Republic Act. No. 7653 As Amended by Act. No. 11211

3A (2019-2020) | GBL CASE DIGESTS
ALICE A.I. SANDEJAS, ROSITA A.I. CUSI, PATRICIA A.I. SANDEJAS and BENJAMIN A.I. ESPIRITU, Petitioners, vs. SPS.
ARTURO IGNACIO, JR. and EVELYN IGNACIO, Respondents.
G.R. No. 155033, December 19, 2007, Austria-Martinez J.
Doctrine:
“As to SBTC and its officers, their negligence is so gross as to amount to a willfull injury to respondents. The banking system has
become an indispensable institution in the modern world and plays a vital role in the economic life of every civilized
society. Whether as mere passive entities for the safe-keeping and saving of money or as active instruments of business and
commerce, banks have attained a ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and most of all, confidence. For this reason, banks should guard against injury attributable to negligence or bad faith on
its part.”
Statement of the Facts:
Arturo is the elder brother of Alice and Rosita. Benjamin and Patricia are Arturo's nephew and niece. Arturo and his wife
Evelyn are residents of the United States. In 1993, Arturo leased from Dr. Borja a condominium unit in Quezon City for the
benefit of Benjamin who is the occupant of the unit. The rentals were paid by Arturo. It appears that Arturo was intending to
renew the lease contract. As he had to leave for the U.S., Arturo drew up a UCPB check and wrote on it the name of the payee,
Dr. Manuel Borja. He signed the check. The check was intended as payment for the renewal of the lease. The date and the
amount were left blank because Arturo does not know when it will be renewed and the new rate of the lease. The check was
left with Arturo's sister-in-law who was instructed to deliver or give it to Benjamin.
The check later came to the possession of Alice who felt that Arturo cheated their sister in the amount of ₱3,000,000.00. She
believed that Arturo and Rosita had a joint "and/or" money market placement in the amount of P3 million with the UCPB
branch in San Juan, as the payment for the sale of Rosita’s property in Morayta, and that Ignacio pre-terminated the placement
and ran away with it, which rightfully belonged to Rosita. Alice, together with Rosita, drew up a scheme to recover the
₱3,000,000.00 from Arturo. Alice filled up the date of the check with "March 17, 1995" and the amount with "three million
only."
Alice got her driver, Kudera, to stand as the payee of the check, Dr. Borja. They went to SBC Greenhills Branch together with
Kudera whom they introduced as Dr. Borja to the then Assistant Cashier Luis. After introducing the said man as Dr. Borja,
Rosita, Alice and the man who was later identified as Kudera opened a Joint Savings Account, and deposited the check there.
No ID card was required of Mr. Kudera because it is an internal policy of the bank that when a valued client opens an account,
an identification card is no longer required. SBC also allowed the check to be deposited without the endorsement of the
impostor Kudera. SBC officials stamped on the dorsal portion of the check "endorsement/lack of endorsement guaranteed"
and sent the check for clearing to the Philippine Clearing House Corporation.
After the check had already been cleared by the drawer bank UCPB, Rosita withdrew P1 million and deposited said amount to
the current account of Alice with SBC Greenhills Branch, and also caused the transfer of P2 million to two (2) Investment
Savings Accounts in the names of Alice, Rosita and/or Patricia.
Statement of the Case:
Arturo Ignacio, Jr. and Evelyn Ignacio filed a verified complaint for recovery of a sum of money and damages against
Security Bank and Trust Company (SBTC) and its officers, particularly its manager and cashier, and against Benjamin.
It was later amended by additionally impleading Alice, Rosita and Patricia.
The RTC ruled in favor of Sps. Ignacio, and was awarded moral and exemplary damages, and attorney’s fees to be paid by
SBTC, its manager and cashier, Alice and Rosita. In turn, Sps. Ignacio are directed to pay Benjamin and Patricia moral and
exemplary damages, and attorney's fees.
Both parties appealed to the CA, which affirmed the RTC decision with modification. The CA deleted the award of moral and
exemplary damages and attorney’s fees in favor of Patricia and Benjamin.
Issue:
Whether or not the rule of pari delicto applies in the given case;
Whether or not Patricia is entitled to the payment of damages;
Whether or not Benjamin is entitled to the payment of damages;
Whether or not the award for moral and exemplary damage in favor of the respondents should be maintained. (SPCL)
Ruling:
NO. The rule of pari delicto does not apply in the given case.
The principle of pari delicto provides that when two parties are equally at fault, the law leaves them as they are and denies
recovery by either one of them. Indeed, one who seeks equity and justice must come to court with clean hands. However, in the
present case, petitioners were not able to establish that respondents are also at fault. Thus, the principle of pari delicto cannot
apply.
In any case, the application of the pari delicto principle is not absolute, as there are exceptions to its application. One of these
exceptions is where the application of the pari delicto rule would violate well-established public policy. The prevention of
lawlessness and the maintenance of peace and order are established public policies. In the instant case, to deny respondents
relief on the ground of pari delicto would put a premium on the illegal act of petitioners in taking from respondents what the
former claim to be rightfully theirs.
NO. Patricia is not entitled to the payment of damages.
As to Patricia's entitlement to damages, this Court has held that while no proof of pecuniary loss is necessary in order that
moral damages may be awarded, the amount of indemnity being left to the discretion of the court, it is nevertheless essential
that the claimant should satisfactorily show the existence of the factual basis of damages and its causal connection to
defendant’s acts. This is so because moral damages, though incapable of pecuniary estimation, are in the category of an
award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the
wrongdoer. Moreover, additional facts must be pleaded and proven to warrant the grant of moral damages under the Civil
Code, these being, social humiliation, wounded feelings, grave anxiety, etc. that resulted from the act being complained of. In
the present case, both the RTC and the CA were not convinced that Patricia is entitled to damages. This Court finds no cogent
reason to depart from the findings as Patricia failed to satisfactorily show the existence of the factual basis for granting her
moral damages and the causal connection of such fact to the act of respondents in filing a complaint against her.
NO. Benjamin is not entitled to the payment of damage.
Settled in our jurisprudence is the rule that moral damages cannot be recovered from a person who has filed a complaint
against another in good faith, or without malice or bad faith. If damage results from the filing of the complaint, it is
damnum absque injuria. In the present case, the Court agrees with the RTC and the CA that petitioners failed to establish
that respondents were moved by bad faith or malice in impleading Patricia and Benjamin. Hence, Patricia and Benjamin are
not entitled to damages.
YES. The award for moral and exemplary damage as well as attorney’s fees in favor of the respondents should be
maintained.
As to moral damages, Article 20 of the Civil Code provides that every person who, contrary to law, willfully or negligently
causes damage to another, shall indemnify the latter for the same. In addition, Article 2219 (10) of the Civil Code provides that
moral damages may be recovered in acts or actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35 of the same
Code. More particularly, Article 21 of the said Code provides that any person who willfully causes loss or injury to
another in a manner that is contrary to morals, good customs, or public policy shall compensate the latter for the
damage. In the present case, the act of Alice and Rosita in fraudulently encashing the subject check to the prejudice of
respondents is certainly a violation of law as well as of the public policy that no one should put the law into his own hands. As
to SBTC and its officers, their negligence is so gross as to amount to a willfull injury to respondents. The banking
system has become an indispensable institution in the modern world and plays a vital role in the economic life of
every civilized society. Whether as mere passive entities for the safe-keeping and saving of money or as active
instruments of business and commerce, banks have attained a ubiquitous presence among the people, who have come
to regard them with respect and even gratitude and most of all, confidence. For this reason, banks should guard
against injury attributable to negligence or bad faith on its part.
Likewise, the Court finds no compelling reason to disturb the modifications made by the CA on the award of exemplary
damages and attorney's fees.
Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or correction for
the public good, in addition to moral, temperate, liquidated, or compensatory damages. In the instant case, the award
of exemplary damages in favor of respondents is in order for the purpose of deterring those who intend to enforce
their rights by taking measures or remedies which are not in accord with law and public policy. On the part of
respondent bank, the public relies on a bank's sworn profession of diligence and meticulousness in giving
irreproachable service. Hence, the level of meticulousness must be maintained at all times by the banking sector. In
the present case the award of exemplary damages is justified by the brazen acts of petitioners Rosita and Alice in violating the
law coupled with the gross negligence committed by respondent bank and its officers in allowing the subject check to be
deposited which later paved the way for its encashment.
Dispositive Portion:
WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals is AFFIRMED.
BANK OF AMERICA NT & SA, Petitioner, vs. PHILIPPINE RACING CLUB, Respondent.
G.R. No. 150228, July 30, 2009, Leonardo-De Castro J.
Doctrine:
“It is well-settled that banks are engaged in a business impressed with public interest, and it is their duty to protect in return the ir
many clients and depositors who transact business with them. They have the obligation to treat their client’s account meticulously
and with the highest degree of care, considering the fiduciary nature of their relationship. The diligence required of banks,
therefore, is more than that of a good father of a family.”
PRCI is a domestic corporation which maintains several accounts with different banks in the Metro Manila area. Among the
accounts maintained was a current account with BA (Paseo de Roxas Branch). The authorized joint signatories with respect to
said current account were PRCI’s President (Antonia Reyes) and Vice President for Finance (Gregorio Reyes).
The President and Vice President of PRCI were scheduled to go out of the country in connection with the corporation’s
business. In order not to disrupt operations in their absence, they pre-signed several checks relating to the current
account. The intention was to insure continuity of PRCI’s operations by making available cash/money especially to
settle obligations that might become due. These checks were entrusted to the accountant with instruction to make use
of the same as the need arose. The internal arrangement was, in the event there was need to make use of the checks,
the accountant would prepare the corresponding voucher and thereafter complete the entries on the pre-signed
checks.
It turned out that a John Doe presented to BA for encashment a couple of PRCI’s checks with the indicated value of
P110,000.00 each. It is admitted that these 2 checks were among those presigned by PRCI’s authorized signatories.
The two (2) checks had similar entries with similar infirmities and irregularities. On the space where the name of the payee
should be indicated (Pay To The Order Of) the following 2-line entries were instead typewritten: on the upper line was the
word "CASH" while the lower line had the following typewritten words, viz: "ONE HUNDRED TEN THOUSAND PESOS ONLY."
Despite the highly irregular entries on the face of the checks, BA, without as much as verifying and/or confirming the
legitimacy of the checks considering the substantial amount involved and the obvious infirmity/defect of the checks
on their faces, encashed said checks. A verification process, even by was of a telephone call to PRCI office, would have
taken less than ten (10) minutes. But this was not done by BA. Investigation conducted by PRCI yielded the fact that
there was no transaction involving PRCI that call for the payment of P220,000.00 to anyone. The checks appeared to
have come into the hands of an employee of PRCI who eventually completed without authority the entries on the pre-signed
checks. PRCI’s demand for BA to pay fell on deaf ears. Hence, the complaint.
The trial court rendered a Decision in favor of respondent. BA appealed the aforesaid trial court Decision to the CA which,
however, affirmed said decision. BA’s Motion for Reconsideration of the CA Decision was subsequently denied.
Petitioner now comes before this Court.
Issue:
Whether the proximate cause of the wrongful encashment of the checks in question was due to:
(a) petitioner’s failure to make a verification regarding the said checks with the respondent in view of the
misplacement of entries on the face of the checks or
(b) the practice of the respondent of pre-signing blank checks and leaving the same with its employees.
Ruling:
The proximate cause of the wrongful encashment of the checks in question was due to BA’s failure to make a
verification regarding the said checks with the PRCI in view of the misplacement of entries on the face of the checks.
It is well-settled that banks are engaged in a business impressed with public interest, and it is their duty to protect in return
their many clients and depositors who transact business with them. They have the obligation to treat their client’s account
meticulously and with the highest degree of care, considering the fiduciary nature of their relationship. The diligence
required of banks, therefore, is more than that of a good father of a family.
Although not in the strict sense "material alterations," the misplacement of the typewritten entries for the payee and the
amount on the same blank and the repetition of the amount using a check writer were glaringly obvious irregularities on the
face of the check. Clearly, someone made a mistake in filling up the checks and the repetition of the entries was possibly an
attempt to rectify the mistake. Also, if the check had been filled up by the person who customarily accomplishes the
checks of respondent, it should have occurred to petitioner’s employees that it would be unlikely such mistakes
would be made. All these circumstances should have alerted the bank to the possibility that the holder or the person
who is attempting to encash the checks did not have proper title to the checks or did not have authority to fill up and
encash the same. As noted by the CA, petitioner could have made a simple phone call to its client to clarify the
irregularities and the loss to respondent due to the encashment of the stolen checks would have been prevented.
In the case at bar, extraordinary diligence demands that petitioner should have ascertained from respondent the
authenticity of the subject checks or the accuracy of the entries therein not only because of the presence of highly
irregular entries on the face of the checks but also of the decidedly unusual circumstances surrounding their
encashment. Respondent’s witness testified that for checks in amounts greater than Twenty Thousand Pesos
(₱20,000.00) it is the company’s practice to ensure that the payee is indicated by name in the check. This was not
rebutted by petitioner. Indeed, it is highly uncommon for a corporation to make out checks payable to "CASH" for substantial
amounts such as in this case. If each irregular circumstance in this case were taken singly or isolated, the bank’s
employees might have been justified in ignoring them. However, the confluence of the irregularities on the face of the
checks and circumstances that depart from the usual banking practice of respondent should have put petitioner’s
employees on guard that the checks were possibly not issued by the respondent in due course of its business.
Petitioner’s subtle sophistry cannot exculpate it from behavior that fell extremely short of the highest degree of care and
diligence required of it as a banking institution.
Indeed, taking this with the testimony of petitioner’s operations manager that in case of an irregularity on the face of the check
(such as when blanks were not properly filled out) the bank may or may not call the client depending on how busy the bank is
on a particular day, we are even more convinced that petitioner’s safeguards to protect clients from check fraud are arbitrary
and subjective. Every client should be treated equally by a banking institution regardless of the amount of his deposits
and each client has the right to expect that every centavo he entrusts to a bank would be handled with the same
degree of care as the accounts of other clients. Perforce, we find that petitioner plainly failed to adhere to the high
standard of diligence expected of it as a banking institution.
WHEREFORE, the Decision of the Court of Appeals and its Resolution are AFFIRMED with MODIFICATIONS.
CITIBANK, N.A., Petitioner, v. ATTY. ERNESTO S. DINOPOL, Respondent.
G.R. No. 188412, November 22, 2010, Mendoza J.
Doctrine:
“In its declaration of policy, the General Banking Law of 2000 requires of banks the highest standards of integrity and
performance. Needless to say, a bank is 'under obligation to treat the accounts of its depositors with meticulous care.' The
fiduciary nature of the relationship between the bank and the depositors must always be of paramount concern.”
Sometime in December 1996, Atty. Dinopol availed of Citibank's 'Ready Credit Checkbooks' advertised offer. After approving
his application, Citibank granted Atty. Dinopol a credit line limit of P30,000.00. For said reason, Atty. Dinopol received from
Citibank a check booklet consisting of several checks with a letter stating that the account was 'ready to use.' Later, Citibank
billed Atty. Dinopol the sum of P1,545.00 representing Ready Credit Documentary Stamp and Annual Membership
Fee as reflected in his Statement of Account. Thereafter, Citibank billed him the amount of P1,629.21 for interest and
charges as well as late payment charges. Atty. Dinopol paid said interests and charges on February 26, 1997.
On March 6, 1997, Atty. Dinopol issued a check using his credit checkbook account with Citibank in the amount of P30,000.00
in favor of one Dr. Marietta M. Geonzon for investment purposes in her restaurant business. However, when the check was
deposited on March 12, 1997, it was dishonored for the reason, 'Drawn Against Insufficient Funds' or 'DAIF.'
Humiliated by the dishonor and the demand notice he received from Dr. Geonzon, Atty. Dinopol filed a civil action for damages
against Citibank before the RTC. Atty. Dinopol alleged that said bank was grossly negligent and acted in bad faith in
dishonoring his check.
In defense, Citibank averred that it was completely justified in dishonoring Atty. Dinopol's check because the account did not
have sufficient funds at the time it was issued. Citibank explained that when said check in the amount of P30,000.00 was
issued, his credit line was already insufficient to accommodate it. His credit limit had been reduced by the interests and
penalty charges imposed as a result of his late payment. Citibank argued that had Atty. Dinopol been prompt in the payment of
his obligations, he would not have incurred interests and penalty charges and his credit line of P30,000.00 would have been
available at the time the check was issued and presented for payment.
The RTC rendered a decision against Citibank, and ordered the bank to pay moral damages and attorney's fees. The RTC
reasoned out, among others, that Citibank failed to completely disclose the terms and conditions of its 'Citybank
Ready Credit Account' when Atty. Dinopol applied for it. Furthermore, the RTC found that Atty. Dinopol was given a 'go
signal' by Citibank when he informed the latter that he was going to issue a check in the amount of P30,000.00.
Citibank failed to advise him that he still had an outstanding balance of P58.33 as of February 26, 1997. Had he been
informed, he could have paid such a small amount and avoided the dishonor of his check.
The CA affirmed the RTC decision with modification. It increased the award of moral damages and awarded exemplary
damages.
Hence, this petition.
Issue:
Whether or not CitiBank is liable to Atty. Dinopol for damages;
Ruling:
YES. Citibank is liable to Atty. Dinopol for moral and exemplary damages and attorney's fees.
Citibank was at fault when it dishonored the subject check. First, Citibank claims that, as a matter of standard operating
procedure, it sent to Atty. Dinopol the Citibank Ready Credit Customer Guidebook upon the approval of his Ready
Credit Account application and so, he was aware of the terms and conditions stated therein. Yet, except for its bare
allegation, no other substantial proof was presented by Citibank that the guidebook was indeed sent to Atty. Dinopol. In fact,
its witness, Hernando, admitted that the subject handbook was not at all delivered to him.
Second, when Atty. Dinopol issued the subject check for the full amount of P30,000.00 and Citibank dishonored it because of
insufficiency of funds by P58.33 representing the amount charged on his credit line for penalties and charges, the said amount
was not yet overdue. The bank's Statement of Account dated January 26, 1997 showed that he must pay the total amount
of P1,629.21 representing the annual membership fee of P1,500.00, documentary stamp tax of P45.00, late charges of P10.00
and interest/charges of P74.21. On February 26, 1997, he immediately paid the full amount of P1,629.21 as evidenced by his
credit card payment. The full payment was reflected in his statement of account dated February 26, 1997. The same statement
of account indicated that there were still charges amounting to P58.33 due for payment on March 19, 1997. To reiterate, the
check was issued on March 6, 1997 and dishonored on March 12, 1997, both dates being days before the said due date.
Contrary to Citibank's insistence, Atty. Dinopol was definitely not yet a delinquent account holder. More importantly, Citibank
failed to consider the fact that Atty. Dinopol issued the check on March 6, 1997 after paying the full amount of P1,629.21 and
clearing with the bank if he could issue a check in the amount of P30,000.00. Citibank did not even refute the allegation that it
gave Atty. Dinopol the go-signal to issue such a check.
With respect to the award of moral damages, it should be granted in reasonable amounts depending on the facts and
circumstances of the case. Moral damages are meant to compensate the claimant for any physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and
similar injuries unjustly caused.
