Bañas vs. Asia Pacific Corp.

, 343 SCRA 527

Facts: Teodoro Bañas executed a Promissory Note in favor of C. G. Dizon Construction whereby for
value received he promised to pay to the order of C. G. Dizon Construction the sum of P390,000.00 in
installments of “P32,500.00 every 25th day of the month starting from September 25, 1980 up to August
25, 1981.”Later, C. G. Dizon Construction endorsed with recourse the Promissory Note to ASIA PACIFIC,
and to secure payment thereof, C. G. Dizon Construction, through its corporate officers, Cenen Dizon,
President, and Juliette B. Dizon, Vice President and Treasurer, executed a Deed of Chattel Mortgage
covering three heavy equipment units of Caterpillar Bulldozer Crawler Tractors Moreover, Cenen Dizon
executed a Continuing Undertaking wherein he bound himself to pay the obligation jointly and severally
with C. G. Dizon Construction.

In compliance thereof, C. G. Dizon Construction made three installment payments to ASIA PACIFIC for a
total of P130,000.00. Thereafter, however, C. G. Dizon Construction defaulted in the payment of the
remaining installments, prompting ASIA PACIFIC to send a Statement of Account to Cenen Dizon for the
unpaid balance of P267,737.50 inclusive of interests and charges, and P66,909.38 representing
attorney’s fees. As the demand was unheeded, ASIA PACIFIC filed a complaint for a sum of money with
prayer for a writ of replevin against Teodoro Bañas, C. G. Dizon Construction and Cenen Dizon. The trial
court issued a writ of replevin against defendant C. G. Dizon Construction for the surrender of the
bulldozer crawler tractors. Of the three bulldozer crawler tractors, only two were actually turned over by
defendants which units were subsequently foreclosed by ASIA PACIFIC to satisfy the obligation. The two
bulldozers were sold both to ASIA PACIFIC as the highest bidder.
Petitioners insist that ASIA PACIFIC was organized as an investment house which could not engage in
the lending of funds obtained from the public through receipt of deposits. The disputed Promissory Note,
Deed of Chattel Mortgage and Continuing Undertaking were not intended to be valid and binding on the
parties as they were merely devices to conceal their real intention which was to enter into a contract of
loan in violation of banking laws. The Regional Trial Court ruled in favor of ASIA PACIFIC holding the
defendants jointly and severally liable for the unpaid balance of the obligation under the Promissory Note.
The Court of Appeals affirmed the decision of the trial court

Issues: Whether the disputed transaction between ASIA PACIFIC was engaged in banking activities.

Held: An investment company refers to any issuer which is or holds itself out as being engaged or
proposes to engage primarily in the business of investing, reinvesting or trading in securities. As defined
in Revised Securities Act, securities “shall include commercial papers evidencing indebtedness of any
person, financial or non-financial entity, irrespective of maturity, issued, endorsed, sold, transferred or in
any manner conveyed to another with or without recourse, such as promissory notes” Clearly, the
transaction between petitioners and respondent was one involving not a loan but purchase of receivables
at a discount, well within the purview of “investing, reinvesting or trading in securities” which an
investment company, like ASIA PACIFIC, is authorized to perform and does not constitute a violation of
the General Banking Act.

What is prohibited by law is for investment companies to lend funds obtained from the public through
receipts of deposit, which is a function of banking institutions. But here, the funds supposedly “lent” to
petitioners have not been shown to have been obtained from the public by way of deposits, hence, the
inapplicability of banking laws. Wherefore, the assailed decision of the Court of Appeals was affirmed.
Simex International (Manila), Inc. vs. CA, 183 SCRA 360

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 standing. 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 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.
Facts: Simex International is a private corporation engaged in the exportation of food products. It buys
these products from various local suppliers and then sells them abroad to the Middle East and the United
States. Most of its exports are purchased by the petitioner on credit. Simex was a depositor of the Far
East Savings Bank and maintained a checking account in its branch in Cubao, Quezon City which issued
several checks against its deposit but was surprised to learn later that they had been dishonored for
insufficient funds. As a consequence, several suppliers sent a letter of demand to the petitioner,
threatening prosecution if the dishonored check issued to it was not made good and also withheld delivery
of the order made by the petitioner. One supplier also cancelled the petitioner’s credit line and demanded
that future payments be made by it in cash or certified check. The petitioner complained to the respondent
bank. Investigation disclosed that the sum of P100,000.00 deposited by the petitioner on May 25, 1981,
had not been credited to it. The error was rectified only a month after, and the dishonored checks were
paid after they were re-deposited. The petitioner then filed a complaint in the then Court of First Instance
of Rizal against the bank for its gross and wanton negligence.

