, at West Avenue andCommonwealth Quezon City branch-2 checks; and at Vito Cruz branch-2 checks. cHECAS

Each check thus deposited were retrieved by Alice Laurel after the deposit slips were machine-validated,except the following thirteen (13) checks, which bore no machine validation, to wit: CBC Check No.

484004, RCBC Check No. 419818, CBC Check No. 484042, FEBTC Check No. 171857, RCBC Check No.419847, CBC Check No. 484053, MBTC Check No. 080726, CBC Check No. 484062, PBC Check No.158076, CBC Check No. 484027, CBC Check No. 484017, CBC Check No. 484023 and CBC Check No.218190.

A verification with BPI by LMC showed that Alice Laurel made check deposits with the named BPIbranches and, after the check deposit slips were machine-validated, requested the teller to reverse thetransactions. Based on general banking practices, however, the cancellation of deposit or paymenttransactions upon request by any depositor or payor, requires that all copies of the deposit slips must beretrieved or surrendered to the bank. This practice, in effect, cancels the deposit or paymenttransaction, thus, it leaves no evidence for any subsequent claim or misrepresentation made by anyinnocent third person. Notwithstanding this, the verbal requests of Alice Laurel and her husband toreverse the deposits even after the deposit slips were already received and consummated wereaccommodated by BPI tellers. IAETDc

Alice Laurel presented the machine-validated deposit slips to LMC which, on the strength thereof,considered her account paid. LMC even granted her certain privileges or prizes based on the depositsshe made.

The total aggregate amount covered by Alice Laurel's deposit slips was Two Million Seven Hundred SixtySeven Thousand, Five Hundred Ninety Four Pesos (P2,767,594.00) and, for which, LMC paid Laurel the

total sum of Five Hundred Sixty Thousand Seven Hundred Twenty Six Pesos (P560,726.00) by way of"sales discount and promo prizes."

The above fraudulent transactions of Alice Laurel and her husband was made possible through BPIteller's failure to retrieve the duplicate original copies of the deposit slips from the former, every timethey ask for cancellation or reversal of the deposit or payment transaction.

Upon discovery of this fraud in early August 1992, LMC made queries from the BPI branches involved. Inreply to said queries, BPI branch managers formally admitted that they cancelled, without thepermission of or due notice to LMC, the deposit transactions made by Alice and her husband, and basedonly upon the latter's verbal request or representation. ScHAIT

Thereafter, LMC immediately instituted a criminal action for Estafa against Alice Laurel and her husbandThomas Limoanco, before the Regional Trial Court of Makati, Branch 65, docketed as Criminal Case No.93-7970 to 71, entitled People of the Philippines v. Thomas Limoanco and Alice Laurel. This case forestafa, however, was archived because summons could not be served upon the spouses as they haveabsconded. Thus, the BPI's apparent reluctance to admit liability and settle LMC's claim for damages,


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and a hopeless case of recovery from Alice Laurel and her husband, has left LMC, with no option but torecover damages from BPI.

On July 24, 1995, LMC, through its representative, Miss Consolacion C. Rogacion, the President of thecompany, filed a Complaint for Damages against BPI, docketed as Civil Case No. 95-1106, and was raffled

to Regional Trial Court of Makati City, Branch 141.

After trial on the merits, the court a quo rendered a Decision in favor of LMC. The dispositive portion ofwhich reads, as follows: IEHaSc

WHEREFORE, decision is hereby rendered ordering defendant bank to pay plaintiff actual damagesequitably reduced to one (1) million pesos plus attorney's fees of P100,000.00.

No pronouncement as to costs.

SO ORDERED. 2

Only BPI filed an appeal. The Court of Appeals affirmed the decision of the trial court but increased theaward of actual damages to P2,075,695.50 and deleted the award of P100,000.00 as attorney's fees. 3Citing public interest, the appellate court denied reconsideration in a Resolution 4 dated 30 January2007.

In this Petition for Review 5 dated 19 March 2007, BPI insists that LMC should have presented evidenceto prove not only the amount of the checks that were deposited and subsequently reversed, but alsothe actual delivery of the books and the payment of "sales and promo prizes" to Alice Laurel. Failing this,there was allegedly no basis for the award of actual damages. Moreover, the actual damages should nothave been increased because the decision of the trial court became conclusive as regards LMC when it

did not appeal the said decision. TcDHSI

BPI further avers that LMC's negligence in considering the machine-validated check deposit slips asevidence of Alice Laurel's payment was the proximate cause of its own loss. Allegedly, by allowing itsagents to make deposits with other BPI branches, LMC violated its own special arrangement with BPI'sGreenhills-EDSA branch for the latter to hold on to an extra copy of the deposit slip for pick up by LMC'sauthorized representatives. BPI points out that the deposits were in check and not in cash. As such, LMCshould have borne in mind that the machine validation in the deposit slips is still subject to thesufficiency of the funds in the drawers' account. Furthermore, LMC allegedly ignored the express noticeindicated in its monthly bank statements and consequently failed to check the accuracy of the

transactions reflected therein.In its Manifestation of Compliance by Respondent on the Order Dated 20 June 2007 Received on 29 July2007 to Submit Comment, 6 dated 9 August 2007, LMC insists that it is indeed entitled to the actualdamages awarded to it by the appellate court.

BPI filed a Reply 7 dated 15 January 2008, in reiteration of its submissions. DACIHc


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We have repeatedly emphasized that the banking industry is impressed with public interest. Ofparamount importance thereto is the trust and confidence of the public in general. Accordingly, thehighest degree of diligence is expected, and high standards of integrity and performance are required ofit. By the nature of its functions, a bank is under obligation to treat the accounts of its depositors withmeticulous care, always having in mind the fiduciary nature of its relationship with them. 8 The fiduciary

nature of banking, previously imposed by case law, is now enshrined in Republic Act No. 8791 or theGeneral Banking Law of 2000. Section 2 thereof specifically says that the state recognizes the fiduciarynature of banking that requires high standards of integrity and performance. 9

Whether BPI observed the highest degree of care in handling LMC's account is the subject of the inquiryin this case.

LMC sought recovery from BPI on a cause of action based on tort. Article 2176 of the Civil Codeprovides, "Whoever by act or omission causes damage to another, there being fault or negligence, isobliged to pay for the damage done. Such fault or negligence if there is no pre-existing contractualrelation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter."There are three elements of quasi-delict: (a) fault or negligence of the defendant, or some other personfor whose acts he must respond; (b) damages suffered by the plaintiff; and (c) the connection of causeand effect between the fault or negligence of the defendant and the damages incurred by the plaintiff.10 cISAHT

In this case, both the trial court and the Court of Appeals found that the reversal of the transactions inquestion was unilaterally undertaken by BPI's tellers without following normal banking procedure whichrequires them to ensure that all copies of the deposit slips are surrendered by the depositor. Themachine-validated deposit slips do not show that the transactions have been cancelled, leading LMC torely on these slips and to consider Alice Laurel's account as already paid.

Negligence is the omission to do something which a reasonable man, guided by those considerationswhich ordinarily regulate the conduct of human affairs, would do, or the doing of something which aprudent and reasonable man would not do. 11 Negligence in this case lies in the tellers' disregard of thevalidation procedures in place and BPI's utter failure to supervise its employees. Notably, BPI's managersadmitted in several correspondences with LMC that the deposit transactions were cancelled withoutLMC's knowledge and consent and based only upon the request of Alice Laurel and her husband. 12DIEAHc

It is well to reiterate that the degree of diligence required of banks is more than that of a reasonable

man or a good father of a family. In view of the fiduciary nature of their relationship with theirdepositors, banks are duty-bound to treat the accounts of their clients with the highest degree of care.13

BPI cannot escape liability because of LMC's failure to scrutinize the monthly statements sent to it by thebank. This omission does not change the fact that were it not for the wanton and reckless negligence ofBPI's tellers in failing to require the surrender of the machine-validated deposit slips before reversingthe deposit transactions, the loss would not have occurred. BPI's negligence is undoubtedly the


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proximate cause of the loss. Proximate cause is that cause which, in a natural and continuous sequence,unbroken by any efficient intervening cause, produces the injury, and without which the result wouldnot have occurred. 14

It is also true, however, that LMC should have been more vigilant in managing and overseeing its own

financial affairs. The damages awarded to it were correctly reduced on account of its own contributorynegligence in accordance with Article 1172 of the Civil Code. 15 THADEI

Parenthetically, we find no merit in BPI's allegation that LMC should have presented evidence of deliveryof the books and payment of sales and promo prizes to Alice Laurel. The evidence presented by LMC inthe form of BPI's own admission that the deposit transactions were reversed at the instance of AliceLaurel and her husband, coupled with the machine-validated deposit slips 16 which were supposed tohave been deposited to LMC's account but were cancelled without its knowledge and consent,sufficiently form the bases for the actual damages claimed because they are the very same documentsrelied upon by LMC in considering Alice Laurel's account paid and in granting her monetary privilegesand prizes.

