BANKING LAWS (SET 1) GREGORIO H. REYES and CONSUELO PUYAT-REYES, vs. THE HON.

COURT OF APPEALS
and FAR EAST BANK AND TRUST COMPANY
G.R. No. 118492, August 15, 2001
DE LEON, JR., J.:

Doctrine:
The higher degree of diligence is not expected to be exerted by banks in
commercial transactions that do not involve fiduciary relationship.

Facts:
Petitioner applied with the respondent bank for a foreign exchange demand
draft in Australian Dollars. The Bank did not have an Australian dollar account in any
bank in Sydney so by way of accommodation the bank offered a roundabout way
which arrangement has been customarily resorted to since the 1960’s and the
procedure has proven to be problem-free; the respondent would draw a demand draft
against Westpac Bank in Sydney and have the latter reimburse itself from the US Dollar
Account of the respondent Bank in Westpac Bank in New York. The petitioner agreed
and a Foreign exchange demand draft was issued, however, the same was dishonored
twice in Australia when it was presented. Petitioner then filed a complaint for damages
before the RTC of Makati on the ground that the respondent bank should have
exercised a higher degree of diligence with the transaction.

Issue:
Whether or not the higher degree of diligence imposed upon banks is
applicable in this case.

Ruling:
No, the rule is 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, but the same higher degree of diligence is not expected to be
exerted by banks in commercial transactions that do not involve fiduciary relationship
with their depositors.Considering the foregoing, the respondent bank was not required
to exert more than the diligence of a good father of a family in regard to the sale and
issuance of the subject foreign exchange demand draft. 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, that is, between the respondent
bank as the seller of the subject foreign exchange demand draft, and PRCI as the buyer
of the same, with the 20th Asian Racing Conference Secretariat in Sydney, Australia as
the payee thereof.

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 COMSAVINGS BANK vs. SPOUSES CAPISTRANOG.R. No. 170942. August 28, 2005.
DOCTRINE:
A banking institution is obliged to exercise the highest degree of diligence as
well as high standards of integrity and performance in all its transactions because its
business is imbued with public interest.
FACTS:
Respondent Spouses Danilo and Estrella Capistrano availed the Unified Home
Lending Program (UHLP) implemented by the National Home Mortgage Finance
Corporation (NHMFC) through an accredited-originator Comsavings Bank. As part of
the requirements for the release of the loan, Comsavings Bank made Capistrano signed
various documents, including a ‘Certificate of House Completion and Acceptance.’
After compliance with the preliminary requirements of the UHLP, an interim financing
loan in the amount of ₱260,000.00, which amount was to be paid out of the proceeds
from NHMFC, was approved and released to the construction contractor GCB Builders.
Thereafter, while the construction is still ongoing and the house was still unfinished,
Capistrano received a letter from NHMFC advising them to pay their monthly
amortizations for the said loan. Respondents protested to said demand contending that
the ‘Certificate of Completion and Acceptance’ passed to NHMFC was only pre-signed
and the construction remained not completed, hence it prompted Capistrano to file a
complaint against Comsavings Bank and GCB Builders for the breach of contract.
ISSUE: Whether or not Comsavings Bank exercised the degree of diligence required of
a banking institution.
RULING:
No, a banking institution like Comsavings Bank serving as an originating bank for
the Unified Home Lending Program (UHLP) of the Government owes a duty to observe
the highest degree of diligence and a high standard of integrity and performance in all
its transactions with its clients because its business is imbued with public interest, to which
it failed to do.In accordance with Article 20 and Article 1170 of the Civil Code,
Comsavings Bank is liable for the damages for their misrepresentations in obtaining the
mortgage loan from NHMFC in the name of the respondents as it submitted false loan
documents, such as photographs of the completed house, and made the respondent
signed the ‘Certificate of House Completion and Acceptance’ even if the construction
of the house had not yet started. Hence, it had prejudiced the respondents as they are
demanded payment for the loan despite the non-completion of the house. These acts
of Comsavings Bank were irregular per se and there is no question that it was grossly
negligent with its dealings with the respondents because it did not comply with is legal
obligation to exercise the required diligence and integrity.
URSAL vs. COURT OF APPEALS
G.R. No. 142411. October 14, 2005
AUSTRIA-MARTINEZ, J.