Issue: Whether or not the bank can be held liable for negligence by reason of its unjustified dishonor of
a check

Held: 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 of 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
dishonour of a check without good reason, can cause the depositor not a little embarrassment if not also
financial loss and perhaps even civil and criminal litigation.

Article 2205 of the Civil Code provides that actual or compensatory damages may be received “(2) for
injury to the plaintiff s business standing or commercial credit.” There is no question that the petitioner did
sustain actual injury as a result of the dishonored checks and that the existence of the loss having been
established “absolute certainty as to its amount is not required.” 7 Such injury should bolster all the more
the demand of the petitioner for moral damages and justifies the examination by this Court of the validity
and reasonableness of the said claim.

Reyes vs. CA, G.R. No.118492, 15 August 2001

The degree of extraordinary diligence 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.
Facts: Godofredo, Casheir of the Philippine Racing Club (PCRI), went to respondent bank to apply for a
demand draft in the amount AU$1,610.00 payable to the order of the 20 thAsian Racing Conference
Secretariat of Sydney, Australia. He was attended to by respondent bank’s assistant cashier, Mr. Yasis,
who at first denied the application for the reason that respondent bank did not have an Australian dollar
account in any bank in Sydney. Godofredo asked if there could be a way for respondent bank to
accommodate PRCI’s urgent need to remit Australian dollars to Sydney. Yasis of respondent bank then
informed Godofredo of a roundabout way of effecting the requested remittance to Sydney thus: the
respondent bank would draw a demand draft against Westpac Bank in Sydney, Australia (Westpac-
Sydney) and have the latter reimburse itself from the U.S. dollar account of the respondent in Westpac
Bank in New York, U.S.A. (Westpac-New York).
However, upon due presentment of the foreign exchange demand draft, the same was dishonored, with
the notice of dishonor stating that there is “No account held with Westpac.” Meanwhile, Wespac-New York
sent a cable to respondent bank informing the latter that its dollar account in the sum of AU$ 1,610.00
was debited. 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, 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. Upon its second
presentment for payment, the demand draft 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.
Gregorio Reyes and Consuelo Puyat-Reyes arrived in Sydney on a separate date and both were
humiliated and embarrassed in the presence of international audience after being denied registration of
the conference secretariat since the foreign exchange draft was dishonored. Petitioners were only able to
attend the conference after promising to pay in cash instead which they fulfilled

Issue: Whether or not respondent bank is liable for damages due to the dishonor of the foreign
exchange demand drafts.

Held: Yes. The evidence also shows that the respondent bank exercised that degree of diligence
expected of an ordinary prudent person under the circumstances obtaining; the respondent bank advised
Westpac-New York to honor the reimbursement claim of Westpac-Sydney and to debit the dollar
accountof respondent bank with the former. 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. 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.

DBP vs. CA, 331 SCRA 267

A mistake upon a doubtful or difficult question of law may be the basis of good faith.

FACTS:

Spouses Piñedas are registered owners of a parcel of land in Capiz, which they mortgaged to DBP to
secure the loan (P20,000) they obtained from the latter. Piñedas eventually defaulted, prompting DBP to
extra-judicially foreclose and take possession of such property. The Ministry of Justice, then, opined
through its Opinion No. 92 (’78) that lands covered by P.D. No. 27, to which the subject property was
included, may not be the object of foreclosure proceedings. The Piñedas, then, sought to redeem such
property (with P10,000 as downpayment) but was denied as the land was allegedly tenanted. They then
sought the cancellation of the title and specific performance, stating that DBP acted in bad faith when it
took possession of the property andcaused the consolidation of its title in spite of the fact that the 5-year
redemption period expressly stated in the Sheriff’s Certificate of Sale had not yet lapsed and that their
offer to redeem was within the redemption period.

ISSUE:

Whether or not DBP acted in bad faith when it took possession of the property

RULING: NO.

DBP’s act of consolidating its title and taking possession of the property after the expiration of the
redemption period was in accordance with Sec. 6 of Act No. 3135, which states that if no redemption of a
foreclosed property is made within one year, the purchaser (DBP) is entitled as a matter of right to
consolidate and to possess the property. In addition to this, it was in consonance with Sec. 4 of the
mortgage contract between DBP and the Piñedas where they agreed the appointment of DBP as receiver
to take charge and to hold possession of the mortgaged property in case of foreclosure. In fact, without
DBP’s act of consolidating its title, the Piñedas would not be able to assert their right to repurchase the
property within 5 years, which would begin to run after the expiration of the one-year period. Thus, its acts
cannot be tainted with bad faith nor did it impair Piñedas’ right to repurchase.