Be that as it may, we find the appellate court's decision increasing the award of actual damages in favorof LMC improper since the latter did not appeal from the decision of the trial court. It is well-settled thata party who does not appeal from the decision may not obtain any affirmative relief from the appellatecourt other than what he has obtained from the lower court whose decision is brought up on appeal.The exceptions to this rule, such as where there are (1) errors affecting the lower court's jurisdictionover the subject matter, (2) plain errors not specified, and (3) clerical errors, do not apply in this case. 17CADHcI

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 62769 dated 31 July 2006 and its

Resolution dated January 30, 2007 are AFFIRMED with the MODIFICATION that the Bank of thePhilippine Islands is ordered to pay actual damages to Lifetime Marketing Corporation in the amount ofOne Million Pesos (P1,000,000.00). No pronouncement as to costs.

SO ORDERED.

Quisumbing, Carpio-Morales, Velasco, Jr. and Brion, JJ., concur.

SECOND DIVISION

[G.R. No. 153784. October 25, 2005.]

ROMEO C. CADIZ, CARLITO BONGKINGKI and PRISCO GLORIA IV, petitioners, vs. COURT OF APPEALS, andPHILIPPINE COMMERCIAL INTERNATIONAL BANK (Now EQUITABLE PCIBANK), respondents.

D E C I S I O N

TINGA, J p:


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Employees who abuse their position for fiduciary gain cannot be shielded from the consequences oftheir wrongdoing even on account of the bank's operational laxities that may have provided the gatewayfor their shenanigans. Their misconduct provides the bank with cause for the termination of theiremployment.

The facts follow.

Petitioners Romeo Cadiz ("Cadiz"), Carlito Bongkingki ("Bongkingki") and Prisco Gloria IV ("Gloria") wereemployed as signature verifier, bookkeeper, and foreign currency denomination clerk/bookkeeper-reliever, respectively, in the main office branch (MOB) of Philippine Commercial International Bank(respondent bank).

The anomalies in question arose when Rosalina B. Alqueza (Alqueza) filed a complaint with PCIB for thealleged non-receipt of a Six Hundred Dollar ($600.00) demand draft drawn against it which waspurchased by her husband from Hongkong and Shanghai Banking Corporation. Upon verification, it wasuncovered that the demand draft was deposited on 10 June 1988 with FCDU Savings Account (S/A) No.1083-4, an account under the name of Sonia Alfiscar (Alfiscar). Further investigation revealed that thedemand draft, together with four (4) other checks, was made to appear as only one deposit covered byHSBC Check No. 979120 for One Thousand Two Hundred Thirty-two Dollars (US$1,232.00). TAcSaC

The Branch Manager, Ismael R. Sandig, then presided over a series of meetings, wherein Cadiz,Bongkingki and Gloria allegedly verbally admitted their participation in a scheme to divert fundsintended for other accounts using the Savings Account of Alfiscar. Subsequently, Cadiz allegedly paidAlqueza P12,690.00, the peso equivalent of US$600, but insisted that the corresponding receipt beissued in Alfiscar' s name instead.

On account of these allegations, a special audit examination was conducted by the bank. On 31 January1989, the internal auditors of the bank, headed by Lizza G. Baylon, submitted their findings in an officialreport. The auditors determined that as early as July 1987, petitioner Cadiz had reserved the savingsaccount in the name of Sonia Alfiscar. The account was opened on 27 November 1987 and closed on 23June 1988. Twenty-five (25) deposit slips involving the account were posted by Bongkingki while sixteen(16) deposit slips were posted by Gloria. A verification of the deposit slips yielded findings of miscodedchecks, forged signatures, non-validation of deposit slips by the tellers, wrongful deposit of second-endorsed checks into foreign currency deposit accounts, the deposit slips which do not bear therequired approval of bank officers, and withdrawals made either on the day of deposit or the followingbanking day. 1

In view of such findings, show-cause memoranda 2 were served on petitioners, requiring them toexplain within seventy-two (72) hours why no disciplinary action should be taken against them inconnection with the results of the special audit examination. On 22 March 1989, petitioners submittedtheir written explanations. 3 Not satisfied with their explanations, respondent bank in memoranda 4 alldated 22 June 1989 dismissed petitioners from employment for violation of Article III Section 1 B-2 andArticle III Section 1-C of the Code of Discipline. aASDTE


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Petitioners lodged a complaint before the labor arbiter for illegal dismissal on 18 September 1989. LaborArbiter Ernesto S. Dinopol adjudged that petitioners were illegally dismissed and ordered theirreinstatement and payment of backwages. This conclusion was based on the notices of dismissal, which,to the mind of the labor arbiter, was couched in general terms and without explaining how the ruleswere violated. The labor arbiter also attributed petitioners' acts in fraudulently coding several deposit

slips as "1511" (immediately withdrawable) as mere procedural inadequacies, with the fault attributableto respondent bank for its laxity. 5

The labor arbiter's Decision was reversed on appeal before the Second Division of the National LaborRelations Commission (NLRC), which, in a Decision 6 dated 30 June 1994, ordered the dismissal of thepetition. In doing so, the NLRC departed from the labor arbiter's finding of facts and concluded thatpetitioners were dismissed for just cause. Dismissing petitioners' appeal, the Court of Appeals NinthDivision similarly determined on the basis of substantial evidence that petitioners were validlyterminated in its own Decision 7 dated 13 July 2001.

After the appellate court denied petitioner's motion for reconsideration, the matter was brought beforethis Court in a Petition for Review on Certiorari. 8

The issues to be resolved are whether the Court of Appeals erred in not sustaining the findings of thelabor arbiter and upholding those of the NLRC and whether the Court of Appeals erred in dismissing thepetition by ignoring petitioners' claims that they were dismissed without just cause and due process. 9

In its Comment, 10 respondent bank seeks to have the petition dismissed inasmuch as all the issuesraised herein involve questions of fact. We note that as a general rule, only questions of law may bebrought upon this Court in a petition for review on certiorari under Rule 45 of the Rules of Court. ThisCourt is not a trier of facts, and as such is tasked to calibrate and assess the probative weight of

evidence adduced by the parties during trial all over again. 11

However, if there are competing factual findings by the different triers of fact, such as those made inthis case by the labor arbiter on one hand, and those of the NLRC and Court of Appeals on the otherhand, this Court is compelled to go over the records of the case, as well as the submissions of theparties, and resolve the factual issues. 12 With this in mind, we shall now proceed to examine thedecisions under review.

The general thesis as laid down by the NLRC and Court of Appeals is that petitioners had surreptitiouslydiverted funds deposited by depositors to S/A No. 1083-4 which was under their control and disposition.On the other hand, a perusal of the labor arbiter's Decision reveals a different perspective from whichthe case was approached. While the labor arbiter conceded that petitioners Bongkingki and Gloria hadmiscoded several deposit slips, rendering them immediately withdrawable, he characterized the errorsas "mere procedural inadequacies" which were preventable had management exercised greater controlover its employees. 13

Far from petitioners' thrust, the miscoding of deposit slips cannot be downplayed as "mere proceduralinadequacies." After all, it is such miscoding that precipitated the fraudulent withdrawals in the first


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place. The act operated as the first indispensable step towards the commission of fraud on the bank.HEAcDC

More disturbing though is the labor arbiter's willingness to acquit petitioners of culpability on account ofthe purported negligence of the bank. It is similar to concluding that the bank guards, and not the

burglars, bear primary culpability for a bank robbery. Whatever liability or responsibility was expected ofthe bank stands as an issue separate from the liability of the recreant bank employees. Even assumingthat the bank observed less-than-ideal controls over the security of its operations, such laxity does notserve as the carte blanche signal for the bank employees to take advantage of safeguard control lapsesand perpetrate chicanery on their employer.

The labor arbiter also evaluated the bank's claim that Cadiz had reimbursed the amount of $600 to theaggrieved depositor Alqueza while making it appear that it was Alfiscar who had actually made therefund. In disbelieving this claim, the Labor Arbiter concluded that "it is unthinkable for a lowly bankemployee to impose his will upon his high and mighty employer." 14

This pronouncement is revelatory of absurd logic. The notion that a lowly employee will nevercountermand the will or interests of the employer is sufficiently rebutted by any labor law casebook, anyomnibus of our labor jurisprudence, and the evolution of the human experience that disquiets personsfrom unhesitatingly acceding to the presumptive good faith of others. It is an accepted premise of lifeand jurisprudence that persons are capable, upon impure motivations, of taking advantage of others,whether their social lessers, equals, or betters. The necessity of punishment arises from this flaw ofhuman nature. This philosophic stance of the labor arbiter actually obviates the nature of sin.

Obviously, we are hard-pressed to accord high regard to the labor arbiter's discernment as a trier offacts. Nonetheless, his claim that there were procedural flaws attending the dismissal of petitioners

warrants some deliberation.