Doctrine:
The business of the banks is impressed with public interest. They are expected
to exercise more care and prudence in their dealings than private individuals.
Facts:
The spouses Jesus and Cristita Moneset (Monesets), the registered owners of the
subject property, executed a “Contract to Sell Lot & House” in favor of petitioner
Winifreda Ursal. Ursal paid the down payment and took possession of the property but
after paying six monthly installments, petitioner stopped paying due to the Monesets’
failure to deliver to her the transfer certificate of title of the property as per their
agreement. Unknown to Ursal, the Monesets executed an absolute deed of sale in favor
of Dr. Rafael Canora, Jr. over the said property and thereafter executed another sale,
this time with pacto de retro with Restituto Bundalo, and was also mortgaged with
respondent Rural Bank of Larena. For the failure of the Monesets to pay the loan, the
Bank served a notice of extrajudicial foreclosure. Ursal filed an action for declaration of
non-effectivity of mortgage and damages against the Monesets, Bundalo and the
Bank.
Issue:
Whether or not banks can merely rely on the certificate of title of the
mortgaged property.
Ruling:
Banks cannot merely rely on certificates of title in ascertaining the status of
mortgaged properties; as their business is impressed with public interest, they are
expected to exercise more care and prudence in their dealings than private individuals.
Indeed, the rule that persons dealing with registered lands can rely solely on the
certificate of title does not apply to banks.
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 PHILIPPINE NATIONAL BANK (PNB) vs. JUAN F. VILLA
G.R. No. 213241, August 1, 2016
PEREZ, J.
DOCTRINE:
The banking system is an indispensable institution in the modern world and plays
a vital role in the economic life of every civilized nation. Hence, the highest degree of
diligence is expected, and high standards of integrity and performance are even
required, of it.
FACTS:
Spouses Reynaldo Comista and Erlinda Gamboa Comista (Spouses Comista)
are the previous owners of the foreclosed mortgaged real property that has been
transferred to Juan F. Vila (Villa) by way of public auction. Despite the lapse of the
redemption period and the fact of issuance of a Certificate of Final Sale to Villa, the
Spouses were nonetheless allowed to buy back the subject property. Villa filed an action
for nullification of redemption, transfer of title and damages against the Spouses
Comista, the court ruled in favor of the respondent. However, the Sheriff could not
successfully enforce the decision because the certificate of title covering the subject
property was no longer registered under the names of the Spouses Comista, as it was
found out that during the interregnum the Spouses were able to secure a loan from the
petitioner PNB using the same property subject of litigation as security.
ISSUE:
Whether or not petitioner exercised greater care and prudence required to a
bank by the law before it had entered into a mortgage contract.
RULING:
No, before approving a loan application, it is a standard operating practice for
these institutions to conduct an ocular inspection of the property offered for mortgage
and to verify the genuineness of the title to determine the real owner thereof. Here,
petitioner PNB has failed to exercise the requisite due diligence in ascertaining the status
and condition of the property being offered to it as security for the loan before it
approved the same.
The banking system is an indispensable institution in the modern world and plays
a vital role in the economic life of every civilized nation. Whether as mere passive entities
for the safekeeping and saving of money or as active instruments of business and
commerce, banks have become an ubiquitous presence among the people, who have
come to regard them with respect and even gratitude and, most of all, confidence.
Consequently, the highest degree of diligence is expected, and high standards of
integrity and performance are even required, of it.
ONOFRE ANDRES v. PHILIPPINE NATIONAL BANK
G.R. No. 173548, October 15, 2014
LEONEN, J.
DOCTRINE:
A bank that accepts a mortgage based upon a title which appears valid on its face and
after exercising the requisite care, prudence, and diligence appropriate to the public interest
character of its business can be deemed a mortgagee in good faith. The subsequent
consolidation of title in its name after a valid foreclosure shall be respected notwithstanding later
proof showing that the title was based upon a void transaction.
