G.R. No.

118492 August 15, 2001

GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners,
vs.
THE HON. COURT OF APPEALS and FAR EAST BANK AND TRUST
COMPANY, respondents.
DE LEON, JR., J.:
Before us is a petition for review of the Decision1 dated July 22, 1994 and
Resolution2 dated December 29, 1994 of the Court of Appeals 3 affirming with
modification the Decision4 dated November 12, 1992 of the Regional Trial Court of
Makati, Metro Manila, Branch 64, which dismissed the complaint for damages of
petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes against respondent Far
East Bank and Trust Company.
The undisputed facts of the case are as follows:
In view of the 20th Asian Racing Conference then scheduled to be held in September, 1988
in Sydney, Australia, the Philippine Racing Club, Inc. (PRCI, for brevity) sent four (4)
delegates to the said conference. Petitioner Gregorio H. Reyes, as vice-president for
finance, racing manager, treasurer, and director of PRCI, sent Godofredo Reyes, the club's
chief cashier, to the respondent bank to apply for a foreign exchange demand draft in
Australian dollars.
Godofredo went to respondent bank's Buendia Branch in Makati City to apply for a
demand draft in the amount One Thousand Six Hundred Ten Australian Dollars
(AU$1,610.00) payable to the order of the 20th Asian Racing Conference Secretariat of
Sydney, Australia. He was attended to by respondent bank's assistant cashier, Mr. Yasis,
who at first denied the application for the reason that respondent bank did not have an
Australian dollar account in any bank in Sydney. Godofredo asked if there could be a
way for respondent bank to accommodate PRCI's urgent need to remit Australian dollars
to Sydney. Yasis of respondent bank then informed Godofredo of a roundabout way of
effecting the requested remittance to Sydney thus: the respondent bank would draw a
demand draft against Westpac Bank in Sydney, Australia (Westpac-Sydney for brevity)
and have the latter reimburse itself from the U.S. dollar account of the respondent in
Westpac Bank in New York, U.S.A. (Westpac-New York for brevity). This arrangement
has been customarily resorted to since the 1960's and the procedure has proven to be
problem-free. PRCI and the petitioner Gregorio H. Reyes, acting through Godofredo,
agreed to this arrangement or approach in order to effect the urgent transfer of Australian
dollars payable to the Secretariat of the 20 th Asian Racing Conference.
On July 28, 1988, the respondent bank approved the said application of PRCI and issued
Foreign Exchange Demand Draft (FXDD) No. 209968 in the sum applied for, that is, One
Thousand Six Hundred Ten Australian Dollars (AU$ 1,610.00), payable to the order of
the 20th Asian Racing Conference Secretariat of Sydney, Australia, and addressed to
Westpac-Sydney as the drawee bank.1âwphi1.nêt
On August 10, 1988, upon due presentment of the foreign exchange demand draft,
denominated as FXDD No. 209968, the same was dishonored, with the notice of dishonor
stating the following: "xxx No account held with Westpac." Meanwhile, on August 16,
1988, Wespac-New York sent a cable to respondent bank informing the latter that its
dollar account in the sum of One Thousand Six Hundred Ten Australian Dollars (AU$
1,610.00) was debited. On August 19, 1988, in response to PRCI's complaint about the
dishonor of the said foreign exchange demand draft, respondent bank informed Westpac-
Sydney of the issuance of the said demand draft FXDD No. 209968, drawn against the
Wespac-Sydney and informing the latter to be reimbursed from the respondent bank's
dollar account in Westpac-New York. The respondent bank on the same day likewise
informed Wespac-New York requesting the latter to honor the reimbursement claim of
Wespac-Sydney. On September 14, 1988, upon its second presentment for payment,
FXDD No. 209968 was again dishonored by Westpac-Sydney for the same reason, that is,
that the respondent bank has no deposit dollar account with the drawee Wespac-Sydney.
