Standard of care, A1173 Civil Code

1. Standard of care

The law provides for the following standard of care:

1) Ordinary diligence or good father of a family; and

2) Extraordinary diligence or the highest degree of care.

a. Ordinary diligence

Article 1173. x x x
If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. (1104a) (CIVIL CODE)

Article 1173 of the Civil Code is very clear that if the law or contract does not state the degree of diligence which is to be observed in the performance of an obligation then that which is expected of a good father of a family or ordinary diligence shall be required.

Good father of a family – “connotes reasonable care consistent with that which an ordinarily prudent person would have observed when confronted with a similar situation.” (Crisostomo v. CA, G.R. No. 138334, August 25, 2003, Per Ynares-Santiago, J.)

The diligence of a good father of a family requires only that diligence which an ordinary prudent man would exercise with regard to his own property. (Wildvalley Shipping Co., Ltd. v. CA, G.R. No. 119602, October 6, 2000, Per Buena, J.)

Crisostomo v. CA, G.R. No. 138334, August 25, 2003, Per Ynares-Santiago, J.:

• [The respondent, a travel Agency] is not an entity engaged in the business of transporting either passengers or goods and is therefore, neither a private nor a common carrier. [The Travel Agency] did not undertake to transport [the Client] from one place to another since its covenant with its customers is simply to make travel arrangements in their behalf. [The Travel Agency]’s services as a travel agency include procuring tickets and facilitating travel permits or visas as well as booking customers for tours.

• While [the Client] concededly bought her plane ticket through the efforts of [the Travel Agency] company, this does not mean that the latter ipso facto is a common carrier. At most, [the Travel Agency] acted merely as an agent of the airline, with whom [the Client] ultimately contracted for her carriage to Europe. [The Travel Agency’s] obligation to [the Client] in this regard was simply to see to it that [the Client] was properly booked with the airline for the appointed date and time. Her transport to the place of destination, meanwhile, pertained directly to the airline.

• The object of [the Client’s] contractual relation with [the Travel Agency] is the latter’s service of arranging and facilitating [the Client’s] booking, ticketing and accommodation in the package tour. In contrast, the object of a contract of carriage is the transportation of passengers or goods. It is in this sense that the contract between the parties in this case was an ordinary one for services and not one of carriage. [The Client]’s submission is premised on a wrong assumption.

• The nature of the contractual relation between [the Client] and [the Travel Agency] is determinative of the degree of care required in the performance of the latter’s obligation under the contract. For reasons of public policy, a common carrier in a contract of carriage is bound by law to carry passengers as far as human care and foresight can provide using the utmost diligence of very cautious persons and with due regard for all the circumstances. As earlier stated, however, [the Travel Agency] is not a common carrier but a travel agency. It is thus not bound under the law to observe extraordinary diligence in the performance of its obligation, as [the Client] claims.

• Since the contract between the parties is an ordinary one for services, the standard of care required of [the Travel Agency] is that of a good father of a family under Article 1173 of the Civil Code.

• Contrary to [the Client]’s claim, the evidence on record shows that [the Travel Agency] exercised due diligence in performing its obligations under the contract and followed standard procedure in rendering its services to [the Client]. As correctly observed by the lower court, the plane ticket issued to [the Client] clearly reflected the departure date and time, contrary to [the Client]’s contention. The travel documents, consisting of the tour itinerary, vouchers and instructions, were likewise delivered to [the Client] two days prior to the trip. [the Travel Agency] also properly booked [the Client] for the tour, prepared the necessary documents and procured the plane tickets. It arranged [the Client]’s hotel accommodation as well as food, land transfers and sightseeing excursions, in accordance with its avowed undertaking.

• Therefore, it is clear that [the Travel Agency] performed its prestation under the contract as well as everything else that was essential to book [the Client] for the tour. Had [the Client] exercised due diligence in the conduct of her affairs, there would have been no reason for her to miss the flight. Needless to say, after the travel papers were delivered to [the Client], it became incumbent upon her to take ordinary care of her concerns. This undoubtedly would require that she at least read the documents in order to assure herself of the important details regarding the trip.

b. Extraordinary diligence

Extraordinary diligence – refers to the highest degree of care.

