SO ORDERED.

Quisumbing (Chairperson), Carpio-Morales, Chico-

Nazario and Velasco, Jr., JJ., concur.

Judgment modified.

Notes.Prosecutors designated by the COMELEC to

prosecute the cases act as its deputies. They derive their
authority from it and not from their offices. (Commission
on Elections vs. Silva, Jr., 286 SCRA 177 [1998])
It is a jurisprudential rule that the testimony of a self-
confessed accomplice or co-conspirator imputing the
blame to or implicating his co-accused cannot, by itself
and without corroboration, be regarded as proof with a
moral certainty that the latter committed or participated
in the commission of the crime. (People vs. Farjardo, Jr.,
512 SCRA 360 [2007])
o0o

G.R. No. 133179. March 27, 2008.*

ALLIED BANKING CORPORATION, petitioner, vs. LIM

SIO WAN, METROPOLITAN BANK AND TRUST CO.,
and PRODUCERS BANK, respondents.

Banks and Banking; Fundamental and familiar is the

doctrine that the relationship between a bank and a client is one
of debtor-creditor.As to the liability of the parties, we find
that Allied is liable to Lim Sio Wan. Fundamental and familiar
is the doctrine that the relationship between a bank and a
client is one of debtor-creditor. Articles 1953 and 1980 of the
Civil Code provide: Art. 1953. A person who receives a loan of
money or any other fungible thing
_______________

*SECOND DIVISION.

505

, 505

acquires the ownership thereof, and is bound to pay to the

creditor an equal amount of the same kind and quality. Art.
1980. Fixed, savings, and current deposits of money in banks
and similar institutions shall be governed by the provisions
concerning simple loan.
Same; Money Market Transactions; Words and Phrases; A
money market is a market dealing in standardized short-term
credit instruments (involving large amounts) where lenders and
borrowers do not deal directly with each other but through a
middle man or dealer in open marketin a money market
transaction, the investor is a lender who loans his money to a
borrower through a middleman or dealer; The creditor of the
bank for her money market placement is entitled to payment
upon her request, or upon the maturity of the placement, or until
the bank is released from its obligation as debtor.We have
ruled in a line of cases that a bank deposit is in the nature of a
simple loan or mutuum. More succinctly, in Citibank, N.A.
(Formerly First National City Bank) v. Sabeniano, 504 SCRA
378 (2006), this Court ruled that a money market placement is
a simple loan or mutuum. Further, we defined a money market
in Cebu International Finance Corporation v. Court of Appeals,
316 SCRA 488 (1999), as follows: [A] money market is a market
dealing in standardized short-term credit instruments
(involving large amounts) where lenders and borrowers do not
deal directly with each other but through a middle man or
dealer in open market. In a money market transaction, the
investor is a lender who loans his money to a borrower through
a middleman or dealer. In the case at bar, the money market
transaction between the petitioner and the private respondent
is in the nature of a loan. Lim Sio Wan, as creditor of the bank
for her money market placement, is entitled to payment upon
her request, or upon maturity of the placement, or until the
bank is released from its obligation as debtor. Until any such
event, the obligation of Allied to Lim Sio Wan remains
unextinguished.
Same; Same; Payment made by the debtor to a wrong party does
not extinguish the obligation as to the creditor, if there is no
fault or negligence which can be imputed to the latter.From
the factual findings of the trial and appellate courts that Lim
Sio Wan did not authorize the release of her money market
placement to Santos and the bank had been negligent in so
doing, there is no question that the obligation of Allied to pay
Lim Sio Wan had not

506

506 SUPREME COURT REPORTS ANNOTATED

been extinguished. Art. 1240 of the Code states that payment

shall be made to the person in whose favor the obligation has
been constituted, or his successor in interest, or any person
authorized to receive it. As commented by Arturo Tolentino:
Payment made by the debtor to a wrong party does not
extinguish the obligation as to the creditor, if there is no fault
or negligence which can be imputed to the latter. Even when
the debtor acted in utmost good faith and by mistake as to the
person of his creditor, or through error induced by the fraud of
a third person, the payment to one who is not in fact his
creditor, or authorized to receive such payment, is void, except
as provided in Article 1241. Such payment does not
prejudice the creditor, and accrual of interest is not
suspended by it. (Emphasis supplied.)
Same; Proximate Cause; Words and Phrases; Proximate
cause is that cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury
and without which the result would not have occurred; To
determine the proximate cause of a controversy, the question
that needs to be asked is: If the event did not happen, would the
injury have resulted? If the answer is NO, then the event is the
proximate cause.Proximate cause is that cause, which, in
natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury and without which the
result would not have occurred. Thus, there is an efficient
supervening event if the event breaks the sequence leading
from the cause to the ultimate result. To determine the
proximate cause of a controversy, the question that needs to be
asked is: If the event did not happen, would the injury have
resulted? If the answer is NO, then the event is the proximate
cause.
Same; Negotiable Instruments; Checks; An exception to the rule
that the collecting bank which indorses a check bearing a forged
indorsement and presents it to the drawee bank guarantees all
prior indorsements, including the forged indorsement itself, and
ultimately should be held liable therefor is when the issuance of
the check itself was attended with negligence.The warranty
that the instrument is genuine and in all respects what it
purports to be covers all the defects in the instrument affecting
the validity thereof, including a forged indorsement. Thus, the
last indorser will be liable for the amount indicated in the
negotiable instrument even if a previous indorsement was
forged. We held in a line of cases that a collecting