The labor arbiter ruled that the notices of dismissal served on petitioners was insufficient as it failed tospecifically delineate how petitioners had violated the internal rules of the bank. However, the noticesdo cite the rules which petitioners had violated and refer to the fact that such violations occurredrelating to S/A No. 1083-4 account of Sonia Alfiscar and/or Rosalinda Alqueza. EcaDCI

There is no demand that the notices of dismissal themselves be couched in the form and language of judicial or quasi-judicial decisions. What is required is that the employer conduct a formal investigationprocess, with notices duly served on the employees informing them of the fact of investigation, andsubsequently, if warranted, a separate notice of dismissal. 15 Through the formal investigatory process,the employee must be accorded the right to present his/her side, which must be considered andweighed by the employer. The employee must be sufficiently apprised of the nature of the chargeagainst him/her, so as to be able to intelligently defend against the charges.

In the instant case, records show that respondent bank complied with the two-notice rule prescribed inArticle 277(b) of the Labor Code. 16 Petitioners were given all avenues to present their side and disprovethe allegations of respondent bank. An informal meeting was held between the branch manager of


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MOB, the three petitioners and Mr. Gener, the Vice-President of the PCIB Employees Union. As perreport, petitioners admitted having used Alfiscar's account to divert funds intended for other accounts.A special audit investigation was conducted to determine the extent of the fraudulent transactions.Based on the results of the investigation, respondent bank sent show-cause memoranda to petitioners,asking them to explain their lapses, under pain of disciplinary action. The memoranda, which constitute

the first notice, specified the various questionable acts committed by petitioners.

Afterwards, petitioners submitted their respective replies to the memoranda. This very well complieswith the requirement for hearing, by which petitioners were afforded the opportunity to defendthemselves. The second notice came in the form of the termination memoranda, informing petitionersof their dismissal from service. From the foregoing, it is clear that the required procedural due processfor their termination was strictly complied with. acHDTE

All told, we hold that the factual appreciation and conclusions rendered by the labor arbiter are notworthy of adoption by this Court. In contrast, from the factual determinations made by the NLRC andthe Court of Appeals, we accept the following facts as proven:

1. Petitioner Cadiz reserved S/A No. 1083-4 in July 1987 as reflected on respondent bank's "newaccount register."

2. Foreign denominated checks payable to other payees were diverted into the said account.

3. The various deposit slips, covering the said checks, did not bear the machine validation of any ofthe tellers-in-charge.

4. The signatures of the MOB officers appearing on the said deposit slips were in fact forged.

5. The posting of said bank transactions bore the initials of petitioners Bongkingki or Gloria.

6. The deposit slips were coded as "1511" or "on-us check."

7. Petitioner Cadiz agreed to pay Alqueza the equivalent amount of $600.00 but it was made toappear that Alfiscar paid the said amount.

8. In view of these findings, petitioners were served with show-cause memoranda asking them toexplain the lapses.

9. Finding their explanations unsatisfactory, petitioners were terminated from employment.

It is from these established facts that we consider the arguments now presented by petitioners. In lightof these facts, petitioners' arguments hardly detract from the conclusion that their behavior in thecourse of the discharge of their duties is clearly malfeasant, and constitutes ground for their terminationon account of just cause. HCaIDS

First, petitioners insist that the show-cause memoranda served on them did not impute any fraudulentbehavior, but merely lapses. We disagree.


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The show-cause memoranda were occasioned by the confidential report prepared by Sandig, as well asthe findings of the special audit examination. The confidential report prepared by Sandig addressed tothe Vice-President of respondent bank pertains to the discovery of fraudulent transactions on S/A No.1083-4 involving three employees of respondent bank. The report detailed how the events transpired,including the admissions of petitioners. From there, a special audit examination was conducted to make

a thorough investigation of the questioned account. The examination yielded conspicuous findings thatanomalous transactions had taken place involving petitioners.

Moreover, the show-cause memoranda respectively served on petitioners clearly indicate that theywere being made to answer questions pertaining to possible anomalous behavior on their part. Forexample, petitioners were asked to explain why they had posted the questioned deposits on the ledger,although there were no teller validations or teller stamps, and also on what basis they considered suchtransactions to be valid. 17 On the other hand, the show-cause memorandum to Cadiz directly asks himto provide the personal details of Sonia Alfiscar, why he went out of his way to make a specialarrangement for the mysterious Alfiscar, and other questions pertaining to the Alfiscar accounts.

We thus cannot give credence to the averments of petitioners that the memoranda pertain to "lapses",and not fraudulent transactions. The bank could not have been expected to conclude outright thatpetitioners were guilty of fraud, despite all the indicia that they indeed were. Certainly, the purpose ofthe show-cause memoranda was to afford petitioners the opportunity to acquit themselves of culpableresponsibility. It would have been quite irresponsible for the bank to have premised the queries thereinon irretractable conclusions that petitioners had been guilty of anomalous transactions. ASTDCH

Second, petitioners contend that they should be relieved of any liability considering that respondentbank did not suffer a pecuniary loss. This claim must obviously fail.

There is jurisprudential support, as noted by the Court of Appeals in citing University of the East v. NLRC18 that lack of material or pecuniary damages would not in any way mitigate a person's liability norobliterate the loss of trust and confidence. In the case of Etcuban v. Sulpicio Lines, 19 this Courtdefinitively ruled that:

. . . Whether or not the respondent bank was financially prejudiced is immaterial. Also, what matters isnot the amount involved, be it paltry or gargantuan; rather the fraudulent scheme in which thepetitioner was involved, which constitutes a clear betrayal of trust and confidence. . . .

Moreover, it cannot be discounted that as bank employees, the responsibilities of petitioners areimpressed with a high degree of public interest. Private persons entrust their fortunes to banks, and itwould cause a breakdown of the financial order if the judicial system were to leave unsanctioned bankemployees who treat depositor's accounts as their own private kitty.

Still, petitioners insist that respondent bank never lost trust and confidence in them as it did not placethem under preventive suspension, and more tellingly, it even promoted them after the labor arbiterhad ordered their reinstatement. Preventive suspension, which is never obligatory on the part of theemployer, may be resorted to only when the continued employment of the employee poses "a serious


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and imminent threat to the life or property of the employer or of his co-workers." 20 The bank pointsout that the Alfiscar account, through which the anomalous transactions were coursed, was no longeractive at the time the fraud was discovered. 21 Clearly, the bank had reason to conclude that theimminence of the threat posed by the employees was not as vital as it would have been had the dubiousaccount still been open. SHTcDE

As to the alleged promotions, the original employer, PCIB, admits that petitioners had been reinstatedby reason of the Decision, but such act was by no means voluntary. PCIB however does not rebut theallegations that Bongkingki and Cadiz were assigned to sensitive positions within the bank after theircompulsory reinstatement. This may be so, but the fact that PCIB lost no time in removing theemployees from the plantilla after the NLRC reversed the labor arbiter's Decision hardly evinces anycontinuing trust and confidence on the part of the bank, as maintained by petitioners. Moreover,considering that these reinstated employees were, for the meantime, regular employees of the bank, itis within the discretion of PCIB to reassign them as it sees fit, taking into account the circumstances.

Moreover, it would simply be temerarious for the Court to sanction the reinstatement of bankemployees who have clearly engaged in anomalous banking practices. The particular fiduciaryresponsibilities reposed on banks and its employees cannot be emphasized enough. The fiduciary natureof banking 22 is enshrined in Republic Act No. 8791 or the General Banking Law of 2000. Section 2 of thelaw specifically says that the State recognizes the "fiduciary nature of banking that requires highstandards of integrity and performance." 23 The bank must not only exercise "high standards of integrityand performance," it must also ensure that its employees do likewise because this is the only way toensure that the bank will comply with its fiduciary duty. 24

All given, we affirm the conclusion that petitioners were dismissed for just cause. Loss of trust andconfidence is one of the just causes for termination by employer under Article 282 of the Labor Code.The breach of trust must be willful, meaning it must be done intentionally, knowingly, and purposely,without justifiable excuse. 25 Ideally, loss of confidence applies only to cases involving employeesoccupying positions of trust and confidence or to those situations where the employee is routinelycharged with the care and custody of the employer's money or property. 26 Utmost trust andconfidence are deemed to have been reposed on petitioners by virtue of the nature of their work.cSaATC

The facts as established, as well as the need to assert the public interest in safeguarding against bankfraud, militate against the present petition.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision of the Court of Appeals AFFIRMED.Costs against petitioners.

SO ORDERED.

Puno, Austria-Martinez and Callejo, Sr., JJ., concur.

Chico-Nazario, J., is on leave.


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SECOND DIVISION

[G.R. No. 125585. June 8, 2005.]

HEIRS OF EDUARDO MANLAPAT, represented by GLORIA MANLAPAT-BANAAG and LEON M. BANAAG,JR., petitioners, vs. HON. COURT OF APPEALS, RURAL BANK OF SAN PASCUAL, INC., and JOSE B.SALAZAR, CONSUELO CRUZ and ROSALINA CRUZ-BAUTISTA, and the REGISTER OF DEEDS ofMeycauayan, Bulacan, respondents.

Vicente D. Cario for petitioners.

Ulpiano P. Sarmiento III and Arturo Sioson for private respondents.