1) Common carriers

Under Article 1733 of the Civil Code, common carriers are required to observe extraordinary diligence for the safety of the passenger transported by them, according to all the circumstances of each case. The requirement of extraordinary diligence imposed upon common carriers is restated in Article 1755: “A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances.” Further, in case of death of or injuries to passengers, the law presumes said common carriers to be at fault or to have acted negligently.

Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods transported by them. Accordingly, they are presumed to have been at fault or to have acted negligently if the goods are lost, destroyed or deteriorated. There are very few instances when the presumption of negligence does not attach and these instances are enumerated in Article 1734. 19 In those cases where the presumption is applied, the common carrier must prove that it exercised extraordinary diligence in order to overcome the presumption. (Bascos v. CA, G.R. No. 101089, April 7, 1993, Per Campos, Jr., J.)

Common carriers are obligated to exercise extraordinary diligence over the goods entrusted to their care. This is due to the nature of their business, with the public policy behind it geared toward achieving allocative efficiency and minimizing the inherently inequitable dynamics between the parties to the transaction. (Tan v. Great Harvest Enterprises, Inc., G.R. No. 220400, March 20, 2019, Per Leonen, J.)

Bascos v. CA, G.R. No. 101089, April 7, 1993, Per Campos, Jr., J.:

• Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE for short) entered into a hauling contract with Jibfair Shipping Agency Corporation whereby the former bound itself to haul the latter’s 2,000 m/tons of soya bean meal from Magallanes Drive, Del Pan, Manila to the warehouse of Purefoods Corporation in Calamba, Laguna. To carry out its obligation, CIPTRADE, through Rodolfo Cipriano, subcontracted with Estrellita Bascos (petitioner) to transport and to deliver 400 sacks of soya bean meal worth P156,404.00 from the Manila Port Area to Calamba, Laguna at the rate of P50.00 per metric ton. Petitioner failed to deliver the said cargo. As a consequence of that failure, Cipriano paid Jibfair Shipping Agency the amount of the lost goods in accordance with the contract…

• [SC RESOLUTION] In this case, petitioner alleged that hijacking constituted force majeure which exculpated her from liability for the loss of the cargo. In De Guzman vs. Court of Appeals, the Court held that hijacking, not being included in the provisions of Article 1734, must be dealt with under the provisions of Article 1735 and thus, the common carrier is presumed to have been at fault or negligent. To exculpate the carrier from liability arising from hijacking, he must prove that the robbers or the hijackers acted with grave or irresistible threat, violence, or force. This is in accordance with Article 1745 of the Civil Code…

• The presumption of negligence was raised against petitioner. It was petitioner’s burden to overcome it. Thus, contrary to her assertion, private respondent need not introduce any evidence to prove her negligence. Her own failure to adduce sufficient proof of extraordinary diligence made the presumption conclusive against her.

See related:

• Extraordinary diligence for common carriers

2) Banks

Banks are duty bound to treat the accounts of their clients with the highest degree of care. (Philippine Bank of Commerce v. CA, G.R. No. 97626, March 14, 1997, Per Hermosis ima, Jr., J.)

[T]he General Banking Act of 2000 demands of banks the highest standards of integrity and performance. The Court ruled that banks are under obligation to treat the accounts of their depositors with meticulous care. (Bank of the Philippine Islands v. Sps. Quiaoit, G.R. No. 199562, January 16, 2019, Per Carpio, J.)

[T]he banking business is impressed with public interest. “Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are even required of it. (Associated Bank [Now Westmont Bank] v. Tan, G.R. No. 156940, December 14, 2004, Per Panganiban, J.)

The law expressly imposes upon the banks a fiduciary duty towards its clients and to treat in this regard the accounts of its depositors with meticulous care. (Citystate Savings Bank v. Tobias, G.R. No. 227990, March 7, 2018, Per Reyes, Jr., J.)

