Philippine Bank of Communications vs. Ria de Guzman Rivera

Once an ON-US check has been cleared and credited to a payee's account, the bank can no longer enforce a stop payment order and debit the payee's account. When a late stop payment order is enforced and the payee's account is debited, resulting in the dishonor of a check drawn from such account, the bank is deemed to have committed a breach of contract which makes it liable for damages.

PBCOM is a commercial bank engaged in the banking business, which is impressed with public interest and requires the highest degree of diligence from those engaged in it. Respondent Ria de Guzman Rivera was a former assistant branch manager of a bank who, at the time of the incident, was doing business under the name of Daddy's Lechon Manok. LK Fishing Corporation was a client of PBCOM that issued the subject check. The case involves the nature and character of an "ON-US check," which refers to a client's check drawn and deposited on the same branch of a bank, and the obligations of a bank as drawee once such a check has been accepted and credited.

On March 6, 2001, respondent Ria de Guzman Rivera, a former assistant branch manager of a bank then doing business under the name of Daddy's Lechon Manok, presented for payment with PBCOM General Santos City Branch a PBCOM Check No. 056196 dated January 4, 2001 in the sum of ₱100,000.00, issued by Gabriel Estocapio, Sr., an officer of LK Fishing Corporation. Upon instructions of the account officers of PBCOM, Rivera opened Savings Account No. 1782-5 since the said check was a crossed "ON-US check," although payable to the order of cash. Rivera claimed that simultaneous with her opening of the savings account, PBCOM Check No. 056196 was accepted and deposited since a full credit of ₱100,000.00 was made to her savings account at exactly 12:44 p.m. on even date. However, PBCOM did not allow her to withdraw from her savings account because the check was then still subject to clearing. Rivera applied for a current account (Current Account No. 933-1) with an automatic fund transfer arrangement from her savings account, which PBCOM approved upon her deposit of the maintaining balance of ₱5,000.00 in her current account at 2:12 p.m., and ₱10,000.00 in her savings account at 2:55 p.m.

On the following day, March 7, 2001, Rivera issued PBCOM Check No. 088401 in the sum of ₱100,000.00 in favor of Riester Tan. However, said check was dishonored by PBCOM for the reason of Drawn Against Insufficient Funds (DAIF). Rivera was later informed that a stop payment order was made by LK Fishing Corp. before PBCOM Check No. 056196 was cleared. Rivera alleged that the stop payment order was fictitious, non-existent, and simulated to accommodate LK Fishing Corp., and that the need to further clear PBCOM Check No. 056196, an ON-US check, is dubious and illegal. She further asserted that PBCOM debited the sum of ₱100,000.00 from her savings account, despite the fact that the said amount had already been cleared and credited to her savings account. On March 10, 2001, Tan sent a letter demanding Rivera to replace her dishonored check with cash under pain of litigation, which allegedly caused her to suffer a nervous breakdown and humiliation. On March 12, 2001, Rivera's counsel served PBCOM and its general manager a demand letter, to which PBCOM replied through a letter dated March 13, 2001, explaining the circumstances behind the dishonored check issued by Rivera.

Dissatisfied with the explanation, Rivera filed a Complaint for damages and attorney's fees against PBCOM, LK Fishing Corp., and Alfredo Yap. In its Answer, PBCOM countered that Rivera has no cause of action because it merely followed banking procedures which were fully explained to her and which she accepted upon opening the savings and current accounts. It claimed that it was able to explain to Rivera that PBCOM Check No. 056196 would have to be deposited because it was a crossed check, and that it still had to go through a one-day clearing period despite being an ON-US check. It added that before such check could be cleared, it received a stop payment order from LK Fishing Corp. Contrary to Rivera's claim, it did not withdraw the ₱100,000.00 from Rivera's savings account, but merely reversed entries to reflect the stop payment order. LK Fishing Corp. averred in its Answer that Rivera has no cause of action against it because the stop payment order was not tainted with malice and bad faith, and that in issuing the stop payment order, it was not denying its obligation, but was merely requesting to defer payment due to business fluctuation coupled with financial crisis.