On September 17, 1988 and September 18, 1988, respectively, petitioners spouses
Gregorio H. Reyes and Consuelo Puyat-Reyes left for Australia to attend the said racing
conference. When petitioner Gregorio H. Reyes arrived in Sydney in the morning of
September 18, 1988, he went directly to the lobby of Hotel Regent Sydney to register as a
conference delegate. At the registration desk, in the presence of other delegates from
various member of the conference secretariat that he could not register because the
foreign exchange demand draft for his registration fee had been dishonored for the
second time. A discussion ensued in the presence and within the hearing of many
delegates who were also registering. Feeling terribly embarrassed and humiliated,
petitioner Gregorio H. Reyes asked the lady member of the conference secretariat that he
be shown the subject foreign exchange demand draft that had been dishonored as well
as the covering letter after which he promised that he would pay the registration fees in
cash. In the meantime he demanded that he be given his name plate and conference kit.
The lady member of the conference secretariat relented and gave him his name plate and
conference kit. It was only two (2) days later, or on September 20, 1988, that he was given
the dishonored demand draft and a covering letter. It was then that he actually paid in
cash the registration fees as he had earlier promised.
Meanwhile, on September 19, 1988, petitioner Consuelo Puyat-Reyes arrived in Sydney.
She too was embarassed and humiliated at the registration desk of the conference
secretariat when she was told in the presence and within the hearing of other delegates
that she could not be registered due to the dishonor of the subject foreign exchange
demand draft. She felt herself trembling and unable to look at the people around her.
Fortunately, she saw her husband, coming toward her. He saved the situation for her by
telling the secretariat member that he had already arranged for the payment of the
registration fee in cash once he was shown the dishonored demand draft. Only then was
petitioner Puyat-Reyes given her name plate and conference kit.
At the time the incident took place, petitioner Consuelo Puyat-Reyes was a member of
the House of Representatives representing the lone Congressional District of Makati,
Metro Manila. She has been an officer of the Manila Banking Corporation and was cited
by Archbishop Jaime Cardinal Sin as the top lady banker of the year in connection with
her conferment of the Pro-Ecclesia et Pontifice Award. She has also been awarded a
plaque of appreciation from the Philippine Tuberculosis Society for her extraordinary
service as the Society's campaign chairman for the ninth (9 th) consecutive year.
On November 23, 1988, the petitioners filed in the Regional Trial Court of Makati, Metro
Manila, a complaint for damages, docketed as Civil Case No. 88-2468, against the
respondent bank due to the dishonor of the said foreign exchange demand draft issued
by the respondent bank. The petitioners claim that as a result of the dishonor of the said
demand draft, they were exposed to unnecessary shock, social humiliation, and deep
mental anguish in a foreign country, and in the presence of an international audience.
On November 12, 1992, the trial court rendered judgment in favor of the defendant
(respondent bank) and against the plaintiffs (herein petitioners), the dispositive portion
of which states:
WHEREFORE, judgment is hereby rendered in favor of the defendant, dismissing
plaintiff's complaint, and ordering plaintiffs to pay to defendant, on its
counterclaim, the amount of P50,000.00, as reasonable attorney's fees. Costs
against the plaintiff.
SO ORDERED.5
The petitioners appealed the decision of the trial court to the Court of Appeals. On July
22, 1994, the appellate court affirmed the decision of the trial court but in effect deleted
the award of attorney's fees to the defendant (herein respondent bank) and the
pronouncement as to the costs. The decretal portion of the decision of the appellate court
states:
WHEREFORE, the judgment appealed from, insofar as it dismissed plaintiff's
complaint, is hereby AFFIRMED, but is hereby REVERSED and SET ASIDE in all
other respect. No special pronouncement as to costs.
SO ORDERED.6
According to the appellate court, there is no basis to hold the respondent bank liable for
damages for the reason that it exerted every effort for the subject foreign exchange
demand draft to be honored. The appellate court found and declared that:
xxx xxx xxx
Thus, the Bank had every reason to believe that the transaction finally went
through smoothly, considering that its New York account had been debited and
that there was no miscommunication between it and Westpac-New York. SWIFT
is a world wide association used by almost all banks and is known to be the most
reliable mode of communication in the international banking business. Besides,
the above procedure, with the Bank as drawer and Westpac-Sydney as drawee,
and with Westpac-New York as the reimbursement Bank had been in place since
1960s and there was no reason for the Bank to suspect that this particular demand
draft would not be honored by Westpac-Sydney.