507

, 507

bank which indorses a check bearing a forged indorsement and

presents it to the drawee bank guarantees all prior
indorsements, including the forged indorsement itself, and
ultimately should be held liable therefor. However, this
general rule is subject to exceptions. One such exception is
when the issuance of the check itself was attended with
negligence. Thus, in the cases cited above where the collecting
bank is generally held liable, in two of the cases where the
checks were negligently issued, this Court held the institution
issuing the check just as liable as or more liable than the
collecting bank.
Same; Same; Same; Given the relative participation of two
banks to the instant case, both banks cannot be adjudged as
equally liablehence, the 60:40 ratio of the liabilities.In the
instant case, the trial court correctly found Allied negligent in
issuing the managers check and in transmitting it to Santos
without even a written authorization. In fact, Allied did not
even ask for the certificate evidencing the money market
placement or call up Lim Sio Wan at her residence or office to
confirm her instructions. Both actions could have prevented the
whole fraudulent transaction from unfolding. Allieds
negligence must be considered as the proximate cause of the
resulting loss. To reiterate, had Allied exercised the diligence
due from a financial institution, the check would not have been
issued and no loss of funds would have resulted. In fact, there
would have been no issuance of indorsement had there been no
check in the first place. The liability of Allied, however, is
concurrent with that of Metrobank as the last indorser of the
check. When Metrobank indorsed the check in compliance with
the PCHC Rules and Regulations without verifying the
authenticity of Lim Sio Wans indorsement and when it
accepted the check despite the fact that it was cross-checked
payable to payees account only, its negligent and cavalier
indorsement contributed to the easier release of Lim Sio Wans
money and perpetuation of the fraud. Given the relative
participation of Allied and Metrobank to the instant case, both
banks cannot be adjudged as equally liable. Hence, the 60:40
ratio of the liabilities of Allied and Metrobank, as ruled by the
CA, must be upheld.
Same; Quasi-Delicts; Art. 2180 of the Civil Code pertains to the
vicarious liability of an employer for quasi-delicts that an
employee has committedsuch provision of law does not apply
to civil liability

508

508 SUPREME COURT REPORTS ANNOTATED

arising from delict.As to Producers Bank, Allied Banks

argument that Producers Bank must be held liable as employer
of Santos under Art. 2180 of the Civil Code is erroneous. Art.
2180 pertains to the vicarious liability of an employer for quasi-
delicts that an employee has committed. Such provision of law
does not apply to civil liability arising from delict. One also
cannot apply the principle of subsidiary liability in Art. 103 of
the Revised Penal Code in the instant case. Such liability on
the part of the employer for the civil aspect of the criminal act
of the employee is based on the conviction of the employee for a
crime. Here, there has been no conviction for any crime.
Same; Unjust Enrichment; Words and Phrases; There is
unjust enrichment when a person unjustly retains a benefit to
the loss of another, or when a person retains money or property
of another against the fundamental principles of justice, equity
and good conscience.As to the claim that there was unjust
enrichment on the part of Producers Bank, the same is correct.
Allied correctly claims in its petition that Producers Bank
should reimburse Allied for whatever judgment that may be
rendered against it pursuant to Art. 22 of the Civil Code, which
provides: Every person who through an act of performance by
another, or any other means, acquires or comes into possession
of something at the expense of the latter without just cause or
legal ground, shall return the same to him. The above
provision of law was clarified in Reyes v. Lim, 408 SCRA 560
(2003), where we ruled that [t]here is unjust enrichment when
a person unjustly retains a benefit to the loss of another, or
when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience.
In Tamio v. Ticson, 443 SCRA 44 (2004), we further clarified
the principle of unjust enrichment, thus: Under Article 22 of
the Civil Code, there is unjust enrichment when (1) a person is
unjustly benefited, and (2) such benefit is derived at the
expense of or with damages to another.

PETITION for review on certiorari of a decision of the

Court of Appeals.
The facts are stated in the opinion of the Court.
Ocampo, Tejada, Guevarra & Associates for
petitioner Allied Banking Corporation.
509

, 509
 Santiago, Corpuz & Ejercito Law Offices for
respondent Metropolitan Bank & Trust Company.
Laogan, Baeza & Llantino Law Offices for
respondent Lim Sio Wan.
Malabanan, Lagunilla and Associates for PDCP
Development Bank, Inc.

VELASCO, JR., J.:

To ingratiate themselves to their valued depositors,
some banks at times bend over backwards that they
unwittingly expose themselves to great risks.

