CENTRAL BANK OF THE PHILIPPINES, PETITIONER, VS. CITYTRUST BANKING CORPORATION, RESPONDENT.

Central Bank of the Philippines versus Citytrust Banking Corporation

The Case

This is a case about who bears the loss when forged or unauthorized signatures slip past a bank's teller and money leaves a deposit account. The Central Bank of the Philippines, the government body that supervises and regulates banks, sues Citytrust Banking Corporation, its depositor, for the recovery of a sum of money after the Central Bank paid out the proceeds of two Citytrust checks to a man who signed a name that was not his own. The case matters because it fixes the standard of care owed by a bank to its depositor, and because it shows how the Supreme Court apportions loss between two negligent parties under the Civil Code.

Procedural History

Citytrust filed a complaint for recovery of a sum of money with damages before the Regional Trial Court of Manila. The trial court found both Citytrust and the Central Bank negligent and held them equally liable for the loss. Both parties appealed to the Court of Appeals, which affirmed the trial court and held that both parties contributed equally to the fraudulent encashment, applying Article 2179 in relation to Article 1172 of the Civil Code. The Court of Appeals also rejected the Central Bank's claim that it could not be sued, noting that its charter clothes it with the power to sue and be sued, and rejected the argument that Citytrust's reservation of a separate civil action against the erring teller barred the civil suit. The Central Bank then brought the present appeal to the Supreme Court, maintaining that Citytrust alone was negligent and that it was not negligent at all.

Facts

Under the old Central Bank Law, Citytrust, formerly Feati Bank, maintained a demand deposit account with the Central Bank. As required, Citytrust furnished the Central Bank with the names and specimen signatures of five officers authorized to sign checks, and with the list and signatures of its roving tellers authorized to withdraw and sign receipts. The Central Bank issued security identification cards to the roving tellers, one of whom was Rounceval Flores.

On July 15, 1977, Flores presented two Citytrust checks of even date, payable to Citytrust, one for 850,000 pesos and the other for 900,000 pesos, both signed and indorsed by Citytrust's authorized signatory drawers. The Central Bank's senior teller, Iluminada dela Cruz, verified the checks, prepared the cash transfer slip, stamped the checks received payment, and asked Flores to sign above the notation. Instead of signing his own name, Flores signed as Rosauro C. Cayabyab, a fact the teller failed to notice. The cash transfer slip and checks went to the Cash Department, where an officer compared the drawers' signatures against the specimen signatures and, finding them in order, approved payment. The Central Bank paid Flores and debited the total of 1,750,000 pesos from Citytrust's account.

More than a year and nine months later, Citytrust wrote to demand restoration of the amounts, alleging the checks had been stolen and were already cancelled. The Central Bank refused. Citytrust filed a criminal complaint for estafa against Flores, with reservation of a separate civil action, and Flores was convicted. Citytrust then sued the Central Bank for recovery of the sum of money with damages.

Issues

• Whether or not the Central Bank was negligent in paying the checks to Flores despite his signing a name other than his own.
• Whether or not Citytrust's own negligence contributed to the loss and should mitigate the Central Bank's liability.
• Whether or not the loss should be apportioned between the two parties, and in what ratio.

Applicable Provisions

Article 2179 of the Civil Code provides:

When the plaintiff's own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause of the injury being the defendant's lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded.

This is the provision the Court uses to reduce Citytrust's recovery because of its own contributory negligence.

Article 1172 of the Civil Code provides:

Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances.

This authorizes the courts to regulate and apportion liability according to the circumstances, which the Court does in fixing the ratio.

Section 2 of Republic Act Number 8791, the General Banking Law, declares:

The State recognizes the fiduciary nature of banking that requires high standards of integrity and performance.

This is the statutory standard of diligence the Court reads into every deposit agreement, requiring banks to observe a degree of care higher than that of a good father of a family.

Ruling

On the first issue, the Court held that the Central Bank was negligent. Its teller did not verify Flores' signature, excusing herself on the ground that Flores had transacted with the bank for years. That circumstance did not excuse her from glancing at Flores as he signed and satisfying herself that the signature matched the specimen. Had she done so, she would have been put on notice that Flores was affixing a fictitious signature.

On the second issue, the Court held that Citytrust was also negligent. Its failure to timely examine its account, cancel the checks, and notify the Central Bank of the alleged loss or theft contributed to the loss. The Court applied Article 2179, reasoning that had Citytrust timely discovered the loss or the encashment, the proceeds or part of them could have been recovered.

On the third issue, the Court held that the loss should be apportioned, not shared equally. The Court quoted its earlier ruling that the contract between a bank and its depositor is governed by the Civil Code on simple loan, that there is a debtor creditor relationship between them, and that the law imposes on banks high standards in view of the fiduciary nature of banking. The Court concluded that the fiduciary relationship means the bank's obligation to observe high standards of integrity and performance is deemed written into every deposit agreement, requiring a degree of diligence higher than that of a good father of a family. Accordingly, the Court allocated the loss on a 60 to 40 ratio, with the Central Bank bearing the larger share.

Doctrine

A bank's obligation to treat its depositor's account with meticulous care flows from the fiduciary nature of banking, and this obligation is deemed written into every deposit agreement. The bank must observe a degree of diligence higher than that of a good father of a family, as prescribed by Section 2 of Republic Act Number 8791.

Where the plaintiff's negligence is only contributory and the defendant's lack of due care is the immediate and proximate cause of the injury, the plaintiff may recover, but the courts shall mitigate the damages under Article 2179 of the Civil Code. The courts may regulate liability according to the circumstances under Article 1172.

Loss arising from a fraudulent encashment may be apportioned between a negligent paying bank and a negligent depositor, and the ratio need not be equal where the bank, as the party duty bound to observe high standards, bears the greater share.

Disposition

The Court affirmed the Court of Appeals decision with modification, ordering that the Central Bank and Citytrust bear the loss on a 60 to 40 ratio, with the Central Bank bearing the larger share.

Remember This

Memorize this line: the fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family, and that obligation is deemed written into every deposit agreement. Examiners use this case to test the standard of care owed by a bank to its depositor and the application of Article 2179 in mitigating and apportioning damages between two negligent parties.