The RTC rendered a Decision finding PBCOM and LK Fishing Corporation solidarily and jointly liable to Rivera, ordering them to pay the face value of the check plus interest, moral damages, exemplary damages, attorney's fees, and costs of litigation. The RTC noted that the check issued by LK Fishing Corp. is an ON-US check which, by its nomenclature, carries the name and guarantee of the drawee bank, and does not require further clearance procedures after having been deposited to an account that has been opened with the issuing bank. The RTC held that even if the stop order came late in the day, PBCOM would have no recourse but to honor the check, bringing to light a joint and solidary obligation and responsibility. The RTC also pointed out that PBCOM failed to present in court the Standby Branch Banking System (SBBS) which allegedly provides for the one-day clearing requirement, and that PBCOM's excuse that presentation of the SBBS could expose the bank to security risk runs counter to the fiduciary character of the banking business.

The CA affirmed the RTC Decision, ruling that PBCOM is liable for the face value of the check because of the dishonor thereof, and that as drawee, its liability attached when it accepted the bill. The CA found that PBCOM is liable for damages for its failure to promptly notify Rivera of the stop payment order issued by LK Fishing Corp., which negligence caused embarrassment and humiliation to Rivera, a businesswoman. As regards LK Fishing Corp., the CA ruled that it is likewise liable for the face value of the check as the drawer, and that the claim of "business fluctuation coupled with financial crisis" is not a valid ground to issue a stop payment order. The CA likewise denied PBCOM's cross-claim against LK Fishing Corp., since PBCOM failed to present in court the SBBS.

• Cross-Claim Against LK Fishing Corp.: PBCOM argued that the CA erred in not awarding its cross-claim against LK Fishing Corporation despite the latter's admission of issuing the stop payment order in its Answer, citing Section 4, Rule 129 of the Rules of Court on judicial admissions, which do not require proof.
• Clearing Policy of ON-US Checks: PBCOM argued that the CA erred in finding liability for having "accepted" Check No. 056196 despite being accepted merely for deposit, and in not finding that Rivera was made to understand and agreed that the check had to undergo clearing, consistent with internal bank procedure and Bangko Sentral regulations at the time of negotiation.
• Lack of Acceptance Under the NIL: PBCOM maintained that its liability did not attach because the check was dishonored and, since it was crossed, it was only accepted for deposit and still subject to availability of the drawer's fund; citing Section 137 of the Negotiable Instruments Law, PBCOM asserted that it has not accepted the check because it returned the same within the time allowed by law.
• Rivera's Negligence: PBCOM argued that Rivera, who used to be a banker herself, was negligent for failing to inquire about the status of her savings account before issuing a check drawn from her current account, and that her consent and voluntary act of opening accounts manifested her agreement to the clearing policy.

• Factual Issues Not Reviewable: Rivera posited that the issues raised by PBCOM are factual and not within the ambit of a petition for review under Rule 45, aside from having already been passed upon by the RTC and the CA.
• Finality of Factual Findings: Rivera asserted that PBCOM's petition does not fall under the exceptions to the rule that the findings of fact of the trial court, when affirmed by the CA, are final and conclusive and will not be reviewed by the Court on appeal.

• Clearing Policy Notification: Whether PBCOM sufficiently proved that Rivera was informed that PBCOM Check No. 056196 had to undergo the clearance procedure under PBCOM's internal bank policies and BSP regulations.
• Cross-Claim Against LK Fishing Corp.: Whether the CA erred in denying PBCOM's cross-claim against LK Fishing Corporation for the sums it will pay to Rivera, including attorney's fees, court appearance fees, litigation expenses, and cost of suit.
• Enforceability of Late Stop Payment Order: Whether an ON-US check which had been cleared and credited to an account can still be the subject of a stop payment order.
• Liability for Damages: Whether PBCOM is liable for moral and exemplary damages, attorney's fees, and costs of litigation.