While banks are granted by law the right to debit the value of a dishonored check from a depositor’s account, they must do so with the highest degree of care, so as not to prejudice the depositor unduly. (Associated Bank [Now Westmont Bank] v. Tan [2004], supra.)

Bank of the Philippine Islands v. Sps. Quiaoit, G.R. No. 199562, January 16, 2019, Per Carpio, J.:

• Fernando V. Quiaoit (Fernando) maintains peso and dollar accounts with the Bank of the Philippine Islands (BPI) Greenhills-Crossroads Branch (BPI Greenhills). On 20 April 1999, Fernando, through Merlyn Lambayong (Lambayong), encashed BPI Greenhills Check No. 003434 dated 19 April 1999 for US$20,000.

• In a complaint filed by Fernando and his wife Nora L. Quiaoit (Nora) against BPI, they alleged that Lambayong did not count the US$20,000 that she received because the money was placed in a large Manila envelope. They also alleged that BPI did not inform Lambayong that the dollar bills were marked with its “chapa” and the bank did not issue any receipt containing the serial number of the bills. Lambayong delivered the dollar bills to the spouses Quiaoit in US$100 denomination in US$10,000 per bundle. Nora then purchased plane tickets worth US$13,100 for their travel abroad, using part of the US$20,000 bills withdrawn from BPI.

• On 22 April 1999, the spouses Quiaoit left the Philippines for Jerusalem and Europe. Nora handcarried US$6,900 during the tour. The spouses Quiaoit alleged that on 19 May 1999, Nora was placed in a shameful and embarrassing situation when several banks in Madrid, Spain refused to exchange some of the US$100 bills because they were counterfeit. Nora was also threatened that she would be taken to the police station when she tried to purchase an item in a shop with the dollar bills. The spouses Quiaoit were also informed by their friends, a priest and a nun, that the US dollar bills they gave them were refused by third persons for being counterfeit. Their aunt, Elisa Galan (Galan) also returned, via DHL, the five US$100 bills they gave her and advised them that they were not accepted for deposit by foreign banks for being counterfeit.

• On 21 May 1999, while the spouses Quiaoit were still abroad, they asked their daughter Maria Isabel, who was employed with BPI Makati, to relay their predicament to BPI Greenhills. However, Ana C. Gonzales5 (Gonzales), branch manager of BPI Greenhills, failed to resolve their concern or give them a return call. When the spouses Quiaoit returned, they personally complained to Gonzales who went to Fernando’s office with three bank personnel. Gonzales took from Fernando the remaining 44 dollar bills worth US$4,400 and affixed her signature on the photocopy of the bills, acknowledging that she received them. Chito Bautista (Bautista), a bank representative, and another bank employee informed the spouses Quiaoit that an investigation would be conducted but they were not furnished any report. They gathered from a telephone conversation with Clemente Banson (Banson), the bank-designated investigator, that the dollar bills came from BPI Vira Mall and were marked with “chapa” by the BPI Greenhills. On 9 June 1999, Fernando tried to submit to Banson the five US$100 bills returned by Galan but Banscn refused to accept them because they were counterfeit. On 18 August 1999, Gonzales informed Fernando that the absence of the identification mark (“chapa”) on the dollar bills meant they came from other sources and not from BPI Greenhills.

• On 7 July 1999, Fernando withdrew the remaining balance of his account through his representative, Henry Mainot (Mainot). The dollar bills withdrawn by Mainot were marked and the serial numbers were listed. On 7 July 1999, Fernando’s brother Edgardo encashed a US$500 check from BPI San Juan Branch and while the dollar bills were not marked, the serial numbers thereof were listed.

• The spouses Quiaoit alleged that Nora Cayetano, area manager of BPI San Juan, called up Fernando and promised to do something about the refund of the US$4,400 they surrendered to Gonzales. On 17 January 2000, the spouses Quiaoit demanded in writing for the refund of the US$4,400 from Gonzales. On 9 February 2000, BPI sent its written refusal to refund or reimburse the US$4,400.