As to the award of exemplary damages, the law allows it by way of example for the public good. The business of banking is
impressed with public interest and great reliance is made on the bank's sworn profession of diligence and
meticulousness in giving irreproachable service. Thus, the Court affirms the award as a way of setting an example for
the public good. In addition, it also provided for attorney's fees.
In any event, Citibank should have been more cautious in dealing with its clients since its business is imbued with public
interest. Banks must always act in good faith and must win the confidence of clients and people in general. It is irrelevant
whether the client is a lawyer or not.
It cannot be over emphasized that the banking business is impressed with public interest. Of paramount importance is the
trust and confidence of the public in general in the banking industry. Consequently, the diligence required of banks is more
than that of a Roman pater familias or a good father of a family. The highest degree of diligence is expected.
In its declaration of policy, the General Banking Law of 2000 requires of banks the highest standards of integrity and
performance. Needless to say, a bank is 'under obligation to treat the accounts of its depositors with meticulous care.'
The fiduciary nature of the relationship between the bank and the depositors must always be of paramount concern.
WHEREFORE, the Decision of the Court of Appeals is MODIFIED.
In view of the foregoing, judgment is hereby rendered ordering defendant Citibank N.A to pay plaintiff Atty. Ernesto S.
Dinopol the following: chan roble s virtual law lib rary
1] P100,000.00 as and for moral damages; chanrob lesvi rtualaw lib rary
2] P50,000.00 as and for exemplary damages; chanro blesvi rtua lawlib rary
3] P50,000.00 as and for attorney's fees; and
4] Costs of suit,
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. CASA MONTESSORI INTERNATIONALE LEONARDO T.
YABUT, respondents.
G.R. No. 149454, May 28, 2004, Panganiban J.
CASA MONTESSORI INTERNATIONALE, petitioner, vs. BANK OF THE PHILIPPINE ISLANDS, respondent.
G.R. No. 149507, May 28, 2004, Panganiban J.
Doctrine:
“By the nature of its functions, a bank is required to take meticulous care of the deposits of its clients, who have the right to expect
high standards of integrity and performance from it. Among its obligations in furtherance thereof is knowing the signatures of its
clients. Depositors are not estopped from questioning wrongful withdrawals, even if they have failed to question those errors in
the statements sent by the bank to them for verification.”
CASA Montessori International opened a current account with BPI, with CASA’s President Ms. Ma. Carina C. Lebron as one of its
authorized signatories.
In 1991, after conducting an investigation, CASA discovered that nine (9) of its checks had been encashed by a certain Sonny D.
Santos since 1990 in the total amount of ₱782,000.00.
It turned out that ‘Sonny D. Santos’ with account at BPI’s Greenbelt Branch was a fictitious name used by Leonardo T. Yabut
who worked as external auditor of CASA. Yabut voluntarily admitted that he forged the signature of Ms. Lebron and
encashed the checks. The PNP Crime Laboratory conducted an examination of the nine (9) checks and concluded that
the handwritings thereon compared to the standard signature of Ms. Lebron were not written by the latter.
CASA filed a complaint for collection with damages against BPI praying that the latter be ordered to reinstate the amount of
₱782,500.00 in the current and savings accounts of CASA.
The RTC rendered decision in favor of CASA.
Modifying the Decision of the RTC, the CA apportioned the loss between BPI and CASA. The appellate court took into account
CASA’s contributory negligence that resulted in the undetected forgery. It then ordered Yabut to reimburse BPI half the total
amount claimed; and CASA, the other half. It also disallowed attorney’s fees and moral and exemplary damages.
Issue:
Whether or not there was forgery under the Negotiable Instruments Law (NIL);
Whether or not BPI is negligent; (SPCL)
Whether or not moral and exemplary damages and attorney’s fees should be awarded;
Ruling:
First Issue:
YES. There is forgery.
Under Sec. 23 of the NIL, a forged signature is a real or absolute defense, and a person whose signature on a negotiable
instrument is forged is deemed to have never become a party thereto and to have never consented to the contract that
allegedly gave rise to it. The counterfeiting of any writing, consisting in the signing of another’s name with intent to defraud, is
forgery.
In the present case, we hold that there was forgery of the drawer’s signature on the check.
First, respondent Yabut himself had voluntarily admitted, through an Affidavit, that he had forged the drawer’s signature and
encashed the checks. He never refuted these findings. Second, the PNP Crime Laboratory, after its examination of the said
checks, had concluded that the handwritings thereon -- compared to the standard signature of the drawer -- were not
hers. This conclusion was the same as that in the Report that the PNP Crime Laboratory had earlier issued to BPI -- the drawee
bank -- upon the latter’s request.
Second Issue:
YES. BPI was negligent.
Having established the forgery of the drawer’s signature, BPI -- the drawee -- erred in making payments by virtue thereof. The
forged signatures are wholly inoperative, and CASA -- the drawer whose authorized signatures do not appear on the
negotiable instruments -- cannot be held liable thereon. Neither is the latter precluded from setting up forgery as a real
defense.
Clear Negligence in Allowing Payment Under a Forged Signature
Since the banking business is impressed with public interest, of paramount importance thereto is the trust and
confidence of the public in general. Consequently, the highest degree of diligence is expected, and high standards of
integrity and performance are even required, of it. By the nature of its functions, a bank is "under obligation to treat
the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship."
BPI contends that it has a signature verification procedure, in which checks are honored only when the signatures therein are
verified to be the same with or similar to the specimen signatures on the signature cards. Nonetheless, it still failed to detect
the eight instances of forgery. Its negligence consisted in the omission of that degree of diligence required of a bank. It
cannot now feign ignorance, for very early on we have already ruled that a bank is "bound to know the signatures of
its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and
cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged." In fact, BPI was
the same bank involved when we issued this ruling seventy years ago.
Neither Waiver nor Estoppel Results from Failure to Report Error in Bank Statement
The monthly statements issued by BPI to its clients contain a notice worded as follows: "If no error is reported in ten (10)
days, account will be correct." Such notice cannot be considered a waiver, even if CASA failed to report the error. Neither is it
estopped from questioning the mistake after the lapse of the ten-day period.
This notice is a simple confirmation or "circularization" -- in accounting parlance -- that requests client-depositors to affirm
the accuracy of items recorded by the banks. Its purpose is to obtain from the depositors a direct corroboration of the
correctness of their account balances with their respective banks. Internal or external auditors of a bank use it as a basic audit
procedure -- the results of which its client-depositors are neither interested in nor privy to -- to test the details of transactions
and balances in the bank’s records. Evidential matter obtained from independent sources outside a bank only serves to
provide greater assurance of reliability than that obtained solely within it for purposes of an audit of its own financial
statements, not those of its client-depositors.
Estoppel precludes individuals from denying or asserting, by their own deed or representation, anything contrary to that
established as the truth, in legal contemplation. Our rules on evidence even make a juris et de jure (conclusive)
presumption that whenever one has, by one’s own act or omission, intentionally and deliberately led another to
believe a particular thing to be true and to act upon that belief, one cannot -- in any litigation arising from such act or
omission -- be permitted to falsify that supposed truth.
In the instant case, CASA never made any deed or representation that misled BPI. The former’s omission, if any, may only be
deemed an innocent mistake oblivious to the procedures and consequences of periodic audits. Since its conduct was due to
such ignorance founded upon an innocent mistake, estoppel will not arise. A person who has no knowledge of or consent to
a transaction may not be estopped by it. "Estoppel cannot be sustained by mere argument or doubtful inference x x
x." CASA is not barred from questioning BPI’s error even after the lapse of the period given in the notice.
Loss Borne by Proximate Source of Negligence
For allowing payment on the checks to a wrongful and fictitious payee, BPI -- the drawee bank -- becomes liable to its
depositor-drawer. Since the encashing bank is one of its branches, BPI can easily go after it and hold it liable for
reimbursement. It "may not debit the drawer’s account and is not entitled to indemnification from the drawer." In both law
and equity, when one of two innocent persons "must suffer by the wrongful act of a third person, the loss must be borne by the
one whose negligence was the proximate cause of the loss or who put it into the power of the third person to perpetrate the
wrong."
Third Issue:
Moral Damages Denied
In the absence of a wrongful act or omission, or of fraud or bad faith, moral damages cannot be awarded. The adverse result of
an action does not per se make the action wrongful, or the party liable for it. One may err, but error alone is not a ground for
granting such damages. While no proof of pecuniary loss is necessary therefor -- with the amount to be awarded left to the
court’s discretion -- the claimant must nonetheless satisfactorily prove the existence of its factual basis and causal
relation to the claimant’s act or omission.
As a general rule, a corporation -- being an artificial person without feelings, emotions and senses, and having
existence only in legal contemplation -- is not entitled to moral damages, because it cannot experience physical
suffering and mental anguish. However, for breach of the fiduciary duty required of a bank, a corporate client may claim
such damages when its good reputation is besmirched by such breach, and social humiliation results therefrom. CASA was
unable to prove that BPI had debased the good reputation of, and consequently caused incalculable embarrassment to, the
former. CASA’s mere allegation or supposition thereof, without any sufficient evidence on record, is not enough.
Exemplary Damages Also Denied
Imposed by way of correction for the public good, exemplary damages cannot be recovered as a matter of right. As we have
said earlier, there is no bad faith on the part of BPI for paying the checks of CASA upon forged signatures. Therefore, the
former cannot be said to have acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. The latter,
having no right to moral damages, cannot demand exemplary damages.
Attorney’s Fees Granted
Although it is a sound policy not to set a premium on the right to litigate, we find that CASA is entitled to reasonable attorney’s
fees based on "factual, legal, and equitable justification."
When the act or omission of the defendant has compelled the plaintiff to incur expenses to protect the latter’s
interest, or where the court deems it just and equitable, attorney’s fees may be recovered. In the present case, BPI
persistently denied the claim of CASA under the NIL to recredit the latter’s account for the value of the forged checks. This
denial constrained CASA to incur expenses and exert effort for more than ten years in order to protect its corporate interest in
its bank account.
WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and that in GR No. 149507 PARTLY GRANTED. The assailed
Decision of the Court of Appeals is AFFIRMED with modification.
PHILIPPINE BANKING CORPORATION, petitioner, vs. COURT OF APPEALS and LEONILO MARCOS, respondents.
G.R. No. 127469, January 15, 2004, Carpio, J.
Doctrine:
“Although RA No. 8791 took effect only in the year 2000, at the time that the BANK transacted with Marcos, jurisprudence had
already imposed on banks the same high standard of diligence required under RA No. 8791. This fiduciary relationship means that
the bank’s obligation to observe "high standards of integrity and performance" is deemed written into every deposit agreement
between a bank and its depositor.
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 of as he sees fit, confident that the bank will deliver it as and to whomever he directs.”
Statement of Facts:
Leonilo Marcos ("Marcos") filed with the trial court a Complaint for Sum of Money with Damages against petitioner Philippine
Banking Corporation ("BANK").
Marcos alleged that sometime in 1982, the BANK through Florencio B. Pagsaligan ("Pagsaligan"), one of the officials of the
BANK and a close friend of Marcos, persuaded him to deposit money with the BANK. Marcos yielded to Pagsaligan’s
persuasion and claimed he made a time deposit with the BANK on two occasions. For the first time, the BANK issued a receipt
for the time deposit. Marcos claimed he again made a time deposit with the BANK, however, the BANK did not issue an official
receipt for this time deposit but it acknowledged a deposit of this amount through a letter-certification Pagsaligan issued. The
time deposits earned interest at 17% per annum and had a maturity period of 90 days.
Marcos alleged that Pagsaligan kept the various time deposit certificates on the assurance that the BANK would take care of
the certificates, interests and renewals. Marcos claimed that from the time of the deposit, he had not received the principal
amount or its interest.
Sometime in March 1983, Marcos wanted to withdraw from the BANK his time deposits and the accumulated interests to buy
materials for his construction business. However, the BANK, through Pagsaligan, convinced Marcos to keep his time deposits
intact and instead to open several domestic letters of credit. The BANK required Marcos to give a marginal deposit of 30% of
the total amount of the letters of credit. The time deposits of Marcos would secure 70% of the letters of credit. Since Marcos
trusted the BANK and Pagsaligan, he signed blank printed forms of the application for the domestic letters of credit, trust
receipt agreements and promissory notes.
Marcos executed three Trust Receipt Agreements. Marcos deposited the required 30% marginal deposit for the trust receipt
agreements. Marcos claimed that his obligation to the BANK was therefore only P595,875 representing 70% of the letters of
credit.
According to the BANK, Marcos delivered to the BANK the time deposit certificates by virtue of the Deed of Assignment, which
Marcos executed to secure his various loan obligations. The BANK claimed that these loans are covered by Promissory Note
No. 20-756-82 for P420,000 and Promissory Note No. 20-979-83 for P500,000. When Marcos defaulted in the payment of
Promissory Note No. 20-979-83, the BANK debited his time deposits and applied the same to the obligation that is now
considered fully paid.
Marcos denied that he obtained the second loan from the BANK for P500,000 with interest at 25% per annum supposedly
covered by Promissory Note No. 20-979-83. Marcos prayed the trial court to declare Promissory Note No. 20-979-83 void.
The trial court required the BANK to produce the original copies of the loan application and Promissory Note No. 20-979-83 so
that it could determine who applied for this loan. However, the BANK presented to the trial court only the "machine copies of
the duplicate" of these documents.
Based on the "machine copies of the duplicate" of the two documents, the trial court noticed the following discrepancies: (1)
Marcos’ signature on the two documents are merely initials unlike in the other documents submitted by the BANK; (2) it is
highly unnatural for the BANK to only have duplicate copies of the two documents in its custody; (3) the address of Marcos in
the documents is different from the place of residence as stated by Marcos in the other documents annexed by the BANK in its
Answer; (4) Pagsaligan made it appear that a check for the loan proceeds of P470,588 less bank charges was issued to Marcos
but the check’s payee was one ATTY. LEONILO MARCOS and, as the trial court noted, Marcos is not a lawyer; and (5)
Pagsaligan was not sure what branch of the BANK issued the check for the loan proceeds. The trial court was convinced that
Marcos did not execute the questionable documents covering the P500,000 loan and Pagsaligan used these documents as a
means to justify his inability to explain and account for the time deposits of Marcos.
The trial court noted the BANK’s "defective" documentation of its transaction with Marcos. First, the BANK was not in
possession of the original copies of the documents like the loan applications. Second, the BANK did not have a ledger of the
accounts of Marcos or of his various transactions with the BANK. Last, the BANK did not issue a certificate of time deposit to
Marcos. Again, the trial court attributed the BANK’s lapses to Pagsaligan’s scheme to defraud Marcos of his time deposits.
The trial court rendered its decision in favor of Marcos.
Aggrieved, the BANK appealed to the Court of Appeals, which upheld the RTC decision. The Court of Appeals sustained the
factual findings of the trial court in ruling that Promissory Note No. 20-979-83 is void. There is no evidence of a bank ledger or
computation of interest of the loan. The appellate court blamed the BANK for failing to comply with the orders of the trial
court to produce the documents on the loan.
Issue:
Whether or not the BANK treated the account of Marcos with meticulous care;
Ruling:
NO. The BANK did not treat the account of Marcos with meticulous care.
The existence of Promissory Note No. 20-979-83 could have been easily proven had the BANK presented the original copies of
the promissory note and its supporting evidence. In lieu of the original copies, the BANK presented the "machine copies of the
duplicate" of the documents. These substitute documents have no evidentiary value. The BANK’s failure to explain the absence
of the original documents and to maintain a record of the offsetting of this loan with the time deposits bring to fore the BANK’s
dismal failure to fulfill its fiduciary duty to Marcos.
Section 2 of Republic Act No. 8791 (General Banking Law of 2000) expressly imposes this fiduciary duty on banks when it
declares that the State recognizes the "fiduciary nature of banking that requires high standards of integrity and performance."
This statutory declaration merely echoes the earlier pronouncement of the Supreme Court in Simex International (Manila) Inc.
v. Court of Appeals requiring banks to "treat the accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship." The Court reiterated this fiduciary duty of banks in subsequent cases.
Although RA No. 8791 took effect only in the year 2000, at the time that the BANK transacted with Marcos,
jurisprudence had already imposed on banks the same high standard of diligence required under RA No. 8791. This
fiduciary relationship means that the bank’s obligation to observe "high standards of integrity and performance" is
deemed written into every deposit agreement between a bank and its depositor.
The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family.
Thus, the BANK’s fiduciary duty imposes upon it a higher level of accountability than that expected of Marcos, a businessman,
who negligently signed blank forms and entrusted his certificates of time deposits to Pagsaligan without retaining copies of
the certificates.
The business of banking is imbued with public interest. The stability of banks largely depends on the confidence of the people
in the honesty and efficiency of banks.
As the BANK’s depositor, Marcos had the right to expect that the BANK was accurately recording his transactions with
it. Upon the maturity of his time deposits, Marcos also had the right to withdraw the amount due him after the BANK
had correctly debited his outstanding obligations from his time deposits.
By the very nature of its business, the BANK should have had in its possession the original copies of the disputed promissory
note and the records and ledgers evidencing the offsetting of the loan with the time deposits of Marcos. The BANK inexplicably
failed to produce the original copies of these documents. Clearly, the BANK failed to treat the account of Marcos with
meticulous care.
Dispositive Portion;
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION.

I. SHORT TITLE: PHILIPPINE NATIONAL BANK VS. PIKE
II. FULL TITLE: PHILIPPINE NATIONAL BANK, PETITIONER, VS. NORMAN Y. PIKE, RESPONDENT.
G.R. No. 157845, SECOND DIVISION, September 20, 2005
III. PONENTE: CHICO-NAZARIO, J.
IV. TOPIC: General Banking Law
V. DOCTRINE:
With banks, the degree of diligence required is more than that of a good father of a family considering that the business of
banking is imbued with public interest due to the nature of their functions. The stability of banks largely depends on the
confidence of the people in the honesty and efficiency of banks. Thus, the law imposes on banks a high degree of obligation to treat
the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of banking. Section 2 of Republic
Act No. 8791, which took effect on 13 June 2000, makes a categorical declaration that the State recognizes the "fiduciary nature of
banking that requires high standards of integrity and performance."
VI. STATEMENT OF FACTS:
This case stemmed from Pike’s complaint alleging that before he left for Japan, to work as a gay entertainer, he kept his
passbook inside a cabinet under lock and key, in his home. On April 1993, he discovered that some of his valuables were
missing including the passbook. He then immediately reported the incident to the police which led to the arrest and
prosecution of Mr. Joy Davasol. Pike also discovered that Davasol made two unauthorized withdrawals from his U.S. Dollar
Savings Account both times at the PNB Buendia branch. The first one amounted to $3,500 (March 31, 1993) and the second
one amounted to $4,000 (April 5, 1993) – for a total of $7,500. Pike went to PNB's Buendia branch and protested the
unauthorized withdrawals and demanded the return of the total withdrawn amount on the ground that he never authorized
anybody to withdraw from his account as the signatures appearing on the subject withdrawal slips were clearly forgeries.
However, PNB refused to credit the amount back to Pike’s account without justifiable reason, and instead, PNB wrote him that
it exercised due diligence in the handling of said account. Pike then wrote PNB simply to request that the hold-account be
lifted so that he may withdraw the remaining balance left in his U.S.$ Savings Account and nothing else.