From the evidence, it appears that the root cause of the miscommunications of the
Bank's SWIFT message is the erroneous decoding on the part of Westpac-Sydney
of the Bank's SWIFT message as an MT799 format. However, a closer look at the
Bank's Exhs. "6" and "7" would show that despite what appears to be an asterick
written over the figure before "99", the figure can still be distinctly seen as a
number "1" and not number "7", to the effect that Westpac-Sydney was responsible
for the dishonor and not the Bank.
Moreover, it is not said asterisk that caused the misleading on the part of the
Westpac-Sydney of the numbers "1" to "7", since Exhs. "6" and "7" are just
documentary copies of the cable message sent to Wespac-Sydney. Hence, if there
was mistake committed by Westpac-Sydney in decoding the cable message which
caused the Bank's message to be sent to the wrong department, the mistake was
Westpac's, not the Bank's. The Bank had done what an ordinary prudent person is
required to do in the particular situation, although appellants expect the Bank to
have done more. The Bank having done everything necessary or usual in the
ordinary course of banking transaction, it cannot be held liable for any
embarrassment and corresponding damage that appellants may have incurred.7
xxx xxx xxx
Hence, this petition, anchored on the following assignment of errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN FINDING PRIVATE
RESPONDENT NOT NEGLIGENT BY ERRONEOUSLY APPLYING THE
STANDARD OF DILIGENCE OF AN "ORDINARY PRUDENT PERSON" WHEN
IN TRUTH A HIGHER DEGREE OF DILIGENCE IS IMPOSED BY LAW UPON
THE BANKS.
II
THE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING PRIVATE
RESPONDENT FROM LIABILITY BY OVERLOOKING THE FACT THAT THE
DISHONOR OF THE DEMAND DRAFT WAS A BREACH OF PRIVATE
RESPONDENT'S WARRANTY AS THE DRAWER THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT AS
SHOWN OVERWHELMINGLY BY THE EVIDENCE, THE DISHONOR OF THE
 DEMAND DRAFT AS DUE TO PRIVATE RESPONDENT'S NEGLIGENCE AND
NOT THE DRAWEE BANK.8
The petitioners contend that due to the fiduciary nature of the relationship between the
respondent bank and its clients, the respondent should have exercised a higher degree of
diligence than that expected of an ordinary prudent person in the handling of its affairs
as in the case at bar. The appellate court, according to petitioners, erred in applying the
standard of diligence of an ordinary prudent person only. Petitioners also claim that the
respondent bank violate Section 61 of the Negotiable Instruments Law9 which provides
the warranty of a drawer that "xxx on due presentment, the instrument will be accepted
or paid, or both, according to its tenor xxx." Thus, the petitioners argue that respondent
bank should be held liable for damages for violation of this warranty. The petitioners
pray this Court to re-examine the facts to cite certain instances of negligence.
It is our view and we hold that there is no reversible error in the decision of the appellate
court.
Section 1 of Rule 45 of the Revised Rules of Court provides that "(T)he petition (for
review) shall raise only questions of law which must be distinctly set forth." Thus, we have
ruled that factual findings of the Court of Appeals are conclusive on the parties and not
reviewable by this Court – and they carry even more weight when the Court of Appeals
affirms the factual findings of the trial court. 10
The courts a quo found that respondent bank did not misrepresent that it was maintaining
a deposit account with Westpac-Sydney. Respondent bank's assistant cashier explained
to Godofredo Reyes, representing PRCI and petitioner Gregorio H. Reyes, how the
transfer of Australian dollars would be effected through Westpac-New York where the
respondent bank has a dollar account to Westpac-Sydney where the subject foreign
exchange demand draft (FXDD No. 209968) could be encashed by the payee, the
20th Asian Racing Conference Secretariat. PRCI and its Vice-President for finance,
petitioner Gregorio H. Reyes, through their said representative, agreed to that
arrangement or procedure. In other words, the petitioners are estopped from denying the
said arrangement or procedure. Similar arrangements have been a long standing practice
in banking to facilitate international commercial transactions. In fact, the SWIFT cable
message sent by respondent bank to the drawee bank, Westpac-Sydney, stated that it may
claim reimbursement from its New York branch, Westpac-New York, where respondent
bank has a deposit dollar account. The facts as found by the courts a quo show that
respondent bank did not cause an erroneous transmittal of its SWIFT cable message to
Westpac-Sydney. It was the erroneous decoding of the cable message on the part of
Westpac-Sydney that caused the dishonor of the subject foreign exchange demand draft.