• Clearing Policy Notification: No. PBCOM failed to prove that Rivera was sufficiently informed of the supposed clearing policy of ON-US checks, having failed to present the SBBS or its bank manager or cashier to testify on whether Rivera was indeed properly informed of the two-day clearing period.
• Cross-Claim Against LK Fishing Corp.: No. The Court affirmed the dismissal of PBCOM's cross-claim not only due to its failure to present in evidence the SBBS, but also because it enforced the stop payment order despite having earlier cleared and credited the amount of ₱100,000.00 to Rivera's savings account on March 6, 2001.
• Enforceability of Late Stop Payment Order: No. Once an ON-US check has been cleared and credited to a payee's account, the bank can no longer enforce a stop payment order and debit the payee's account; having credited ₱100,000.00 to Rivera's savings account, PBCOM can no longer enforce the stop payment order and unilaterally debit the entire amount earlier credited.
• Liability for Damages: Yes. PBCOM is liable for moral and exemplary damages, attorney's fees, and costs of litigation, having committed a breach of contract which makes it liable for damages when it enforced a late stop payment order and debited Rivera's savings account, resulting in the dishonor of the check drawn from her current account.

• Clearing Policy Notification: The Court found that in the face of conflicting claims over the clearance requirement of ON-US checks, it was incumbent upon PBCOM to present its bank manager or cashier to testify on whether Rivera was indeed properly informed of the two-day clearing period, and to submit in evidence the SBBS which provides for PBCOM's clearing policy of ON-US checks. PBCOM failed to do so, instead presenting only its unit clearing officer as witness and failing to present the SBBS. The Court found PBCOM's position that the disclosure of its SBBS will compromise the security of its banking business as a flimsy excuse, since PBCOM could have easily presented the portion of the SBBS which directly deals with the claimed two-day clearing period. The Court also noted that Operations Bulletin No. 2001-018 only provides for PBCOM's guidelines on handling ON-US check deposits effective June 1, 2001, but not the prevailing guidelines at the time Rivera deposited the check on March 6, 2001. The Operations Bulletin actually reveals the flaw in PBCOM's policy, confirming that ON-US checks are not supposed to be subject to clearing, stating that the process of tagging ON-US checks as "Two (2) days" float "does not conform with industry practice." The Court further noted that the dorsal portion of the check contained a stamp that it was "cleared through the Clearing House" on "MAR 6, 2001," which clearly speaks for itself and contradicts PBCOM's claim that the check still required prior clearance.

• Cross-Claim Against LK Fishing Corp.: The Court affirmed the dismissal of PBCOM's cross-claim not only due to its failure to present in evidence the SBBS, but also because it enforced the stop payment order despite having earlier cleared and credited the amount of ₱100,000.00 to Rivera's savings account on March 6, 2001. Even if LK Fishing Corp. had judicially admitted the reason for the stop payment order, PBCOM could no longer enforce it because such order was belatedly made since the crossed check had already been cleared and credited to Rivera's account. The Court also noted that the stop payment order marked as Annex "I" was not presented during trial and formally offered in evidence, and no probative value can be given to it for failure to explain why the depositor's signature in the stop payment order belongs to one "Yolanda Estocapio," while the name typewritten below the signature belongs to "Gabriel Estocapio, Sr."

• Enforceability of Late Stop Payment Order: The Court ruled in the negative, citing Section 189 of the Negotiable Instruments Law that "a check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or certifies the check." Citing Spouses Moran vs. Court of Appeals, the Court explained that the relationship between the bank and the depositor is that of a debtor and creditor, and where the bank possesses funds of a depositor, it is bound to honor his checks to the extent of the amount of his deposits. In this case, PBCOM cleared LK Fishing Corp.'s crossed ON-US check and credited the face value thereof to Rivera's savings account before it received a stop payment order. Having credited ₱100,000.00 to Rivera's savings account, PBCOM can no longer enforce the stop payment order and unilaterally debit the entire amount earlier credited to her savings account. When it enforced a late stop payment order and debited her savings account, which resulted in the dishonor of the check drawn from her current account with automatic fund transfer from such savings account, PBCOM committed a breach of contract which makes it liable for damages.

