BANKING CASES - MIDTERMS

CASE TITLE DOCTRINE

Re: Degree of Diligence
A bank may be held liable for damages by reason of its unjustified dishonor of a check, which caused damage to its client’s credit
Simex Intl.
standing. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible.
Inc. vs. CA
This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to whomever he directs. The bank is a fiduciary of the depositor’s money.
Re: Degree of Diligence
The degree of extraordinary diligence applies only to cases where banks act under their fiduciary capacity, that is, as depositary of the
Reyes et al vs.
deposits of their depositors. But the same higher degree of diligence is not expected to be exerted by banks in commercial
CA
transactions that do not involve their fiduciary relationship with their depositors. 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.
An investment company which loans out the money of its customers, collects the interest and charges a commission to
both lender and borrower, is a bank. It is conceded that a total of 59,463 savings account deposits have been made by the public
with the corporation and its 74 branches, with an aggregate deposit of P1,689,136.74, which has been lent out to such persons as the
RP vs. Security
corporation deemed suitable therefore. It is clear that these transactions partake of the nature of banking, as the term is used in
Credit
Section 2 of the General Banking Act. Hence, defendant corporation has violated the law by engaging in banking without
securing the administrative authority required in Republic Act No. 337. Accordingly, the defendant corporation was ordered
dissolved and appointment of receiver was made permanent.
WON the aforementioned transactions of the Organization do not amount to " banking," as the term is used in Republic Act No.
337

NO. It is true, that such funds are referred to — in the Articles of Incorporation and the By-laws — as their "savings." and that the
depositors thereof are designated as "members," but, even a cursory examination of said documents will readily show that anybody
Central Bank can be a depositor and thus be a "participating member." In other words, the Organization is, in effect, open to the "public" for
vs. Morfe deposit accounts, and the funds so raised may be lent by the Organization. Moreover, the power to so dispose of said funds
is placed under the exclusive authority of the "founder members," and "participating members" are expressly denied the right to vote or be
voted for, their "privileges and benefits," if any, being limited to those which the board of trustees may, in its discretion, determine from
time to time. As a consequence, the "membership" of the "participating members" is purely nominal in nature. This situation is
fraught, precisely, with the very dangers or evils which Republic Act No. 337 seeks to forestall, by exacting compliance
with the requirements of said Act, before the transactions in question could be undertaken.
Re: Debtor-Creditor Relationship
The deposit of money in banks is governed by the Civil Code provisions on simple loan or mutuum.

As there is a debtor-creditor relationship between a bank and its depositor, petitioner bank ultimately acquired ownership of
BPI Family vs. respondent Franco’s deposits but such ownership is coupled with a corresponding obligation to pay him an equal amount on demand.
Franco Although petitioner owns the deposits. it cannot prevent respondent Franco from demanding payment of the former’s obligation by
drawing checks against his current account or asking for the released of the funds in his savings account.

When respondent Franco issued checks drawn against his current account, he had every right as creditor to expect that those checks
would be honored by petitioner bank as debtor.
Re: Debtor-Creditor Relationship
BPI was the debtor and Eastern was the creditor with respect to the joint checking account. Therefore, BPI was obliged to
BPI vs. CA return the amount of the said account only to the creditor. When it allowed the withdrawal of the balance of the account by the heirs
of Velasco, it made the payment to the wrong party. The law provides that payment made by the debtor to the wrong party does not
extinguish its obligation to the creditor who is without fault or negligence. Therefore, BPI was still liable to the true creditor, Eastern.
Re: Survivorship Agreement

The Court ruled that a Survivorship Agreement is neither a donation mortis causa nor a donation inter vivos. It is in the nature of
an aleatory contract whereby one or both of the parties reciprocally bind themselves to give or to do something in
consideration of what the other shall give or do upon the happening of an event which is to occur at an indeterminate time
or is uncertain, such as death. The Court further ruled that a survivorship agreement is per se not contrary to law and thus is valid
Vitug vs. CA
unless its operation or effect may be violative of a law such as in the following instances: (1) it is used as a mere cloak to hide an
inofficious donation; (2) it is used to transfer property in fraud of creditors; or (3) it is used to defeat the legitime of a compulsory
heir. In the instant case, none of the foregoing instances were present. Consequently, the Court upheld the validity of the survivorship
agreement entered into by the spouses Vitug. As such, Romarico, being the surviving spouse, acquired a vested right over the amounts
under the savings account, which became his exclusive property upon the death of his wife pursuant to the survivorship agreement.
Thus, the funds of the savings account are not conjugal partnership properties and not part of the estate of the deceased Dolores.
Re: Bank’s Negligence; Meticulous Care in Treatment of Accounts

Facts: When the respondent spouses opened their joint current account, the “new accounts” teller of the bank by mistake, placed the
old existing separate personal account number of Arthur Canlas on the deposit slip for the new joint checking account of the spouses
so that the initial deposit for the joint checking account was miscredited to Arthur’s personal account. Because of this, one of the
BPI vs. IAC checks issued by one of the spouse was dishonoured for insufficient funds prompting private respondents to file a complaint for
damages against petitioner bank.