It may also be argued that P.D. No. 27 was already in effect when DBP foreclosed the property. However,
the legal propriety of the foreclosure of the land was questioned only after Opinion No. 92 (’78) was
issued, which happened almost 2 months after DBP consolidated its title to the property. By law and
jurisprudence, a mistake upon a doubtful or difficult question of law may properly be the basis of good
faith.

Art. 526 of NCC states that “a possessor in good faith is one who is not aware that there exists in his title
or mode of acquisition any flaw, which invalidates it.” Moreover, Art. 527 of NCC provides “good faith is
always presumed, and upon him who alleges bad faith on the part of the possessor rests the burden of
proof.” Thus, it is incumbent on the Piñedas to prove that DBP was aware of the flaw in its title (nullity of
the foreclosure), but this they failed to do.

UCPB vs. Ramos, G.R. No.147800, November 11, 2003

FACTS: 

United Coconut Planters Bank (UCPB) granted a loan amounting to Zamboanga

Development Corporation (ZDC) with Venicio Ramos, and the Spouses Teofilo Sr. and
Amelita Ramos as sureties. Teofilo Ramos, Sr. was the Executive Officer of the Iglesia ni
Cristo. UPCB granted an additional loan to ZDC with the same sureties. However, ZDC
failed to pay its account to the petitioner despite demands. Thus, a complaint was filed
against ZDC and the said sureties. Judgment was rendered in favor of the petitioner. A
Writ of execution to enforce such decision was issued and Deputy Sheriff Pioquinto P.
Villapana was ordered to levy and attach all the real and personal properties of the
defendants to satisfy the judgment. Eduardo C. Reniva the head of the Litigation and
Enforcement Division was requested to investigate on the properties of the defendants.
Reniva went to one of the properties covered by TCT No. 275167 (PR-13108) and
inspected it. Per information gathered from the neighborhood, Reniva confirmed that
the owners of such property were Spouses Teofilo and Rebecca Ramos. The Sheriff
prepared a notice of levy.

On the other hand, Ramdustrial Corporation applied for a loan with UPCB using the
property covered by the same TCT as collateral. Upon verification of the said property, it
was found that the same property was subjected to a notice of levy on a civil case. The
respondent was shocked and he alleged that he was not a party in the said case and he
was also not aware that his property had been levied by the sheriff. An affidavit of denial
was executed by the respondent stating that he is not one of the judgment debtors in
the previous case and that Teofilo Ramos, Sr., one of the judgment debtors, were not
one and the same person. The responded also wrote to the Sheriff alleging that the
notice of levy on the property was unlawful considering that the respondent was not
Teofilo Ramos, Sr. and cause the cancellation of the said annotation five days from notice
thereof, otherwise, the respondent would take the appropriate civil, criminal or
administrative action against him.

The respondent was informed by the UCPB that Ramdustrial Corporation’s credit line
application had been approved. Subsequently, the respondent executed a promissory
note for the said amount payable to UCPB. The business did not go well, Ramdustrial
Corporation found it difficult to pay the loan. The company again applied for another
loan with UCPB which was however denied. The corporation then applied for a loan with
the Planters Development Bank (PDB), the proceeds of which would be utilized to pay its
account to the UCPB. The respondent offered his property covered by TCT No. 275167 as
collateral with the loan obtained from PDB. It was then discovered that the notice of
levy had not yet been cancelled so PDB withheld the release of the loan pending the
cancellation of the notice of levy. An order was issued ordering the Register of Deeds to
cancel the levy.

ISSUE: 

Whether or not the petitioner acted negligently in causing the annotation of levy on the
title of the respondent

HELD: 

The CA ruled that the petitioner was negligent in causing the annotation of notice of levy
on the title of the petitioner for its failure to determine with certainty whether the
defendant Teofilo Ramos, Sr. in Civil Case No. 16453 was the registered owner of the
property covered by TCT No. 275167. It was held that the petitioner acted negligently
when it caused the annotation of the notice of levy in TCT No. 275167. It bears stressing
that the petitioner is a banking corporation, a financial institution with power to issue its
promissory notes intended to circulate as money (known as bank notes); or to receive
the money of others on general deposit, to form a joint fund that shall be used by the
institution for its own benefit, for one or more of the purposes of making temporary
loans and discounts, of dealing in notes, foreign and domestic bills of exchange, coin
bullion, credits, and the remission of money; or with both these powers, and with the
privileges, in addition to these basic powers, of receiving special deposits, and making
collection for the holders of negotiable paper, if the institution sees fit to engage in such
business. In funding these businesses, the bank invests the money that it holds in trust
of its depositors. For this reason, we have held that the business of a bank is one
affected with public interest, for which reason the bank should guard against loss due to
negligence or bad faith.In approving the loan of an applicant, the
     

bank concerns itself with proper informations regarding its debtors. The petitioner, as a
bank and a financial institution engaged in the grant of loans, is expected to ascertain
and verify the identities of the persons it transacts business with In determining whether
or not the petitioner acted negligently, the constant test is: “Did the defendant in doing
the 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.” It
should have acted more cautiously, especially since some uncertainty had been reported
by the appraiser whom the petitioner had tasked to make verifications.