The Case

This Petition for Review on Certiorari under Rule 45

seeks to reverse the Court of Appeals (CAs) Decision
promulgated on March 18, 19981 in CA-G.R. CV No.
46290 entitled Lim Sio Wan v. Allied Banking
Corporation, et al. The CA Decision modified the Decision
dated November 15, 19932 of the Regional Trial Court
(RTC), Branch 63 in Makati City rendered in Civil Case
No. 6757.

The Facts

The facts as found by the RTC and affirmed by the CA

are as follows:
On November 14, 1983, respondent Lim Sio Wan
deposited with petitioner Allied Banking Corporation
(Allied) at its Quintin Paredes Branch in Manila a money
market placement of PhP 1,152,597.35 for a term of 31
days to mature on

_______________

1 Rollo, pp. 52-72. Penned by Associate Justice Eduardo G.

Montenegro (Chairperson) and concurred in by Associate Justices
Salvador J. Valdez, Jr. and Rodrigo V. Cosico.
2Id., at pp. 73-81.

510
510 SUPREME COURT REPORTS ANNOTATED

December 15, 1983,3 as evidenced by Provisional Receipt

No. 1356 dated November 14, 1983.4
On December 5, 1983, a person claiming to be Lim Sio
Wan called up Cristina So, an officer of Allied, and
instructed the latter to pre-terminate Lim Sio Wans
money market placement, to issue a managers check
representing the proceeds of the placement, and to give
the check to one Deborah Dee Santos who would pick up
the check.5 Lim Sio Wan described the appearance of
Santos so that So could easily identify her.6
Later, Santos arrived at the bank and signed the
application form for a managers check to be issued.7 The
bank issued Managers Check No. 035669 for PhP
1,158,648.49, representing the proceeds of Lim Sio Wans
money market placement in the name of Lim Sio Wan, as
payee.8 The check was cross-checked For Payees
Account Only and given to Santos.9
Thereafter, the managers check was deposited in the
account of Filipinas Cement Corporation (FCC) at
respondent Metropolitan Bank and Trust Co.
(Metrobank),10 with the forged signature of Lim Sio Wan
as indorser.11
Earlier, on September 21, 1983, FCC had deposited a
money market placement for PhP 2 million with
respondent Producers Bank. Santos was the money
market trader assigned to handle FCCs account.12 Such
deposit is evidenced by Official Receipt No. 31756813 and
a Letter dated September 21, 1983 of Santos addressed
to Angie Lazo of FCC, acknowl-

_______________

3 Records, p. 1294. TSN, February 27, 1991, p. 5.

4 Exhibit "A," Exhibits Folder, p. 3.
5 Records, pp. 1294-1295. TSN, February 27, 1991, pp. 5-6.
6 Id., at p. 1295.
7 Id., at p. 1296.
8 Id., at p. 1297.
9 Exhibit "K," "3-Allied," Exhibits Folder.
 10Records, p. 1164. TSN, December 12, 1986, p. 30.
11Id., at p. 1165a.
12Id., at p. 1237.
13Id., at p. 171.

511

, 511

edging receipt of the placement.14 The placement

matured on October 25, 1983 and was rolled-over until
December 5, 1983 as evidenced by a Letter dated October
25, 1983.15 When the placement matured, FCC
demanded the payment of the proceeds of the
placement.16 On December 5, 1983, the same date that
So received the phone call instructing her to pre-
terminate Lim Sio Wans placement, the managers check
in the name of Lim Sio Wan was deposited in the account
of FCC, purportedly representing the proceeds of FCCs
money market placement with Producers Bank.17 In
other words, the Allied check was deposited with
Metrobank in the account of FCC as Producers Banks
payment of its obligation to FCC.
To clear the check and in compliance with the
requirements of the Philippine Clearing House
Corporation (PCHC) Rules and Regulations, Metrobank
stamped a guaranty on the check, which reads: All prior
endorsements and/or lack of endorsement guaranteed.18
The check was sent to Allied through the PCHC. Upon
the presentment of the check, Allied funded the check
even without checking the authenticity of Lim Sio Wans
purported indorsement. Thus, the amount on the face of
the check was credited to the account of FCC.19
On December 9, 1983, Lim Sio Wan deposited with
Allied a second money market placement to mature on
January 9, 1984.20
On December 14, 1983, upon the maturity date of the
first money market placement, Lim Sio Wan went to
Allied to withdraw it.21 She was then informed that the
placement had
_______________

14Id., at p. 169.
15Id., at p. 172.
16Id., at p. 1306. TSN, August 3, 1992, p. 4.
17Id., at p. 1308.
18Exhibit 3-B, Exhibits Folder, p. 1.
19Records, pp. 1308-1309. TSN, August 3, 1992, pp. 6-7.
20Id., at p. 1169. TSN, December 12, 1986, p. 41.
21Id., at p. 1165. Id., at p. 33.