SYLLABUS

1. CIVIL LAW; CONTRACTS; REGISTRATION OF CONTRACT; PURPOSE. Registration is not arequirement for validity of the contract as between the parties, for the effect of registration serves

chiefly to bind third persons. The principal purpose of registration is merely to notify other persons notparties to a contract that a transaction involving the property had been entered into. Where the partyhas knowledge of a prior existing interest which is unregistered at the time he acquired a right to thesame land, his knowledge of that prior unregistered interest has the effect of registration as to him.Further, the heirs of Eduardo cannot be considered third persons for purposes of applying the rule. Theconveyance shall not be valid against any person unless registered, except (1) the grantor, (2) his heirsand devisees, and (3) third persons having actual notice or knowledge thereof. Not only are petitionersthe heirs of Eduardo, some of them were actually parties to the Kasulatan executed in favor of Ricardo.Thus, the annotation of the adverse claim of the Cruzes on the OCT is no longer required to bind theheirs of Eduardo, petitioners herein.

2. ID.; ID.; MORTGAGE; MORTGAGOR MUST BE THE OWNER OF THE MORTGAGED PROPERTY;RATIONALE. The requirements of a valid mortgage are clearly laid down in Article 2085 of the NewCivil Code. For a person to constitute a valid mortgage on real estate, he must be the absolute ownerthereof as required by Article 2085 of the New Civil Code. The mortgagor must be the owner, otherwisethe mortgage is void. In a contract of mortgage, the mortgagor remains to be the owner of the propertyalthough the property is subjected to a lien. A mortgage is regarded as nothing more than a mere lien,encumbrance, or security for a debt, and passes no title or estate to the mortgagee and gives him noright or claim to the possession of the property. In this kind of contract, the property mortgaged ismerely delivered to the mortgagee to secure the fulfillment of the principal obligation. Such delivery

does not empower the mortgagee to convey any portion thereof in favor of another person as the rightto dispose is an attribute of ownership. The right to dispose includes the right to donate, to sell, topledge or mortgage. Thus, the mortgagee, not being the owner of the property, cannot dispose of thewhole or part thereof nor cause the impairment of the security in any manner without violating theforegoing rule. The mortgagee only owns the mortgage credit, not the property itself. SCEDAI


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3. ID.; LAND REGISTRATION; TORRENS TITLE; PRINCIPLE OF INDEFEASIBILITY THEREOF DOES NOTAPPLY WHERE FRAUD ATTENDED THE ISSUANCE OF TITLE. Time and again, this Court has ruled thatthe principle of indefeasibility of a Torrens title does not apply where fraud attended the issuance of thetitle, as was conclusively established in this case. The Torrens title does not furnish a shield for fraud.Registration does not vest title. It is not a mode of acquiring ownership but is merely evidence of such

title over a particular property. It does not give the holder any better right than what he actually has,especially if the registration was done in bad faith. The effect is that it is as if no registration was madeat all. In fact, this Court has ruled that a decree of registration cut off or extinguished a right acquired bya person when such right refers to a lien or encumbrance on the land not to the right of ownershipthereof which was not annotated on the certificate of title issued thereon.

4. ID.; ID.; TRANSFER CERTIFICATE OF TITLE; ISSUANCE THEREOF REQUIRES ONLY THEPRESENTATION OF OWNER'S DUPLICATE CERTIFICATE TOGETHER WITH THE INSTRUMENT OFCONVEYANCE; APPLICATION IN CASE AT BAR. What the Cruzes presented before the Register ofDeeds was the very genuine owner's duplicate certificate earlier deposited by Banaag, Eduardo's

attorney-in-fact, with RBSP. Likewise, the instruments of conveyance are authentic, not forged. Section53 of P.D. No. 1529 has never been clearer on the point that as long as the owner's duplicate certificateis presented to the Register of Deeds together with the instrument of conveyance, such presentationserves as conclusive authority to the Register of Deeds to issue a transfer certificate or make amemorandum of registration in accordance with the instrument. . . . Further, the law on the matter,specifically P.D. No. 1529, has no explicit requirement as to the manner of acquiring the owner'sduplicate for purposes of issuing a TCT. This led the Register of Deeds of Meycauayan as well as theCentral Bank officer, in rendering an opinion on the legal feasibility of the process resorted to by theCruzes. Section 53 of P.D. No. 1529 simply requires the production of the owner's duplicate certificate,whenever any voluntary instrument is presented for registration, and the same shall be conclusive

authority from the registered owner to the Register of Deeds to enter a new certificate or to make amemorandum of registration in accordance with such instrument, and the new certificate ormemorandum shall be binding upon the registered owner and upon all persons claiming under him, infavor of every purchaser for value and in good faith. SHEIDC

5. MERCANTILE LAW; BANKING INSTITUTIONS; MORTGAGEE BANKS ARE REQUIRED TO EXERCISEDUE DILIGENCE BEFORE ENTERING INTO CONTRACTS. Banks, their business being impressed withpublic interest, are expected to exercise more care and prudence than private individuals in theirdealings, even those involving registered lands. The highest degree of diligence is expected, and highstandards of integrity and performance are even required of it. A mortgagee can rely on what appears

on the certificate of title presented by the mortgagor and an innocent mortgagee is not expected toconduct an exhaustive investigation on the history of the mortgagor's title. This rule is strictly applied tobanking institutions. A mortgagee-bank must exercise due diligence before entering into said contract.Judicial notice is taken of the standard practice for banks, before approving a loan, to sendrepresentatives to the premises of the land offered as collateral and to investigate who the real ownersthereof are. Banks, indeed, should exercise more care and prudence in dealing even with registeredlands, than private individuals, as their business is one affected with public interest. Banks keep in trust


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money belonging to their depositors, which they should guard against loss by not committing any act ofnegligence that amounts to lack of good faith. Absent good faith, banks would be denied the protectivemantle of the land registration statute, Act 496, which extends only to purchasers for value and goodfaith, as well as to mortgagees of the same character and description. Thus, this Court clarified the rulethat persons dealing with registered lands can rely solely on the certificate of title does not apply to

banks.

6. CIVIL LAW; DAMAGES; NOMINAL DAMAGES; PROPER IN ORDER TO VINDICATE RIGHTS WHICHHAD BEEN VIOLATED OR INVADED; EXEMPLIFIED IN CASE AT BAR. The bank should not have allowedcomplete strangers to take possession of the owner's duplicate certificate even if the purpose is merelyfor photocopying for danger of losing the same is more than imminent. They should be aware of theconclusive presumption in Section 53. Such act constitutes manifest negligence on the part of the bankwhich would necessarily hold it liable for damages under Article 1170 and other relevant provisions ofthe Civil Code. In the absence of evidence, the damages that may be awarded may be in the form ofnominal damages. Nominal damages are adjudicated in order that a right of the plaintiff, which has been

violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose ofindemnifying the plaintiff for any loss suffered by him. This award rests on the mortgagor's right to relyon the bank's observance of the highest diligence in the conduct of its business. The act of RBSP ofentrusting to respondents the owner's duplicate certificate entrusted to it by the mortgagor withouteven notifying the mortgagor and absent any prior investigation on the veracity of respondents' claimand character is a patent failure to foresee the risk created by the act in view of the provisions of Section53 of P.D. No. 1529. This act runs afoul of every bank's mandate to observe the highest degree ofdiligence in dealing with its clients. Moreover, a mortgagor has also the right to be afforded due processbefore deprivation or diminution of his property is effected as the OCT was still in the name of Eduardo.Notice and hearing are indispensable elements of this right which the bank miserably ignored. cTSDAH

D E C I S I O N

TINGA, J p:

Before this Court is a Rule 45 petition assailing the Decision 1 dated 29 September 1994 of the Court ofAppeals that reversed the Decision 2 dated 30 April 1991 of the Regional Trial Court (RTC) of Bulacan,Branch 6, Malolos. The trial court declared Transfer Certificates of Title (TCTs) No. T-9326-P(M) and No.T-9327-P(M) as void ab initio and ordered the restoration of Original Certificate of Title (OCT) No. P-153(M) in the name of Eduardo Manlapat (Eduardo), petitioners' predecessor-in-interest. AacCIT

The controversy involves Lot No. 2204, a parcel of land with an area of 1,058 square meters, located atPanghulo, Obando, Bulacan. The property had been originally in the possession of Jose Alvarez,Eduardo's grandfather, until his demise in 1916. It remained unregistered until 8 October 1976 whenOCT No. P-153(M) was issued in the name of Eduardo pursuant to a free patent issued in Eduardo'sname 3 that was entered in the Registry of Deeds of Meycauayan, Bulacan. 4 The subject lot is adjacentto a fishpond owned by one Ricardo Cruz (Ricardo), predecessor-in-interest of respondents ConsueloCruz and Rosalina Cruz-Bautista (Cruzes). 5


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On 19 December 1954, before the subject lot was titled, Eduardo sold a portion thereof with an area of553 square meters to Ricardo. The sale is evidenced by a deed of sale entitled "Kasulatan ng BilihangTuluyan ng Lupang Walang Titulo (Kasulatan)" 6 which was signed by Eduardo himself as vendor and hiswife Engracia Aniceto with a certain Santiago Enriquez signing as witness. The deed was notarized byNotary Public Manolo Cruz. 7 On 4 April 1963, the Kasulatan was registered with the Register of Deeds

of Bulacan. 8

On 18 March 1981, another Deed of Sale 9 conveying another portion of the subject lot consisting of 50square meters as right of way was executed by Eduardo in favor of Ricardo in order to reach the portioncovered by the first sale executed in 1954 and to have access to his fishpond from the provincial road.10 The deed was signed by Eduardo himself and his wife Engracia Aniceto, together with EduardoManlapat, Jr. and Patricio Manlapat. The same was also duly notarized on 18 July 1981 by Notary PublicArsenio Guevarra. 11

In December 1981, Leon Banaag, Jr. (Banaag), as attorney-in-fact of his father-in-law Eduardo, executeda mortgage with the Rural Bank of San Pascual, Obando Branch (RBSP), for P100,000.00 with the subjectlot as collateral. Banaag deposited the owner's duplicate certificate of OCT No. P-153(M) with the bank.ADCSEa

On 31 August 1986, Ricardo died without learning of the prior issuance of OCT No. P-153(M) in the nameof Eduardo. 12 His heirs, the Cruzes, were not immediately aware of the consummated sale betweenEduardo and Ricardo.