GSIS vs. Eduardo Santiago, G.R. No.155206, October 28, 2003

FACTS:
Deceased spouses Jose Zulueta and Soledad Ramos obtained various loans from GSIS
from 1956 to 1957 in the total amount of P3,117,000.00 secured by real estate mortgages over
their parcels of land.
The Zuluetas failed to pay their loans to defendant GSIS and the latter foreclosed the
real estate mortgages. On August 1974, the mortgaged properties were sold at public auction
with defendant GSIS being the highest bidder. Not all lots covered by the mortgaged titles,
however, were sold. Ninety-one (91) lots were expressly excluded from the auction since the
lots were sufficient to pay for all the mortgage debts.

A Certificate of Sale was issued later on and an Affidavit of Consolidation of Ownership

was executed by defendant GSIS over Zulueta’s lots, including the lots, which as earlier stated,
were already excluded from the foreclosure. On March 1980, GSIS sold the foreclosed
properties to Yorkstown Development Corporation which sale was disapproved by the Office of
the President. The sold properties were returned to GSIS and the land titles issued in favour of
Yorkstown were subsequently cancelled.

Thereafter, GSIS began disposing the foreclosed lots including the excluded ones.

On April 7, 1990, Representative Eduardo Santiago and then plaintiff Antonio Vic Zulueta
executed an agreement whereby Zulueta transferred all his rights and interests over the
excluded lots. Plaintiff Santiago’s lawyer wrote a demand letter dated May 11, 1989 to
defendant GSIS asking for the return of the eighty-one (81) excluded lots.

On May 7, 1990, Antonio Vic Zulueta, represented by Eduardo M. Santiago, filed with
the Regional Trial Court (RTC) of Pasig City, Branch 71, and a complaint for reconveyance of
real estate against the GSIS. Spouses Alfeo and Nenita Escasa, Manuel III and Sylvia G.
Urbano, and Marciana P. Gonzales and the heirs of Mamerto Gonzales moved to be included as
 intervenors and filed their respective answers in intervention. Subsequently, the petitioner, as
defendant therein, filed its answer alleging inter alia that the action was barred by the statute of
limitations and/or laches and that the complaint stated no cause of action. Subsequently,
Zulueta was substituted by Santiago as the plaintiff in the complaint a quo. Upon the death
of Santiago in 1996, he was substituted by his widow as the plaintiff. After due trial, the RTC
rendered judgment against the petitioner ordering it to reconvey to the respondent, Rosario
Enriquez Vda. De Santiago, in substitution of her deceased husband Eduardo, the seventy-eight
lots excluded from the foreclosure sale.

ISSUES:

I. Whether or not the petitioner acted in bad faith in consolidating ownership and causing the
issuance of titles in its name over the subject lots, notwithstanding that these were expressly
excluded from the foreclosure sale.
II. Whether or not Petitioner’s defense on prescription is tenable.

HELD:

First Issue:

YES. The acts of defendant-appellant GSIS in concealing from the Zuluetas the existence of
these excluded lots, in failing to notify or apprise the spouses Zulueta about the excluded lots
from the time it consolidated its titles on their foreclosed properties, in failing to inform them
when it entered into a contract of sale of the foreclosed properties to Yorkstown as well as when
the said sale was revoked by then President during the same year, demonstrated a clear effort
on its part to defraud the spouses Zulueta and appropriate for itself the subject properties.

Even if titles over the lots had been issued in the name of the defendant-appellant, still it could
not legally claim ownership and absolute dominion over them because indefeasibility of title
under the Torrens system does not attach to titles secured by fraud or misrepresentation. The
fraud committed by defendant-appellant in the form of concealment of the existence of said lots
and failure to return the same to the real owners after their exclusion from the foreclosure sale
made defendant-appellant holders in bad faith. It is well-settled that a holder in bad faith of a
certificate of title is not entitled to the protection of the law for the law cannot be used as a shield
for fraud.