FACTS:
Spouses Victor and Filomena Andres owns a parcel of land which was extrajudicially
partitioned by his widow and his children upon the death of Victor and resulted to the cancellation
of TCT No. NT-7267 and issuance of a new title under TCT No. NT-5773, in the name of Roman Andres,
one of the children and his wife, Lydia Echaus-Andres, who later mortagaged the property to PNB
wherein no objection was made, even after the mortgage had been cancelled. Consequently,
the Nueva Ecija RTC cancelled the guardianship and transferred ownership of the properties of the
deceased, Roman and Lydia Andres, to their only living heir, Reynaldo Andres, who used the title
and mortgaged the property to PNB, without the consent of Onofre Andres. As a result, Petitioner
Onofre Andres, uncle of Reynaldo filed a complaint for cancellation of title and reconveyance of
the property alleging that title in mortgagor's name was based on a falsified document
denominated as “Self-Adjudication of Sole Heir” executed by Reynaldo and his mother who is still
living at that time. PNB denied the material allegations in the complaint arguing that it conducted
an investigation on the property. The trial court ruled in favor of Onofre by voiding all derivative
titles from TCT No. NT-7267 while the Court of Appeals modified this decision by declaring as valid
and existing titile in PNB’s name.
ISSUE:
Whether or not a valid title in favor of PNB can be derived from these void titles.
RULING:
Yes. While it is settled that a simulated deed of sale is null and void and therefore, does
not convey any right that could ripen into a valid title, it has been equally ruled that, for reasons of
public policy, the subsequent nullification of title to a property is not a ground to annul the
contractual right which may have been derived by a purchaser, mortgagee or other transferee
who acted in good faith. The court upholds the Court of Appeals’ findings that PNB complied with
the standard operating practice of banks, which met the requisite level of diligence, when it sent
Gerardo Pestaño to conduct an ocular inspection of the property and verify the status of its
ownership and title. Banks, as businesses impressed with public interest, must exercise greater care,
prudence, and due diligence in all their property dealings. Consequently, PNB is a mortgagee in
good faith. The title resulting from the foreclosure sale, therefore, is to be protected. The bank is an
innocent purchaser for value.
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 PHILIPPINE NATIONAL BANK vs. CORPUZ
G.R. No. 180945. February 12, 2010.
ABAD, J.
Doctrine:
Banks are expected to be more cautious than ordinary individuals in dealing
with lands, even registered ones, since the business of banks is imbued with public
interest.
Facts:
Mercedes Corpuz delivered her owner’s duplicate copy of TCT 32815 to
Dagupan City Rural Bank as security against any liability she might incur as its cashier,
which she later left and went to United States, however, without Corpuz’s knowledge
and consent, Natividad Alano, the rural bank’s manager, turned over Corpuz’s title to
Julita Camacho and Amparo Callejo. Alano, Camacho, and Callejo prepared a
falsified deed of sale, making it appear that Corpuz sold her land to one “Mary Bondoc”
and caused the registration of the deed of sale, resulting in the cancellation of TCT 32815
and the issuance of TCT 63262 in Bondoc’s name. Subsequent transfers were made to
Rufo and Teresa Palaganas and to Virgilio and Elene Songcuan, which resulted in the
issuance of TCT 63528. Finally, the Songcuans took out a loan of P1.1 million from
petitioner Philippine National Bank (PNB) and, to secure payment, they executed a real
estate mortgage on their title.
A complaint was filed by Corpuz against Mary Bondoc, the Palaganases, the
Songcuans, and petitioner PNB, asking for the annulment of the layers of deeds of sale
covering the land, the cancellation of TCTs 63262, 63466, and 63528, and the
reinstatement of TCT 32815 in her name.
Issue:Whether or not petitioner PNB is a mortgagee in good faith, entitling it to its lien on
the title to the property in dispute.
Ruling:
No, PNB is not a mortgagee in good faith. As a rule, the Court would not expect
a mortgagee to conduct an exhaustive investigation of the history of the mortgagor’s
title before he extends a loan. But petitioner PNB is not an ordinary mortgagee; it is a
bank. Banks are expected to be more cautious than ordinary individuals in dealing with
lands, even registered ones, since the business of banks is imbued with public interest. It
is of judicial notice that the standard practice for banks before approving a loan is to
send a staff to the property offered as collateral and verify the genuineness of the title
to determine the real owner or owners.
ANNA MARIE L. GUMABON vs. PHILIPPINE NATIONAL BANK
G.R. No. 202514. July 25, 2016.
J. BRION
Doctrine:
Fiduciary Nature - A bank treats the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship. Fiduciary nature of
banking that requires high standards of integrity and performance.
