[G.R. No. 97785.

March 29, 1996]

PHILIPPINE
COMMERCIAL
INTERNATIONAL
BANK, petitioner,
vs. COURT OF APPEALS and RORY W. LIM, respondents.
DECISION
FRANCISCO, J.:

This is a petition for review on certiorari seeking the reversal of the Decision of the
Court of Appeals in CA-G.R. No. 18843 promulgated on July 30, 1990, and the
Resolution dated March 11, 1991, affirming with modification the judgment of the
Regional Trial Court of Gingoog City which held petitioner Philippine Commercial
International Bank (PCIB) liable for damages resulting from its breach of contract with
private respondent Rory W. Lim.
Disputed herein is the validity of the stipulation embodied in the standard application
form/receipt furnished by petitioner for the purchase of a telegraphic transfer which
relieves it of any liability resulting from loss caused by errors or delays in the course of
the discharge of its services.
The antecedent facts are as follows:
On March 13, 1986, private respondent Rory Lim delivered to his cousin Lim Ong
Tian PCIB Check No. JJJ 24212467 in the amount of P200,000.00 for the purpose of
obtaining a telegraphic transfer from petitioner PCIB in the same amount. The money
was to be transferred to Equitable Banking Corporation, Cagayan de Oro Branch, and
credited to private respondents account at the said bank. Upon purchase of the
telegraphic transfer, petitioner issued the corresponding receipt dated March 13,
1986 [T/T No. 284] which contained the assailed provision, to wit:
[1]

AGREEMENT
xxx

xxx

xxx

In case of fund transfer, the undersigned hereby agrees that such transfer will be made
without any responsibility on the part of the BANK, or its correspondents, for any loss
occasioned by errors, or delays in the transmission of message by telegraph or cable
companies or by the correspondents or agencies, necessarily employed by this BANK
in the transfer of this money, all risks for which are assumed by the undersigned.
Subsequent to the purchase of the telegraphic transfer, petitioner in turn issued and
delivered eight (8) Equitable Bank checks to his suppliers in different amounts as
[2]

payment for the merchandise that he obtained from them. When the checks were
presented for payment, five of them bounced for insufficiency of funds, while the
remaining three were held overnight for lack of funds upon presentment. Consequent
to the dishonor of these checks, Equitable Bank charged and collected the total amount
of P1, 100.00 from private respondent. The dishonor of the checks came to private
respondents attention only on April 2, 1986, when Equitable Bank notified him of the
penalty charges and after receiving letters from his suppliers that his credit was being
cut-off due to the dishonor of the checks he issued.
[3]

[4]

Upon verification by private respondent with the Gingoog Branch Office of petitioner
PCIB, it was confirmed that his telegraphic transfer (T/T No. 284) for the sum of
P200,000.00 had not yet been remitted to Equitable Bank, Cagayan de Oro branch. In
fact, petitioner PCIB made the corresponding transfer of funds only on April 3, 1986,
twenty one (21) days after the purchase of the telegraphic transfer on March 13,1986.
Aggrieved, private respondent demanded from petitioner PCIB that he be
compensated for the resulting damage that he suffered due to petitioners failure to
make the timely transfer of funds which led to the dishonor of his checks. In a letter
dated April 23, 1986, PCIBs Branch Manager Rodolfo Villarmia acknowledged their
failure to transmit the telegraphic transfer on time as a result of their mistake in using
the control number twice and the petitioner banks failure to request confirmation and
act positively on the disposition of the said telegraphic transfer.
[5]

Nevertheless, petitioner refused to heed private respondents demand prompting

the
latter
to
file
a
complaint
for
damages
with
the Regional Trial Court of Gingoog City on January 16, 1987. In his complaint, private
respondent alleged that as a result of petitioners total disregard and gross violation of
its contractual obligation to remit and deliver the sum of Two Hundred Thousand Pesos
(P200,000.00) covered by T/T No. 284 to Equitable Banking Corporation, Cagayan de
Oro Branch, private respondents checks were dishonored for insufficient funds thereby
causing his business and credit standing to suffer considerably for which petitioner
should be ordered to pay damages.
[6]

[7]

Answering the complaint, petitioner denied any liability to private respondent and
interposed as special and affirmative defense the lack of privity between it and private
respondent as it was not private respondent himself who purchased the telegraphic
transfer from petitioner. Additionally, petitioner pointed out that private respondent is
nevertheless bound by the stipulation in the telegraphic transfer application/form
receipt which provides:
[8]

x x x. In case of fund transfer, the undersigned hereby agrees that such transfer will
be made without any responsibility on the part of the BANK, or its correspondents,
for any loss occasioned by errors or delays in the transmission of message by
telegraph or cable companies or by correspondents or agencies, necessarily employed
by this BANK in the transfer of this money, all risks for which are assumed by the
undersigned.

According to petitioner, they utilized the services of RCPI-Gingoog City to transmit the
message regarding private respondents telegraphic transfer because their telex
machine was out of order at that time. But as it turned out, it was only on April 3,
1986 that petitioners Cagayan de Oro Branch had received information about the said
telegraphic transfer.
[9]

In its decision dated July 27, 1988 the Regional Trial Court of Gingoog City held
petitioner liable for breach of contract and struck down the aforecited provision found in
petitioners telegraphic transfer application form/receipt exempting it from any liability
and declared the same to be invalid and unenforceable. As found by the trial court, the
provision amounted to a contract of adhesion wherein the objectionable portion was
unilaterally inserted by petitioner in all its application forms without giving any
opportunity to the applicants to question the same and express their conformity thereto.
Thus, the trial court adjudged petitioner liable to private respondent for the following
amounts:
[10]

[11]