Eduardo himself died on 4 April 1987. He was survived by his heirs, Engracia Aniceto, his spouse; andchildren, Patricio, Bonifacio, Eduardo, Corazon, Anselmo, Teresita and Gloria, all surnamed Manlapat. 13Neither did the heirs of Eduardo (petitioners) inform the Cruzes of the prior sale in favor of their

predecessor-in-interest, Ricardo. Yet subsequently, the Cruzes came to learn about the sale and theissuance of the OCT in the name of Eduardo.

Upon learning of their right to the subject lot, the Cruzes immediately tried to confront petitioners onthe mortgage and obtain the surrender of the OCT. The Cruzes, however, were thwarted in their bid tosee the heirs. On the advice of the Bureau of Lands, NCR Office, they brought the matter to thebarangay captain of Barangay Panghulo, Obando, Bulacan. During the hearing, petitioners wereinformed that the Cruzes had a legal right to the property covered by OCT and needed the OCT for thepurpose of securing a separate title to cover the interest of Ricardo. Petitioners, however, wereunwilling to surrender the OCT. 14

Having failed to physically obtain the title from petitioners, in July 1989, the Cruzes instead went toRBSP which had custody of the owner's duplicate certificate of the OCT, earlier surrendered as aconsequence of the mortgage. Transacting with RBSP's manager, Jose Salazar (Salazar), the Cruzessought to borrow the owner's duplicate certificate for the purpose of photocopying the same andthereafter showing a copy thereof to the Register of Deeds. Salazar allowed the Cruzes to bring theowner's duplicate certificate outside the bank premises when the latter showed the Kasulatan. 15 TheCruzes returned the owner's duplicate certificate on the same day after having copied the same. They


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then brought the copy of the OCT to Register of Deeds Jose Flores (Flores) of Meycauayan and showedthe same to him to secure his legal opinion as to how the Cruzes could legally protect their interest inthe property and register the same. 16 Flores suggested the preparation of a subdivision plan to be ableto segregate the area purchased by Ricardo from Eduardo and have the same covered by a separatetitle. 17

Thereafter, the Cruzes solicited the opinion of Ricardo Arandilla (Arandilla), Land Registration Officer,Director III, Legal Affairs Department, Land Registration Authority at Quezon City, who agreed with theadvice given by Flores. 18 Relying on the suggestions of Flores and Arandilla, the Cruzes hired twogeodetic engineers to prepare the corresponding subdivision plan. The subdivision plan was presentedto the Land Management Bureau, Region III, and there it was approved by a certain Mr. Pambid of saidoffice on 21 July 1989. aACEID

After securing the approval of the subdivision plan, the Cruzes went back to RBSP and again asked forthe owner's duplicate certificate from Salazar. The Cruzes informed him that the presentation of theowner's duplicate certificate was necessary, per advise of the Register of Deeds, for the cancellation ofthe OCT and the issuance in lieu thereof of two separate titles in the names of Ricardo and Eduardo inaccordance with the approved subdivision plan. 19 Before giving the owner's duplicate certificate,Salazar required the Cruzes to see Atty. Renato Santiago (Atty. Santiago), legal counsel of RBSP, tosecure from the latter a clearance to borrow the title. Atty. Santiago would give the clearance on thecondition that only Cruzes put up a substitute collateral, which they did. 20 As a result, the Cruzes gothold again of the owner's duplicate certificate.

After the Cruzes presented the owner's duplicate certificate, along with the deeds of sale and thesubdivision plan, the Register of Deeds cancelled the OCT and issued in lieu thereof TCT No. T-9326-P(M)covering 603 square meters of Lot No. 2204 in the name of Ricardo and TCT No. T-9327-P(M) coveringthe remaining 455 square meters in the name of Eduardo. 21

On 9 August 1989, the Cruzes went back to the bank and surrendered to Salazar TCT No. 9327-P(M) inthe name of Eduardo and retrieved the title they had earlier given as substitute collateral. After securingthe new separate titles, the Cruzes furnished petitioners with a copy of TCT No. 9327-P(M) through thebarangay captain and paid the real property tax for 1989. 22

The Cruzes also sent a formal letter to Guillermo Reyes, Jr., Director, Supervision Sector, Department IIIof the Central Bank of the Philippines, inquiring whether they committed any violation of existing banklaws under the circumstances. A certain Zosimo Topacio, Jr. of the Supervision Sector sent a reply letter

advising the Cruzes, since the matter is between them and the bank, to get in touch with the bank forthe final settlement of the case. 23

In October of 1989, Banaag went to RBSP, intending to tender full payment of the mortgage obligation.It was only then that he learned of the dealings of the Cruzes with the bank which eventually led to thesubdivision of the subject lot and the issuance of two separate titles thereon. In exchange for the fullpayment of the loan, RBSP tried to persuade petitioners to accept TCT No. T-9327-P(M) in the name ofEduardo. 24


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As a result, three (3) cases were lodged, later consolidated, with the trial court, all involving the issuanceof the TCTs, to wit:

(1) Civil Case No. 650-M-89, for reconveyance with damages filed by the heirs of Eduardo Manlapatagainst Consuelo Cruz, Rosalina Cruz-Bautista, Rural Bank of San Pascual, Jose Salazar and Jose Flores, in

his capacity as Deputy Registrar, Meycauayan Branch of the Registry of Deeds of Bulacan; SHcDAI

(2) Civil Case No. 141-M-90 for damages filed by Jose Salazar against Consuelo Cruz, et. [sic] al.; and

(3) Civil Case No. 644-M-89, for declaration of nullity of title with damages filed by Rural Bank ofSan Pascual, Inc. against the spouses Ricardo Cruz and Consuelo Cruz, et al. 25

After trial of the consolidated cases, the RTC of Malolos rendered a decision in favor of the heirs ofEduardo, the dispositive portion of which reads:

WHEREFORE, premised from the foregoing, judgment is hereby rendered:

1. Declaring Transfer Certificates of Title Nos. T-9326-P(M) and T-9327-P(M) as void ab initio andordering the Register of Deeds, Meycauayan Branch to cancel said titles and to restore OriginalCertificate of Title No. P-153(M) in the name of plaintiffs' predecessor-in-interest Eduardo Manlapat;

2. Ordering the defendants Rural Bank of San Pascual, Jose Salazar, Consuelo Cruz and RosalinaCruz-Bautista, to pay the plaintiffs Heirs of Eduardo Manlapat, jointly and severally, the following:

a) P200,000.00 as moral damages;

b) P50,000.00 as exemplary damages;

c) P20,000.00 as attorney's fees; and

d) the costs of the suit.

3. Dismissing the counterclaims.

SO ORDERED." 26

The trial court found that petitioners were entitled to the reliefs of reconveyance and damages. On thismatter, it ruled that petitioners were bona fide mortgagors of an unclouded title bearing no annotationof any lien and/or encumbrance. This fact, according to the trial court, was confirmed by the bank whenit accepted the mortgage unconditionally on 25 November 1981. It found that petitioners werecomplacent and unperturbed, believing that the title to their property, while serving as security for aloan, was safely vaulted in the impermeable confines of RBSP. To their surprise and prejudice, said titlewas subdivided into two portions, leaving them a portion of 455 square meters from the original totalarea of 1,058 square meters, all because of the fraudulent and negligent acts of respondents and RBSP.The trial court ratiocinated that even assuming that a portion of the subject lot was sold by Eduardo toRicardo, petitioners were still not privy to the transaction between the bank and the Cruzes which


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eventually led to the subdivision of the OCT into TCTs No. T-9326-P(M) and No. T-9327-P(M), clearly tothe damage and prejudice of petitioners. 27

Concerning the claims for damages, the trial court found the same to be bereft of merit. It ruled thatalthough the act of the Cruzes could be deemed fraudulent, still it would not constitute intrinsic fraud.