For its part, petitioner PNB filed a motion to dismiss alleging that respondent Pike, together with Joy Davasol went to see PNB
AVP Mr. Lorenzo T. Val, Jr. to withdraw $2,000. Mr. Pike also informed AVP Val that he is leaving for abroad and made verbal
instruction to honor all withdrawals to be transmitted by his Talent Manager and Choreographer, Joy Davasol, who shall
present pre-signed withdrawal slips bearing his (Pike's) signature. Atty. Nathaniel Ifurung who claims to be respondent's
counsel sent a demand letter to the Bank demanding the bank to credit back the amount of US$7,500.00 because his client's
signatures were forged and the withdrawal made thereon were unauthorized. Respondent Pike executed an affidavit of loss of
Dollar Account Passbook and requested the PNB to replace the same and allow him to make withdrawals thereon. Pike wrote a
letter addressed to the Manager of PNB, Buendia Branch, requesting to lift the hold-order so that he can withdraw the
remaining balance of the passbook. Further, he promise not to hold responsible petitioner bank and its officers for the
withdrawal made on his dollar savings passbook. A letter was then sent to Pike's counsel by petitioner PNB stating that PNB
cannot accede to the request inasmuch as the Bank exercised due diligence of a good father to his family in the handling of
transactions covering the deposit account of respondent Pike. Pike’s counsel sent a letter to PNB denying that his client made
any such promise not to hold responsible the bank and its officers for the withdrawal made. Another letter was sent to Pike’s
counsel by VP Suquila stating that Pike’s withdrawal of the remaining balance of his account with the Bank effectively estops
him from claiming on the alleged unauthorized withdrawals.
RTC & CA: Both the RTC and the CA ruled in favor of Pike and ruled that petitioner bank was responsible for the unauthorized
withdrawals because of its negligence in the performance of its duties.
VII. STATEMENT OF THE CASE:

Respondent Pike filed a complaint against petitioner PNB alleging that the latter was negligent in the handling of its Dollars
Savings Account resulting to its unauthorized withdrawal amounting to $7,500. PNB denied the allegation stating that Pike
was leaving for abroad and made verbal instruction to honor all withdrawals to be transmitted by his Talent Manager and
Choreographer, Joy Davasol, who shall present pre-signed withdrawal slips bearing his signature. The RTC and the CA both
ruled in favor respondent Pike. Hence, this case.
VIII. ISSUE:
Whether or not petitioner PNB negligently allowed the unauthorized withdrawals of respondent Pike’s U.S. Dollar Savings
Account.
IX. RULING:
Yes. Petitioner PNB negligently allowed the unauthorized withdrawals of respondent Pike’s U.S. Dollar Savings Account.
The negligence in this case lies in the lackadaisical attitude exhibited by the employees of petitioner PNB in their treatment of
respondent Pike's US Dollar Savings Account that resulted in the unauthorized withdrawal of $7,500.
Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees, and having
such obligation, the Supreme Court cannot ignore the circumstances surrounding the case at bar - how the employees of
petitioner PNB turned their heads, nay, closed their eyes to the suspicious circumstances enfolding the two withdrawals
subject of the case at bar. It may even be said that they went out of their ways to disregard standard operating procedures
formulated to ensure the security of each and every account that they are handling. PNB does not deny that the withdrawal
slips used were in breach of standard operating procedures of banks in the ordinary and usual course of banking operations as
testified to by one of its witnesses, Mr. Lorenzo Bal, on cross-examination when he stated that “Normally, a depositor and the
bank agrees on certain terms that if you allow withdrawal from his account, his or her account, its enough that the signature of
the depositor appears on both spaces in the front side of the withdrawal slip. Even if you do not have the back portion of the
withdrawal slip.” Petitioner PNB's witness was utterly remiss in protecting the bank's client, as well as the bank itself, when he
allowed an account holder to make it appear as if he was the one actually withdrawing from an account and actually receiving
the withdrawn amount.
Ordinarily, banks allow withdrawal by someone who is not the account holder so long as the account holder authorizes his
representative to withdraw and receive from his account by signing on the space provided particularly for such transactions,
usually found at the back of withdrawal slips. As fittingly found by the courts a quo, if indeed, respondent Pike signed the
withdrawal slips in the presence of Mr. Lorenzo Bal, petitioner PNB's AVP at its Buendia branch, why did he not call
respondent Pike's attention and refer him to the space provided for authorizing representatives to withdraw from and receive
the proceeds of such withdrawal? Or, at the very least, sign or initial the same so that he could identify the pre-signed
withdrawal slips made by Mr. Pike?
Also, by Mr. Bal’s own testimony, the witness negated the very reason for the bank's bizarre "accommodation" of the alleged
verbal request of respondent Pike - that he was a "valued client." From the cross-examination, it appears that the witness,
Lorenzo Bal, was not even reasonably familiar with respondent Pike, yet, he was ready, willing and able to accommodate
the verbal request of said depositor. Worse still, the witness still approved the withdrawal transaction without asking for any
proof of identification for the reason that: 1) Davasol was in possession of a pre-signed withdrawal slip; and 2) the witness
"recognized" the signature of respondent Pike - even after admitting that he did not bother to counter check the signature on
the slip with the specimen signature card of respondent Pike and that he met respondent Pike just once so that he cannot
seem to recall what the latter looks like. The testimony of the same witness will justify a finding of negligence amounting to
bad faith when he admitted that: (1) he did not require Pike to sign the authorization portion of the withdrawal slip; (2) he did
not require any identification card from Joy Davasol; (3) the alleged authority given to him by Pike was merely a verbal
request and that (4) the verbal request was not a standard operating procedure of the bank.
Having admitted that pre-signed withdrawal slips do not constitute the normal procedure with respect to withdrawals by
representatives should have already put petitioner PNB's employees on guard. Rather than readily validating and permitting
said withdrawals, they should have proceeded more cautiously. Clearly, petitioner PNB’s employee, Lorenzo Bal, was
exceedingly careless in his treatment of Pike's savings account.
X. DISPOSITIVE PORTION:
WHEREFORE, the instant petition is DENIED. The assailed Decision dated 19 December 2002, and the Resolution dated 02
April 2003, both of the Court of Appeals, in CA-G.R. CV No. 59389, which affirmed with modification the Decision rendered by
the Regional Trial Court (RTC), Branch 07 of Manila, dated 10 January 1997, in Civil Case No. 94-68821, are hereby AFFIRMED
with the modification that petitioner PNB is directed to pay respondent Pike additional 1) P20,000.00 representing attorney's
fees; and 2) P10,000.00 representing expenses of litigation. Costs against petitioner PNB.
XI. PREPARED BY: AMOSIN, AIRON JEUNNE B.

I. SHORT TITLE: FAR EAST BANK VS. CHANTE
II. FULL TITLE: FAR EAST BANK & TRUST COMPANY, PETITIONER, VS. ROBERT MAR CHANTE, A.K.A. ROBERT MAR G.
CHAN, RESPONDENTS.
G.R. No. 170598, FIRST DIVISION, October 09, 2012
III. PONENTE: BERSAMIN, J.
V. DOCTRINE:
The exclusive possession of the card alone does not suffice to preponderantly establish that the account holder had himself made
the withdrawals, or that he had caused the withdrawals to be made.
This is a civil case brought by petitioner FEBTC to recover from Chan the principal sum of P770,488.30 representing the
unpaid balance of the amount fraudulently withdrawn from Chan’s Current Account with the use of the said Far East Card.
FEBTC alleged that between 8:52 p.m. of May 4, 1992 and 4:06 a.m. of May 5, 1992, Chan had used the Far East Card to
withdraw funds totaling P967,000 from the PNB-MEGALINK ATM facility at the Manila Pavilion Hotel in Manila. The
withdrawals were done in a series of 242 transactions with the use of the same machine. The transactions were processed and
recorded by the respective computer systems of PNB and MEGALINK despite the following circumstances, namely: (a) the
offline status of the branch of account (FEBTC Ongpin Branch); (b) Chan’s account balance being only P198,511.70 at the time,
as shown in the bank statement; (c) the maximum withdrawal limit of the ATM facility being P50,000/day; and (d) his
withdrawal transactions not being reflected in his account, and no debits or deductions from his current account with the
FEBTC Ongpin Branch being recorded. FEBTC added that at the time of the ATM withdrawal transactions, there was an error
in its computer system known as “system bug” whose nature had allowed Chan to successfully withdraw funds in excess of his
current credit balance and that Chan had taken advantage of the system bug to do the withdrawal transactions. FEBTC
discovered the system bug only after its routine reconciliation of the ATM-MEGALINK transactions on May 7, 1992
Chan denied liability. Although admitting his physical possession of the Far East Card on the dates material to the case, he
denied making the ATM withdrawals and instead insisted that he had been actually in his home at the time of the withdrawals.
He alluded to a possible “inside job” as the cause of the supposed withdrawals, citing a newspaper report to the effect that an
employee of FEBTC’s had admitted having debited accounts of its depositors by using his knowledge of computers as well as
information available to him. He contested the debiting of his account stating that the debiting had affected his business and
had caused him to suffer great humiliation after the dishonor of his sufficiently-funded checks by FEBTC.
FEBTC debited his current account in the amount of P192,517.20 pursuant to Chan’s ATM Service Agreement. It debited the
further sum of P3,000 leaving the unrecovered portion of the funds allegedly withdrawn by him at P770,488.30. Thus, FEBTC
sent to Chan letters demanding the reimbursement of the unrecovered balance of P770,488.30, but he turned a deaf ear to the
demands, impelling it to bring this case.
RTC: The RTC rendered judgment in favor of petitioner FEBTC. The RTC ruled against Chan because of his actions after the
incident. The RTC found that merely two days after the heavy withdrawal, respondent returned not at the exact scene of the
incident but at a nearby branch which is also in Ermita and tried again to withdraw. But at this time the bank already knew
what happened so it blocked the card and retained it being a hot card. Respondent was not successful this time so what he did
was to issue a check almost for the whole amount of his balance in his account leaving only a minimal amount. This incident
puzzled the RTC. To the mind of the RTC, respondent was maybe hoping that the machine nearby may likewise dispense so
much amount without being detected. The fact that he hastily withdrew the balance of his account after his card was retained
by the bank only showed his knowledge that the bank may debit his account. It also showed his intent to do something further
other than first inquire why his card was considered a hot card if he is really innocent. The RTC ruled that to take advantage of
a computer error, to gain sudden and undeserved amount of money should be condemned in the strongest terms.
CA: On appeal, the CA reversed the RTC ruling. The CA ruled that there is no direct evidence on the issue of who made the
actual withdrawals. Chan correctly claims that the bank failed to present any witness testifying that he (Chan) made the actual
withdrawals. At the same time, Chan can only rely on his own uncorroborated testimony that he was at home on the night that
withdrawals were made. The CA recognizes that the bank can claim that no other evidence of actual withdrawal is necessary
because the PIN unique to Chan is already evidence that only Chan or his authorized representative – and none other – could
have accessed his account. But at the same time, the CA recognizes the fact that computers and the ATM system is not perfect
as shown by an incident cited by Chan involving the FEBTC itself. Aside from the vulnerability to inside staff members, the CA
took judicial notice that no less than the Central Bank has publicly warned banks about other nefarious schemes involving
ATM machines in its March 7, 2003 letter regarding technology fraud in ATM systems. The CA then ruled that in light of the
absence of conclusive direct evidence of actual withdrawal that to rely upon, the CA have to depend on evidence “other than
direct.”
A case was brought by petitioner FEBTC to recover from Respondent Chan an amount of P770,488.30 representing the unpaid
balance of the amount fraudulently withdrawn from Chan’s Current Account with the use of the said Far East Card. Chan
denied liability and cited a newspaper report to the effect that an employee of FEBTC’s had admitted having debited accounts
of its depositors by using his knowledge of computers as well as information available to him. The RTC ruled in favor of
petitioner FEBTC because of the subsequent acts of Chan barely two days after the questioned withdrawals. The CA reversed
the RTC and ruled that there is no direct evidence on the issue of who made the actual withdrawals. The CA, in so deciding,
depended on evidence “other than direct.” Hence, this case.
VIII. ISSUE:
Whether or not respondent Chan is liable for the withdrawals made from his account.
IX. RULING:
No. Respondent Chan is liable for the withdrawals made from his account.
Although there was no question that Chan had the physical possession of the Far East Card at the time of the withdrawals, the
exclusive possession of the card alone did not suffice to preponderantly establish that he had himself made the withdrawals,
or that he had caused the withdrawals to be made. In his answer, he denied using the card to withdraw funds from his account
on the dates in question, and averred that the withdrawals had been an “inside job.” His denial effectively traversed FEBTC’s
claim of his direct and personal liability for the withdrawals, that it would lose the case unless it competently and sufficiently
established that he had personally made the withdrawals himself, or that he had caused the withdrawals. In other words, it
carried the burden of proof.
The CA was correct in ruling that the fact that Chan’s account number and ATM card number were the ones used for the
withdrawals, by itself, is not sufficient to support the conclusion that he should be deemed to have made the withdrawals.
First, Edgar Munarriz, FEBTC’s very own Systems Analyst, admitted that the bug infecting the bank’s computer system had
facilitated the fraudulent withdrawals.
Secondly, the RTC’s deductions on the cause of the withdrawals were faulty. In holding against Chan, the RTC chiefly relied on
inferences drawn from his acts subsequent to the series of withdrawals barely two days after the questioned withdrawals. The
inferences were not warranted, however, because the subsequent acts would not persuasively establish his actual
participation in the withdrawals due to their being actually susceptible of other interpretations consistent with his innocence.
The Supreme Court joins the CA’s observation that Chan’s subsequent acts “could have been impelled by so many reasons and
motivations, and cannot simply be given the meaning that the lower court attributed to them,” and, instead, were even
consistent with the purpose and nature of his maintaining the current account deposit with FEBTC, rendering the acts “not
unusual nor … illegal.” Although he was expected to forthwith bring his card’s capture to FEBTC’s attention, that he did not do
so could have other plausible explanations consistent with good faith. He might have also honestly believed that he still had
the sufficient funds in his current account, as borne out by his issuance of a check instead after the capture of the card so as not
for him to undermine any financial obligation then becoming due. Nor should his opting to withdraw funds from his account at
the ATM facility in less than two days after the questioned withdrawals manifest responsibility on his part, for he could also be
properly presumed to be then still unaware of the situation involving his account. The SC notes that his letters written in
response to FEBTC’s written demands to him disclosed honest intentions rather than malice.
Thirdly, the RTC ignored the likelihood that somebody other than Chan familiar with the bug infection of FEBTC’s computer
system at the time of the withdrawals and adept with the workings of the computer system had committed the fraud. This
likelihood was not far-fetched considering that FEBTC had immediately adopted corrective measures upon its discovery of the
system bug, by which FEBTC admitted its negligence in ensuring an error-free computer system; and that the system bug had
affected only the account of Chan.
Fourthly, and perhaps the most damaging lapse, was that FEBTC failed to establish that the PNB-MEGALINK’s ATM facility at
the Manila Pavilion Hotel had actually dispensed cash in the very significantly large amount alleged during the series of
questioned withdrawals. For sure, FEBTC should have proved the actual dispensing of funds from the ATM facility as the
factual basis for its claim against Chan. It did require PNB to furnish a validated showing of the exact level of cash then carried
by the latter’s ATM facility in the Manila Pavilion Hotel. Yet, when a PNB employee stood as a witness for FEBTC, he confirmed
the authenticity of the journal tapes that had recorded Chan’s supposed ATM transactions but did not categorically state how
much funds PNB-MEGALINK’s ATM facility at the Manila Pavilion Hotel had exactly carried at the time of the withdrawals,
particularly the amounts immediately preceding and immediately following the series of withdrawals. The omission left a
yawning gap in the evidence against Chan.
And lastly, Chan’s allegation of an “inside job” accounting for the anomalous withdrawals should not be quickly dismissed as
unworthy of credence or weight. An FEBTC employee, another witness for FEBTC, revealed that FEBTC had previously
encountered problems of bank accounts being debited despite the absence of any withdrawal transactions by their owners. He
attributed the problems to the erroneous tagging of the affected accounts as somebody else’s account, allowing the latter to
withdraw from the affected accounts with the use of the latter’s own ATM card, and to the former’s account being debited. This
revelation tended to support Chan’s denial of liability, as it showed the possibility of withdrawals being made by another
person despite the PIN being an exclusive access number known only to the cardholder.
WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals; and DIRECTS the petitioner to pay the costs of suit.

I. SHORT TITLE: REYES VS. COURT OF APPEALS
II. FULL TITLE: GREGORIO H. REYES AND CONSUELO PUYAT-REYES, PETITIONERS, VS. THE HON. COURT OF APPEALS
AND FAR EAST BANK AND TRUST COMPANY, RESPONDENTS.
G.R. No. 118492, SECOND DIVISION, August 15, 2001
III. PONENTE: DE LEON, JR., J.
V. DOCTRINE:
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.
In view of the 20th Asian Racing Conference, the Philippine Racing Club, Inc. (PRCI) sent four delegates to the said conference.
Petitioner Gregorio Reyes sent Godofredo Reyes, the club's chief cashier, to the respondent Far East bank Bank to apply for a
foreign exchange demand draft in Australian dollars.
Godofredo went to respondent bank's Buendia Branch to apply for a demand draft in the amount AU$1,610 Australian dollars)
payable to the order of the 20th Asian Racing Conference Secretariat of Sydney, Australia. At first, the application was denied
for the reason that respondent bank did not have an Australian dollar account in any bank in Sydney. Godofredo then asked if
there could be a way for respondent bank to accommodate PRCI's urgent need to remit Australian dollars to Sydney.
Godofredo was then informed of a roundabout way of effecting the requested remittance to Sydney thus: the respondent bank
would draw a demand draft against Westpac Bank in Sydney, Australia (Westpac-Sydney) and have the latter reimburse itself
from the U.S. dollar account of the respondent in Westpac Bank in New York, U.S.A. (Westpac-New York). This arrangement
has been customarily resorted to since the 1960's and the procedure has proven to be problem-free. PRCI and the petitioner
Gregorio Reyes, acting through Godofredo, agreed to this arrangement or approach in order to effect the urgent transfer of
Australian dollars.
Upon due presentment of the foreign exchange demand draft, the same was dishonored, with the notice of dishonor stating the
following: "xxx No account held with Westpac." Meanwhile, Wespac- New York sent a cable to respondent bank informing the
latter that its dollar account in the sum of AU$ 1,610 was debited. In response to PRCI's complaint about the dishonor,
respondent bank informed Westpac-Sydney of the issuance of the said demand draft, drawn against the Wespac- Sydney and
informed 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, still, the foreign exchange 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.
Petitioners spouses Gregorio Reyes and Consuelo Puyat-Reyes left for Australia to attend the said racing conference. When
petitioner Gregorio Reyes arrived in Sydney, he went directly to the lobby of Hotel Regent Sydney to register as a conference
delegate. At the registration desk, in the presence of other delegates from various member of the conference, the secretariat
told her that he could not register because the foreign exchange demand draft for his registration fee had been dishonored for
the second time. Feeling terribly embarrassed and humiliated, petitioner Gregorio Reyes asked the lady member of the
conference secretariat that he be shown the subject foreign exchange demand draft that had been dishonored as well as the
covering letter after which he promised that he would pay the registration fees in cash. It was only two days later, that he was
given the dishonored demand draft and a covering letter. It was then that he actually paid in cash the registration fees as he
had earlier promised. The same incident happened to petitioner Consuelo Puyat-Reyes. She too was embarrassed and
humiliated at the registration desk of the conference secretariat when she was told in the presence and within the hearing of
other delegates that she could not be registered due to the dishonor of the subject foreign exchange demand draft.