512

512 SUPREME COURT REPORTS ANNOTATED

been pre-terminated upon her instructions. She denied

giving any instructions and receiving the proceeds
thereof. She desisted from further complaints when she
was assured by the banks manager that her money
would be recovered.22
When Lim Sio Wans second placement matured on
January 9, 1984, So called Lim Sio Wan to ask for the
latters instructions on the second placement. Lim Sio
Wan instructed So to roll-over the placement for another
30 days.23 On January 24, 1984, Lim Sio Wan, realizing
that the promise that her money would be recovered
would not materialize, sent a demand letter to Allied
asking for the payment of the first placement.24 Allied
refused to pay Lim Sio Wan, claiming that the latter had
authorized the pre-termination of the placement and its
subsequent release to Santos.25
Consequently, Lim Sio Wan filed with the RTC a
Complaint dated February 13, 198426 docketed as Civil
Case No. 6757 against Allied to recover the proceeds of
her first money market placement. Sometime in
February 1984, she withdrew her second placement from
Allied.
Allied filed a third party complaint27 against
Metrobank and Santos. In turn, Metrobank filed a fourth
party complaint28 against FCC. FCC for its part filed a
fifth party complaint29 against Producers Bank.
Summonses were duly served upon all the parties except
for Santos, who was no longer connected with Producers
Bank.30
On May 15, 1984, or more than six (6) months after
funding the check, Allied informed Metrobank that the
signature

_______________

22Id., at p. 1170. Id., at p. 43.

23Id., at p. 1300. TSN, February 27, 1991, p. 11.
24Exhibit F, Exhibits Folder, p. 7.
25Records, p. 1171a. TSN, December 12, 1986, p. 46.
26Id., at pp. 1-6.
27Id., at pp. 16-25.
28Id., at pp. 121-139
29Id., at pp. 146-172.
30Id., at p. 40.

513

, 513

on the check was forged.31 Thus, Metrobank withheld the

amount represented by the check from FCC. Later on,
Metrobank agreed to release the amount to FCC after
the latter executed an Undertaking, promising to
indemnify Metrobank in case it was made to reimburse
the amount.32
Lim Sio Wan thereafter filed an amended complaint to
include Metrobank as a party-defendant, along with
Allied.33 The RTC admitted the amended complaint
despite the opposition of Metrobank.34 Consequently,
Allieds third party complaint against Metrobank was
converted into a cross-claim and the latters fourth party
complaint against FCC was converted into a third party
complaint.35
After trial, the RTC issued its Decision, holding as
follows:

WHEREFORE, judgment is hereby rendered as follows:

 1. Ordering defendant Allied Banking Corporation to pay
plaintiff the amount of P1,158,648.49 plus 12% interest per
annum from March 16, 1984 until fully paid;
2. Ordering defendant Allied Bank to pay plaintiff the
amount of P100,000.00 by way of moral damages;
3. Ordering defendant Allied Bank to pay plaintiff the
amount of P173,792.20 by way of attorneys fees; and,
4. Ordering defendant Allied Bank to pay the costs of suit.
Defendant Allied Banks cross-claim against defendant
Metrobank is DISMISSED.
Likewise defendant Metrobanks third-party complaint as
against Filipinas Cement Corporation is DISMISSED.
Filipinas Cement Corporations fourth-party complaint
against Producers Bank is also DISMISSED.
SO ORDERED.36

_______________

31Rollo, p. 216.

32Id., at p. 217.
33Records, pp. 262-269.
34Id., at p. 293.
35Id., at pp. 295-296.
36Supra note 2, at pp. 80-81.

514

514 SUPREME COURT REPORTS ANNOTATED

The Decision of the Court of Appeals

Allied appealed to the CA, which in turn issued the

assailed Decision on March 18, 1998, modifying the RTC
Decision, as follows:

WHEREFORE, premises considered, the decision appealed

from is MODIFIED. Judgment is rendered ordering and
sentencing defendant-appellant Allied Banking Corporation to
pay sixty (60%) percent and defendant-appellee Metropolitan
Bank and Trust Company forty (40%) of the amount of
P1,158,648.49 plus 12% interest per annum from March 16,
1984 until fully paid. The moral damages, attorneys fees and
costs of suit adjudged shall likewise be paid by defendant-
appellant Allied Banking Corporation and defendant-appellee
Metropolitan Bank and Trust Company in the same proportion
of 60-40. Except as thus modified, the decision appealed from is
AFFIRMED.
SO ORDERED.37

Hence, Allied filed the instant petition.

The Issues

Allied raises the following issues for our consideration:

The Honorable Court of Appeals erred in holding that Lim

Sio Wan did not authorize [Allied] to pre-terminate the initial
placement and to deliver the check to Deborah Santos.
The Honorable Court of Appeals erred in absolving
Producers Bank of any liability for the reimbursement of
amount adjudged demandable.
The Honorable Court of Appeals erred in holding [Allied]
liable to the extent of 60% of amount adjudged demandable in
clear disregard to the ultimate liability of Metrobank as
guarantor of all endorsement on the check, it being the
collecting bank.38

_______________

37Supra note 1, at p. 71.

38Rollo, pp. 28-29.

515

, 515

The petition is partly meritorious.