Facts:
This case is a petition for review on certiorari filed by Anna Marie Gumabon
assailing the decision and resolution of the Court of Appeals. The CA reversed the
Regional Trial Court ruling favoring Anna Marie. Anna Marie filed a complaint for
recovery of sum of money and damages before the RTC against the Philippine National
Bank and the PNB Delta branch manager Silverio Fernandez. The case stemmed from
the PNB’s refusal to release Anna Marie’s money in a consolidated savings account and
in two foreign exchange time deposits, evidenced by Foreign Exchange Certificates of
Time Deposit.
Issue:
Whether or not PNB is liable to Anna Marie for its negligent acts as a banking
institution.
Ruling:
Yes, PNB is liable for its negligence as a banking institution. The Court ruled that
Section 2 of Republic Act No. 8791 declares the State’s recognition of the "fiduciary
nature of banking that requires high standards of integrity and performance." It cannot
be overemphasized that the banking business is impressed with public interest, hence,
the trust and confidence of the public to the industry is given utmost importance. Thus,
the bank is under obligation to treat its depositor’s accounts with meticulous care,
having in mind the nature of their relationship. The bank is required to assume a degree
of diligence higher than that of a good father of a family.
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SPOUSES CARBONELL vs. METROPOLITAN BANK AND TRUST COMPANY
April 26, 2017; G.R. No. 178467
BERSAMIN, J.
Doctrine:
The General Banking Act of 2000 demands of banks the highest standards of
integrity and performance.
Facts:
The petitioners initiated a civil case against the respondent of an action for
damages, alleging that they had experienced emotional shock and public ridicule
during their trip to Thailand because of the respondent's act of releasing five US$ 100
bills that later on turned out to be fake. Upon return to the Philippines, the counsel of the
petitioners had submitted the subject bills to the Bangko Sentral ng Pilipinas (BSP) for
examination; however, the BSP certified that the four US$100 bills were near perfect
genuine notes. Having failed to enter into a compromise, civil case was filed against the
respondent. The Regional Trial Court ruled in favor of the respondent. On appeal, the
Court of Appeals affirmed the RTC. Hence, this case.
Issue:
Whether or not the respondent bank failed to exercise the degree of diligence
required in handling the affairs of its clients
Ruling:
No. The Supreme Court ruled that the General Banking Act of 2000 demands of
banks the highest standards of integrity and performance. In the instant case, the
respondent bank had exercised the diligence required by law in observing the standard
operating procedure, in taking the necessary precautions for handling the US dollar bills
in question, and in selecting and supervising its employees. Moreover, the BSP even
certified that the falsity of the US dollar notes in question, which were "near perfect
genuine notes," could be detected only with extreme difficulty even with the exercise
of due diligence as the security fibers and the printing were perfect except for some
microscopic defects, and that all lines were clear, sharp and well defined. The Supreme
Court dismissed the petition.
BANCO DE ORO vs. REPUBLIC OF THE PHILIPPINES
G.R. No. 198756 January 13, 2015
LEONEN, J.
Doctrine:
The term ‘deposit substitutes’ shall mean an alternative form of obtaining funds
from the public (the term 'public' means borrowing from twenty (20) or more individual
or corporate lenders at any one time) other than deposits, through the issuance,
endorsement, or acceptance of debt instruments for the borrower’s own account, for
the purpose of relending or purchasing of receivables and other obligations, or
financing their own needs or the needs of their agent or dealer.
Facts:
The case involves the proper tax treatment of the discount or interest income
arising from the ₱35 billion worth of 10-year zero-coupon treasury bonds issued by the
Bureau of Treasury on October 18, 2001 (denominated as the Poverty Eradication and
Alleviation Certificates or the PEA Ce Bonds by the Caucus of Development NGO
Networks). Wherein the BIR issued the assailed 2011 ruling, that orders the Bureau of
Treasury to withheld the 20% tax on the said treasury bond, ascertaining that such is not
a substitute deposit, thus is not exempted from taxation. The trial court, upon motion,
issued the restraining order, however, BTr still withheld the 20% tax. Hence, present
petition.
Issue:
Whether the PEACe Bonds are "deposit substitutes" and thus subject to 20% final
withholding tax under the NIRC.