Petitioners filed in the RTC a complaint for damages against respondent bank due to the dishonor of the said foreign exchange
demand draft issued by the respondent bank. The petitioners claim that as a result of the dishonor of the said demand draft,
they were exposed to unnecessary shock, social humiliation, and deep mental anguish in a foreign country, and in the presence
of an international audience.
RTC & CA: The RTC rendered judgment in favor of respondent. On appeal, the CA affirmed the RTC decision. In so ruling, the
appellate court stated that there is no basis to hold respondent bank liable for damages for the reason that it exerted every
effort for the subject foreign exchange demand draft to be honored.
Petitioners contend that due to the fiduciary nature of the relationship between the respondent bank and its clients, the
respondent bank should have exercised a higher degree of diligence than that expected of an ordinary prudent person in the
handling of its affairs as in the case at bar. The appellate court, according to petitioners, erred in applying the standard of
diligence of an ordinary prudent person only.
VIII. ISSUE:
Whether or not the bank exercised the degree of diligence it was required to exercise in this case.
IX. RULING:
Yes. The bank exercised the degree of diligence it was required to exercise in this case.
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 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. As earlier mentioned, the said foreign exchange
demand draft was intended for the payment of the registration fees of the petitioners as delegates of the PRCI to the 20th
Asian Racing Conference in Sydney.
The evidence shows that the respondent bank did everything within its power to prevent the dishonor of the subject foreign
exchange demand draft. The erroneous reading of its cable message to Westpac-Sydney by an employee of the latter could not
have been foreseen by the respondent bank. Being unaware that its employee erroneously read the said cable message,
Westpac-Sydney merely stated that the respondent bank has no deposit account with it to cover for the amount AU $1610
indicated in the foreign exchange demand draft. Thus, the respondent bank had the impression that Westpac-New York had
not yet made available the amount for reimbursement to Westpac-Sydney despite the fact that respondent bank has a
sufficient deposit dollar account with Westpac-New York. That was the reason why the respondent bank had to re-confirm and
repeatedly notify Westpac-New York to debit its (respondent bank's) deposit dollar account with it and to transfer or credit
the corresponding amount to Westpac-Sydney to cover the amount of the said demand draft.
The courts a quo found that respondent bank did not misrepresent that it was maintaining a deposit account with Westpac-
Sydney. Respondent bank's assistant cashier explained to Godofredo Reyes, representing PRCI and petitioner Gregorio H.
Reyes, how the transfer of Australian dollars would be effected through Westpac-New York where the respondent bank has a
dollar account to Westpac-Sydney where the subject foreign exchange demand draft could be encashed by the payee, the 20th
Asian Racing Conference Secretariat. PRCI and its Vice- President for finance, petitioner Gregorio Reyes, through their said
representative, agreed to that arrangement or procedure.
In other words, petitioners are estopped from denying the said arrangement or procedure. Similar arrangements have been a
long standing practice in banking to facilitate international commercial transactions. In fact, the SWIFT cable message sent by
respondent bank to the drawee bank, Westpac-Sydney, stated that it may claim reimbursement from its New York branch,
Westpac-New York, where respondent bank has a deposit dollar account. The facts as found by the courts a quo show that
respondent bank did not cause an erroneous transmittal of its SWIFT cable message to Westpac-Sydney. It was the erroneous
decoding of the cable message on the part of Westpac-Sydney that caused the dishonor of the subject foreign exchange
demand draft. An employee of Westpac- Sydney in Sydney, Australia mistakenly read the printed figures in the SWIFT cable
message of respondent bank as "MT799" instead of as "MT199". As a result, Westpac-Sydney construed the said cable message
as a format for a letter of credit, and not for a demand draft. The appellate court correct found that "the figure before '99' can
still be distinctly seen as a number '1' and not number '7'." Indeed, the line of a "7" is in a slanting position while the line of a
"1" is in a horizontal position. Thus, the number "1" in "MT199" cannot be construed as "7".
It was established that the respondent bank acted in good faith and that it did not cause the embarrassment of the petitioners
in Sydney, Australia. Hence, no attributable error could be attributed to the CA.
WHEREFORE, the petition is hereby DENIED, and the assailed decision of the Court of Appeals is AFFIRMED. Costs against the
petitioners.

I. SHORT TITLE: FIRST PLANTER PAWNSHOP VS. COMISSION OF INTERNAL REVENUE
II. FULL TITLE: FIRST PLANTERS PAWNSHOP, INC., PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE,
RESPONDENT.
G.R. No. 174134, THIRD DIVISION, July 30, 2008
III. PONENTE: AUSTRIA-MARTINEZ, J.
V. DOCTRINE:
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. The Manual includes pawnshops in the list of non- bank financial intermediaries. Also, Revenue Regulations No. 10-
2004, in fact, recognized these bases. This classification is equally supported by Subsection 4101Q.1 of the BSP Manual of
Regulations for Non-Bank Financial Intermediaries and reiterated in BSP Circular No. 204-99, classifying pawnshops as one of
Non-bank Financial Intermediaries within the supervision of the Bangko Sentral ng Pilipinas.
Ultimately, R.A. No. 9238 categorically confirmed the classification of pawnshops as non-bank financial intermediaries.
First Planter’s Pawnshop was informed by the BIR that it has an existing tax deficiency on its VAT and Documentary Stamp Tax
(DST) liabilities for the year 2000. The deficiency was 541,102.79 for VAT and 23,646.33 for DST. Subsequently, petitioner
received a formal notice of assessment directing payment of VAT and DST deficiency.
Petitioner protested the assessment for lack of legal and factual bases.
Acting Regional Director: The Acting Regional Director denied the protest.
CTA 2nd division: On its petition for review before the CTA, the CTA upheld the deficiency assessment.
CTA En Bank: Petitioner then appealed to the CTA En Banc which likewise denied its petition for lack of merit.
The core of petitioner’s argument is that it is not a lending investor within the purview of Section 108(A) of the NIRC, as
amended, and therefore not subject to VAT. Petitioner also contends that a pawn ticket is not subject to DST because it is not
proof of the pledge transaction, and even assuming that it is so, still, it is not subject to tax since a DST is levied on the
document issued and not on the transaction.
VIII. ISSUE:
1. Whether or not First Planter’s Pawnshop is liable for VAT.
2. Whether or not First Planter’s Pawnshop is liable for DST.
IX. RULING:
1st issue:
1. No. First Planter’s Pawnshop is not liable for VAT.

The determination of petitioner’s tax liability depends on the tax treatment of a pawnshop business. The Court found that
pawnshops should have been treated as non-bank financial intermediaries from the very beginning, subject to the appropriate
taxes provided by law. Financial intermediaries as persons or entities whose principal functions include the lending, investing
or placement of funds or evidences of indebtedness or equity deposited with them, acquired by them, or otherwise coursed
through them, either for their own account or for the account of others.
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.
A pawnshop's business and operations are governed by Presidential Decree (P.D.) No. 114 or the Pawnshop Regulation Act
and Central Bank Circular No. 374 (Rules and Regulations for Pawnshops). Section 3 of P.D. No. 114 defines pawnshop as a
person or entity engaged in the business of lending money on personal property delivered as security for loans and shall be
synonymous, and may be used interchangeably, with pawnbroker or pawn brokerage.
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.
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. But with the full implementation of the VAT system on non-bank
financial intermediaries starting January 1, 2003, petitioner is liable for 10% VAT for said tax year. 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.
2nd issue:
Yes. First Planter’s Pawnshop is liable for DST.
The Court has settled this issue in Michel J. Lhuillier Pawnshop, Inc. v. CIR, in which it was ruled that the subject of DST is not
limited to the document alone. Pledge, which is an exercise of a privilege to transfer obligations, rights or properties incident
thereto, is also subject to DST. In that case, it was held that –
“The subject of a DST is not limited to the document embodying the enumerated transactions. A DST is an excise tax on the
exercise of a right or privilege to transfer obligations, rights or properties incident thereto. In Philippine Home Assurance
Corporation v. Court of Appeals, it was held that:
Pledge is among the privileges, the exercise of which is subject to DST. A pledge may be defined as an accessory, real and
unilateral contract by virtue of which the debtor or a third person delivers to the creditor or to a third person movable
property as security for the performance of the principal obligation, upon the fulfillment of which the thing pledged, with all its
accessions and accessories, shall be returned to the debtor or to the third person … ”
True, the law does not consider said ticket as an evidence of security or indebtedness. However, for purposes of taxation, the
same pawn ticket is proof of an exercise of a taxable privilege of concluding a contract of pledge. At any rate, it is not said ticket
that creates the pawnshop’s obligation to pay DST but the exercise of the privilege to enter into a contract of pledge. There is
therefore no basis in petitioner’s assertion that a DST is literally a tax on a document and that no tax may be imposed on a
pawn ticket.
The settled rule is that tax laws must be construed in favor of the taxpayer and strictly against the government; and that a tax
cannot be imposed without clear and express words for that purpose. Taking bearing from the foregoing doctrines, the
Supreme Court scrutinized Section 195 of the NIRC, but there is no way that said provision may be interpreted in favor of
petitioner. Section 195 unqualifiedly subjects all pledges to DST. It states that "[o]n every x x x pledge x x x there shall be
collected a documentary stamp tax x x x." It is clear, categorical, and needs no further interpretation or construction. The
explicit tenor thereof requires hardly anything than a simple application.
In the instant case, there is no law specifically and expressly exempting pledges entered into by pawnshops from the payment
of DST. Section 199 of the NIRC enumerated certain documents which are not subject to stamp tax; but a pawnshop ticket is
not one of them. Hence, petitioner's nebulous claim that it is not subject to DST is without merit.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated June 7, 2006 and Resolution dated August 14, 2006 of
the Court of Tax Appeals En Banc is MODIFIED to the effect that the Bureau of Internal Revenue assessment for VAT deficiency
in the amount of P541,102.79 for the year 2000 is REVERSED and SET ASIDE, while its assessment for DST deficiency in the
amount of P24,747.13, inclusive of surcharge and interest, is UPHELD.

I. SHORT TITLE: NACAR VS. GALLERY FRAMES
II. FULL TITLE: DARIO NACAR, petitioner, vs. GALLERY FRAMES and/or FELIPE BORDEY, JR., respondents.
G.R. No. 189871, EN BANC, August 13, 2013, PERALTA, J.
III. PONENTE: PERALTA, J.
V. DOCTRINE:
The Bangko Sentral ng Pilipinas Monetary Board, in its Resolution No. 796, approved the amendment of Section 2 of Circular No.
905, Series of 1982 and, accordingly, issued Circular No. 799, Series of 2013, effective July 1, 2013, the pertinent portion of which
reads: “Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.”
Petitioner Dario Nacar filed a complaint for constructive dismissal before the NLRC against respondents Gallery Frames
and/or Felipe Bordey, Jr. The LA rendered a decision in favor. Petitioner was awarded backwages and separation pay in lieu of
reinstatement in the amount of P158,919.92. The dispositive portion of the decision states that the award will be computed
only up to promulgation of that decision (October 15, 1998 decision)
Respondents appealed to the NLRC but it was dismissed. Respondents filed a petition for certiorari before the CA but it was
denied. Respondent then sought relief from the SC but it was likewise denied in a resolution (April 17, 2002 resolution). An
Entry of Judgment was issued certifying that the resolution became final and executory on May 27, 2002.
Petitioner then filed a Motion for Correct Computation, praying that his backwages be computed from the date of his dismissal
up to the finality of the Resolution of the SC on May 27, 2002. The NLRC arrived at an updated amount in the sum of
P471,320.31. A writ of execution was issued by the LA ordering the sheriff to collect the above mentioned amount.
Respondents filed a motion to quash arguing, among others, that since the LA awarded separation pay and a limited
backwages, no more recomputation is required to be made of the said awards. They claimed that after the decision becomes
final and executory, the same cannot be altered or amended anymore.
The LA denied the motion. Respondent appealed to the NLRC and this time, the NLRC granted the appeal in favor of
respondents and ordered the recomputation of the judgment award. This decision became final and executory. The judgment
award was then reassessed to be in the total amount of only P147,560.19. The LA issued an Alias Writ of Execution to satisfy
the judgment award that was due to petitioner in the amount of P147,560.19, which petitioner eventually received.
Petitioner filed a Manifestation and Motion praying for the re-computation of the monetary award to include the appropriate
interests.
LA: The LA issued an Order granting the motion, but only up to the amount of P11,459.73. The Labor Arbiter reasoned that it
is the October 15, 1998 Decision that should be enforced considering that it was the one that became final and executory.
However, the Labor Arbiter reasoned that since the decision states that the separation pay and backwages are computed only
up to the promulgation of the said decision, it is the amount of P158,919.92 that should be executed. Thus, since petitioner
already received P147,560.19, he is only entitled to the balance of P11,459.73.
NLRC & CA: Petitioner appealed to the NLRC which was however denied. The CA also denied petitioner’s appeal. The CA
opined that since petitioner no longer appealed the October 15, 1998 Decision of LA, which already became final and
executory, a belated correction thereof is no longer allowed. The CA stated that there is nothing left to be done except to
enforce the said judgment. Consequently, it can no longer be modified in any respect, except to correct clerical errors or
mistakes.
Petitioner argues that notwithstanding the fact that there was a computation of backwages in the LA’s decision, the same is not
final until reinstatement is made or until finality of the decision, in case of an award of separation pay. Petitioner maintains
that considering that the October 15, 1998 decision of the LA did not become final and executory until the April 17, 2002
Resolution of the SC was entered in the Book of Entries on May 27, 2002, the reckoning point for the computation of the
backwages and separation pay should be on May 27, 2002 and not when the decision of the Labor Arbiter was rendered on
October 15, 1998. Further, petitioner posits that he is also entitled to the payment of interest from the finality of the decision
until full payment by the respondents. Respondents, on their part, contend that to allow the further recomputation of the
backwages to be awarded to petitioner at this point of the proceedings would substantially vary the decision of the LA as it
violates the rule on immutability of judgments.
VIII. RULING:
1. Whether or not a computation of the monetary consequences of an illegal dismissal ruling is violative of principle of
the immutability of judgements. (LABOR)
2. Whether or not petitioner is entitled to the payment of legal interest and if so, how much per annum. (SPCL-GBL)
IX. RULING:
1st issue:
No. A computation of the monetary consequences of an illegal dismissal ruling is not violative of the principle of immutability
of judgements.
Under the terms of the decision which is sought to be executed by petitioner, no essential change is made by a recomputation
as this step is a necessary consequence that flows from the nature of the illegality of dismissal declared by the Labor Arbiter in
that decision. A recomputation (or an original computation, if no previous computation has been made) is a part of the law —
specifically, Article 279 of the Labor Code and the established jurisprudence on this provision — that is read into the decision.
By the nature of an illegal dismissal case, the reliefs continue to add up until full satisfaction, as expressed under Article 279 of
the Labor Code. The recomputation of the consequences of illegal dismissal upon execution of the decision does not constitute
an alteration or amendment of the final decision being implemented. The illegal dismissal ruling stands; only the computation
of monetary consequences of this dismissal is affected, and this is not a violation of the principle of immutability of final
judgments.
That the amount respondents shall now pay has greatly increased is a consequence that it cannot avoid as it is the risk that it
ran when it continued to seek recourses against the Labor Arbiter's decision. Article 279 provides for the consequences of
illegal dismissal in no uncertain terms, qualified only by jurisprudence in its interpretation of when separation pay in lieu of
reinstatement is allowed. When that happens, the finality of the illegal dismissal decision becomes the reckoning point instead
of the reinstatement that the law decrees. In allowing separation pay, the final decision effectively declares that the
employment relationship ended so that separation pay and backwages are to be computed up to that point.
2nd issue:
Yes. Petitioner is entitled to the payment of legal interest. Anent the payment of legal interest. In the landmark case of Eastern
Shipping Lines, Inc. vs. Court of Appeals, the Court laid down the guidelines regarding the manner of computing legal interest,
to wit:
“II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim
is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.”
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board, in its Resolution No. 796, approved the amendment of
Section 2 of Circular No. 905, Series of 1982 and, accordingly, issued Circular No. 799, Series of 2013, effective July 1, 2013, the
pertinent portion of which reads:
“The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the
rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1,
4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended accordingly.”
Thus, from the foregoing, 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 Lines and Subsection X305.1 of the Manual of
Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial
Institutions, before its amendment by BSP-MB 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.
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines are accordingly
modified to embody BSP-MB Circular No. 799, as follows:
“I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under Title XVIII on “Damages” of the Civil Code govern in
determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as
well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall
be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages, except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date
the judgment of the court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.”
And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed and
shall continue to be implemented applying the rate of interest fixed therein.
WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of Appeals in CA-G.R. SP No. 98591,
and the Resolution dated October 9, 2009 are REVERSED and SET ASIDE. Respondents are ORDERED to PAY petitioner:
(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 up to May 27, 2002, when the
Resolution of this Court in G.R. No. 151332 became final and executory;
(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay per year of service; and
(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from May 27, 2002 to June 30, 2013
and six percent (6%) per annum from July 1, 2013 until their full satisfaction.
The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary benefits awarded and due to
petitioner in accordance with this Decision.

PHILIPPINE NATIONAL BANK, Petitioner, - versus - RAMON BRIGIDO L. VELASCO, Respondent.
G.R. No. 166096, THIRD DIVISION, September 11, 2008., REYES, R.T., J.
Doctrine: As an audit officer, Velasco should be the first to ensure that banking laws, policies, rules and regulations, are strictly
observed and applied by its officers in the day-to-day transactions. The banking system is an indispensable institution in the
modern world. It plays a vital role in the economic life of every civilized nation. Whether banks act as mere passive entities for the
safekeeping and saving of money, or as active instruments of business and commerce, they have become an ubiquitous presence
among the citizenry, who have come to regard them with respect and even gratitude and, most of all, confidence.
STATEMENT OF THE FACTS:
Ramon Brigido L. Velasco, a PNB audit officer, and his wife, Belen Amparo E. Velasco, maintained Dollar Savings Account at
PNB Escolta Branch. On June 30, 1995, while on official business at the Legazpi Branch, he went to the PNB Ligao, Albay
Branch and withdrew US$15,000.00 from the dollar savings account. The Ligao Branch is an off-line branch, i.e., one with no
network connection or computer linkage with other PNB branches and the head office. The transaction was evidenced by an
Interoffice Savings Account Withdrawal Slip, also known as the Ticket Exchange Center (TEC).
On July 10, 1995, PNB Escolta Branch received the TEC covering the withdrawal. The withdrawal was not, however, posted in
the computer of the Escolta Branch when it received said advice. This means that the withdrawal was not recorded. Thus, the
account of Velasco had an overstatement of US$15,000.00.
In September 1995, Velasco claims that his New York-based brother, Gregorio Velasco, sent him various checks through his
kin totaling US$15,000.00 and that the checks would just be deposited in time in Velasco's account. Velasco updated his dollar
savings account by depositing US$12.78, reflecting a balance of US$15,486.01. He was allegedly satisfied with the updated
balance, as he thought that the US$15,000.00 in his account was the amount given by his brother.