Second Issue:
NO. On the issue of prescription, generally, an action for reconveyance of real property based
on fraud prescribes in four years from the discovery of fraud; such discovery is deemed to have
taken place upon the issuance of the certificate of title over the property. Registration of real
property is a constructive notice to all persons and, thus, the four-year period shall be counted
therefrom. On the other hand, Article 1456 of the Civil Code provides:
Art. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of
law, considered a trustee of an implied trust for the benefit of the person from whom the
property comes.
An action for reconveyance based on implied or constructive trust prescribes in ten years from
the alleged fraudulent registration or date of issuance of the certificate of title over the property.
The petitioner’s defense of prescription is untenable. As held by the CA, the general rule that
the discovery of fraud is deemed to have taken place upon the registration of real property
because it is “considered a constructive notice to all persons” does not apply in this case.
Contrary to its claim, the petitioner unarguably had the legal duty to return the subject lots to the
Zuluetas. The petitioner’s attempts to justify its omission by insisting that it had no such duty
under the mortgage contract is obviously clutching at straw. Article 22 of the Civil Code
explicitly provides that “every person who, through an act of performance by another, or any
other means, acquires or comes into possession of something at the expense of the latter
without just or legal ground, shall return the same to him.”
Posted by jpendleton at 11:05 AM
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Labels: Case, Case Digest, Digest, G.R. No. 155206, GSIS vs. Santiago. Land Titles and
Deeds, LTD, October 28 2003

Central Bank vs. CA, 208 SCRA 652

The following requisites must be present before the order of conservatorship may
be set aside by a court: (1) The appropriate pleading must be filed by the
stockholders of record representing the majority of the capital stock of the bank
in the proper court; (2) Said pleading must be filed within ten (10) days from
receipt of notice by said majority stockholders of the order placing the bank
under conservatorship; and (3) There must be convincing proof, after hearing,
that the action is plainly arbitrary and made in bad faith.

Facts: Central Bank discovered that certain questionable loans extended by Producer’s Bank of the
Philippines (PBP), totalling approximately P300 million (the paid-in capital of PBP amounting only to P
140.544 million, were fictitious as they were extended, without collateral, to certain interests related to
PBP owners themselves. Subsequently and during the same year, several blind items about a family-
owned bank in Binondo which granted fictitious loans to its stockholders appeared in major newspapers
which triggered a bank-run in PBP and resulted in continuous over-drawings on the bank’s demand
deposit account with the Central Bank; reaching to P 143.955 million. Hence, on the basis of the report
submitted by the Supervision and Examination Sector, the Monetary Board (MB), placed PBP under
conservatorship.

PBP submitted a rehabilitation plan to the CB which proposed the transfer to PBP of 3 buildings owned
by Producers Properties, Inc. (PPI), its principal stockholder and the subsequent mortgage of said
properties to the CB as collateral for the bank’s overdraft obligation but which was not approved due to
disagreements between the parties. Since no other rehabilitation program was submitted by PBP for
almost 3 years its overdrafts with the CB continued to accumulate and swelled to a staggering P1.023
billion. Consequently, the CB Monetary Board decided to approve in principle what it considered a viable
rehabilitation program for PBP. There being no response from both PBP and PPI on the proposed
rehabilitation plan, the MB issued a resolution instructing Central Bank management to advise the bank
that the conservatorship may be lifted if PBP complies with certain conditions.
Without responding to the communications of the CB, PBP filed a complaint with the Regional Trial Court
of Makati against the CB, the MB and CB Governor alleging that the resolutions issued were arbitraty and
made in bad faith. Respondent Judge issued a temporary restraining order and subsequently a writ of
preliminary injunction. CB filed a motion to dismiss but was denied and ruled that the MB resolutions were
arbitrarily issued. CB filed a petition for certiorari before the Court of Appeals seeking to annul the orders
of the trial court but CA affirmed the said orders. Hence this petition.
Issue: Whether or not the trial court erred in not dismissing the case for lack of cause of action and
declaring the MB resolutions as arbitrary.

Held: The following requisites must be present before the order of conservatorship may be set aside by
a court: (1) The appropriate pleading must be filed by the stockholders of record representing the majority
of the capital stock of the bank in the proper court; (2) Said pleading must be filed within ten (10) days
from receipt of notice by said majority stockholders of the order placing the bank under conservatorship;
and (3) There must be convincing proof, after hearing, that the action is plainly arbitrary and made in bad
faith.

In the instant case, the original complaint was filed more than 3 years after PBP was placed under
conservator, long after the expiration of the 10-day period deferred to above. It is also beyond question
that the complaint and the amended complaint were not initiated by the stockholders of record
representing the majority of the capital stock.

PCIBank vs. CA, 350 SCRA 446