G.R. No. 118492 - Spouses Reyes vs. Court of Appeals

Case Summary (G.R. No. 118492)

Applicable Law and Constitutional Basis

The decision date falls after 1990; accordingly, the 1987 Philippine Constitution is the constitutional basis applicable to the decision. Controlling legal provisions and authorities expressly relied upon in the record include Section 61 of the Negotiable Instruments Law (warranty of the drawer), Rule 45, Section 1 of the Revised Rules of Court (limitation of Supreme Court review to questions of law), and precedent cited in the decision — notably Philippine Bank of Commerce v. Court of Appeals (regarding degree of diligence expected of banks) and Borromeo v. Sun (on finality of factual findings).

Factual Background and Banking Arrangement

PRCI, needing to remit AU$1,610.00 to the conference secretariat in Sydney, instructed respondent bank (through Godofredo) to procure an FXDD payable to the 20th Asian Racing Conference Secretariat. Respondent bank’s assistant cashier explained that respondent did not maintain an Australian dollar account in Sydney and proposed the customary arrangement: respondent would draw the FXDD against Westpac‑Sydney and Westpac‑Sydney would be reimbursed from respondent’s U.S. dollar account at Westpac‑New York. This roundabout procedure had been customarily used since the 1960s. Respondent issued FXDD No. 209968 dated July 28, 1988 for AU$1,610.00 addressed to Westpac‑Sydney as drawee. On August 10 and again on September 14, 1988, Westpac‑Sydney dishonored the draft, stating “No account held with Westpac.” Westpac‑New York, however, on August 16, 1988 sent a cable that respondent’s dollar account had been debited. Respondent bank sent cables on August 19 and thereafter to Westpac‑Sydney and Westpac‑New York to inform and request reimbursement and to inquire why the demand draft was dishonored.

Events in Sydney and Claimed Injury

Petitioners traveled to Sydney for the conference. On arrival (Gregorio on September 18, Consuelo on September 19, 1988) each was told at the registration desk, in the presence and hearing of other delegates, that registration could not proceed because the FXDD had been dishonored. Both experienced embarrassment and humiliation; Gregorio obtained his nameplate and conference kit after promising to pay in cash and later was shown the dishonored draft and covering letter and paid; Consuelo, a public figure with significant civic and banking recognition, felt severely humiliated until her husband intervened.

Procedural History

Petitioners filed a complaint for damages in the Regional Trial Court (RTC) of Makati on November 23, 1988 (Civil Case No. 88‑2468). The RTC rendered judgment on November 12, 1992 dismissing the complaint and awarding P50,000 as attorney’s fees to the bank on its counterclaim. The Court of Appeals (CA) on July 22, 1994 affirmed the RTC insofar as it dismissed the complaint but deleted the award of attorney’s fees and any special pronouncement as to costs. Petitioners sought review; the Supreme Court issued the decision under review and denied the petition, affirming the CA decision.

Issues Raised on Appeal

Petitioners’ assigned errors asserted that: (I) the CA applied an improper standard of diligence (ordinary prudent person) and that banks must exercise a higher degree of diligence because of the fiduciary relationship with clients; (II) the respondent breached the warranty of the drawer under Section 61 of the Negotiable Instruments Law that the instrument will be accepted or paid on due presentment; and (III) the dishonor resulted from respondent bank’s negligence rather than from any act of the drawee bank.

Findings on the Transactional Arrangement and Estoppel

The courts below found, based on uncontroverted evidence, that respondent bank clearly explained the special arrangement (draft against Westpac‑Sydney with reimbursement from Westpac‑New York) to Godofredo, PRCI’s agent, and that PRCI and Gregorio (through Godofredo) accepted that arrangement. Given the explicit explanation and agreement, the petitioners were held estopped to deny the arrangement. The arrangement and use of SWIFT messaging were shown to be a long‑standing banking practice.

Causation of Dishonor: SWIFT Communication Error Allocated to Drawee

The record shows that the immediate cause of dishonor was an erroneous decoding of respondent bank’s SWIFT cable by an employee of Westpac‑Sydney, who misread the message format (reading MT199 as MT799), leading Westpac‑Sydney to treat the message as a letter‑of‑credit format rather than as an instruction to honor a demand draft and claim reimbursement. Documentary exhibits showed the relevant figure read as “1” (MT199) and not “7” (MT799), and the appellate court concluded any mistake in decoding was Westpac‑Sydney’s and not attributable to respondent bank. The CA and Supreme Court accepted that the misreading, not any faulty transmission or omission by respondent bank, was the root cause.

Standard of Diligence Applicable to the Bank’s Conduct

The Court reaffirmed the distinction articulated in Philippine Bank of Commerce: banks owe the highest degree of care when acting in a fiduciary capacity as depositaries of customers’ deposits (more than the diligence of a good father of a family). That heightened standard, however, applies specifically to fiduciary depositary functions and does not automatically extend to ordinary commercial transactions such as the sale and issuance of a foreign exchange demand draft. In sale/issuance transactions between bank and purchaser, the bank is held to the diligence of an ordinary prudent person (or diligence of a good father of a family in ordinary non‑fiduciary commercial dealings). Applying that standard here, the courts found respondent bank had exercised the requisite diligence.