On different dates, Subsequently, Velasco made several inter-branch withdrawals from the dollar savings account.
Subsequently, the dollar savings account of the spouses was closed.
In course of conducting an audit at PNB Escolta Branch, Molina D. Salvador, a member of the Internal Audit Department (IAD)
of PNB, discovered that the inter-branch withdrawal made on June 30, 1995 by Velasco at PNB Ligao, Albay Branch in the
amount of US$15,000.00 was not posted; and that no deposit of said amount had been credited to the dollar savings account.
Velasco was notified of the glitch. Velasco then deposited a check with an amount of US$15,000 which was applied to his
unposted withdrawal of US$15,000.00.
PNB vice president, B.C. Hermoso, required Velasco to submit a written explanation concerning the incident. Velasco described
the inter-branch withdrawal at PNB Ligao, Albay Branch on June 30, 1995 as "no-book", - without the corresponding
presentation to the bank teller of the savings passbook. He stated, among others, that his withdrawal was accommodated as
the statement of account showed a balance of US$15,486.01, and that he is personally known to the officers and staff, being a
former colleague at the PNB Ligao, Albay Branch. The no-book withdrawal was confirmed by PNB Ligao, Albay Branch.
PNB formally charged Velasco with"Dishonesty, Grave Misconduct, and/or Conduct Grossly Prejudicial to the Best Interest of
the Service for the irregular handling of Dollar Savings Account citing the following:
1. He transacted a no-book withdrawal against his Dollar Savings Account No. 010-714698-9 a PNB Ligao, Albay Branch
in violation of Section 1216 of the Manual of Regulations for Banks;
2. In transacting the no-book withdrawal, he failed to present any letter of introduction as required under General
Circular 3-72/92
PNB then withheld his benefits and placed him under preventive suspension. Velasco submitted his sworn Answer 16 to the
administrative charge against him. Unlike his previous answer, he here claimed that his withdrawal on June 30, 1995 was
"with passbook". As proof, he attached a copy of his passbook 17 bearing the withdrawal entry of US$15,000.00 on June 30,
1995. Explaining the inconsistency with his sworn letter-explanation on February 12, 1996, he said his initial answer was
made under pressing circumstances. He was unable to find his passbook which was then kept by his wife who could not be
contacted at that moment.
He was found guilty of grave misconduct, mitigated by length of service and absence of actual loss to PNB. Thus, he was meted
the penalty of forced resignation with benefits
Statement of the Case
Velasco filed a complaint for illegal Dismissal before the LA. The LA dismissed the complaint. The NLRC sustained the LA. The
LA and NLRC concluded that the entry in the passbook purportedly reflecting the withdrawal of US$15,000.00 is a forgery. It
was done to conform to the defense of Velasco that he presented his passbook on June 30, 1995. The NLRC concluded that the
falsification of the passbook shows deceit on the part of Velasco. He took advantage of his position. The posting of the falsified
entry could not have been made without, or was at least facilitated by, his being an employee of the bank. The CA however
reversed the LA and NLRC. According to the CA, the failure of Velasco to present his passbook and a letter of introduction does
not constitute misconduct. Assuming for the sake of argument that he committed a serious misconduct in not properly
monitoring his account with ordinary diligence and prudence, the same may be said of PNB when it failed to make the
necessary posting of his withdrawal. Lastly, the alleged offense of Velasco is not work-related to constitute just cause for his
dismissal
ISSUE: Whether the dismissal is illegal. (NO)
RULING:
The law is explicit that the misconduct should be serious. It is settled that in order for misconduct to be serious, "it must be of
such grave and aggravated character and not merely trivial or unimportant". As amplified by jurisprudence, the misconduct
must (1) be serious; (2) relate to the performance of the employee's duties; and (3) show that the employee has become unfit
to continue working for the employer.
A - The misconduct is serious. Velasco violated bank rules when he transacted a "no-book" withdrawal by his failure to
present his passbook to the PNB Ligao, Albay Branch on June 30, 1995. Section 1216 of the Manual of Regulations for Banks
and Other Financial Intermediaries state that "[b]anks are prohibited from issuing/accepting 'withdrawal authority slips' or
any other similar
instruments designed to effect withdrawals of savings deposits without following the usual practice of requiring the
depositors concerned to present their passbooks and accomplishing the necessary withdrawal slips".
Further, he failed to present any letter of introduction as mandated under General Circular 3-72-92 which requires that
"[b]efore going out-of-town, the Depositor secures a Letter of Introduction from the branch/office where his Peso Savings
Account is maintained".
The presentation of passbook and letter of introduction is not without a valid reason. As aptly stated by the IAD of PNB:
Considering that the PNB Ligao, Albay Branch is an offline branch, it is a must that an LOI and the passbook be presented by
the depositor before any withdrawal is allowed. This procedure is required in order for the negotiating branch to determine or
ascertain the available balance and the specimen signature of the withdrawing party. Moreover, the maintaining branch upon
issuance of the LOI shall place a "hold" on the account in the computer as an internal control procedure.
As an audit officer, Velasco should be the first to ensure that banking laws, policies, rules and regulations, are strictly observed
and applied by its officers in the day-to-day transactions. The banking system is an indispensable institution in the modern
world. It plays a vital role in the economic life of every civilized nation. Whether banks act as mere passive entities for the
safekeeping and saving of money, or as active instruments of business and commerce, they have become an ubiquitous
presence among the citizenry, who have come to regard them with respect and even gratitude and, most of all, confidence.
Velasco did not only violate bank rules and regulations. What compounds his offense was his unusual silence. He never
informed PNB about the huge overstatement of US$15,000.00 in his account. He updated his passbook on October 6, 1995 by
depositing US$12.78. Thus, as early as that date, he should have known that something was wrong with the credited balance in
his passbook and reported it immediately to the concerned officers of PNB. What he did, instead, was to keep mum until PNB
discovered the incident and notified him on February 7, 1996, or almost eight (8) months after his no-book withdrawal on
June 30, 1995. With his silence, he clearly intended to gain at the expense of PNB. The omission to report is not trivial or
inconsequential because it gave him the opportunity to withdraw from his dollar savings account more than its real balance, as
what he actually did. He took advantage of the overstatement of his account, instead of protecting the interest of the bank. It
would be impossible for him not to detect the error at the time he deposited US$12.78 on October 6, 1995, because his account had
a big balance despite the fact that no large amount of money was deposited.
His claim that he was satisfied with the updated balance of US$15,486.01 on October 6, 1995, as he thought that the
US$15,000.00 in his account was the amount given by his brother, is simply unbelievable. It is a desperate attempt at
exculpation. The deposit of the money from his brother should have been reflected in the on-line computer of PNB. The
deposit would have also been posted for update upon the presentation of the passbook on October 6, 1995. No deposit of
US$15,000.00 was, however, reflected in the passbook.
B - The serious misconduct relates to the performance of duties. At first glance, the acts committed by Velasco pertain
only to his being a depositor of PNB. But he has a dual personality. He was a depositor and, at the same time, an officer of the
bank. On one hand, he failed to present his passbook and a letter of introduction when he withdrew US$15,000.00 at PNB
Ligao, Albay Branch on June 30, 1995. This serious misconduct was aggravated when he presented a falsified passbook to
make it appear that he did not commit any misdeed. On the other hand, he worked for PNB for eighteen (18) long years, his
last position having been as Manager of the IAD. As such, he was involved in the examination of the books of account of PNB.
Thus, when he violated bank rules and regulations and tried to cover up his infractions by falsifying his passbook, he was not
only committing them as a depositor but also, or rather more so, as an officer of the bank. It is akin to falsification of time
cards, and circulation of fake meal tickets, which this Court held as a just cause for terminating the services of an employee.
C - Velasco has become unfit to continue working at PNB. Taken together, his acts render him unfit to remain in the employ
of the bank. That it is his first offense is of no moment because he holds a managerial position.
As this Court held in Equitable PCIBank v. Caguioa: Treating respondent in the same manner as the loyal and code-abiding
employees, despite the timely discovery of her Code violations, may indeed have a demoralizing effect on the entire bank. Be it
remembered that banks thrive on and endeavor to retain public trust and confidence, every violation of which must thus be
accompanied by appropriate sanctions.
PHILIPPINE DEPOSIT INSURANCE CORPORATION, Petitioner, - VERSUS -. CITIBANK, N.A. and BANK OF AMERICA, S.T. &
N.A., Respondents.
G.R. No 170290, April 11, 2012, THIRD DIVISION, Mendoza, J.
DOCTRINE: Philippine banking laws also support the conclusion that the head office of a foreign bank and its branches are
considered as one legal entity. Section 75 of R.A. No. 8791 (The General Banking Law of 2000) and Section 5 of R.A. No. 7721 n (An
Act Liberalizing the Entry of Foreign Banks) both require the head office of a foreign bank to guarantee the prompt payment of all
the liabilities of its Philippine branch
Petitioner Philippine Deposit Insurance Corporation (PDIC) is a government instrumentality created by virtue of Republic Act
(R.A.) No. 3591, as amended by R.A. No. 9302. Respondent Citibank, N.A. (Citibank) is a banking corporation while respondent
Bank of America, S.T. & N.A. (BA) is a national banking association, both of which are duly organized and existing under the
laws of the United States of America and duly licensed to do business in the Philippines, with offices in Makati City.
In 1977, PDIC conducted an examination of the books of account of Citibank. It discovered that Citibank, in the course of its
banking business, from September 30, 1974 to June 30, 1977, received from its head office and other foreign branches a total
of P11,923,163,908.00 in dollars, covered by Certificates of Dollar Time Deposit that were interest-bearing with corresponding
maturity dates. These funds, which were lodged in the books of Citibank under the account "Their Account-Head
Office/Branches-Foreign Currency," were not reported to PDIC as deposit liabilities that were subject to assessment for
insurance. As such, in a letter dated March 16, 1978, PDIC assessed Citibank for deficiency in the sum of P1,595,081.96.
Similarly, sometime in 1979, PDIC examined the books of accounts of BA which revealed that from September 30, 1976 to June
30, 1978, BA received from its head office and its other foreign branches a total of P629,311,869 in dollars, covered by
Certificates of Dollar Time Deposit that were interest-bearing with corresponding maturity dates and lodged in their books
under the account "Due to Head Office/Branches." Because BA also excluded these from its deposit liabilities, PDIC wrote to BA
on October 9, 1979, seeking the remittance of P109,264.83 representing deficiency premium assessments for dollar deposits.
STATEMENT OF THE CASE
Citibank and BA each filed a petition for declaratory relief before the Court of First Instance (now the Regional Trial Court).
Citibank and BA sought a declaratory judgment 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
RTC ruled in favor of Citibank and BA, ruling that the subject money placements were not deposits and did not give rise to
insurable deposit liabilities, and that the deficiency assessments issued by PDIC were improper and erroneous. The CA
affirmed. n so ruling, the CA found that the money placements were received as part of the bank's internal dealings by Citibank
and BA as agents of their respective head offices. This showed that the head office and the Philippine branch were considered
as the same entity. Thus, no bank deposit could have arisen from the transactions between the Philippine branch and the head
office because there did not exist two separate contracting parties to act as depositor and depositary.
ISSUES: Whether or not the subject dollar deposits are assessable for insurance purposes under the PDIC Charter. (NO)
RULING:
A branch has no separate legal personality. This Court is of the opinion that the key to the resolution of this controversy is the
relationship of the Philippine branches of Citibank and BA to their respective head offices and their other foreign branches.
The Court begins by examining 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. Their Philippine branches are, as the name implies, merely branches, without a
separate legal personality from their parent company, Citibank and BA. Thus, being one and the same entity, the funds placed
by the respondents in their respective branches in the Philippines should not be treatedas deposits made by third parties
subject to deposit insurance under the PDIC Charter.\
For lack of judicial precedents on this issue, the Court seeks guidance from American jurisprudence. In the leading case of
Sokoloff v. The National City Bank of New York, where the Supreme Court of New York held:
Where a bank maintains branches, each branch becomes a separate business entity with separate books of account. A
depositor in one branch cannot issue checks or drafts upon another branch or demand payment from such other branch, and
in many other respects the branches are considered separate corporate entities and as distinct from one another as any other
bank. Nevertheless, when considered with relation to the parent bank they are not independent agencies; they are, what their
name imports, merely branches, and are subject to the supervision and control of the parent bank, and are instrumentalities
whereby the parent bank carries on its business, and are established for its own particular purposes, and their business
conduct and policies are controlled by the parent bank and their property and assets belong to the parent bank, although
nominally held in the names of the particular branches. Ultimate liability for a debt of a branch would rest upon the parent
bank.
In addition, Philippine banking laws also support the conclusion that the head office of a foreign bank and its branches are
considered as one legal entity. Section 75 of R.A. No. 8791 (The General Banking Law of 2000) and Section 5 of R.A. No. 7721 n
(An Act Liberalizing the Entry of Foreign Banks) both require the head office of a foreign bank to guarantee the prompt
payment of all the liabilities of its Philippine branch.
BPI FAMILY SAVINGS BANK, INC., Petitioner, - versus -FIRST METRO INVESTMENT CORPORATION, Respondent.
G.R. No 132390, May 21, 2004, THIRD DIVISION, SANDOVAL-GUTIERREZ, J.
DOCTRINE: We reiterated this doctrine in Prudential Bank vs. Court of Appeals, thus: “A bank holding out its officers and agent as
worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of
their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the
bank therefrom.
Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its
business by an agent acting within the general scope of his authority even though the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other person for his own ultimate benefit.”
First Metro Investment Corporation (FMIC), respondent, is an investment house organized under Philippine laws. FMIC,
through its Executive VP Antonio Ong, deposited METROBANK check no. 898679 of P100 million with BPI Family Bank (BPI
FB) San Francisco del Monte Branch (Quezon City)
BPI FB, through its branch manager Sebastian, guaranteed the payment of P14,667,687.01 representing 17% per annum
interest of P100 million deposited by FMIC. The latter, in turn, assured BPI FB that it will maintain its deposit of P100 million
for a period of one year on condition that the interest of 17% per annum is paid in advance.
Subsequently, BPI FB paid FMIC 17% interest or P14,667,687.01 upon clearance of the latter’s check deposit. However, on
August 29, 1989, on the basis of an Authority to Debit signed by Ong and Ma. Theresa David, Senior Manager of FMIC, BPI FB
transferred P80 million from FMIC’s current account to the savings account of Tevesteco Arrastre — Stevedoring, Inc.
(Tevesteco).
FMIC denied having authorized the transfer of its funds to Tevesteco, claiming that the signatures of Ong and David were
falsified. Thereupon, to recover immediately its deposit, FMIC, on September 12, 1989, issued BPI FB check no. 129077 for
P86,057,646.72 payable to itself and drawn on its deposit with BPI FB SFDM branch. But upon presentation for payment on
September 13, 1989, BPI FB dishonored the check as it was “drawn against insufficient funds” (DAIF). BPI FB contends that
P80 Million transferred to Tevesteco’s account were proceeds of a loan extended by respondent FMIC to Tevesteco.
FMIC filed with the Regional Trial Court, Branch 146, Makati City Civil Case No. 89-5280 against BPI FB. The RTC ruled in favor
of FMIC ordering BPI-FB to pay the amount of 80 million WITH interest from the time complaint is filed less 14, 667, 678. The
CA affirmed the decision. BPI FB contends that the Court of Appeals erred in awarding the 17% per annum interest
corresponding to the amount deposited by respondent FMIC. Petitioner insists that respondent’s deposit is not a special
savings account similar to a time deposit, but actually a demand deposit, withdrawable upon demand, proscribed from earning
interest under Central Bank Circular 777. Petitioner further maintains that its branch manager overstepped its authority and
respondent should have first inquired whether the deposit of P100 Million and the fixing of the interest rate were pursuant to
its (petitioner’s) internal procedures
ISSUE: Whether BPI FB is liable. (YES)
RULING
We hold that the parties did not intend the deposit to be treated as a demand deposit but rather as an interest-earning time
deposit not withdrawable any time. Both agreed that the deposit of P100 million was non-withdrawable for one year upon
payment in advance of the 17% per annum interest. Clearly, when respondent FMIC invested its money with petitioner BPI FB,
they intended the P100 million as a time deposit, to earn 17% per annum interest and to remain intact until its maturity date
one year thereafter. Ordinarily, a time deposit is defined as “one, the payment of which cannot legally be required within such
a specified number of days.”
In contrast, demand deposits are “all those liabilities of the Bangko Sentral and of other banks which are denominated in
Philippine currency and are subject to payment in legal tender upon demand by the presentation of (depositor’s) checks.”
While it may be true that barely one month and seven days from the date of deposit, respondent FMIC demanded the
withdrawal of P86,057,646.72 through the issuance of a check payable to itself, the same was made as a result of the
fraudulent and unauthorized transfer by petitioner BPI FB of its P80 million deposit to Tevesteco’s savings account. Certainly,
such was a normal reaction of respondent as a depositor to petitioner’s failure in its fiduciary duty to treat its account with the
highest degree of care.
Under this circumstance, the withdrawal of deposit by respondent FMIC before the one-year maturity date did not change the
nature of its time deposit to one of demand deposit. On another tack, petitioner’s argument that Central Bank regulations
prohibit demand deposit from earning interest is bereft of merit.
Under Central Bank Circular No. 22, Series of 1994, “demand deposits shall not be subject to any interest rate ceiling.” This, in
effect, is an open authority to pay interest on demand deposits, such interest not being subject to any rate ceiling.
Likewise, time deposits are not subject to interest rate ceiling. In fact, the rate ceiling was abolished and even allowed to float
depending on market condition.
Going back to the unauthorized transfer of respondent’s funds to Tevesteco, in its attempt to evade any liability therefor,
petitioner now impugns the validity of the subject agreement on the ground that its Branch Manager, Jaime Sebastian,
overstepped the limits of his authority in accepting respondent’s deposit with 17% interest per annum. We have held that if a
corporation knowingly permits its officer, or any other agent, to perform acts within the scope of an apparent authority,
holding him out to the public as possessing power to do those acts, the corporation will, as against any person who has dealt in
good faith with the corporation through such agent, be estopped from denying such authority.
We reiterated this doctrine in Prudential Bank vs. Court of Appeals, thus: “A bank holding out its officers and agent as worthy
of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of
their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the
bank therefrom.
Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its
business by an agent acting within the general scope of his authority even though the agent is secretly abusing his authority
and attempting to perpetrate a fraud upon his principal or some other person for his own ultimate benefit.”
Petitioner maintains that respondent should have first inquired whether the deposit of P100 Million and the fixing of the
interest rate were pursuant to its (petitioner’s) internal procedures. Petitioner’s stance is a futile attempt to evade an
obligation clearly established by the intent of the parties. What transpires in the corporate board room is entirely an internal
matter. Hence, petitioner may not impute negligence on the part of respondent’s representative in failing to find out the scope
of authority of petitioner’s Branch Manager. Indeed, the public has the right to rely on the trustworthiness of bank managers
and their acts. Obviously, confidence in the banking system, which necessarily includes reliance on bank managers, is vital in
the economic life of our society. Significantly, the transaction was actually acknowledged and ratified by petitioner when it
paid respondent in advance the interest for one year. Thus, petitioner is estopped from denying that it authorized its Branch
Manager to enter into an agreement with respondent’s Executive Vice President concerning the deposit with the
corresponding 17% interest per annum.