• Liability for Damages: The Court affirmed the award of moral and exemplary damages, finding that Rivera established that the proximate cause of the dishonor of the check was PBCOM's enforcement of a late stop payment order and the unauthorized debit on Rivera's account, which constitutes a breach of contract of loan between them. Rivera testified and presented evidence to prove that the check drawn from her current account was dishonored because PBCOM enforced a stop payment order despite having previously cleared the check and credited ₱100,000.00 to her savings account. She also proved that a demand letter was sent to her by Tan, that she was forced to pay the face value of the dishonored check on installment plus interest, and that she suffered embarrassment and humiliation by reason of the dishonor of her check, considering her business stature and the fact that she is a former banker. The Court upheld the award of ₱100,000.00 as moral damages and ₱50,000.00 as exemplary damages as reasonable and justified, and also held PBCOM liable for attorney's fees and cost of suit since Rivera was compelled to litigate to protect her rights.

• ON-US Check Doctrine — An "ON-US check" refers to a client's check drawn and deposited on the same branch of a bank. Once an ON-US check is cleared and credited to a payee's account, the bank can no longer enforce a stop payment order and debit the payee's account. When a late stop payment order is enforced and the payee's account is debited, resulting in the dishonor of the check drawn from such account, the bank is deemed to have committed a breach of contract which makes it liable for damages. The Court applied this doctrine in finding that PBCOM committed a breach of contract when it enforced a late stop payment order after the check had already been cleared and credited to Rivera's account.

• Bank-Depositor Relationship Doctrine — The relationship between the bank and the depositor is that of a debtor and creditor. By virtue of the contract of deposit between the banker and its depositor, the banker agrees to pay checks drawn by the depositor provided that said depositor has money in the hands of the bank. Where the bank possesses funds of a depositor, it is bound to honor his checks to the extent of the amount of his deposits. The failure of a bank to pay the check of a merchant or a trader, when the deposit is sufficient, entitles the drawer to substantial damages without any proof of actual damages. The Court applied this doctrine in finding that PBCOM, having credited ₱100,000.00 to Rivera's savings account, could no longer enforce the stop payment order and unilaterally debit the entire amount earlier credited.

• Doctrine of Highest Diligence Required of Banks — Since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are even required of it. Banks should guard against injury attributable to negligence or bad faith on its part. The Court applied this doctrine in affirming the award of moral and exemplary damages against PBCOM for failing to exercise the highest standards of integrity and performance required of it as a bank.

• Doctrine on Judicial Admissions — Under Section 4, Rule 129 of the Rules of Court, an admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made. The Court acknowledged that LK Fishing Corp. had judicially admitted the reason for the stop payment order, but held that even so, PBCOM could no longer enforce it because such order was belatedly made since the crossed check had already been cleared and credited to Rivera's account.

• "An 'ON-US check' refers to a client's check drawn and deposited on the same branch of a bank. Once an ON-US check is cleared and credited to a payee's account, the bank can no longer enforce a stop payment order and debit the payee's account. When a late stop payment order is enforced and the payee's account is debited, resulting in the dishonor of the check drawn from such account, the bank is deemed to have committed a breach of contract which makes it liable for damages." — This opening passage states the core doctrine of the case and the ratio decidendi for the Court's ruling on the enforceability of late stop payment orders on ON-US checks.

• "In this case, PBCOM cleared LK Fishing Corp.'s crossed ON-US check and credited the face value thereof to Rivera's savings account before it received a stop payment order. Having credited ₱100,000.00 to Rivera's savings account, PBCOM can no longer enforce the stop payment order and unilaterally debit the entire amount earlier credited to her savings account. When it enforced a late stop payment order and debited her savings account, which resulted in the dishonor of the check drawn from her current account with automatic fund transfer from such savings account, PBCOM committed a breach of contract which makes it liable for damages." — This passage applies the doctrine to the facts of the case, establishing the Court's reasoning for finding PBCOM liable for breach of contract.

• "Since the banking business is impressed with public interest, of paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are even required of it." — This passage articulates the standard of diligence required of banks, which the Court applied in affirming the awards of moral and exemplary damages.