• The spouses Quiaoit alleged that BPI failed in its duty to ensure that the foreign currency bills it furnishes its clients are genuine. According to them, they suffered public embarrassment, humiliation, and possible imprisonment in a foreign country due to BPI’s negligence and bad faith.

• BPI countered that it is the bank’s standing policy and part of its internal control to mark all dollar bills with “chapa” bearing the code of the branch when a foreign currency bill is exchanged or withdrawn. BPI alleged that any local or foreign currency bill deposited or withdrawn from the bank undergoes careful and meticulous scrutiny by highly-trained and experienced personnel for genuineness and authenticity. BPI alleged that the US$20,000 in US$100 bills encashed by Fernando through Lambayong were inspected, counted, personally examined, and subjected to a counterfeit detector machine by the bank teller under Gonzales’ direct supervision. Gonzales also personally inspected and “piece-counted” the dollar bills which bore the identifying “chapa” and examined their genuineness and authenticity. BPI alleged that after its investigation, it was established that the 44 US$100 bills surrendered by the spouses Quiaoit were not the same as the dollar bills disbursed to Lambayong. The dollar bills did not bear the identiying “chapa” from BPI Greenhills and as such, they came from another source.

• [SC RESOLUTION] In this case, BPI failed to exercise the highest degree of diligence that is not only expected but required of a banking institution.

• It was established that on 15 April 1999, Fernando informed BPI to prepare US$20,000 that he would withdraw from his account. The withdrawal, through encashment of BPI Greenhills Check No. 003434, was done five days later, or on 20 April 1999. BPI had ample opportunity to prepare the dollar bills. Since the dollar bills were handed to Lambayong inside an envelope and in bundles, Lambayong did not check them. However, as pointed out by the Court of Appeals, BPI could have listed down the serial numbers of the dollar bills and erased any doubt as to whether the counterfeit bills came from it. While BPI Greenhills marked the dollar bills with “chapa” to identify that they came from that branch, Lambayong was not informed of the markings and hence, she could not have checked if all the bills were marked.

• BPI insists that there is no law requiring it to list down the serial numbers of the dollar bills. However, it is well-settled that the diligence required of banks is more than that of a good father of a family. Banks are required to exercise the highest degree of diligence in its banking transactions. In releasing the dollar bills without listing down their serial numbers, BPI failed to exercise the highest degree of care and diligence required of it. BPI exposed not only its client but also itself to the situation that led to this case. Had BPI listed down the serial numbers, BPI’s presentation of a copy of such listed serial numbers would establish whether the returned 44 dollar bills came from BPI or not.

Philippine Bank of Commerce v. CA, G.R. No. 97626, March 14, 1997, Per Hermosis ima, Jr., J.:

• The case stemmed from a complaint filed by the [the Client] Rommel’s Marketing Corporation (RMC for brevity)… to recover from the former Philippine Bank of Commerce (PBC for brevity), now absorbed by the Philippine Commercial International Bank, the sum of P304,979.74 representing various deposits it had made in its current account with said bank but which were not credited to its account, and were instead deposited to the account of one Bienvenido Cotas, allegedly due to the gross and inexcusable negligence of the petitioner bank.

• RMC maintained two (2) separate current accounts, Current Account Nos. 53-01980-3 and 53-01748-7, with the Pasig Branch of PBC in connection with its business of selling appliances.

• In the ordinary and usual course of banking operations, current account deposits are accepted by the bank on the basis of deposit slips prepared and signed by the depositor, or the latter’s agent or representative, who indicates therein the current account number to which the deposit is to be credited, the name of the depositor or current account holder, the date of the deposit, and the amount of the deposit either in cash or checks. The deposit slip has an upper portion or stub, which is detached and given to the depositor or his agent; the lower portion is retained by the bank. In some instances, however, the deposit slips are prepared in duplicate by the depositor. The original of the deposit slip is retained by the bank, while the duplicate copy is returned or given to the depositor.