Finally, petitioner faults the Court of Appeals in not ordering the consolidation of Civil Case No. 89-4996 (filed by petitioner
against Tevesteco) with Civil Case No. 89-5280 (the instant case). According to petitioner, had there been consolidation of
these two cases, it would have been shown that the P80 Million transferred to Tevesteco’s account were proceeds of a loan
extended by respondent FMIC to Tevesteco. Suffice it to state that as found by both the trial court and the Appellate Court,
petitioner’s transfer of respondent’s P80M to Tevesteco was unauthorized and tainted with fraud. 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
million of pesos. Here, petitioner cannot claim it exercised such a degree of care required of it and must, therefore, bear the
consequence.
ASSOCIATED BANK (Now WESTMONT BANK), petitioner, - versus - VICENTE HENRY TAN, respondent.
G.R. No 156940, December 14, 2004. THIRD DIVISION, PANGANIBAN, J.
DOCTRINE: Jurisprudence has established that the lack of diligence of a servant is imputed to the negligence of the employer,
when the negligent or wrongful act of the former proximately results in an injury to a third person; in this case, the depositor.
The manager of the bank's Cabanatuan branch, Consorcia Santiago, categorically admitted that she and the employees under her
control had breached bank policies. They admittedly breached those policies when, without clearance from the drawee bank in
Baguio, they allowed respondent to withdraw on October 1, 1990, the amount of the check deposited. Santiago testified that
respondent "was not officially informed about the debiting of the P101,000 from his existing balance of P170,000 on October 2,
1990 . . . "
Vicente Henry Tan (hereafter TAN) is a businessman and a regular depositor-creditor of the Associated Bank (hereinafter
referred to as the BANK). Tan deposited a postdated UCPB check in the amount of P101,000. Allegedly, upon advice and
instruction of the BANK that the P101,000.00 check was already cleared and backed up by sufficient funds, TAN, on the same
date, withdrew the sum of P240,000.00, leaving a balance of P57,793.45. A day after, TAN deposited the amount of P50,000.00
making his existing balance in the amount of P107,793.45,
Tan then issued checks to various suppliers. "However, his suppliers and business partners went back to him alleging that the
checks he issued bounced for insufficiency of funds. Thereafter, TAN, thru his lawyer, informed the BANK to take positive steps
regarding the matter for he has adequate and sufficient funds to pay the amount of the subject checks. Nonetheless, the BANK
did not bother nor offer any apology regarding the incident.
STATEMENT OF THE CASE:
TAN filed a Complaint maintaining that he ha[d] sufficient funds to pay the subject checks and alleged that his suppliers
decreased in number for lack of trust. As he has been in the business community for quite a time and has established a good
record of reputation and probity, plaintiff claimed that he suffered embarrassment, humiliation, besmirched reputation,
mental anxieties and sleepless nights because of the said unfortunate incident. By way of affirmative defense, [petitioner] Bank
averred that [respondent] had no cause of action against it and argued that it has all the right to debit the account of the
[respondent] by reason of the dishonor of the check deposited by the [respondent] which was withdrawn by him prior to its
clearing. [Petitioner] further averred that it has no liability with respect to the clearing of deposited checks as the clearing is
being undertaken by the Central Bank and in accepting [the] check deposit, it merely obligates itself as depositor's collecting
agent subject to actual payment by the drawee bank. Petitioner further advanced the reservation in the deposit slip which
reads: "In receiving items on deposit, this Bank obligates itself only as the Depositor's Collecting agent, assuming no
responsibility beyond carefulness in selecting correspondents, and until such time as actual payments shall have come to its
possession, this Bank reserves the right to charge back to the Depositor's account any amounts previously credited whether or
not the deposited item is returned. . . ."
The RTC ruled in favor of Tan. n making said ruling, it was shown that [respondent] was not officially informed about the
debiting of the P101,000.00 [from] his existing balance and that the BANK merely allowed the [respondent] to use the fund
prior to clearing merely for accommodation because the BANK considered him as one of its valued clients. The trial court ruled
that the bank manager was negligent in handling the particular checking account of the [respondent] stating that such lapses
caused all the 8inconveniences to the [respondent]. Affirming the trial court, the CA ruled that the bank should not have
authorized the withdrawal of the value of the deposited check prior to its clearing. Having done so, contrary to its obligation to
treat respondent's account with meticulous care, the bank violated its own policy. It thereby took upon itself the obligation to
officially inform respondent of the status of his account before unilaterally debiting the amount of P101,000. Without such
notice, it is estopped from blaming him for failing to fund his account.
ISSUE: Whether the Bank is liable for damages. (YES)
RULING:
In BPI v. Casa Montessori, the Court has emphasized that the 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. By the nature of its functions, a bank is under obligation to treat the accounts of its depositors with meticulous care."
Also affirming this long standing doctrine, Philippine Bank of Commerce v. Court of Appeals 16 has held that "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." Indeed, the banking business is vested with the trust and confidence of the public; hence the
"appropriate standard of diligence must be very high, if not the highest, degree of diligence." The standard applies, regardless
of whether the account consists of only a few hundred pesos or of millions.
The fiduciary nature of banking, previously imposed by case law, is now enshrined in Republic Act No. 8791 or the General
Banking Law of 2000. Section 2 of the law specifically says that the State recognizes the "fiduciary nature of banking that
requires high standards of integrity and performance."
It is undisputed — nay, even admitted — that purportedly as an act of accommodation to a valued client, petitioner allowed
the withdrawal of the face value of the deposited check prior to its clearing. That act certainly disregarded the clearance
requirement of the banking system. Such a practice is unusual, because a check is not legal tender or money; and its value can
properly be transferred to a depositor's account only after the check has been cleared by the drawee bank.
Under ordinary banking practice, after receiving a check deposit, a bank either immediately credit the amount to a depositor's
account; or infuse value to that account only after the drawee bank shall have paid such amount. Before the check shall have
been cleared for deposit, the collecting bank can only "assume" at its own risk — as herein petitioner did — that the check
would be cleared and paid out
The reservation is not enough to insulate the bank from any liability. In the past, we have expressed doubt about the binding
force of such conditions unilaterally imposed by a bank without the consent of the depositor. It is indeed arguable that "in
signing the deposit slip, the depositor does so only to identify himself and not to agree to the conditions set forth at the back of
the deposit slip." Further, by the express terms of the stipulation, petitioner took upon itself certain obligations as
respondent's agent, consonant with the well-settled rule that the relationship between the payee or holder of a commercial
paper and the collecting bank is that of principal and agent. Under Article 1909 of the Civil Code, such bank could be held
liable not only for fraud, but also for negligence. As a general rule a bank is liable for the wrongful or tortuous acts and
declarations of its officers or agents within the course and scope of their employment. Due to the very nature of their business,
banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees.
Jurisprudence has established that the lack of diligence of a servant is imputed to the negligence of the employer, when the
negligent or wrongful act of the former proximately results in an injury to a third person; in this case, the depositor.
The manager of the bank's Cabanatuan branch, Consorcia Santiago, categorically admitted that she and the employees under
her control had breached bank policies. They admittedly breached those policies when, without clearance from the drawee
bank in Baguio, they allowed respondent to withdraw on October 1, 1990, the amount of the check deposited. Santiago
testified that respondent "was not officially informed about the debiting of the P101,000 from his existing balance of P170,000
on October 2, 1990 . . . "
Being the branch manager, Santiago clearly acted within the scope of her authority in authorizing the withdrawal and the
subsequent debiting without notice. Accordingly, what remains to b determined is whether her actions proximately caused
respondent's injury. Proximate cause is that which — in a natural and continuous sequence, unbroken by any efficient
intervening cause — produces the injury, and without which the result would not have occurred..
Let us go back to the facts as they unfolded. It is undeniable that the bank's premature authorization of the withdrawal by
respondent on October 1, 1990, triggered — in rapid succession and in a natural sequence — the debiting of his account, the
fall of his account balance to insufficient levels, and the subsequent dishonor of his own checks for lack of funds.
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND AMERICA), Petitioner -
VERSUS - COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A., Respondents.
G.R. No. 121413 January 29, 2001, QUISUMBING, J.
FORD PHILIPPINES, INC., petitioner-plaintiff, - versus -. COURT OF APPEALS and CITIBANK, N.A. and PHILIPPINE
COMMERCIAL INTERNATIONAL BANK, respondents.
FORD PHILIPPINES, INC., petitioner,- versus - CITIBANK, N.A., PHILIPPINE COMMERCIAL INTERNATIONAL BANK and
COURT OF APPEALS, respondents.
DOCTRINE: (1) Thus, one who encashed a check which had been forged or diverted and in turn received payment thereon from the
drawee, is guilty of negligence which proximately contributed to the success of the fraud practiced on the drawee bank. The latter
may recover from the holder the money paid on the check.
(2) A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds these officers or
agents were enabled to perpetrate in the apparent course of their employment; nor will t be permitted to shirk its responsibility
for such frauds, even though no benefit may accrue to the bank therefrom. For the general rule is that a bank is liable for the
fraudulent acts or representations of an officer or agent acting within the course and apparent scope of his employment or
authority. And if an officer or employee of a bank, in his official capacity, receives money to satisfy an evidence of indebtedness
lodged with his bank for collection, the bank is liable for his misappropriation of such sum.
STATEMENT OF FACTS:
Ford drew and issued its crossed (on its face were two parallel lines and written in between said lines was the phrase "Payee's
Account Only") Citibank Check in favor of the Commissioner of Internal Revenue as payment of its percentage or
manufacturer's sales taxes.
The aforesaid check was deposited with the defendant IBAA (now PCIBank) and was subsequently cleared at the Central Bank.
Upon presentment with the defendant Citibank, the proceeds of the check was paid to IBAA as collecting or depository bank.
The proceeds of the same Citibank check of the plaintiff was never paid to or received by the payee thereof, the Commissioner
of Internal Revenue.
As a consequence, upon demand of the Bureau and/or Commissioner of Internal Revenue, the plaintiff was compelled to make
a second payment to the Bureau of Internal Revenue of its percentage/manufacturers' sales taxes.
These happened in multiple instances. The checks involve are as follows: Citibank Check No. SN-04867 in the amount of
P4,746,114.41, payment for Ford’s percentage or manufacturer's sales taxes for the third quarter of 1977. Citibank Check No.
SN-10597 - in the amount of P5,851,706.37 representing the percentage tax due for the second quarter of 1978 and; Citibank
Check No. SN-16508 in the amount of P6,311,591.73, representing the payment of percentage tax for the first quarter of
1979.
An investigation by the National Bureau of Investigation (NBI) revealed that Citibank Check No. SN-04867 was recalled by
Godofredo Rivera, the General Ledger Accountant of Ford. He purportedly needed to hold back the check because there was an
error in the computation of the tax due to the Bureau of Internal Revenue (BIR). With Rivera's instruction, PCIBank replaced
the check with two of its own Manager's Checks (MCs). Alleged members of a syndicate later deposited the two MCs with the
Pacific Banking Corporation.
As regards Check no. SN – 10597 and Check No SN – 16508, upon investigation, it was discovered that the check was
embezzled by a syndicate. The modus operandi of the syndicate, as follows:
"A certain Mr. Godofredo Rivera was employed by the plaintiff FORD as its General Ledger Accountant. As such, he prepared
the plaintiff's check marked Ex. 'A' [Citibank Check No. Sn-10597] for payment to the BIR. Instead, however, of delivering the
same of the payee, he passed on the check to a co-conspirator named Remberto Castro who was a pro-manager of the San
Andres Branch of PCIB.* In connivance with one Winston Dulay, Castro himself subsequently opened a Checking Account in
the name of a fictitious person denominated as 'Reynaldo reyes' in the Meralco Branch of PCIBank where Dulay works as
Assistant Manager.
After an initial deposit of P100.00 to validate the account, Castro deposited a worthless Bank of America Check in exactly the
same amount as the first FORD check (Exh. "A", P5,851,706.37) while this worthless check was coursed through PCIB's main
office enroute to the Central Bank for clearing, replaced this worthless check with FORD's Exhibit 'A' and accordingly
tampered the accompanying documents to cover the replacement. As a result, Exhibit 'A' was cleared by defendant CITIBANK,
and the fictitious deposit account of 'Reynaldo Reyes' was credited at the PCIB Meralco Branch with the total amount of the
FORD check Exhibit 'A'. The same method was again utilized by the syndicate in profiting from Exh. 'B' [Citibank Check No. SN-
16508] which was subsequently pilfered by Alexis Marindo, Rivera's Assistant at FORD.
From this 'Reynaldo Reyes' account, Castro drew various checks distributing the shares of the other participating conspirators.
Ford commenced two actions. One involving Citibank Check No. SN-04867. The other involves Citibank Check No. SN-
10597 and Citibank Check No. SN-16508
Citibank Check No. SN – 04867 (G.R. Nos. 121413 and 121479) – RTC ordered Citibank and PCI Bank jointly and severally
to pay Ford the value of the check. CA dismissed the case insofar Citibank is concerned. In GR No. 121413, PCIB questions the
decision imputing the liability against it. In GR No. 121479, Ford questions the dropping of Citibank from the parties liable.
Citibank Check No. SN-10597 and Citibank Check No. SN-16508 (GR No. 128604) – RTC ordered CITIBANK to reimburse
FORD for the value of the check. Ford questions the dismissal of the case insofar Citibank is concerned. Citibank questions the
decision imputing against it the liability to reimburse the check
ISSUE: Whether Ford has the right to recover from PCIBank (collecting bank) and/or Citibank (drawee bank). (YES)
RULING:
FORD could recover. Not the proximate cause.
Citibank points out that Ford allowed its very own employee, Godofredo Rivera, to negotiate the checks to his co-conspirators,
instead of delivering them to the designated authorized collecting bank of the payee, CIR. PCIBank also blames Ford of
negligence when it allegedly authorized Godofredo Rivera to divert the proceeds of Citibank Check No. SN-04867, instead of
using it to pay the BIR.
On this point, jurisprudence regarding the imputed negligence of employer in a master-servant relationship is instructive.
Since a master may be held for his servant's wrongful act, the law imputes to the master the act of the servant, and if that act is
negligent or wrongful and proximately results in injury to a third person, the negligence or wrongful conduct is the negligence
or wrongful conduct of the master, for which he is liable. The general rule is that if the master is injured by the negligence of a
third person and by the concuring contributory negligence of his own servant or agent, the latter's negligence is imputed to his
superior and will defeat the superior's action against the third person, asuming, of course that the contributory negligence was
the proximate cause of the injury of which complaint is made.
It appears that although the employees of Ford initiated the transactions attributable to an organized syndicate, in our view,
their actions were not the proximate cause of encashing the checks payable to the CIR. The degree of Ford's negligence, if
any, could not be characterized as the proximate cause - is that which, in the natural and continuous sequence, unbroken by
any efficient, intervening cause produces the injury and without the result would not have occurred - of the injury to the
parties.
The Board of Directors of Ford, we note, did not confirm the request of Godofredo Rivera to recall Citibank Check No. SN-
04867. Rivera's instruction to replace the said check with PCIBank's Manager's Check was not in the ordinary course of
business which could have prompted PCIBank to validate the same.
As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was established that these checks were made payable to
the CIR. Both were crossed checks. These checks were apparently turned around by Ford's employees, who were acting on
their own personal capacity.
Given these circumstances, the mere fact that the forgery was committed by a drawer-payor's confidential employee or agent,
who by virtue of his position had unusual facilities for perpetrating the fraud and imposing the forged paper upon the bank,
does not entitle the bank to shift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against
the drawer. This rule likewise applies to the checks fraudulently negotiated or diverted by the confidential employees who
hold them in their possession.
G.R. Nos. 121413 and 121479 – PCIB is solely liable
Citibank Check No. SN-04867 was deposited at PCIBank through its Ermita Branch. It was coursed through the ordinary
banking transaction, sent to Central Clearing with the indorsement at the back "all prior indorsements and/or lack of
indorsements guaranteed," and was presented to Citibank for payment. Thereafter PCIBank, instead of remitting the proceeds
to the CIR, prepared two of its Manager's checks and enabled the syndicate to encash the same.
On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect of PCIBank employees to
verify whether his letter requesting for the replacement of the Citibank Check No. SN-04867 was duly authorized, showed lack
of care and prudence required in the circumstances.
Furthermore, it was admitted that PCIBank is authorized to collect the payment of taxpayers in behalf of the BIR. As an agent
of BIR, PCIBank is duty bound to consult its principal regarding the unwarranted instructions given by the payor or its agent
It is a well-settled rule that the relationship between the payee or holder of commercial paper and the bank to which it is sent
for collection is, in the absence of an agreement to the contrary, that of principal and agent. A bank which receives such
paper for collection is the agent of the payee or holder,
As agent of the BIR (the payee of the check), defendant IBAA should receive instructions only from its principal BIR and not
from any other person especially so when that person is not known to the defendant. It is very imprudent on the part of the
defendant IBAA to just rely on the alleged telephone call of the one Godofredo Rivera and in his signature considering that the
plaintiff is not a client of the defendant IBAA
Further, banking business requires that the one who first cashes and negotiates the check must take some precautions to learn
whether or not it is genuine. And if the one cashing the check through indifference or other circumstance assists the forger in
committing the fraud, he should not be permitted to retain the proceeds of the check from the drawee whose sole fault was
that it did not discover the forgery or the defect in the title of the person negotiating the instrument before paying the check.
For this reason, a bank which cashes a check drawn upon another bank, without requiring proof as to the identity of persons
presenting it, or making inquiries with regard to them, cannot hold the proceeds against the drawee when the proceeds of the
checks were afterwards diverted to the hands of a third party. In such cases the drawee bank has a right to believe that the
cashing bank (or the collecting bank) had, by the usual proper investigation, satisfied itself of the authenticity of the
negotiation of the checks. Thus, one who encashed a check which had been forged or diverted and in turn received payment
thereon from the drawee, is guilty of negligence which proximately contributed to the success of the fraud practiced on the
drawee bank. The latter may recover from the holder the money paid on the check.
Having established that the collecting bank's negligence is the proximate cause of the loss, we conclude that PCIBank is liable
in the amount corresponding to the proceeds of Citibank Check No. SN-04867.
G.R. No. 128604 – Both Citibank and PCIBank
The trial court and the Court of Appeals found that PCIBank had no official act in the ordinary course of business that would
attribute to it the case of the embezzlement of Citibank Check Numbers SN-10597 and 16508, because PCIBank did not
actually receive nor hold the two Ford checks at all
As a general rule, however, a banking corporation is liable for the wrongful or tortuous acts and declarations of its officers or
agents within the course and scope of their employment. 28 A bank will be held liable for the negligence of its officers or
agents when acting within the course and scope of their employment. It may be liable for the tortuous acts of its officers even
as regards that species of tort of which malice is an essential element. In this case, we find a situation where the PCIBank
appears also to be the victim of the scheme hatched by a syndicate in which its own management employees had participated.
The pro-manager of San Andres Branch of PCIBank, Remberto Castro, received Citibank Check Numbers SN-10597 and 16508.