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the

defendant, ordering the latter to pay the former as follows:
P960,000.00 as moral damages;
P50,000.00 as exemplary damages;
P40,000.00 as attorneys fees; and
P1,100.00 as reimbursement for the surcharges paid by plaintiff to the
Equitable Banking Corporation, plus costs, all with legal interest of 6% per
annum from the date of this judgment until the same shall have been paid in
full.
[12]

Upon appeal by petitioner to the Court of Appeals, respondent court affirmed with
modifications the judgment of the trial court and ordered as follows:

WHEREFORE, premises considered, judgment is hereby rendered affirming the

appealed decision with modification, as follows:
The defendant-appellant is ordered to pay to the plaintiff-appellee the following:
1. The sum of Four Hundred Thousand (P400,000.00) Pesos as/for moral damages;
2. The sum of Forty Thousand (P40,000.00) Pesos as exemplary damage to serve as
an example for the public good;
3. The sum of Thirty Thousand (P30,000.00) Pesos representing attorneys fees;
4. The sum of One Thousand One Hundred (P1,100.00) Pesos as actual damage, and
5. To pay the costs.

SO ORDERED.

[13]

A motion for reconsideration was filed by petitioner but respondent Court of Appeals
denied the same.
[14]

Still unconvinced, petitioner elevated the case to this Court through the instant
petition for review on certiorari invoking the validity of the assailed provision found in the
application form/receipt exempting it from any liability in case of loss resulting from
errors or delays in the transfer of funds.
Petitioner mainly argues that even assuming that the disputed provision is a
contract of adhesion, such fact alone does not make it invalid because this type of
contract is not absolutely prohibited. Moreover, the terms thereof are expressed clearly,
leaving no room for doubt, and both contracting parties understood and had full
knowledge of the same.
Private respondent however contends that the agreement providing non-liability on
petitioners part in case of loss caused by errors or delays despite its recklessness and
negligence is void for being contrary to public policy and interest.
[15]

A contract of adhesion is defined as one in which one of the parties imposes a

ready-made form of contract, which the other party may accept or reject, but which the
latter cannot modify. One party prepares the stipulation in the contract, while the other
party merely affixes his signature or his adhesion thereto, giving no room
for negotiation and depriving the latter of the opportunity to bargain on equal footing.
Nevertheless, these types of contracts have been declared as binding as ordinary
contracts, the reason being that the party who adheres to the contract is free to reject it
entirely. It is equally important to stress, though, that the Court is not precluded from
ruling out blind adherence to their terms if the attendant facts and circumstances show
that they should be ignored for being obviously too one-sided.
[16]

[17]

[18]

[19]

[20]

On previous occasions, it has been declared that a contract of adhesion may be

struck down as void and unenforceable, for being subversive to public policy, only when
the weaker party is imposed upon in dealing with the dominant bargaining party and is
reduced to the alternative of taking it or leaving it, completely deprived of the opportunity
to bargain on equal footing. And when it has been shown that the complainant is
knowledgeable enough to have understood the terms and conditions of the contract, or
one whose stature is such that he is expected to be more prudent and cautious with
respect to his transactions, such party cannot later on be heard to complain for being
ignorant or having been forced into merely consenting to the contract.
[21]

[22]

The factual backdrop of the instant case, however, militates against applying the
aforestated pronouncements. That petitioner failed to discharge its obligation to
transmit private respondents telegraphic transfer on time in accordance with their
agreement is already a settled matter as the same is no longer disputed in this
petition. Neither is the finding of respondent Court of Appeals that petitioner acted
fraudulently and in bad faith in the performance of its obligation, being contested by
petitioner. Perforce, we are bound by these factual considerations.

Having established that petitioner acted fraudulently and in bad faith, we find it
implausible to absolve petitioner from its wrongful acts on account of the assailed
provision exempting it from any liability. In Geraldez vs. Court of Appeals, it was
unequivocally declared that notwithstanding the enforceability of a contractual limitation,
responsibility arising from a fraudulent act cannot be exculpated because the same is
contrary to public policy. Indeed, Article 21 of the Civil Code is quite explicit in providing
that [a]ny person who willfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage. Freedom of contract is subject to the limitation that the agreement must not
be against public policy and any agreement or contract made in violation of this rule is
not binding and will not be enforced.
[23]

[24]

The prohibition against this type of contractual stipulation is moreover treated by law
as void which may not be ratified or waived by a contracting party. Article 1409 of the
Civil Code states:

ART. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy;
These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived.
Undoubtedly, the services being offered by a banking institution like petitioner are
imbued with public interest. The use of telegraphic transfers have now become
commonplace among businessmen because it facilitates commercial transactions. Any
attempt to completely exempt one of the contracting parties from any liability in case of
loss notwithstanding its bad faith, fault or negligence, as in the instant case, cannot be
sanctioned for being inimical to public interest and therefore contrary to public policy.
Resultingly, there being no dispute that petitioner acted fraudulently and in bad faith, the
award of moral and exemplary damages were proper.
[25]

[26]

But notwithstanding petitioners liability for the resulting loss and damage to private
respondent, we find the amount of moral damages adjudged by respondent court in the
sum of P400,000.00 exorbitant. Bearing in mind that moral damages are awarded, not
to penalize the wrongdoer, but rather to compensate the claimant for the injuries that he
may have suffered, we believe that an award of Two Hundred Thousand Pesos
(P200,000.00) is reasonable under the circumstances.
[27]

WHEREFORE, subject to the foregoing modification reducing the amount awarded

as moral damages to the sum of Two Hundred Thousand Pesos (P200,000.00), the
appealed decision is hereby AFFIRMED.
SO ORDERED.
(no digest available)