• From May 5, 1975 to July 16, 1976, petitioner Romeo Lipana claims to have entrusted RMC funds in the form of cash totalling P304,979.74 to his secretary, Irene Yabut, for the purpose of depositing said funds in the current accounts of RMC with PBC. It turned out, however, that these deposits, on all occasions, were not credited to RMC’s account but were instead deposited to Account No. 53-01734-7 of Yabut’s husband, Bienvenido Cotas who likewise maintains an account with the same bank. During this period, petitioner bank had, however, been regularly furnishing [the Client] with monthly statements showing its current accounts balances. Unfortunately, it had never been the practice of Romeo Lipana to check these monthly statements of account reposing complete trust and confidence on petitioner bank.

• Irene Yabut’s modus operandi is far from complicated. She would accomplish two (2) copies of the deposit slip, an original and a duplicate. The original showed the name of her husband as depositor and his current account number. On the duplicate copy was written the account number of her husband but the name of the account holder was left blank. PBC’s teller, Azucena Mabayad, would, however, validate and stamp both the original and the duplicate of these deposit slips retaining only the original copy despite the lack of information on the duplicate slip. The second copy was kept by Irene Yabut allegedly for record purposes. After validation, Yabut would then fill up the name of RMC in the space left blank in the duplicate copy and change the account number written thereon, which is that of her husband’s, and make it appear to be RMC’s account number, i.e., C.A. No. 53-01980-3. With the daily remittance records also prepared by Ms. Yabut and submitted to [the Client] RMC together with the validated duplicate slips with the latter’s name and account number, she made her company believe that all the while the amounts she deposited were being credited to its account when, in truth and in fact, they were being deposited by her and credited by the petitioner bank in the account of Cotas. This went on in a span of more than one (1) year without [the Client]’s knowledge.

• [SC RESOLUTION] In the case at bench, there is no dispute as to the damage suffered by the [the Client] (plaintiff in the trial court) RMC in the amount of P304,979.74. It is in ascribing fault or negligence which caused the damage where the parties point to each other as the culprit.

• The seventy-eight (78)-year-old, yet still relevant, case of Picart v. Smith, provides the test by which to determine the existence of negligence in a particular case which may be stated as follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence.

• Applying the above test, it appears that the bank’s teller, Ms. Azucena Mabayad, was negligent in validating, officially stamping and signing all the deposit slips prepared and presented by Ms. Yabut, despite the glaring fact that the duplicate copy was not completely accomplished contrary to the self-imposed procedure of the bank with respect to the proper validation of deposit slips, original or duplicate, as testified to by Ms. Mabayad herself

• Negligence here lies not only on the part of Ms. Mabayad but also on the part of the bank itself in its lackadaisical selection and supervision of Ms. Mabayad. This was exemplified in the testimony of Mr. Romeo Bonifacio, then Manager of the Pasig Branch of the petitioner bank and now its Vice-President, to the effect that, while he ordered the investigation of the incident, he never came to know that blank deposit slips were validated in total disregard of the bank’s validation procedures…

• It was this negligence of Ms. Azucena Mabayad, coupled by the negligence of the petitioner bank in the selection and supervision of its bank teller, which was the proximate cause of the loss suffered by the [the Client], and not the latter’s act of entrusting cash to a dishonest employee, as insisted by the petitioners.

• At this juncture, it is worth to discuss the degree of diligence ought to be exercised by banks in dealing with their clients.

• In the case of banks, however, the degree of diligence required is more than that of a good father of a family. Considering the fiduciary nature of their relationship with their depositors, banks are duty bound to treat the accounts of their clients with the highest degree of care.

• As elucidated in Simex International (Manila), Inc. v. Court of Appeals, in every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose as he sees fit, confident that the bank will deliver it as and to whomever he directs. A blunder on the part of the bank, such as the failure to duly credit him his deposits as soon as they are made, can cause the depositor not a little embarrassment if not financial loss and perhaps even civil and criminal litigation.

• The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. In the case before us, it is apparent that the petitioner bank was remiss in that duty and violated that relationship.

References

Chapter 2 – Nature and Effects of Obligations, Title I, Book IV, Republic Act No. 386, Civil Code

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