He passed the checks to a co-conspirator, an Assistant Manager of PCIBank's Meralco Branch, who helped Castro open a
Checking account of a fictitious person named "Reynaldo Reyes." Castro deposited a worthless Bank of America Check in
exactly the same amount of Ford checks. The syndicate tampered with the checks and succeeded in replacing the worthless
checks and the eventual encashment of Citibank Check Nos. SN 10597 and 16508. The PCIBank Pro-manager, Castro, and his
co-conspirator Assistant Manager apparently performed their activities using facilities in their official capacity or authority
but for their personal and private gain or benefit.
A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds these officers or
agents were enabled to perpetrate in the apparent course of their employment; nor will t be permitted to shirk its
responsibility for such frauds, even though no benefit may accrue to the bank therefrom. For the general rule is that a bank is
liable for the fraudulent acts or representations of an officer or agent acting within the course and apparent scope of his
employment or authority. And if an officer or employee of a bank, in his official capacity, receives money to satisfy an evidence
of indebtedness lodged with his bank for collection, the bank is liable for his misappropriation of such sum.
But in this case, responsibility for negligence does not lie on PCIBank's shoulders alone. As ruled by the Court of
Appeals, Citibank must likewise answer for the damages incurred by Ford on Citibank Checks Numbers SN 10597 and 16508,
because of the contractual relationship existing between the two. Citibank, as the drawee bank breached its contractual
obligation with Ford and such degree of culpability contributed to the damage caused to the latter. On this score, we agree
with the respondent court's ruling.
Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying the amount of the proceeds
thereof to the collecting bank of the BIR. One thing is clear from the record: the clearing stamps at the back of Citibank Check
Nos. SN 10597 and 16508 do not bear any initials. Citibank failed to notice and verify the absence of the clearing stamps. Had
this been duly examined, the switching of the worthless checks to Citibank Check Nos. 10597 and 16508 would have been
discovered in time. For this reason, Citibank had indeed failed to perform what was incumbent upon it, which is to ensure that
the amount of the checks should be paid only to its designated payee. The fact that the drawee bank did not discover the
irregularity seasonably, in our view, constitutes negligence in carrying out the bank's duty to its depositors. 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.
Thus, invoking the doctrine of comparative negligence, we are of the view that both PCIBank and Citibank failed in their
respective obligations and both were negligent in the selection and supervision of their employees resulting in the encashment
of Citibank Check Nos. SN 10597 AND 16508. Thus, we are constrained to hold them equally liable for the loss of the proceeds
of said checks issued by Ford in favor of the CIR.
LAPRECIOSISIMA CAGUNGUN, REMEDIOS L. CAGUNGUN, JESUS L. CAGUNGUN, VICENTE L. CAGUNGUN, JR., RICARDO L.
CAGUNGUN, EDUARDO L. CAGUNGUN, ROWENA L. CAGUNGUN, ALVIN L. CAGUNGUN and ALMA L. CAGUNGUN,
Petitioners, v. PLANTERS DEVELOPMENT BANK, Respondent.
G.R. NO. 158674, October 17, 2005, CHICO-NAZARIO, J.
Doctrine:
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. That said fiduciary relationship means that the bank's obligation to observe "highest standards of
integrity and performance" is deemed written into every deposit agreement between a bank and its depositor. The fiduciary
nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family.
The bank was indeed grossly negligent when it allowed the sum of P220,000.00 to be withdrawn through falsified withdrawal
slips without petitioners' authority and knowledge and its failure to comply with petitioners' instruction to apply their
deposits on their loan. In so doing, respondent bank breached the trust that petitioners reposed on it.
Statement of Facts:
Country Development Bank (Country) had opened an extension office in Olongapo City, and among their first customers were
the Cagungun spouses. They opened some accounts, and for two (2) of which they were issued Savings Passbook No. 12241-16
in the name of Puring's Dry Goods and Savings Passbook No. 38470-29 in the names of V/L Cagungun.
It was claimed by the Cagungun spouses that because of the exigencies of their businesses that required daily deposits of the
proceeds and of the trust that they have reposed with Country, they entrusted and left with them their said savings pass books.
At least once a day the Branch manager Ruperto Reyes or a certain Bong and Ding would come to get their funds and with the
agreement that these would be rounded off and deposited to their account while the odd remainder would be applied to their
loan. The arrangement apparently went well, until March 1981 when the Cagungun spouses received a letter from Country
telling them that their loan is past due and payment was demanded.
The Cagungun spouses were able to access and pry information that in the year 1979 on the dates of October 8, 18, 20 and 31
and November 15, and December 4 and 8, with the use of withdrawal slips a total of P220,000.00 was withdrawn from their
Savings Passbook No. 12241-16. These withdrawals were invalid for no such withdrawal was authorized, made or received by
the depositors, and the signatures of Vicente Cagungun on the slips were forgeries.
The Cagungun spouses filed a suit with the RTC of Olangapo City against Country, with prayer for issuance of a temporary
restraining order and/or writ of preliminary injunction to enjoin the foreclosure of their property.
The RTC ruled that the withdrawals from Savings Account No. 12241-16 through seven (7) withdrawal slips amounting to
P220,000.00 were not made by petitioners as the alleged signatures of Vicente Cagungun, Jr. appearing therein were falsified.
It likewise considered petitioners to have paid their mortgage loan. It also held respondent liable to pay moral damages and
exemplary damages as an example to others.
Aggrieved, respondent appealed to the CA. The CA agreed that money was withdrawn from the deposits of petitioners without
their authority or knowledge, and that this was done by one or some of the personnel of respondent. However, it held that
petitioners are not free from the obligation to pay the admitted loan (P58,297.16) for though the same was not paid for failure
of respondent to comply with the instruction to apply the remainder of the sums deposited to their loan, it remained
admittedly an unpaid obligation. It removed the awards for moral and exemplary damages.
The motion for reconsideration filed by petitioners was denied in a resolution. Hence, petitioners filed a petition for review
with the Supreme Court.
Issue/s:
Whether moral and exemplary damages should be awarded in favor of Cagungun. (YES)
Ruling:
The fact that petitioners left the custody of their passbooks to respondent, through its employee O-I-C Ruperto Reyes, and that
they entrusted to Bong or Ding their deposits will not excuse respondent from being liable. Petitioners did these things
because they trusted and depended on respondent to take care of their accounts with it. The bank was indeed grossly
negligent when it allowed the sum of P220,000.00 to be withdrawn through falsified withdrawal slips without petitioners'
authority and knowledge and its failure to comply with petitioners' instruction to apply their deposits on their loan. In so
doing, respondent bank breached the trust that petitioners reposed on it.
The unauthorized transactions were committed by one or some of the employees of respondent bank for which it should be
liable. The evidence showed that respondent did not exercise the degree of diligence it ought to have exercised in dealing with
its clients - - diligence higher than that of a good father of a family. If only respondent exercised such diligence, no anomaly or
irregularity would have happened. We elucidated in the 1990 case of Simex International, Inc. v. Court of Appeals that "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."
Likewise, in the case of The Consolidated Bank and Trust Corporation v. Court of Appeals, we clarified that said fiduciary
relationship means that the bank's obligation to observe "highest standards of integrity and performance" is deemed written
into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a
degree of diligence higher than that of a good father of a family. Article 1172 of the New Civil Code states that the degree of
diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a family.
Settled is the rule that gross negligence of a bank in the handling of its client's deposit amounts to bad faith that calls for an
award of moral damages. Moral damages are meant to compensate the claimant for any physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injuries unjustly
caused.
In the case at bar, the failure of the bank to prevent seven unauthorized withdrawals from the deposits of petitioners and its
non-compliance with petitioners' instructions regarding the loan payments constitute gross negligence which justifies the
award of moral damages. As employer, respondent is liable for the negligence or misdeed of its employees which caused
petitioners to have sleepless nights thinking about the threatened foreclosure of their house and lot.
Anent the removal by the Court of Appeals of the award of exemplary damages, we find the same to be not in order. The law
allows the grant of exemplary damages to set an example for the public good. The banking system has become an
indispensable institution in the modern world and plays a vital role in the economic life of every civilized society. Whether as
mere passive entities for the safe-keeping and saving of money or as active instruments of business and commerce, banks have
attained a ubiquitous presence among the people, who have come to regard them with respect and even gratitude and most of
all, confidence. For this reason, banks should guard against injury attributable to negligence or bad faith on its part. The award
of exemplary damages is warranted by the failure of respondent bank to prevent the unauthorized withdrawals from
petitioners' deposits and its failure to properly apply the latter's deposits to their loan.
Dispositive portion:
WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The 25 March 2002 decision of the Court of Appeals
modifying the decision of the Regional Trial Court of Olongapo City is AFFIRMED with MODIFICATIONS. As modified,
respondent Planters Development Bank is ordered to pay petitioners the following: (1) P220,000.00 as actual damages
representing the total amount withdrawn from petitioners' accounts plus interest of 6% per annum to be computed from the
date of the filing of the complaint which interest rate shall become 12% per annum from the time of finality of this judgment
until actual payment; (2) P100,000.00 as moral damages; (3) P50,000.00 as exemplary damages; and (4) P25,000.00 as
attorney's fees and P25,000.00 for litigation expenses. Respondent is enjoined from foreclosing the real estate mortgage on
petitioners' property located at No. 88 Gordon Avenue, Pag-asa, Olongapo City. Payment for the outstanding loan of petitioners
in the amount of P58,297.16 shall be deducted from the damages awarded by the Court. SO ORDERED.
PRUDENTIAL BANK, Petitioner, vs. CHONNEY LIM, Respondent.
G.R. No. 136371 November 11, 2005, Tinga, J.
Doctrine:
The negligence of the bank constitutes a breach of duty to its client. It is worthy of note that the banking industry is impressed
with public interest. As such, it must observe a high degree of diligence and observe lofty standards of integrity and
performance. By the nature of its functions, a bank is under obligation to treat the accounts of its depositors with meticulous
care and always to have in mind the fiduciary nature of its relationship with them.
Article 1172 of the Civil Code ordains that responsibility arising from negligence in the performance of an obligation is
demandable. The failure of the bank’s employees to credit the amount of ₱34,000.00 to respondent’s savings account, resulting
as it did in the dishonor of respondent’s checks, constitutes actionable negligence in law.
Statement of Facts:
Chonney Lim (respondent), the owner of Rikes Boutique maintained two (2) accounts with Prudential Bank, namely: Savings
Account No. 11264 and Checking Account No. 1262. He availed of the bank’s automatic transfer system wherein the funds
from his savings account could be transferred to his checking account in case the balance of the latter account was insufficient
to cover the checks he issued.
Respondent deposited the amount of ₱34,000.00 with his savings account. According to respondent, the following day, 15
March 1988, he deposited an equal amount with the same savings account. Respondent issued a check against his current
account in favor of the Paluwagan ng Bayan Savings Bank in payment of his loan with the said bank. He also drew another
check against his checking account to the order of Teodulo Crisologo as payment for a business transaction with the latter.
The bank, however, dishonored both checks, claiming that respondent did not have sufficient funds in his account with the
bank. Upon learning that the first check paid to Paluwagan had been dishonored, respondent wrote a letter to the bank on 27
May 1988, asking it to recheck its records. The bank’s manager, Opiniano, offering as an excuse for the dishonor of said check,
the inadvertent earlier posting to respondent’s account of a postdated check. When the second dishonored check came to
respondent’s knowledge, he immediately wrote a letter to the bank, protesting the dishonor of the check. Opiniano sent a reply
stating that as per records, a deposit slip dated 15 March 1988 for ₱34,000.00 was received for deposit to Savings Account No.
11264 on 14 March 1988.
Respondent denied having made only one deposit, insisting that he made two deposits of ₱34,000.00 each, one on 14 March
and the other on 15 March. On the other hand, the bank’s position is that only one deposit of ₱34,000.00 was made by
respondent on 14 and 15 March 1988.
Respondent filed a Complaint before the RTC, Baguio City for the recovery of ₱34,000.00 representing his actual deposit and
₱300.00 as penalty charge, plus damages.
RTC rendered its Decision holding that respondent made two deposits of ₱34,000.00 apiece.
On appeal, the Court of Appeals affirmed the decision of the trial court with modification as to the award of moral damages,
reducing it to ₱10,000.00.
Hence, petitioner filed a petition for review on Certiorari in the Supreme Court arguing in the main that the award of damages
by the appellate court is groundless that consequently, the assailed decision is not in accord with law and jurisprudence.
Issue/s:
Whether or not the award of damages is groundless. (NO)
Ruling:
We find no justification to deviate from the factual findings of the trial court and the appellate court. The bank has utterly
failed to convince us that the assailed findings are devoid of basis or are not supported by substantial evidence.
An examination of the deposit slips dated 14 March and 15 March 1988 reveals that while the slips each cover deposits in the
amount of ₱34,000.00, they list down different denominations however. Evidently, the slips were not prepared simultaneously
or concurrently. This fact militates against the bank’s claim that one deposit slip is simply the duplicate of the other. To sustain
the bank’s hypothesis, we would have to conclude that respondent, with all deliberate design, prepared two deposit slips and
purposely wrote different denominations in them to mislead the bank that the two deposit slips were separately executed on
different occasions. There is no evidence to support such a bizarre conclusion; thus, we are content to uphold the findings of
the triers of fact on this point.
Article 1172 of the Civil Code ordains that responsibility arising from negligence in the performance of an obligation is
demandable. The failure of the bank’s employees to credit the amount of ₱34,000.00 to respondent’s savings account, resulting
as it did in the dishonor of respondent’s checks, constitutes actionable negligence in law.
From another perspective, the negligence of the bank constitutes a breach of duty to its client. It is worthy of note that the
banking industry is impressed with public interest. As such, it must observe a high degree of diligence and observe lofty
standards of integrity and performance. By the nature of its functions, a bank is under obligation to treat the accounts of its
depositors with meticulous care and always to have in mind the fiduciary nature of its relationship with them.
With the attending factual milieu, the imposition of damages on the errant bank is in order.
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 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 dishonor 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.
The action for damages hinges on the resolution of whether respondent has sufficient funds in his account when the checks
were dishonored. Both the trial and appellate courts ruled that had the bank credited the ₱34,000.00 deposit made by
respondent on 15 March 1988, the checks would not have been dishonored. Likewise, both courts found that moral damages
were in order.
Needless to say, the bank’s wrongful act caused injury to respondent. Credit is very important to businessmen, and its loss or
impairment needs to be recognized and compensated.
Under the circumstances of this case, we find that the award of moral damages is proper but the amount must be reverted
back to ₱50,000.00 as ordered by the RTC, said court being in a better position to assess the amount of damages to be imposed
on the negligent bank.
Furthermore, we sustain the award of exemplary damages. Such damages are imposed by way of example or correction for the
public good, in addition to the moral, temperate, liquidated or compensatory damages. The business of a bank is affected with
public interest; thus, it makes a sworn profession of diligence and meticulousness in giving irreproachable service. For this
reason, the bank should guard against injury attributable to negligence or bad faith on its part. The banking sector must at all
times maintain a high level of meticulousness. In view of the bank’s negligence to record the deposit, the grant of exemplary
damages is thus justified.
WHEREFORE, the petition is denied. The Decision of the RTC dated 27 August 1991 in Civil Case No. 1467-R is AFFIRMED IN
FULL. Costs against petitioner. SO ORDERED.
ROMEO C. CADIZ, CARLITO BONGKINGKI and PRISCO GLORIA IV, Petitioners,
vs.
COURT OF APPEALS, and PHILIPPINE COMMERCIAL INTERNATIONAL BANK (Now EQUITABLE PCIBANK),
Respondents.
G.R. No. 153784, October 25, 2005, Tinga, J.
Doctrine:
Employees who abuse their position for fiduciary gain cannot be shielded from the consequences of their wrongdoing even on
account of the bank’s operational laxities that may have provided the gateway for their shenanigans. Their misconduct
provides the bank with cause for the termination of their employment.
Far from petitioners’ thrust, the miscoding of deposit slips cannot be downplayed as "mere procedural inadequacies." After all,
it is such miscoding that precipitated the fraudulent withdrawals in the first place. The act operated as the first indispensable
step towards the commission of fraud on the bank.
Statement of Facts:
Petitioners Romeo Cadiz, Carlito Bongkingki and Prisco Gloria IV were employed in the main office branch of Philippine
Commercial International Bank (respondent bank). Rosalina B. Alqueza filed a complaint with PCIB for the alleged non-receipt
of a Six Hundred Dollar ($600.00) demand draft drawn against it which was purchased by her husband from Hongkong and
Shanghai Banking Corporation. Upon verification, it was uncovered that the demand draft was deposited on 10 June 1988 with
FCDU Savings Account (S/A) No. 1083-4, an account under the name of Sonia Alfiscar. Further investigation revealed that the
demand draft, together with four (4) other checks, was made to appear as only one deposit covered by HSBC Check No.
979120 for One Thousand Two Hundred Thirty-two Dollars (US$1,232.00).
The Branch Manager, Ismael R. Sandig, then presided over a series of meetings, wherein Cadiz, Bongkingki and Gloria allegedly
verbally admitted their participation in a scheme to divert funds intended for other accounts using the Savings Account of
Alfiscar. Subsequently, Cadiz allegedly paid Alqueza ₱12,690.00, the peso equivalent of US$600, but insisted that the
corresponding receipt be issued in Alfiscar’s name instead.
A special audit examination was conducted by the bank. The auditors determined that as early as July 1987, petitioner Cadiz
had reserved the savings account in the name of Sonia Alfiscar. The account was opened on 27 November 1987 and closed on
23 June 1988. Twenty-five (25) deposit slips involving the account were posted by Bongkingki while sixteen (16) deposit slips
were posted by Gloria. A verification of the deposit slips yielded findings of miscoded checks, forged signatures, non-validation
of deposit slips by the tellers, wrongful deposit of second-endorsed checks into foreign currency deposit accounts, the deposit
slips which do not bear the required approval of bank officers, and withdrawals made either on the day of deposit or the
following banking day.
Respondent bank in memoranda all dated 22 June 1989 dismissed petitioners from employment for violation of Article III
Section 1 B-2 and Article III Section 1-C of the Code of Discipline.
Petitioners lodged a complaint before the labor arbiter for illegal dismissal. Labor Arbiter Ernesto S. Dinopol adjudged that
petitioners were illegally dismissed and ordered their reinstatement and payment of backwages.
The labor arbiter’s Decision was reversed on appeal before the Second Division of the National Labor Relations Commission
(NLRC) which ordered the dismissal of the petition.
Dismissing petitioners’ appeal, the Court of Appeals Ninth Division similarly determined on the basis of substantial evidence
that petitioners were validly terminated.
After the appellate court denied petitioner’s motion for reconsideration, the matter was brought before the Supreme Court in a
Petition for Review on Certiorari.
Issue/s:
Whether or not petitioners should be relieved of any liability considering that respondent bank did not suffer a pecuniary loss.
(NO)
Ruling:
Far from petitioners’ thrust, the miscoding of deposit slips cannot be downplayed as "mere procedural inadequacies." After all,
it is such miscoding that precipitated the fraudulent withdrawals in the first place. The act operated as the first indispensable
step towards the commission of fraud on the bank.
More disturbing though is the labor arbiter’s willingness to acquit petitioners of culpability on account of the purported
negligence of the bank. It is similar to concluding that the bank guards, and not the burglars, bear primary culpability for a
bank robbery. Whatever liability or responsibility was expected of the bank stands as an issue separate from the liability of the
recreant bank employees. Even assuming that the bank observed less-than-ideal controls over the security of its operations,
such laxity does not serve as the carte blanche signal for the bank employees to take advantage of safeguard control lapses and
perpetrate chicanery on their employer.