A Question of Fact

Allied questions the finding of both the trial and

appellate courts that Allied was not authorized to release
the proceeds of Lim Sio Wans money market placement
to Santos. Allied clearly raises a question of fact. When
the CA affirms the findings of fact of the RTC, the factual
findings of both courts are binding on this Court.39
We also agree with the CA when it said that it could
not disturb the trial courts findings on the credibility of
witness So inasmuch as it was the trial court that heard
the witness and had the opportunity to observe closely
her deportment and manner of testifying. Unless the
trial court had plainly overlooked facts of substance or
value, which, if considered, might affect the result of the
case,40 we find it best to defer to the trial court on
matters pertaining to credibility of witnesses.
Additionally, this Court has held that the matter of
negligence is also a factual question.41 Thus, the finding
of the RTC, affirmed by the CA, that the respective
parties were negligent in the exercise of their obligations
is also conclusive upon this Court.

The Liability of the Parties

As to the liability of the parties, we find that Allied is

liable to Lim Sio Wan. Fundamental and familiar is the
doctrine that the relationship between a bank and a
client is one of debtor-creditor.

_______________

39Uy v. Court of Appeals, G.R. No. 109197, 21 June 2001, 359 SCRA
262, 269.
40Rollo, pp. 60-61.
41Pacific Airways v. Tonda, G.R. No. 138478, November 26, 2002,
392 SCRA 625, 629.

516

516 SUPREME COURT REPORTS ANNOTATED

Articles 1953 and 1980 of the Civil Code provide:

 Art. 1953. A person who receives a loan of money or any
other fungible thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount of the same kind
and quality.
Art. 1980. Fixed, savings, and current deposits of money in
banks and similar institutions shall be governed by the
provisions concerning simple loan.

Thus, we have ruled in a line of cases that a bank

deposit is in the nature of a simple loan or mutuum.42
More succinctly, in Citibank, N.A. (Formerly First
National City Bank) v. Sabeniano, this Court ruled that
a money market placement is a simple loan or mutuum.43
Further, we defined a money market in Cebu
International Finance Corporation v. Court of Appeals, as
follows:

[A] money market is a market dealing in standardized

short-term credit instruments (involving large amounts) where
lenders and borrowers do not deal directly with each other but
through a middle man or dealer in open market. In a money
market transaction, the investor is a lender who loans his
money to a borrower through a middleman or dealer.
In the case at bar, the money market transaction between
the petitioner and the private respondent is in the nature of a
loan.44

Lim Sio Wan, as creditor of the bank for her money

market placement, is entitled to payment upon her
request, or upon maturity of the placement, or until the
bank is released from its obligation as debtor. Until any
such event, the obligation of Allied to Lim Sio Wan
remains unextinguished.

_______________

42Integrated Realty Corp. v. Philippine National Bank, No. L-60705,

June 28, 1989, 174 SCRA 295, 309; Serrano v. Central Bank of the
Philippines, No. L-30511, February 14, 1980, 96 SCRA 96, 102; and
Central Bank of the Philippines v. Morfe, No. L-38427, March 12, 1975,
63 SCRA 114, 119.
43G.R. No. 156132, October 12, 2006, 504 SCRA 378, 466.
 44G.R. No. 123031, October 12, 1999, 316 SCRA 488, 497.

518

518 SUPREME COURT REPORTS ANNOTATED

Art. 1231 of the Civil Code enumerates the instances

when obligations are considered extinguished, thus:

Art. 1231. Obligations are extinguished:

(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of
creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory condition, and
prescription, are governed elsewhere in this Code. (Emphasis
supplied.)

From the factual findings of the trial and appellate

courts that Lim Sio Wan did not authorize the release of
her money market placement to Santos and the bank had
been negligent in so doing, there is no question that the
obligation of Allied to pay Lim Sio Wan had not been
extinguished. Art. 1240 of the Code states that payment
shall be made to the person in whose favor the obligation
has been constituted, or his successor in interest, or any
person authorized to receive it. As commented by Arturo
Tolentino:

Payment made by the debtor to a wrong party does not

extinguish the obligation as to the creditor, if there is no fault
or negligence which can be imputed to the latter. Even when
the debtor acted in utmost good faith and by mistake as to the
person of his creditor, or through error induced by the fraud of
a third person, the payment to one who is not in fact his
creditor, or authorized to receive such payment, is void, except
as provided in Article 1241. Such payment does not
prejudice the creditor, and accrual of interest is not
suspended by it.45 (Emphasis supplied.)

_______________

45 4 A.M. Tolentino, Commentaries and Jurisprudence on the Civil

Code of the Philippines 285 (1995).

518

518 SUPREME COURT REPORTS ANNOTATED

Since there was no effective payment of Lim Sio Wans

money market placement, the bank still has an
obligation to pay her at six percent (6%) interest from
March 16, 1984 until the payment thereof.
We cannot, however, say outright that Allied is solely
liable to Lim Sio Wan.
Allied claims that Metrobank is the proximate cause
of the loss of Lim Sio Wans money. It points out that
Metrobank guaranteed all prior indorsements inscribed
on the managers check, and without Metrobanks
guarantee, the present controversy would never have
occurred. According to Allied:

Failure on the part of the collecting bank to ensure that the

proceeds of the check is paid to the proper party is, aside from
being an efficient intervening cause, also the last negligent act,
x x x contributory to the injury caused in the present case,
which thereby leads to the conclusion that it is the collecting
bank, Metrobank that is the proximate cause of the alleged loss
of the plaintiff in the instant case.46

We are not persuaded.