Salazar, nonetheless, was clearly guilty of negligence in letting the Cruzes borrow the owner's duplicatecertificate of the OCT. Neither the bank nor its manager had business entrusting to strangers titlesmortgaged to it by other persons for whatever reason. It was a clear violation of the mortgage andbanking laws, the trial court concluded. DacTEH

The trial court also ruled that although Salazar was personally responsible for allowing the title to beborrowed, the bank could not escape liability for it was guilty of contributory negligence. The evidenceshowed that RBSP's legal counsel was sought for advice regarding respondents' request. This could onlymean that RBSP through its lawyer if not through its manager had known in advance of the Cruzes'intention and still it did nothing to prevent the eventuality. Salazar was not even summarily dismissed bythe bank if he was indeed the sole person to blame. Hence, the bank's claim for damages mustnecessarily fail. 28

The trial court granted the prayer for the annulment of the TCTs as a necessary consequence of itsdeclaration that reconveyance was in order. As to Flores, his work being ministerial as Deputy Registerof the Bulacan Registry of Deeds, the trial court absolved him of any liability with a stern warning that heshould deal with his future transactions more carefully and in the strictest sense as a responsiblegovernment official. 29

Aggrieved by the decision of the trial court, RBSP, Salazar and the Cruzes appealed to the Court ofAppeals. The appellate court, however, reversed the decision of the RTC. The decretal text of the

decision reads:

THE FOREGOING CONSIDERED, the appealed decision is hereby reversed and set aside, with costsagainst the appellees.

SO ORDERED. 30

The appellate court ruled that petitioners were not bona fide mortgagors since as early as 1954 orbefore the 1981 mortgage, Eduardo already sold to Ricardo a portion of the subject lot with an area of553 square meters. This fact, the Court of Appeals noted, is even supported by a document of salesigned by Eduardo Jr. and Engracia Aniceto, the surviving spouse of Eduardo, and registered with the

Register of Deeds of Bulacan. The appellate court also found that on 18 March 1981, for the secondtime, Eduardo sold to Ricardo a separate area containing 50 square meters, as a road right-of-way. 31Clearly, the OCT was issued only after the first sale. It also noted that the title was given to the Cruzes byRBSP voluntarily, with knowledge even of the bank's counsel. 32 Hence, the imposition of damagescannot be justified, the Cruzes themselves being the owners of the property. Certainly, Eduardo misledthe bank into accepting the entire area as a collateral since the 603-square meter portion did not


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acquired a right to the same land, his knowledge of that prior unregistered interest has the effect ofregistration as to him. 37

Further, the heirs of Eduardo cannot be considered third persons for purposes of applying the rule. Theconveyance shall not be valid against any person unless registered, except (1) the grantor, (2) his heirs

and devisees, and (3) third persons having actual notice or knowledge thereof. 38 Not only arepetitioners the heirs of Eduardo, some of them were actually parties to the Kasulatan executed in favorof Ricardo. Thus, the annotation of the adverse claim of the Cruzes on the OCT is no longer required tobind the heirs of Eduardo, petitioners herein.

Petitioners had no right to constitute

mortgage over disputed portion

The requirements of a valid mortgage are clearly laid down in Article 2085 of the New Civil Code, viz:

ART. 2085. The following requisites are essential to the contracts of pledge and mortgage:

(1) That they be constituted to secure the fulfillment of a principal obligation; aIcTCS

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their property,and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging ormortgaging their own property. (emphasis supplied)

For a person to validly constitute a valid mortgage on real estate, he must be the absolute ownerthereof as required by Article 2085 of the New Civil Code. 39 The mortgagor must be the owner,otherwise the mortgage is void. 40 In a contract of mortgage, the mortgagor remains to be the owner ofthe property although the property is subjected to a lien. 41 A mortgage is regarded as nothing morethan a mere lien, encumbrance, or security for a debt, and passes no title or estate to the mortgageeand gives him no right or claim to the possession of the property. 42 In this kind of contract, theproperty mortgaged is merely delivered to the mortgagee to secure the fulfillment of the principalobligation. 43 Such delivery does not empower the mortgagee to convey any portion thereof in favor ofanother person as the right to dispose is an attribute of ownership. 44 The right to dispose includes theright to donate, to sell, to pledge or mortgage. Thus, the mortgagee, not being the owner of the

property, cannot dispose of the whole or part thereof nor cause the impairment of the security in anymanner without violating the foregoing rule. 45 The mortgagee only owns the mortgage credit, not theproperty itself. 46

Petitioners submit as an issue whether a mortgagor may be compelled to receive from the mortgagee asmaller portion of the lot covered by the originally encumbered title, which lot was partitioned duringthe subsistence of the mortgage without the knowledge or authority of the mortgagor as registered


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owner. This formulation is disingenuous, baselessly assuming, as it does, as an admitted fact that themortgagor is the owner of the mortgaged property in its entirety. Indeed, it has not become a salientissue in this case since the mortgagor was not the owner of the entire mortgaged property in the firstplace. CaEATI

Issuance of OCT No. P-153(M), improper

It is a glaring fact that OCT No. P-153(M) covering the property mortgaged was in the name of Eduardo,without any annotation of any prior disposition or encumbrance. However, the property was sufficientlyshown to be not entirely owned by Eduardo as evidenced by the Kasulatan. Readily apparent uponperusal of the records is that the OCT was issued in 1976, long after the Kasulatan was executed wayback in 1954. Thus, a portion of the property registered in Eduardo's name arising from the grant of freepatent did not actually belong to him. The utilization of the Torrens system to perpetrate fraud cannotbe accorded judicial sanction.

Time and again, this Court has ruled that the principle of indefeasibility of a Torrens title does not applywhere fraud attended the issuance of the title, as was conclusively established in this case. The Torrenstitle does not furnish a shied for fraud. 47 Registration does not vest title. It is not a mode of acquiringownership but is merely evidence of such title over a particular property. It does not give the holder anybetter right than what he actually has, especially if the registration was done in bad faith. The effect isthat it is as if no registration was made at all. 48 In fact, this Court has ruled that a decree of registrationcut off or extinguished a right acquired by a person when such right refers to a lien or encumbrance onthe land not to the right of ownership thereof which was not annotated on the certificate of titleissued thereon. 49

Issuance of TCT Nos. T-9326-P(M)

and T-9327-P(M), Valid

The validity of the issuance of two TCTs, one for the portion sold to the predecessor-in-interest of theCruzes and the other for the portion retained by petitioners, is readily apparent from Section 53 of thePresidential Decree (P.D.) No. 1529 or the Property Registration Decree. It provides:

SEC 53. Presentation of owner's duplicate upon entry of new certificate. No voluntary instrumentshall be registered by the Register of Deeds, unless the owner's duplicate certificate is presented withsuch instrument, except in cases expressly provided for in this Decree or upon order of the court, forcause shown. IDCcEa

The production of the owner's duplicate certificate, whenever any voluntary instrument is presented forregistration, shall be conclusive authority from the registered owner to the Register of Deeds to enter anew certificate or to make a memorandum of registration in accordance with such instrument, and thenew certificate or memorandum shall be binding upon the registered owner and upon all personsclaiming under him, in favor of every purchaser for value and in good faith.


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In all cases of registration procured by fraud, the owner may pursue all his legal and equitable remediesagainst the parties to such fraud without prejudice, however, to the rights of any innocent holder of thedecree of registration on the original petition or application, any subsequent registration procured bythe presentation of a forged duplicate certificate of title, or a forged deed or instrument, shall be nulland void. (emphasis supplied)

Petitioners argue that the issuance of the TCTs violated the third paragraph of Section 53 of P.D. No.1529. The argument is baseless. It must be noted that the provision speaks of forged duplicatecertificate of title and forged deed or instrument. Neither instance obtains in this case. What the Cruzespresented before the Register of Deeds was the very genuine owner's duplicate certificate earlierdeposited by Banaag, Eduardo's attorney-in-fact, with RBSP. Likewise, the instruments of conveyanceare authentic, not forged. Section 53 has never been clearer on the point that as long as the owner'sduplicate certificate is presented to the Register of Deeds together with the instrument of conveyance,such presentation serves as conclusive authority to the Register of Deeds to issue a transfer certificateor make a memorandum of registration in accordance with the instrument.

The records of the case show that despite the efforts made by the Cruzes in persuading the heirs ofEduardo to allow them to secure a separate TCT on the claimed portion, their ownership being amplyevidenced by the Kasulatan and Sinumpaang Salaysay where Eduardo himself acknowledged the sales infavor of Ricardo, the heirs adamantly rejected the notion of separate titling. This prompted the Cruzesto approach the bank manager of RBSP for the purpose of protecting their property right. Theysucceeded in persuading the latter to lend the owner's duplicate certificate. Despite the apparentirregularity in allowing the Cruzes to get hold of the owner's duplicate certificate, the bank officersconsented to the Cruzes' plan to register the deeds of sale and secure two new separate titles, withoutnotifying the heirs of Eduardo about it. cHESAD

Further, the law on the matter, specifically P.D. No. 1529, has no explicit requirement as to the mannerof acquiring the owner's duplicate for purposes of issuing a TCT. This led the Register of Deeds ofMeycauayan as well as the Central Bank officer, in rendering an opinion on the legal feasibility of theprocess resorted to by the Cruzes. Section 53 of P.D. No. 1529 simply requires the production of theowner's duplicate certificate, whenever any voluntary instrument is presented for registration, and thesame shall be conclusive authority from the registered owner to the Register of Deeds to enter a newcertificate or to make a memorandum of registration in accordance with such instrument, and the newcertificate or memorandum shall be binding upon the registered owner and upon all persons claimingunder him, in favor of every purchaser for value and in good faith.