Held: There is no merit in petitioner’s argument that it should not be considered negligent, much less held liable for damages on
account of the inadvertence of its bank employee for Article 1173 of the Civil Code only requires it to exercise the diligence of a
good father of a family.
 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 (Simex vs CA, 183 SCRA 360).
Anent petitioner bank's claim that it is not "co-equally liable" with Go for damages, under the fifth paragraph of Article 2180 of the
Civil Code, "Employers shall be liable for the damages caused by their employees . . . acting within the scope of their assigned tasks."
Pursuant to this provision, the bank is responsible for the acts of its employee unless there is proof that it exercised the
Go vs. IAC
diligence of a good father of a family to prevent the damage. Hence, the burden of proof lies upon the bank and it cannot now
disclaim liability in view of its own failure to prove not only that it exercised due diligence to prevent damage but that it was not
negligent in the selection and supervision of its employees.
A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such account consists only
of a few hundred pesos or of millions of pesos. The fact that the other withdrawal slips were honored and paid by respondent bank
Firestone vs. was no license for Citibank to presume that subsequent slips would be honored and paid immediately. By doing so, it failed in its
CA fiduciary duty to treat the accounts of its clients with the highest degree of care.
A bank was likewise made liable when it accepted withdrawal slips for deposit that turned out to be unfunded. The face that
withdrawal slips were honored n the the past does not excuse it from liability.
The bank teller was negligent in validating, officially stamping and signing all the deposit slips prepared and presented by 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.
PBCOM vs.
The bank teller’s negligence, as well as the negligence of the bank in the selection and supervision of its bank teller, is the
CA
proximate cause of the loss suffered by the private respondent, not the latter’s entrusting cash to a dishonest employee.
Xxx Even if Yabut had the fraudulent intention to misappropriate the funds, she would not have been able to deposit those funds
in her husband’s current account, and then make plaintiff believe that it was in the latter’s accounts wherein she had deposited them,
had it not been for the bank teller’s aforesaid gross and reckless negligence.
WON Section 113 of Central Bank Circular No. 960 and Section 8 of R.A. 6426, as amended by P.D. 1246, otherwise known as the
Foreign Currency Deposit Act be made applicable to a foreign transient?

Salvacion vs. The Offshore Banking System and the Foreign Currency Deposit System were designed to draw deposits from foreign lenders and
CB investors. It is these deposits that are induced by the two laws and given protection and incentives by them.
Obviously, the foreign currency deposit made by a transient or a tourist is not the kind of deposit encouraged by PD Nos.
1034 and 1035 and given incentives and protection by said laws because such depositors stays only for a few days in the country and,
therefore, will maintain his deposit in the bank only for a short time.
Re: Garnishment of Deposits

The funds of the PVTA can be garnished since “funds of public corporation which can sue and be sued were not exempt from
garnishment. Inasmuch as the Tobacco Fund, a special fund, was by law, earmarked specifically to answer obligations incurred by
PVTA in connection with its proprietary and commercial operations authorized under the law, it follows that said funds may be
RCBC vs. De
proceeded against by ordinary judicial processes such as execution and garnishment. Garnishment is considered as a specie of
Castro
attachment for reaching credits belonging to the judgment debtor and owing to him from a stranger to the litigation. Under
the above-cited rule, the garnishee [the third person] is obliged to deliver the credits, etc. to the proper officer issuing the writ and
“the law exempts from liability the person having in his possession or under his control any credits or other personal property
belonging to the defendant, …, if such property be delivered or transferred, …, to the clerk, sheriff, or other officer of the court in
which the action is pending.
Re: Secrecy of Bank Deposits
R.A. 1405 is broad enough to cover Trust Account No. 858. However, the protection afforded by the law is not absolute. There
being recognized exceptions thereto, as above-quoted Section 2 provides. In the present case, two exceptions apply, to wit: (1) the
examination of bank accounts is upon order of a competent court in cases of bribery or dereliction of duty of public officials, and
(2) the money deposited or invested is the subject matter of the litigation. Ejercito contends that since plunder is neither bribery nor
dereliction of duty, his accounts are not excepted from the protection of R.A. 1405.

Cases of unexplained wealth are similar to cases of bribery or dereliction of duty and no reason is seen why these two
classes of cases cannot be excepted from the rule making bank deposits confidential. The policy as to one cannot be different
from the policy as to the other. This policy expresses the notion that a public office is a public trust and any person who enters upon
its discharge does so with the full knowledge that his life, so far as relevant to his duty, is open to public scrutiny. Undoubtedly, cases
Ejercito vs. for plunder involve unexplained wealth. The crime of bribery and the overt acts constitutive of plunder are crimes committed by
Sandiganbayan public officers, noble idea that “a public office is a public trust and any person who enters upon its discharge does so with the full
knowledge that his life, so far as relevant to his duty, is open to public scrutiny” applies with equal force.