• "It was noted that 'ON-US CHECK AND ON-US MANAGER'S CHECK' deposited by our Metro Manila and Provincial clients are not given immediate credit. Instead, these are tagged in the CASA System as 'Two (2) days' float and sent to Philippine Clearing House Corporation (PCHC)/CB Regional Office. This process does not conform with industry practice and hampers our effort to generate low-cost funds." — This passage from PBCOM's own Operations Bulletin No. 2001-018 reveals the flaw in PBCOM's policy in clearing ON-US checks and confirms that such checks are not supposed to be subject to clearing, which the Court used to refute PBCOM's defense.

• Spouses Moran vs. Court of Appeals, 300 Phil. 859 (1994) — Cited as controlling precedent for the doctrine that the relationship between the bank and the depositor is that of a debtor and creditor, and that where the bank possesses funds of a depositor, it is bound to honor his checks to the extent of the amount of his deposits.

• Equitable PCI Bank vs. Ong, 533 Phil. 415 (2006) — Cited for the requisites for an award of moral damages and for the proposition that the assessment of damages is left to the discretion of the court according to the circumstances of each case.

• Solidbank Corporation vs. Spouses Arrieta, 492 Phil. 95 (2005) — Cited for the proposition that banks should guard against injury attributable to negligence or bad faith on its part, and that the banking system plays a vital role in the economic life of every civilized society.

• Lara's Gifts & Decors, Inc. vs. Midtown Industrial Sales, Inc., G.R. No. 225433, September 20, 2022 — Cited as the controlling precedent for the guidelines on the imposition of interest on awards of damages, which the Court applied in modifying the interest rate and reckoning date.

• Commissioner of Internal Revenue vs. United Salvage and Towage (Phils.), Inc., 738 Phil. 335 (2014) — Cited for the rule on formal offer of evidence and the exceptions to the rule that the court shall consider no evidence which has not been formally offered.

• Crismina Garments, Inc. vs. Court of Appeals, 363 Phil. 701 (1999) — Cited for the definition of "forbearance" in the context of usury law, which the Court used to determine that the award of ₱100,000.00 does not arise from a loan or forbearance of money or credit.

• Section 189, Negotiable Instruments Law — Provides that a check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or certifies the check. The Court applied this provision in determining that PBCOM's liability as drawee attached when it accepted the check upon presentment for payment.

• Section 137, Negotiable Instruments Law — Provides that where a drawee to whom a bill is delivered for acceptance destroys the same, or refuses within twenty-four hours after such delivery to return the bill accepted or non-accepted to the holder, he will be deemed to have accepted the same. PBCOM cited this provision to argue that it has not accepted the check, but the Court found that the records belie this contention.

• Section 151, Negotiable Instruments Law — Provides that when a bill is dishonored by non-acceptance, an immediate right of recourse against the drawer and indorsers accrues to the holder and no presentment for payment is necessary. PBCOM cited this provision to argue that Rivera's remedy should have been a recourse to the drawer, but the Court rejected this argument.

• Section 4, Rule 129, Rules of Court — Provides that an admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof. The Court acknowledged LK Fishing Corp.'s judicial admission of issuing the stop payment order but held that PBCOM could no longer enforce it because the order was belatedly made.

• Section 34, Rule 132, Revised Rules on Evidence — Provides that the court shall consider no evidence which has not been formally offered. The Court applied this rule in refusing to give probative value to the stop payment order marked as Annex "I" which was not presented during trial and formally offered in evidence.

• Article 2219, Civil Code — Lists the instances where moral damages may be recovered, including acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. The Court applied this provision in affirming the award of moral damages.

• Article 2220, Civil Code — Provides that willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due, and that the same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. The Court applied this provision in affirming the award of moral damages for PBCOM's breach of contract.

• Article 2229, Civil Code — Provides that exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages. The Court applied this provision in affirming the award of exemplary damages.

• Article 2216, Civil Code — Provides that no proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated, and that the assessment of such damages is left to the discretion of the court. The Court applied this provision in upholding the amounts of moral and exemplary damages awarded.

• Bangko Sentral ng Pilipinas Circular No. 799, Series of 2013 — Provides that the rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum. The Court held that this circular does not apply because the award of ₱100,000.00 does not arise from a loan or forbearance of money or credit.

Hernando, Zalameda, Rosario, and Marquez, JJ., concurred in the decision.