Proximate cause is that cause, which, in natural and
continuous sequence, unbroken by any efficient
intervening cause, produces the injury and without
which the result would not have occurred.47 Thus, there
is an efficient supervening event if the event breaks the
sequence leading from the cause to the ultimate result.
To determine the proximate cause of a controversy, the
question that needs to be asked is: If the event did not
happen, would the injury have resulted? If the answer is
NO, then the event is the proximate cause.
In the instant case, Allied avers that even if it had not
issued the check payment, the money represented by the
check would still be lost because of Metrobanks
negligence in in-

_______________

46Rollo, p. 41.
47A.B. Decano, Notes on Torts and Damages 43 (1996).

519

, 519

dorsing the check without verifying the genuineness of

the indorsement thereon.
Section 66 in relation to Sec. 65 of the Negotiable
Instruments Law provides:

Section 66. Liability of general indorser.Every indorser

who indorses without qualification, warrants to all subsequent
holders in due course;
a) The matters and things mentioned in
subdivisions (a), (b) and (c) of the next preceding
section; and
b) That the instrument is at the time of his
indorsement valid and subsisting;
And in addition, he engages that on due presentment, it
shall be accepted or paid, or both, as the case may be according
to its tenor, and that if it be dishonored, and the necessary
proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent indorser who may be
compelled to pay it.
Section 65. Warranty where negotiation by delivery, so
forth.Every person negotiating an instrument by delivery or
by a qualified indorsement, warrants:
a) That the instrument is genuine and in all
respects what it purports to be;
 b) That he has a good title of it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would
impair the validity of the instrument or render it
valueless.
But when the negotiation is by delivery only, the warranty
extends in favor of no holder other than the immediate
transferee.
The provisions of subdivision (c) of this section do not apply
to persons negotiating public or corporation securities, other
than bills and notes. (Emphasis supplied.)

The warranty that the instrument is genuine and in all

respects what it purports to be covers all the defects in
the instrument affecting the validity thereof, including a
forged indorsement. Thus, the last indorser will be liable
for the amount indicated in the negotiable instrument
even if a pre-
520

520 SUPREME COURT REPORTS ANNOTATED

vious indorsement was forged. We held in a line of cases

that a collecting bank which indorses a check bearing a
forged indorsement and presents it to the drawee bank
guarantees all prior indorsements, including the forged
indorsement itself, and ultimately should be held liable
therefor.48
However, this general rule is subject to exceptions.
One such exception is when the issuance of the check
itself was attended with negligence. Thus, in the cases
cited above where the collecting bank is generally held
liable, in two of the cases where the checks were
negligently issued, this Court held the institution issuing
the check just as liable as or more liable than the
collecting bank.
In isolated cases where the checks were deposited in
an account other than that of the payees on the strength
of forged indorsements, we held the collecting bank solely
liable for the whole amount of the checks involved for
having indorsed the same. In Republic Bank v. Ebrada,49
having indorsed the same. In Republic Bank v. Ebrada,49
the check was properly issued by the Bureau of Treasury.
While in Banco de Oro Savings and Mortgage Bank
(Banco de Oro) v. Equitable Banking Corporation,50
Banco de Oro admittedly issued the checks in the name
of the correct payees. And in Traders Royal Bank v.
Radio Philippines Network, Inc.,51 the checks were issued
at the request of Radio Philippines Network, Inc. from
Traders Royal Bank.

_______________

48Traders Royal Bank v. Radio Philippines Network, Inc., G.R. No.

138510, October 10, 2002, 390 SCRA 608, 617; Associated Bank v. Court
of Appeals, G.R. No. 107382, January 31, 1996, 252 SCRA 620, 633;
Bank of the Philippine Islands v. Court of Appeals, G.R. No. 102383,
November 26, 1992, 216 SCRA 51, 63; Banco de Oro Savings and
Mortgage Bank v. Equitable Banking Corporation, G.R. No. 74917,
January 20, 1988, 157 SCRA 188, 198; Republic Bank v. Ebrada, No. L-
40796, July 31, 1975, 65 SCRA 680, 687-688.
49Supra.
50Supra.
51Supra.