Quite interesting, however, is the contention of the heirs of Eduardo that the surreptitious lending ofthe owner's duplicate certificate constitutes fraud within the ambit of the third paragraph of Section 53which could nullify the eventual issuance of the TCTs. Yet we cannot subscribe to their position.

Impelled by the inaction of the heirs of Eduardo as to their claim, the Cruzes went to the bank where theproperty was mortgaged. Through its manager and legal officer, they were assured of recovery of theclaimed parcel of land since they are the successors-in-interest of the real owner thereof. Relying on the


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bank officers' opinion as to the legality of the means sought to be employed by them and the suggestionof the Central Bank officer that the matter could be best settled between them and the bank, the Cruzespursued the titling of the claimed portion in the name of Ricardo. The Register of Deeds eventuallyissued the disputed TCTs.

The Cruzes resorted to such means to protect their interest in the property that rightfully belongs tothem only because of the bank officers' acquiescence thereto. The Cruzes could not have secured aseparate TCT in the name of Ricardo without the bank's approval. Banks, their business being impressedwith public interest, are expected to exercise more care and prudence than private individuals in theirdealings, even those involving registered lands. 50 The highest degree of diligence is expected, and highstandards of integrity and performance are even required of it. 51

Indeed, petitioners contend that the mortgagee cannot question the veracity of the registered title ofthe mortgagor as noted in the owner's duplicate certificate, and, thus, he cannot deliver the certificateto such third persons invoking an adverse, prior, and unregistered claim against the registered title ofthe mortgagor. The strength of this argument is diluted by the peculiar factual milieu of the case.HcSaTI

A mortgagee can rely on what appears on the certificate of title presented by the mortgagor and aninnocent mortgagee is not expected to conduct an exhaustive investigation on the history of themortgagor's title. This rule is strictly applied to banking institutions. A mortgagee-bank must exercisedue diligence before entering into said contract. Judicial notice is taken of the standard practice forbanks, before approving a loan, to send representatives to the premises of the land offered as collateraland to investigate who the real owners thereof are. 52

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. Banks keep in trust moneybelonging to their depositors, which they should guard against loss by not committing any act ofnegligence that amounts to lack of good faith. Absent good faith, banks would be denied the protectivemantle of the land registration statute, Act 496, which extends only to purchasers for value and goodfaith, as well as to mortgagees of the same character and description. 53 Thus, this Court clarified thatthe rule that persons dealing with registered lands can rely solely on the certificate of title does notapply to banks. 54

Bank Liable for Nominal Damages

Of deep concern to this Court, however, is the fact that the bank lent the owner's duplicate of the OCTto the Cruzes when the latter presented the instruments of conveyance as basis of their claim ofownership over a portion of land covered by the title. Simple rationalization would dictate that amortgagee-bank has no right to deliver to any stranger any property entrusted to it other than to thosecontractually and legally entitled to its possession. Although we cannot dismiss the bank'sacknowledgment of the Cruzes' claim as legitimized by instruments of conveyance in their possession,we nonetheless cannot sanction how the bank was inveigled to do the bidding of virtual strangers.Undoubtedly, the bank's cooperative stance facilitated the issuance of the TCTs. To make matters


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worse, the bank did not even notify the heirs of Eduardo. The conduct of the bank is as dangerous as it isunthinkably negligent. However, the aspect does not impair the right of the Cruzes to be recognized aslegitimate owners of their portion of the property. cEaCAH

Undoubtedly, in the absence of the bank's participation, the Register of Deeds could not have issued the

disputed TCTs. We cannot find fault on the part of the Register of Deeds in issuing the TCTs as hisauthority to issue the same is clearly sanctioned by law. It is thus ministerial on the part of the Registerof Deeds to issue TCT if the deed of conveyance and the original owner's duplicate are presented to himas there appears on the face of the instruments no badge of irregularity or nullity. 55 If there is someoneto blame for the shortcut resorted to by the Cruzes, it would be the bank itself whose manager and legalofficer helped the Cruzes to facilitate the issuance of the TCTs.

The bank should not have allowed complete strangers to take possession of the owner's duplicatecertificate even if the purpose is merely for photocopying for a danger of losing the same is more thanimminent. They should be aware of the conclusive presumption in Section 53. Such act constitutesmanifest negligence on the part of the bank which would necessarily hold it liable for damages underArticle 1170 and other relevant provisions of the Civil Code. 56

In the absence of evidence, the damages that may be awarded may be in the form of nominal damages.Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated orinvaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying theplaintiff for any loss suffered by him. 57 This award rests on the mortgagor's right to rely on the bank'sobservance of the highest diligence in the conduct of its business. The act of RBSP of entrusting torespondents the owner's duplicate certificate entrusted to it by the mortgagor without even notifyingthe mortgagor and absent any prior investigation on the veracity of respondents' claim and character isa patent failure to foresee the risk created by the act in view of the provisions of Section 53 of P.D. No.1529. This act runs afoul of every bank's mandate to observe the highest degree of diligence in dealingwith its clients. Moreover, a mortgagor has also the right to be afforded due process before deprivationor diminution of his property is effected as the OCT was still in the name of Eduardo. Notice and hearingare indispensable elements of this right which the bank miserably ignored. IcESDA

Under the circumstances, the Court believes the award of P50,000.00 as nominal damages isappropriate.

Five-Year Prohibition against alienation

or encumbrance under the Public Land Act

One vital point. Apparently glossed over by the courts below and the parties is an aspect which isessential, spread as it is all over the record and intertwined with the crux of the controversy, relating asit does to the validity of the dispositions of the subject property and the mortgage thereon. Eduardo wasissued a title in 1976 on the basis of his free patent application. Such application implies the recognitionof the public dominion character of the land and, hence, the five (5)-year prohibition imposed by the


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Public Land Act against alienation or encumbrance of the land covered by a free patent or homestead 58should have been considered.

The deed of sale covering the fifty (50)-square meter right of way executed by Eduardo on 18 March1981 is obviously covered by the proscription, the free patent having been issued on 8 October 1976.

However, petitioners may recover the portion sold since the prohibition was imposed in favor of thefree patent holder. In Philippine National Bank v. De los Reyes, 59 this Court ruled squarely on the point,thus:

While the law bars recovery in a case where the object of the contract is contrary to law and one or bothparties acted in bad faith, we cannot here apply the doctrine of in pari delicto which admits of anexception, namely, that when the contract is merely prohibited by law, not illegal per se, and theprohibition is designed for the protection of the party seeking to recover, he is entitled to the reliefprayed for whenever public policy is enhanced thereby. Under the Public Land Act, the prohibition toalienate is predicated on the fundamental policy of the State to preserve and keep in the family of thehomesteader that portion of public land which the State has gratuitously given to him, and recovery isallowed even where the land acquired under the Public Land Act was sold and not merely encumbered,within the prohibited period. 60

The sale of the 553 square meter portion is a different story. It was executed in 1954, twenty-two (22)years before the issuance of the patent in 1976. Apparently, Eduardo disposed of the portion evenbefore he thought of applying for a free patent. Where the sale or transfer took place before the filing ofthe free patent application, whether by the vendor or the vendee, the prohibition should not be applied.In such situation, neither the prohibition nor the rationale therefor which is to keep in the family of thepatentee that portion of the public land which the government has gratuitously given him, by shieldinghim from the temptation to dispose of his landholding, could be relevant. Precisely, he had disposed ofhis rights to the lot even before the government could give the title to him. DcITaC

The mortgage executed in favor of RBSP is also beyond the pale of the prohibition, as it was forged inDecember 1981 a few months past the period of prohibition.

WHEREFORE, the Decision of the Court of Appeals is AFFIRMED, subject to the modifications herein.Respondent Rural Bank of San Pascual is hereby ORDERED to PAY petitioners Fifty Thousand Pesos(P50,000.00) by way of nominal damages. Respondents Consuelo Cruz and Rosalina Cruz-Bautista arehereby DIVESTED of title to, and respondent Register of Deeds of Meycauayan, Bulacan is accordinglyORDERED to segregate, the portion of fifty (50) square meters of the subject Lot No. 2204, as depicted in

the approved plan covering the lot, marked as Exhibit "A", and to issue a new title covering the saidportion in the name of the petitioners at the expense of the petitioners. No costs. IcDCaS

SO ORDERED.

Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.

Puno, J., is on official leave.


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SECOND DIVISION

[G.R. No. 121413. January 29, 2001.]

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND AMERICA),petitioner, vs. COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A., respondents.