An employee of Westpac-Sydney in Sydney, Australia mistakenly read the printed
figures in the SWIFT cable message of respondent bank as "MT799" instead of as "MT199".
As a result, Westpac-Sydney construed the said cable message as a format for a letter of
credit, and not for a demand draft. The appellate court correct found that "the figure
before '99' can still be distinctly seen as a number '1' and not number '7'." Indeed, the line
of a "7" is in a slanting position while the line of a "1" is in a horizontal position. Thus, the
number "1" in "MT199" cannot be construed as "7". 11
The evidence also shows that the respondent bank exercised that degree of diligence
expected of an ordinary prudent person under the circumstances obtaining. Prior to the
first dishonor of the subject foreign exchange demand draft, the respondent bank advised
Westpac-New York to honor the reimbursement claim of Westpac-Sydney and to debit
the dollar account12 of respondent bank with the former. As soon as the demand draft
was dishonored, the respondent bank, thinking that the problem was with the
reimbursement and without any idea that it was due to miscommunication, re-confirmed
the authority of Westpac-New York to debit its dollar account for the purpose of
reimbursing Westpac-Sydney.13 Respondent bank also sent two (2) more cable messages
to Westpac-New York inquiring why the demand draft was not honored. 14
With these established facts, we now determine the degree of diligence that banks are
required to exert in their commercial dealings. In Philippine Bank of Commerce v. Court of
Appeals15 upholding a long standing doctrine, we ruled that the degree of diligence
required of banks, is more than that of a good father of a family where the fiduciary nature
of their relationship with their depositors is concerned. In other words banks are duty
bound to treat the deposit accounts of their depositors with the highest degree of care. But
the said ruling applies only to cases where banks act under their fiduciary capacity, that
is, as depositary of the deposits of their depositors. But the same higher degree of
diligence is not expected to be exerted by banks in commercial transactions that do not
involve their fiduciary relationship with their depositors.
Considering the foregoing, the respondent bank was not required to exert more than the
diligence of a good father of a family in regard to the sale and issuance of the subject
foreign exchange demand draft. The case at bar does not involve the handling of
petitioners' deposit, if any, with the respondent bank. Instead, the relationship involved
was that of a buyer and seller, that is, between the respondent bank as the seller of the
subject foreign exchange demand draft, and PRCI as the buyer of the same, with the
20th Asian Racing conference Secretariat in Sydney, Australia as the payee thereof. As
earlier mentioned, the said foreign exchange demand draft was intended for the payment
of the registration fees of the petitioners as delegates of the PRCI to the 20th Asian Racing
Conference in Sydney.
The evidence shows that the respondent bank did everything within its power to prevent
the dishonor of the subject foreign exchange demand draft. The erroneous reading of its
cable message to Westpac-Sydney by an employee of the latter could not have been
foreseen by the respondent bank. Being unaware that its employee erroneously read the
said cable message, Westpac-Sydney merely stated that the respondent bank has no
deposit account with it to cover for the amount of One Thousand Six Hundred Ten
Australian Dollar (AU $1610.00) indicated in the foreign exchange demand draft. Thus,
the respondent bank had the impression that Westpac-New York had not yet made
available the amount for reimbursement to Westpac-Sydney despite the fact that
respondent bank has a sufficient deposit dollar account with Westpac-New York. That
was the reason why the respondent bank had to re-confirm and repeatedly notify
Westpac-New York to debit its (respondent bank's) deposit dollar account with it and to
transfer or credit the corresponding amount to Westpac-Sydney to cover the amount of
the said demand draft.
In view of all the foregoing, and considering that the dishonor of the subject foreign
exchange demand draft is not attributable to any fault of the respondent bank, whereas
the petitioners appeared to be under estoppel as earlier mentioned, it is no longer
necessary to discuss the alleged application of Section 61 of the Negotiable Instruments
Law to the case at bar. In any event, it was established that the respondent bank acted in
good faith and that it did not cause the embarrassment of the petitioners in Sydney,
Australia. Hence, the Court of Appeals did not commit any reversable error in its
challenged decision.
WHEREFORE, the petition is hereby DENIED, and the assailed decision of the Court of
Appeals is AFFIRMED. Costs against the petitioners.
SO ORDERED.1âwphi1.nêt