521

, 521

However, in Bank of the Philippine Islands v. Court of

Appeals, we said that the drawee bank is liable for 60%
of the amount on the face of the negotiable instrument
and the collecting bank is liable for 40%. We also noted
the relative negligence exhibited by two banks, to wit:

Both banks were negligent in the selection and supervision

of their employees resulting in the encashment of the forged
checks by an impostor. Both banks were not able to overcome
the presumption of negligence in the selection and supervision
of their employees. It was the gross negligence of the employees
of both banks which resulted in the fraud and the subsequent
loss. While it is true that petitioner BPIs negligence may have
been the proximate cause of the loss, respondent CBCs
negligence contributed equally to the success of the impostor in
encashing the proceeds of the forged checks. Under these
circumstances, we apply Article 2179 of the Civil Code to the
effect that while respondent CBC may recover its losses, such
losses are subject to mitigation by the courts. (See Phoenix
Construction Inc. v. Intermediate Appellate Courts, 148 SCRA
353 [1987]).
Considering the comparative negligence of the two (2) banks,
we rule that the demands of substantial justice are satisfied by
allocating the loss of P2,413,215.16 and the costs of the
arbitration proceeding in the amount of P7,250.00 and the cost
of litigation on a 60-40 ratio.52

Similarly, we ruled in Associated Bank v. Court of

Appeals that the issuing institution and the collecting
bank should equally share the liability for the loss of
amount represented by the checks concerned due to the
negligence of both parties:

The Court finds as reasonable, the proportionate sharing of

fifty percent-fifty percent (50%-50%). Due to the negligence of
the Province of Tarlac in releasing the checks to an
unauthorized person (Fausto Pangilinan), in allowing the
retired hospital cashier to receive the checks for the payee
hospital for a period close to three years and in not properly
ascertaining why the retired hospital

_______________

52Supra note 48, at p. 77.

522

522 SUPREME COURT REPORTS ANNOTATED

cashier was collecting checks for the payee hospital in addition

to the hospitals real cashier, respondent Province contributed
to the loss amounting to P203,300.00 and shall be liable to the
PNB for fifty (50%) percent thereof. In effect, the Province of
Tarlac can only recover fifty percent (50%) of P203,300.00 from
PNB.
The collecting bank, Associated Bank, shall be liable to PNB
for fifty (50%) percent of P203,300.00. It is liable on its
warranties as indorser of the checks which were deposited by
Fausto Pangilinan, having guaranteed the genuineness of all
prior indorsements, including that of the chief of the payee
hospital, Dr. Adena Canlas. Associated Bank was also remiss in
its duty to ascertain the genuineness of the payees
indorsement.53

A reading of the facts of the two immediately

preceding cases would reveal that the reason why the
bank or institution which issued the check was held
partially liable for the amount of the check was because
of the negligence of these parties which resulted in the
issuance of the checks.
In the instant case, the trial court correctly found
Allied negligent in issuing the managers check and in
transmitting it to Santos without even a written
authorization.54 In fact, Allied did not even ask for the
certificate evidencing the money market placement or
call up Lim Sio Wan at her residence or office to confirm
her instructions. Both actions could have prevented the
whole fraudulent transaction from unfolding. Allieds
negligence must be considered as the proximate cause of
the resulting loss.
To reiterate, had Allied exercised the diligence due
from a financial institution, the check would not have
been issued and no loss of funds would have resulted. In
fact, there would have been no issuance of indorsement
had there been no check in the first place.
The liability of Allied, however, is concurrent with
that of Metrobank as the last indorser of the check.
When Metrobank

_______________

53Supra note 48, at p. 640.

54Rollo, pp. 79-80.

523
 , 523

indorsed the check in compliance with the PCHC Rules

and Regulations55 without verifying the authenticity of
Lim Sio Wans indorsement and when it accepted the
check despite the fact that it was cross-checked payable
to payees account only,56 its negligent and cavalier
indorsement contributed to the easier release of Lim Sio
Wans money and perpetuation of the fraud. Given the
relative participation of Allied and Metrobank to the
instant case, both banks cannot be adjudged as equally
liable. Hence, the 60:40 ratio of the liabilities of Allied
and Metrobank, as ruled by the CA, must be upheld.
FCC, having no participation in the negotiation of the
check and in the forgery of Lim Sio Wans indorsement,
can raise the real defense of forgery as against both
banks.57
As to Producers Bank, Allied Banks argument that
Producers Bank must be held liable as employer of
Santos under Art. 2180 of the Civil Code is erroneous.
Art. 2180 pertains to the vicarious liability of an
employer for quasi-delicts that an employee has
committed. Such provision of law does not apply to civil
liability arising from delict.
One also cannot apply the principle of subsidiary
liability in Art. 103 of the Revised Penal Code in the
instant case. Such liability on the part of the employer
for the civil aspect

_______________

55Sec. 17 of the PCHC Rules and Regulations provides:

Sec. 17. Bank Guarantee.All checks cleared through the PCHC

shall bear the guarantee affixed thereto by the Presenting Bank/Branch
which shall read as follows:
Cleared thru the Philippine Clearing House Corporation all
prior endorsements and/or lack of endorsement guaranteed
NAME OF BANK/BRANCH BRSTN (Date of Clearing).
Checks to which said guarantee has not been affixed shall,
nevertheless, be deemed guaranteed by the Presenting Bank as to all
 prior endorsement and/or lack of endorsement.

56 Associated Bank v. Court of Appeals, G.R. No. 89802, May 7,

1992, 208 SCRA 465, 469.
57Negotiable Instruments Law, Sec. 23.