[G.R. No. 121479. January 29, 2001.]

FORD PHILIPPINES, INC., petitioner-plaintiff, vs. COURT OF APPEALS and CITIBANK, N.A. and PHILIPPINECOMMERCIAL INTERNATIONAL BANK, respondents.

[G.R. No. 128604. January 29, 2001.]

FORD PHILIPPINES, INC., petitioner, vs. CITIBANK, N.A., PHILIPPINE COMMERCIAL INTERNATIONAL BANKand THE COURT OF APPEALS, respondents.

Romulo, Mabanta, Buenaventura, Sayoc & Delos Angeles for Ford Philippines, Inc.

Agabin, Verzola, Hermoso, Layaoen & De Castro for private respondent PCIB.

Angara, Abello, Concepcion, Regala & Cruz for respondent Citibank.

SYNOPSIS

Ford Philippines drew and issued Citibank Check. No. SN 04867 on October 19, 1977, Citibank Check No.SN 10597 on July 19, 1978 and Citibank Check No. SN-16508 on April 20, 1979, all in favor of theCommissioner of Internal Revenue (CIR) for payment of its percentage taxes. The checks were crossedand deposited with the IBAA, now PCIB, BIR's authorized collecting bank. The first check was clearedcontaining an indorsement that "all prior indorsements and/or lack of indorsements guaranteed." Thesame, however, was replaced with two (2) IBAA's managers' checks based on a call and letter requestmade by Godofredo Rivera, Ford's General Ledger Accountant, on an alleged error in the computation ofthe tax due without IBAA verifying the authority of Rivera. These manager's checks were later depositedin another bank and misappropriated by the syndicate. The last two checks were cleared by the Citibankbut failed to discover that the clearing stamps do not bear any initials. The proceeds of the checks werealso illegally diverted or switched by officers of PCIB members of the syndicate, who eventuallyencashed them. Ford, which was compelled to pay anew the percentage taxes, sued in two actions forcollection against the two banks on January 20, 1983, barely six years from the date the first check was

returned to the drawer. The direct perpetrators of the crime are now fugitives from justice.In the first case, the trial court held that Citibank and IBAA were jointly and severally liable for thechecks, but on review by certiorari, the Court of Appeals held only IBAA (PCIB) solely liable for theamount of the first check. In the second case involving the last two checks, the trial court absolved PCIBfrom liability and held that only the Citibank is liable for the checks issued by Ford. However, on appeal,the Court of Appeals held both banks liable for negligence in the selection and supervision of their


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employees resulting in the erroneous encashment of the checks. These two rulings became the subjectof the present recourse.

The relationship between a holder of a commercial paper and the bank to which it is sent for collectionis that of a principal and an agent and the diversion of the amount of the check is justified only by proof

of authority from the drawer; that in crossed checks, the collecting bank is bound to scrutinize the checkand know its depositors before clearing indorsement; that as a general rule, banks are liable forwrongful or tortuous acts of its agents within the scope and in the course of their employment; thatfailure of the drawee bank to seasonably discover irregularity in the checks constitutes negligence andrenders the bank liable for loss of proceeds of the checks; that an action upon a check prescribes in ten(10) years; and that the contributory negligence of the drawer shall reduce the damages he may recoveragainst the collecting bank.

SYLLABUS

1. CIVIL LAW; TORTS AND DAMAGES; LIABILITY OF MASTER FOR NEGLIGENCE OF HIS OWNSERVANT OR AGENT. On this point, jurisprudence regarding the imputed negligence of employer in amaster-servant relationship is instructive. Since a master may be held for his servant's wrongful act, thelaw imputes to the master the act of the servant, and if that act is negligent or wrongful and proximatelyresults in injury to a third person, the negligence or wrongful conduct is the negligence or wrongfulconduct of the master, for which he is liable. The general rule is that if the master is injured by thenegligence of a third person and by the concurring contributory negligence of his own servant or agent,the latter's negligence is imputed to his superior and will defeat the superior's action against the thirdperson, assuming, of course that the contributory negligence was the proximate cause of the injury ofwhich complaint is made.

2. ID.; ID.; PROXIMATE CAUSE, DEFINED. As defined, proximate cause is that which, in thenatural and continuous sequence, unbroken by any efficient, intervening cause produces the injury, andwithout which the result would not have occurred.

3. ID.; ID.; LIABILITY OF MASTER FOR NEGLIGENCE OF HIS OWN SERVANT OR AGENT; ESTOPPEL,REQUIRED. Given these circumstances, the mere fact that the forgery was committed by a drawer-payor's confidential employee or agent, who by virtue of his position had unusual facilities forperpetrating the fraud and imposing the forged paper upon the bank, does not entitle the bank to shiftthe loss to the drawer-payor, in the absence of some circumstance raising estoppel against the drawer.This rule likewise applies to the checks fraudulently negotiated or diverted by the confidential

employees who hold them in their possession.

4. MERCANTILE LAW; NEGOTIABLE INSTRUMENTS; CHECKS; RELATIONSHIP BETWEEN HOLDER OFCOMMERCIAL PAPER AND BANK TO WHICH IT IS SENT FOR COLLECTION IS THAT OF PRINCIPAL ANDAGENT; DIVERSION OF AMOUNT OF CHECK, JUSTIFIED ONLY BY PROOF OF AUTHORITY FROM DRAWER. It is a well-settled rule that the relationship between the payee or holder of commercial paper andthe bank to which it is sent for collection is, in the absence of an agreement to the contrary, that ofprincipal and agent. A bank which receives such paper for collection is the agent of the payee or holder.


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Even considering arguendo, that the diversion of the amount of a check payable to the collecting bank inbehalf of the designated payee may be allowed, still such diversion must be properly authorized by thepayor. Otherwise stated, the diversion can be justified only by proof of authority from the drawer, orthat the drawer has clothed his agent with apparent authority to receive the proceeds of such check.

5. ID.; ID.; ID.; CROSSED CHECKS; COLLECTING BANK BOUND TO SCRUTINIZE CHECK AND KNOW ITDEPOSITORS BEFORE CLEARING INDORSEMENT; CASE AT BAR. Indeed, the crossing of the check withthe phrase "Payee's Account Only," is a warning that the check should be deposited only in the accountof the CIR. Thus, it is the duty of the collecting bank PCIBank to ascertain that the check be deposited inpayee's account only. Therefore, it is the collecting bank (PCIBank) which is bound to scrutinize thecheck and to know its depositors before it could make the clearing indorsement "all prior indorsementsand/or lack of indorsement guaranteed." Lastly, banking business requires that the one who first cashesand negotiates the check must take some precautions to learn whether or not it is genuine. And if theone cashing the check through indifference or other circumstance assists the forger in committing thefraud, he should not be permitted to retain the proceeds of the check from the drawee whose sole fault

was that it did not discover the forgery or the defect in the title of the person negotiating theinstrument before paying the check. For this reason, a bank which cashes a check drawn upon anotherbank, without requiring proof as to the identity of persons presenting it, or making inquiries with regardto them, cannot hold the proceeds against the drawee when the proceeds of the checks wereafterwards diverted to the hands of a third party. In such cases the drawee bank has a right to believethat the cashing bank (or the collecting bank) had, by the usual proper investigation, satisfied itself ofthe authenticity of the negotiation of the checks. Thus, one who encashed a check which had beenforged or diverted and in turn received payment thereon from the drawee, is guilty of negligence whichproximately contributed to the success of the fraud practiced on the drawee bank. The latter mayrecover from the holder the money paid on the check. Having established that the collecting bank's

negligence is the proximate cause of the loss, we conclude that PCIBank is liable in the amountcorresponding to the proceeds of Citibank Check No. SN-04867.

6. CIVIL LAW; TORTS AND DAMAGES; AS A GENERAL RULE, BANKS ARE LIABLE FOR WRONGFUL ORTORTUOUS ACT OF ITS OFFICERS OR AGENTS ACTING WITHIN SCOPE AND COURSE OF EMPLOYMENT. As a general rule, however, a banking corporation is liable for the wrongful or tortuous acts anddeclarations of its officers or agents within the course and scope of their employment. A bank will beheld liable for the negligence of its officers or agents when acting within the course and scope of theiremployment. It may be liable for the tortuous acts of its officers even as regards that species of tort ofwhich malice is an essential element. A bank holding out its officers and agents as worthy of confidence

will not be permitted to profit by the frauds these officers or agents were enabled to perpetrate in theapparent course of their employment; nor will it be permitted to shirk its responsibility for such frauds,even though no benefit may accrue to the bank therefrom. For the general rule is that a bank is liable forthe fraudulent acts or representations of an officer or agent acting within the course and apparentscope of his employment or authority. And if an officer or employee of a bank, in his official capacity,receives money to satisfy an evidence of indebtedness lodged with his bank for collection, the bank isliable for his misappropriation of such sum.


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7. ID.; ID.; ID.; FAILURE OF DRAWEE BANK TO DISCOVER ABSENCE OF INITIALS ON CLEARINGSTAMPS CONSTITUTES NEGLIGENCE. Citibank should have scrutin

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