Also, the plunder case now pending with the Sandiganbayan necessarily involves an inquiry into the whereabouts of the amount
purportedly acquired illegally by former President Joseph Estrada. Republic Act No. 1405 allows the disclosure of bank deposits
in cases where the money deposited is the subject matter of the litigation. Hence, these accounts are no longer protected by
the Secrecy of Bank Deposits Law, there being two exceptions to the said law applicable in this case, namely: (1)the examination of
bank accounts is upon order of a competent court in cases of bribery or dereliction of duty of public officials, and (2)the money
deposited or invested is the subject matter of the litigation. Exception (1) applies since the plunder case pending against former
President Estrada is analogous to bribery or dereliction of duty, while exception (2) applies because the money deposited in Ejercito’s
bank accounts is said to form part of the subject matter of the same plunder case. The “fruit of the poisonous tree” doctrine or the
exclusionary rule is inapplicable in cases of unlawful examination of bank accounts.
Re: Foreign Currency Deposits Act, PDIC Law
PDIC vs. Corporation; head office and branch as one entity. The Court begins by examining the manner by which a foreign corporation can
Citibank establish its presence in the Philippines. It may choose to incorporate its own subsidiary as a domestic corporation, in which case
such subsidiary would have its own separate and independent legal personality to conduct business in the country. In the alternative,
 it may create a branch in the Philippines, which would not be a legally independent unit, and simply obtain a license to do business
in the Philippines.
Philippine banking laws also support the conclusion that the head office of a foreign bank and its branches are considered as
one legal entity.

PDIC Law; Inter-branch deposits; not covered by PDIC Law. As explained by the respondents, the transfer of funds, which resulted
from the inter-branch transactions, took place in the books of account of the respective branches in their head office located in the
United States. Hence, because it is payable outside of the Philippines, it is not considered a deposit pursuant to Section 3(f) of the
PDIC Charter:
Sec. 3(f) The term “deposit” means the unpaid balance of money or its equivalent received by a bank in the usual course of business and
for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account or which is evidenced by its
certificate of deposit, and trust funds held by such bank whether retained or deposited in any department of said bank or deposit in
another bank, together with such other obligations of a bank as the Board of Directors shall find and shall prescribe by regulations to be
deposit liabilities of the Bank; Provided, that any obligation of a bank which is payable at the office of the bank located outside of the
Philippines shall not be a deposit for any of the purposes of this Act or included as part of the total deposits or of the insured deposits;
Provided further, that any insured bank which is incorporated under the laws of the Philippines may elect to include for insurance its
deposit obligation payable only at such branch.
The testimony of Mr. Shaffer as to the treatment of such inter-branch deposits by the FDIC, after which PDIC was modelled, is also
persuasive. Inter-branch deposits refer to funds of one branch deposited in another branch and both branches are part of
the same parent company and it is the practice of the FDIC to exclude such inter-branch deposits from a bank’s total deposit
liabilities subject to assessment.
WON Monetary Board approval is required for PDIC to conduct an investigation on the Banks.

NO. Examination involves an evaluation of the current status of a bank and determines its compliance with the set standards
regarding solvency, liquidity, asset valuation, operations, systems, management, and compliance with banking laws, rules and
regulations.
Investigation, on the other hand, is conducted based on specific findings of certain acts or omissions which are subject of a complaint
or a Final Report of Examination.
Clearly, investigation does not involve a general evaluation of the status of a bank. An investigation zeroes in on specific acts and
omissions uncovered via an examination, or which are cited in a complaint.
An examination entails a review of essentially all the functions and facets of a bank and its operation. It necessitates poring through
voluminous documents, and requires a detailed evaluation thereof. Such a process then involves an intrusion into a bank's records.
PDIC vs. Phil.
In contrast, although it also involves a detailed evaluation, an investigation centers on specific acts or omissions and, thus, requires a
Countryside
less invasive assessment.
Rural Bank
The practical justification for not requiring the Monetary Board approval to conduct an investigation of banks is the administrative
hurdles and paperwork it entails, and the correspondent time to complete those additional steps or requirements. As in other types
of investigation, time is always of the essence, and it is prudent to expedite the proceedings if an accurate conclusion is to be arrived
at, as an investigation is only as precise as the evidence on which it is based. The promptness with which such evidence is gathered
is always of utmost importance because evidence, documentary evidence in particular, is remarkably fungible. A PDIC investigation
is conducted to "determine[e] whether the allegations in a complaint or findings in a final report of examination may properly be the
subject of an administrative, criminal or civil action."
Indeed, while in a literary sense, the two terms may be used interchangeably, under the PDIC Charter, examination and investigation
refer to two different processes. To reiterate, an examination of banks requires the prior consent of the Monetary Board,
whereas an investigation based on an examination report, does not.
Re: BSP Circ. No. 799
In the absence of an express stipulation as to the rate of interest that would govern the parties, the rate of legal interest for loans or
forbearance of any money, goods or credits and the rate allowed in judgments shall no longer be twelve percent (12%) per annum –
as reflected in the case of Eastern Shipping Lines40 and Subsection X305.1 of the Manual of Regulations for Banks and Sections
Nacar vs.
4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB
Gallery Frames
Circular No. 799 – but will now be six percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the
new rate could only be applied prospectively and not retroactively. Consequently, the twelve percent (12%) per annum legal
interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing
rate of interest when applicable.