524

524 SUPREME COURT REPORTS ANNOTATED

of the criminal act of the employee is based on the

conviction of the employee for a crime. Here, there has
been no conviction for any crime.
As to the claim that there was unjust enrichment on
the part of Producers Bank, the same is correct. Allied
correctly claims in its petition that Producers Bank
should reimburse Allied for whatever judgment that may
be rendered against it pursuant to Art. 22 of the Civil
Code, which provides: Every person who through an act
of performance by another, or any other means, acquires
or comes into possession of something at the expense of
the latter without just cause or legal ground, shall return
the same to him.
The above provision of law was clarified in Reyes v.
Lim, where we ruled that [t]here is unjust enrichment
when a person unjustly retains a benefit to the loss of
another, or when a person retains money or property of
another against the fundamental principles of justice,
equity and good conscience.58
In Tamio v. Ticson, we further clarified the principle
of unjust enrichment, thus: Under Article 22 of the Civil
Code, there is unjust enrichment when (1) a person is
unjustly benefited, and (2) such benefit is derived at the
expense of or with damages to another.59
In the instant case, Lim Sio Wans money market
placement in Allied Bank was pre-terminated and
withdrawn without her consent. Moreover, the proceeds
of the placement were deposited in Producers Banks
account in Metrobank without any justification. In other
words, there is no reason that the proceeds of Lim Sio
Wans placement should be deposited in FCCs account
purportedly as payment for FCCs money market
placement and interest in Producers Bank. With such
payment, Producers Banks indebtedness to FCC was
extinguished, thereby benefitting the former. Clearly,

_______________

58G.R. No. 134241, August 11, 2003, 408 SCRA 560, 570.
59G.R. No. 154895, November 18, 2004, 443 SCRA 44, 53.

525

, 525

Producers Bank was unjustly enriched at the expense of

Lim Sio Wan. Based on the facts and circumstances of
the case, Producers Bank should reimburse Allied and
Metrobank for the amounts the two latter banks are
ordered to pay Lim Sio Wan.
It cannot be validly claimed that FCC, and not
Producers Bank, should be considered as having been
unjustly enriched. It must be remembered that FCCs
money market placement with Producers Bank was
already due and demandable; thus, Producers Banks
payment thereof was justified. FCC was entitled to such
payment. As earlier stated, the fact that the indorsement
on the check was forged cannot be raised against FCC
which was not a part in any stage of the negotiation of
the check. FCC was not unjustly enriched.
From the facts of the instant case, we see that Santos
could be the architect of the entire controversy.
Unfortunately, since summons had not been served on
Santos, the courts have not acquired jurisdiction over
her.60 We, therefore, cannot ascribe to her liability in the
instant case.
Clearly, Producers Bank must be held liable to Allied
and Metrobank for the amount of the check plus 12%
interest per annum, moral damages, attorneys fees, and
costs of suit which Allied and Metrobank are adjudged to
pay Lim Sio Wan based on a proportion of 60:40.
 WHEREFORE, the petition is PARTLY GRANTED.
The March 18, 1998 CA Decision in CA-G.R. CV No.
46290 and the November 15, 1993 RTC Decision in Civil
Case No. 6757 are AFFIRMED with MODIFICATION.
Thus, the CA Decision is AFFIRMED, the fallo of
which is reproduced, as follows:

WHEREFORE, premises considered, the decision appealed

from is MODIFIED. Judgment is rendered ordering and
sentencing defendant-appellant Allied Banking Corporation to
pay sixty (60%)

_______________

60Supra note 30.

526

526 SUPREME COURT REPORTS ANNOTATED

percent and defendant-appellee Metropolitan Bank and

Trust Company forty (40%) of the amount of P1,158,648.49 plus
12% interest per annum from March 16, 1984 until fully paid.
The moral damages, attorneys fees and costs of suit adjudged
shall likewise be paid by defendant-appellant Allied Banking
Corporation and defendant-appellee Metropolitan Bank and
Trust Company in the same proportion of 60-40. Except as thus
modified, the decision appealed from is AFFIRMED.
SO ORDERED.

Additionally and by way of MODIFICATION,

Producers Bank is hereby ordered to pay Allied and
Metrobank the aforementioned amounts. The liabilities
of the parties are concurrent and independent of each
other.
SO ORDERED.

Quisumbing (Chairperson), Carpio-Morales, Tinga

and Chico-Nazario,** JJ., concur.

Petition partly granted, judgment affirmed with

modification.
 Notes.A money market transaction partakes of the
nature of a loan and nonpayment thereof would not give
rise to criminal liability for estafa through
misappropriation or conversion. (Sesbreno vs. Court of
Appeals, 240 SCRA 606 [1995])
The quasi-contract of solutio indebiti harks back to the
ancient principle that no one shall enrich himself
unjustly at the expense of another. (Moreo-Lentfer vs.
Wolff, 441 SCRA 584 [2004])
o0o

_______________

** Additional member as per Special Order No. 494 dated March 3,

2008.

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