Respondent Bank’s Efforts and Good Faith

The record establishes that respondent b

Case Syllabus (G.R. No. 118492)

Case Caption, Court and Decision Dates

Citation: 415 Phil. 258, Second Division, G.R. No. 118492, August 15, 2001.
Parties: Gregorio H. Reyes and Consuelo Puyat-Reyes — petitioners; The Honorable Court of Appeals and Far East Bank and Trust Company — respondents.
Nature of proceeding before the Supreme Court: Petition for review of the Decision of the Court of Appeals dated July 22, 1994 and its Resolution dated December 29, 1994, which had affirmed with modification the Regional Trial Court (RTC) of Makati decision dated November 12, 1992.
Final disposition by the Supreme Court: Petition denied; the decision of the Court of Appeals affirmed; costs against the petitioners. Concurring opinions: Bellosillo (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.

Undisputed Core Facts

The Philippine Racing Club, Inc. (PRCI) sent four delegates to the 20th Asian Racing Conference scheduled in September 1988 in Sydney, Australia.
Gregorio H. Reyes was PRCI’s vice-president for finance, racing manager, treasurer, and director; he sent Godofredo Reyes, PRCI’s chief cashier, to Far East Bank and Trust Company (respondent bank) to apply for an Australian-dollar foreign exchange demand draft (FXDD).
Godofredo applied at the respondent bank’s Buendia Branch in Makati for FXDD No. 209968 in the amount of AU$1,610.00, payable to the 20th Asian Racing Conference Secretariat, Sydney, with Westpac Bank (Sydney) as the drawee bank.
The respondent bank’s assistant cashier, Mr. Yasis, initially denied the request because the bank had no Australian-dollar account in Sydney, but proposed an established alternate procedure: draw an FXDD against Westpac-Sydney and have Westpac-Sydney reimburse itself from respondent bank’s U.S. dollar account at Westpac-New York.
The alternate arrangement had been customarily used since the 1960s and was accepted by PRCI and Gregorio H. Reyes (through Godofredo).
On July 28, 1988, respondent bank issued FXDD No. 209968 for AU$1,610.00 addressed to Westpac-Sydney as drawee.
First presentment: On August 10, 1988 FXDD No. 209968 was dishonored with notice stating, “No account held with Westpac.”
On August 16, 1988 Westpac-New York sent a cable to respondent bank informing that respondent bank’s dollar account had been debited for AU$1,610.00.
On August 19, 1988 the respondent bank informed Westpac-Sydney of the FXDD issuance and instructed Westpac-Sydney to be reimbursed from respondent bank’s Westpac-New York dollar account; on the same day respondent bank informed Westpac-New York to honor Westpac-Sydney’s reimbursement claim.
Second presentment: On September 14, 1988 FXDD No. 209968 was again dishonored by Westpac-Sydney for the same reason — that respondent bank had no deposit dollar account with Westpac-Sydney.
Petitioners’ travel chronology: Gregorio left for Australia on September 17, 1988; Consuelo left on September 18, 1988.
Gregorio arrived in Sydney on the morning of September 18, 1988 and at registration at Hotel Regent Sydney was told in the presence of other international delegates that he could not register because the FXDD had been dishonored for the second time. He asked to be shown the dishonored draft and covering letter, promised to pay in cash, demanded his name plate and kit, and was given them after the conference secretariat member relented.
Gregorio was actually shown the dishonored draft and covering letter and paid the registration fees in cash two days later on September 20, 1988.
Consuelo arrived on September 19, 1988 and likewise was told publicly at registration that she could not be registered because of the dishonor; she was humiliated but was thereafter given her name plate and kit after Gregorio intervened and told the secretariat he had arranged for cash payment.
Petitioner Consuelo Puyat-Reyes’s public profile at the time: member of the House of Representatives representing Makati’s lone congressional district; officer of Manila Banking Corporation; cited by Archbishop Jaime Cardinal Sin as top lady banker of the year; recipient of a plaque of appreciation from the Philippine Tuberculosis Society for service as campaign chairman for nine consecutive years.

Procedural History in Trial and Appellate Courts

November 23, 1988: Petitioners filed a complaint for damages in the Regional Trial Court (RTC) of Makati, Civil Case No. 88-2468, against the respondent bank for damages allegedly resulting from the dishonor of FXDD No. 209968.
November 12, 1992: The RTC rendered judgment dismissing plaintiffs’ complaint and, on defendant’s counterclaim, ordered plaintiffs to pay defendant P50,000.00 as reasonable attorney’s fees; costs against the plaintiffs.
Petitioners appealed to the Court of Appeals.
July 22, 1994: Court of Appeals affirmed the RTC insofar as it dismissed the plaintiffs’ complaint but reversed and set aside the award of attorney’s fees and any pronouncement as to costs; decretal portion: judgment affirmed as to dismissal; reversed in all other respects; no special pronouncement as to costs.
Petitioners filed a petition for review to the Supreme Court challenging the Court of Appeals’ decision.

Assignments of Error Raised by Petitioners

I. The Court of Appeals erred in finding private respondent not negligent by erroneously applying the standard of diligence of an “ordinary prudent person” when a higher degree of diligence is imposed by law upon banks.
II. The Court of Appeals erred in absolving private respondent from l