Ruling:
No, the PEACe Bonds are not deposit substitute. Deposit substitutes’ shall mean
an alternative form of obtaining funds from the public (the term 'public' means
borrowing from twenty (20) or more individual or corporate lenders at any one time)
other than deposits, through the issuance, endorsement, or acceptance of debt
instruments for the borrower’s own account, for the purpose of relending or purchasing
of receivables and other obligations, or financing their own needs or the needs of their
agent or dealer.
Hence, the number of lenders is determinative of whether a debt instrument
should be considered a deposit substitute and consequently subject to the 20% final
withholding tax.
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FIRST PLANTERS PAWNSHOP, INC., vs. CIR
G.R. No. 174134, July 30, 2008,
AUSTRIA-MARTINEZ, J.
Doctrine:
It need not be elaborated that pawnshops are non-banks/banking institutions.
Moreover, the nature of their business activities partakes that of a financial intermediary
in that its principal function is lending.
Facts:
First Planters Pawnshop, Inc. (petitioner) contests the deficiency value-added
tax imposed upon it by the Bureau of Internal Revenue (BIR) for the year 2000. The core
of petitioner's argument is that it is not a lending investor within the purview of Section
108(A) of the National Internal Revenue Code (NIRC), as amended, and therefore not
subject to value-added tax (VAT).
In a Pre-Assessment Notice petitioner was informed by the BIR that it has an
existing tax deficiency on its VAT liabilities for the year 2000, the deficiency assessment
was at P541,102.79 for VAT Petitioner protested the assessment for lack of legal and
factual bases. Petitioner subsequently received a Formal Assessment Notice directing
payment. Petitioner sought reconsideration but this was denied by the CTA En Banc.
Issue:
Whether petitioner, engaged in pawnshop business, is liable to pay the
deficiency assessment atP541,102.79 for VAT?
Ruling:
No, R.A. No. 9238 classified pawnshops as Other Non-bank Financial
Intermediaries.
The nature of their business activities partakes that of a financial intermediary in
that its principal function is lending. That pawnshops are to be treated as non-bank
financial intermediaries is further bolstered by the fact that pawnshops are under the
regulatory supervision of the Bangko Sentral ng Pilipinas and covered by its Manual of
Regulations for Non-Bank Financial Institutions. Coming now to the issue at hand - Since
petitioner is a non-bank financial intermediary, it is subject to 10% VAT for the tax years
1996 to 2002; however, with the levy, assessment and collection of VAT from non-bank
financial intermediaries being specifically deferred by law, then petitioner is not liable
for VAT during these tax years and beginning 2004 up to the present, by virtue of R.A.
No. 9238, petitioner is no longer liable for VAT but it is subject to percentage tax on gross
receipts from 0% to 5 %, as the case may be.
PHILIPPINE DEPOSIT INSURANCE CORPORATION vs. CITIBANK
G.R. No. 170290, April 11, 2012
MENDOZA, J.
Doctrine:
Foreign banks; A branch has no separate legal personality from the parent
bank.
Facts:
Philippine Deposit Insurance Corporation (PDIC), a government instrumentality,
conducted an examination of the books of account of Citibank and Bank of America
(BA) which are both duly organized and existing under the laws of the United States of
America and duly licensed to do business in the Philippines. During the examination of
the books, PDIC discovered that both banks received from their head offices huge
amount of dollars which were not reported to PDIC as deposit liabilities subject to
assessment for insurance. Believing that litigation would inevitably arise from this dispute,
Citibank and BA each filed a petition for declaratory relief, stating that the money
placements they received from their head office and other foreign branches were not
deposits and did not give rise to insurable deposit liabilities under Sections 3 and 4 of
R.A. No. 3591 (the PDIC Charter) and, as a consequence, the deficiency assessments
made by PDIC were improper and erroneous. The cases were then consolidated. RTC
ruled in favor of the Citibank and BA, which was affirmed by the Court of Appeals,
hence, the present case.
Issue:
Whether the funds placed in the Philippine branch by the head office and
foreign branches are insurable deposits under the PDIC Charter and, are subject to
assessment for insurance premiums.
Ruling:
No. The Court explained the manner by which a foreign corporation can
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.
In the case of Citibank and BA, it is apparent that they both did not
incorporate a separate domestic corporation to represent its business interests in
the Philippines. Thus, being one and the same entity, the funds placed by the
respondents in their respective branches in the Philippines should not be treated as
deposits made by third parties subject to deposit insurance under the PDIC Charter.
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