In the instant case, records show that respondent bank complied with the two-notice rule prescribed in Article 277(b) of the
Labor Code. Petitioners were given all avenues to present their side and disprove the allegations of respondent bank. An
informal meeting was held between the branch manager of MOB, the three petitioners and Mr. Gener, the Vice-President of the
PCIB Employees Union. As per report, petitioners admitted having used Alfiscar’s account to divert funds intended for other
accounts. A special audit investigation was conducted to determine the extent of the fraudulent transactions. Based on the
results of the investigation, respondent bank sent show-cause memoranda to petitioners, asking them to explain their lapses,
under pain of disciplinary action. The memoranda, which constitute the first notice, specified the various questionable acts
committed by petitioners.
Afterwards, petitioners submitted their respective replies to the memoranda. This very well complies with the requirement
for hearing, by which petitioners were afforded the opportunity to defend themselves. The second notice came in the form of
the termination memoranda, informing petitioners of their dismissal from service. From the foregoing, it is clear that the
required procedural due process for their termination was strictly complied with.
Petitioners contend that they should be relieved of any liability considering that respondent bank did not suffer a pecuniary
loss. This claim must obviously fail.
Moreover, it cannot be discounted that as bank employees, the responsibilities of petitioners are impressed with a high degree
of public interest. Private persons entrust their fortunes to banks, and it would cause a breakdown of the financial order if the
judicial system were to leave unsanctioned bank employees who treat depositor’s accounts as their own private kitty.
Moreover, it would simply be temerarious for the Court to sanction the reinstatement of bank employees who have clearly
engaged in anomalous banking practices. The particular fiduciary responsibilities reposed on banks and its employees cannot
be emphasized enough. The fiduciary nature of banking is enshrined in Republic Act No. 8791 or the General Banking Law of
2000. Section 2 of the law specifically says that the State recognizes the "fiduciary nature of banking that requires high
standards of integrity and performance." The bank must not only exercise "high standards of integrity and performance," it
must also ensure that its employees do likewise because this is the only way to ensure that the bank will comply with its
fiduciary duty.
All given, we affirm the conclusion that petitioners were dismissed for just cause. Loss of trust and confidence is one of the just
causes for termination by employer under Article 282 of the Labor Code.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision of the Court of Appeals AFFIRMED. Costs against
petitioners. SO ORDERED.
CITYTRUST BANKING CORPORATION (NOW BANK OF THE PHILIPPINE ISLANDS), petitioner, vs. CARLOS ROMULO N.
CRUZ, respondent.
G.R. No. 157049 : August 11, 2010, BERSAMIN, J.
Doctrine:
Unquestionably, the petitioner, being a banking institution, had the direct obligation to supervise very closely the employees
handling its depositors' accounts, and should always be mindful of the fiduciary nature of its relationship with the depositors.
Such relationship required it and its employees to record accurately every single transaction, and as promptly as possible,
considering that the depositors' accounts should always reflect the amounts of money the depositors could dispose of as they
saw fit, confident that, as a bank, it would deliver the amounts to whomever they directed. If it fell short of that obligation, it
should bear the responsibility for the consequences to the depositors, who, like the respondent, suffered particular
embarrassment and disturbed peace of mind from the negligence in the handling of the accounts.
Statement of Facts:
Respondent, an architect and businessman, maintained savings and checking accounts at the petitioner's Loyola Heights
Branch. The savings account was considered closed due to the oversight committed by one of the latter's tellers. The closure
resulted in the extreme embarrassment of the respondent, for checks that he had issued could not be honored although his
savings account was sufficiently funded and the accounts were maintained under the petitioner's check-o-matic arrangement
(whereby the current account was maintained at zero balance and the funds from the savings account were automatically
transferred to the current account to cover checks issued by the depositor like the respondent).
Respondent sued in the RTC to claim damages from the petitioner.
After trial, the RTC ruled in the respondent's favor, and ordered the petitioner to pay him P100,000.00 as moral damages,
P20,000.00 as exemplary damage, and P20,0000.00 as attorney's fees. The RTC found that the petitioner had failed to properly
supervise its teller; and that the petitioner's negligence had made the respondent suffer serious anxiety, embarrassment and
humiliation, entitling him to damages.
The petitioner appealed to the CA, arguing that the RTC erred in ordering it to pay moral and exemplary damages. However,
the CA affirmed the RTC. The petitioner sought reconsideration, but the CA denied its motion for reconsideration for lack of
merit.
Hence, this appeal.
Issue/s:
Whether or not the award of moral and exemplary damages is in order. (YES)
Ruling:
Unquestionably, the petitioner, being a banking institution, had the direct obligation to supervise very closely the employees
handling its depositors' accounts, and should always be mindful of the fiduciary nature of its relationship with the depositors.
Such relationship required it and its employees to record accurately every single transaction, and as promptly as possible,
considering that the depositors' accounts should always reflect the amounts of money the depositors could dispose of as they
saw fit, confident that, as a bank, it would deliver the amounts to whomever they directed. If it fell short of that obligation, it
should bear the responsibility for the consequences to the depositors, who, like the respondent, suffered particular
embarrassment and disturbed peace of mind from the negligence in the handling of the accounts.
Lastly, the CA properly affirmed the RTC's award of exemplary damages and attorney's fees. It is never overemphasized that
the public always relies on a bank's profession of diligence and meticulousness in rendering irreproachable service. Its failure
to exercise diligence and meticulousness warranted its liability for exemplary damages and for reasonable attorney's fees.
WHEREFORE, we deny the petition for review on certiorari, and affirm the decision rendered on October 8, 2002 by the Court
of Appeals. Costs of suit to be paid by the petitioner. SO ORDERED.
METROPOLITAN BANK AND TRUST COMPANY, Petitioner, vs. MARINA B. CUSTODIO, Respondent.
G.R. No. 173780, March 21, 2011, SERENO, J.
Doctrine:
The Court of Appeals underscored the "highest degree of diligence" from the banking business, considering that it is impressed
with public interest and of paramount importance. However, as petitioner Metrobank pointed out, the exacting standard of
diligence required by the appellate court pertains to the relationship between a bank and a depositor, and not between a bank
and its employees. In this case, no depositors were affected, as the transactions during that day were accounted for, and no
error was found in the recording thereof. The relevant standard of diligence that we need to examine here is that of a bank
teller who was entrusted monies by the bank and who may have failed to account for them. In this case, petitioner Metrobank
was unable to prove that respondent Custodio failed to exercise the necessary degree of diligence that would justify the bank’s
action for damages. Respondent Custodio was not remiss in her duties as all her dealings with the bank’s money were clearly
reflected on the records of the bank.
Statement of Facts:
Petitioner Metropolitan Bank and Trust Company (Metrobank) is a banking corporation. On the other hand, respondent
Marina Custodio is a bank teller employed at the Laoag City branch of petitioner Metrobank.
Respondent Custodio received loose money (picos) for the day’s business and was assigned as Teller No. 3. In the course of
performing her duties, respondent Custodio handled several cash transactions with the customers on behalf of petitioner
bank. A cash transfer of PhP200,000 was made from Teller No. 1 to respondent Custodio. Petitioner Metrobank explained that,
usually, a transfer of money from one teller to another occurs if the latter "needs money, maybe to pay for the withdrawal."
However, petitioner bank pointed out that it was unnecessary for respondent Custodio to borrow from another teller at that
time, since respondent had sufficient cash on hand to cover a withdrawal in the same amount as the cash transfer. At the close
of banking hours, respondent Custodio balanced her transactions for the day and turned over the funds to the bank’s cash
custodian, Ms. Marinel Castro, in the amount of PhP2,113,500. Ms. Marinel Castro acknowledged receipt of the bundled cash
turned over and signed a Cash Transfer Slip. After all tellers had turned over their cash on hand, Ms. Castro discovered that
there was a shortage amounting to PhP600,000. She notified Mr. Adriano Lucas, the branch manager, of the missing money.
However, the missing money was not found. Thus, the amount "CASH IN VAULT" was reported to be short of PhP600,000.
Later on, petitioner Metrobank alleged that it was able to recover eight bill wrappers only for bundles of five-hundred-peso
bills (without the bills thereunder) that purportedly corresponded to the missing four hundred thousand pesos (PhP400,000).
These bill wrappers bore a rubber stamp "PEPT-3" for Teller No. 3. Respondent Custodio countered that the discovery of the
bill wrappers being attributed to her care was never mentioned at the time the cash shortage occurred, and that these
wrappers could have been obtained subsequently by stamping unmarked ones.
After she was served the summons, respondent Custodio was supposedly caught bringing out a teller’s copy of the journal
print transactions with the related cash transfer slips for that particular banking day (23 June 1995). These bank records were
confiscated from respondent Custodio, when they were discovered in her dress pocket during a body search done on all
employees leaving the office.
Because of her alleged attempt to take the journal print transactions, Mr. Lucas, the branch manager, recommended that
respondent Custodio be preventively suspended. After respondent teller filed her explanation, petitioner Metrobank found it
unacceptable and suspended her from work for seven days without pay.
Respondent Custodio denied the allegations of petitioner Metrobank that she was responsible for the cash shortage.
Respondent argued that Ms. Castro, not she, was the one who incurred the cash shortage, since the loss was discovered only
after the cash and other accountabilities were turned over to her, as cash custodian.
Petitioner Metrobank filed a Complaint for a sum of money with ex-parte application for a writ of preliminary attachment,
praying that respondent Custodio pay the amount of PhP600,000, including attorney’s fees and costs of suit. The trial court
subsequently granted the application for a writ of preliminary attachment against the properties of respondent Custodio.
The trial court rendered its Decision granting petitioner Metrobank’s Complaint and ordering respondent Custodio to pay the
amount of six hundred thousand pesos (PhP600,000) plus interest.
On appeal, the Court of Appeals (10th Division) found respondent Custodio’s appeal meritorious and reversed the trial court’s
Decision.
Petitioner Metrobank filed a Petition for Review under Rule 43 in the Supreme Court.
Issue/s:
Whether there is a preponderance of evidence to establish that respondent Custodio incurred a cash shortage of PhP600,000
at the close of the banking day on 13 June 1995 and is therefore liable to pay petitioner Metrobank the said amount. (NO)
Ruling:
The Court sustains the appellate court’s finding that petitioner Metrobank failed to discharge its burden of proving that
respondent Custodio was responsible for the cash shortage. Petitioner Metrobank’s evidence on record does not sufficiently
establish that respondent Custodio took the funds that were entrusted to her as a bank teller.
There is nothing on record that will show that there were any missing bundles of one-thousand-peso and five-hundred-peso
bills when respondent Custodio turned over the funds to the cash custodian, Ms. Marinel Castro. As the appellate court
correctly found, the Cash Transfer Slip was the best evidence that respondent Custodio had properly turned over the amounts
in her care, and that the cash custodian received them without any shortage.
Although the Cash Transfer Slip was not introduced in evidence, Ms. Castro admitted having signed it. Had there been any cash
shortage at that point, then the cash custodian could have refused to sign the Cash Transfer Slip, and respondent Custodio
could have been required to account for any missing funds. However, having acknowledged receipt of the funds from
respondent, it is reasonably presumed that Ms. Castro found nothing out of order in respondent’s records of cash transactions
and the amounts transferred.
As the Court of Appeals correctly surmised, Ms. Castro’s procedural lapse in trusting her co-employees by automatically
signing the cash transfer slip without ensuring its correctness contributed significantly to the loss of the bank’s money. The
proper accounting of funds through the cash transfer slip was precisely instituted as a safety mechanism to trace the flow of
money from one employee to another. Specifically, the cash transfer slip was meant to ensure that the tellers had properly
counted the money that they turned over to the cash custodian. If Ms. Castro, as cash custodian, had not been remiss in her
responsibilities, petitioner Metrobank would have been able to identify who among the tellers failed to turn over the proper
amount as reflected in the Cash Transfer Slip. The cash custodian is not to be admonished for reposing her trust in her co-
employees; nonetheless, she was negligent, insofar as ignoring established bank procedures meant to prevent loss, especially
when one of her co-employees had broken that trust.
The Court of Appeals underscored the "highest degree of diligence" from the banking business, considering that it is impressed
with public interest and of paramount importance. However, as petitioner Metrobank pointed out, the exacting standard of
diligence required by the appellate court pertains to the relationship between a bank and a depositor, and not between a bank
and its employees. In this case, no depositors were affected, as the transactions during that day were accounted for, and no
error was found in the recording thereof. The relevant standard of diligence that we need to examine here is that of a bank
teller who was entrusted monies by the bank and who may have failed to account for them. In this case, petitioner Metrobank
was unable to prove that respondent Custodio failed to exercise the necessary degree of diligence that would justify the bank’s
action for damages. Respondent Custodio was not remiss in her duties as all her dealings with the bank’s money were clearly
reflected on the records of the bank.
If petitioner bank had to attribute any negligence on the part of its employees, then it should have set its sights on the acts
and/or omissions of Ms. Marinel Castro, the cash Custodian, and Mr. Hanibal Jara, the security guard. If theft of the money
cannot be established, and negligence is the only legal phenomenon that is evident on the records, then the proximate cause of
the loss of the bank’s PhP600,000 is Ms. Castro, who, as cash custodian, disregarded established procedures and blindly signed
the teller’s cash transfer slips without counting the money turned over to her. Meanwhile, Mr. Jara failed to inspect respondent
Custodio’s belongings as she left the bank on that day for lunch. Despite his own suspicions of respondent teller’s conduct, he
ignored them and decided not to check the bags. This omission can conceivably be considered as a grave omission of his duties
as a security guard.
Meanwhile, the eight wrappers of five-hundred-peso bills allegedly recovered by petitioner Metrobank are likewise of doubtful
credibility and are inconclusive in determining liability. The bill wrappers bear the stamp assigned to Teller No. 3, who is
respondent Custodio. Yet, as respondent explains, these stamped wrappers can easily be procured by stamping unmarked bill
wrappers with tools and materials that are readily available to petitioner Metrobank. Moreover, the wrappers offered into
evidence by petitioner bank do not bear respondent Custodio’s initials to prove that the bundles of money which these
wrappers correspond to were in respondent’s care, as is the common practice in the branch and as testified to by the cash
custodian, Ms. Castro.
Moreover, the circumstances surrounding the discovery of these bill wrappers by petitioner Metrobank remain unclear.
Despite the bank manager’s instructions and the bank employees’ efforts in conducting a thorough search for the missing cash
bundles, neither the money nor the bill wrappers were found on the day of the cash shortage. The cash custodian who
identified these bill wrappers did not explain how she came to discover them.
In view of the foregoing, the Court DENIES the instant Petition for Review filed by Metropolitan Bank and Trust Company. The
Court of Appeals’ 14 July 2006 Decision, which dismissed the complaint against respondent Marina Custodio, is hereby
AFFIRMED. SO ORDERED.
BPI EMPLOYEES UNION-DAVAO CITY-FUBU (BPIEU-DAVAO CITY-FUBU), Petitioner,
vs.
BANK OF THE PHILIPPINE ISLANDS (BPI), and BPI OFFICERS CLARO M. REYES, CECIL CONANAN and GEMMA
VELEZ, Respondents.
G.R. No. 174912, THIRD DIVISION, July 24, 2013, MENDOZA, J.
Doctrine:
From the very definition of "banks" as provided under the General Banking Law, it can easily be discerned that banks
perform only two (2) main or basic functions – deposit and loan functions. Thus, cashiering, distribution and bookkeeping are
but ancillary functions whose outsourcing is sanctioned under CBP Circular No. 1388 as well as D.O. No. 10.
BPI Operations Management Corporation (BOMC) was created pursuant to Central Bank Circular No. 1388, Series of
1993 (CB Circular No. 1388). BOMC is a subsidiary of the Bank of the Philippine Islands (BPI), operating and functioning as an
entirely separate and distinct entity.
BPI and BOMC entered into a Service Agreement where the latter undertook to provide services such as check
clearing, delivery of bank statements, fund transfers, card production, operations accounting and control, and cash servicing,
conformably with BSP Circular No. 1388. Such were implemented in BPI’s Metro Manila Branches.
The Service Agreement was likewise implemented in Davao City. Later, a merger between BPI and Far East Bank and
Trust Company (FEBTC) took effect on April 10, 2000 with BPI as the surviving corporation. Thereafter, BPI’s cashiering
function and FEBTC’s cashiering, distribution and bookkeeping functions were handled by BOMC. Consequently, twelve (12)
former FEBTC employees were transferred to BOMC to complete the latter’s service complement.
BPI Davao’s rank and file collective bargaining agent, BPI Employees Union-Davao City-FUBU (Union), objected to the
transfer of the functions and the twelve (12) personnel to BOMC contending that the functions rightfully belonged to the BPI
employees and that the Union was deprived of membership of former FEBTC personnel who, by virtue of the merger, would
have formed part of the bargaining unit represented by the Union pursuant to its union shop provision in the CBA
The Union filed a formal protest addressed to the BPI Vice-Presidents, Claro M. Reyes and Cecil Conanan. It requested
that the BOMC issue be submitted to the grievance procedure under the CBA. However, the Management did not consider the
same as “grievable”, thus BPI proposed a Labor Management Conference (LMC).
Thereafter, the Union demanded that the matter be submitted to the grievance machinery as the resort to the LMC
was unsuccessful. As BPI allegedly ignored the demand, the Union filed a notice of strike before the National Conciliation and
Mediation Board. BPI then filed a petition for assumption of jurisdiction/certification with the Secretary of the Department of
Labor and Employment, who subsequently issued an order certifying the labor dispute to the NLRC for compulsory
arbitration. NLRC came dismissing the charge of ULP. After the denial of its motion for reconsideration, the Union elevated its
grievance to the CA via a petition for certiorari under Rule 65. The CA, however, affirmed the NLRC’s resolution.
Issue:
Whether the act of BPI to outsource the cashiering, distributing and bookkeeping functions to BOMC is in conformity with the
law and existing CBA.
Ruling:
Yes.
In the case at bench, the Union submits that while the Central Bank regulates banking, the Labor Code and its
implementing rules regulate the employment relationship. To this, the Court agrees. The fact that banks are of a specialized
industry must, however, be taken into account. The competence in determining which banking functions may or may not be
outsourced lies with the BSP. This does not mean that banks can simply outsource banking functions allowed by the BSP
through its circulars, without giving regard to the guidelines set forth under D.O. No. 10 issued by the DOLE.
While D.O. No. 10, Series of 1997, enumerates the permissible contracting or subcontracting activities, it is to be
observed that, particularly in Sec. 6(d) invoked by the Union, the provision is general in character – "x x x Works or services
not directly related or not integral to the main business or operation of the principal… x x x." This does not limit or prohibit the
appropriate government agency, such as the BSP, to issue rules, regulations or circulars to further and specifically determine
the permissible services to be contracted out. CBP Circular No. 1388 enumerated functions which are ancillary to the business
of banks, hence, allowed to be outsourced.
It is to be emphasized that contracting out of services is not illegal per se. It is an exercise of business judgment or
management prerogative. Absent proof that the management acted in a malicious or arbitrary manner, the Court will not
interfere with the exercise of judgment by an employer. In this case, bad faith cannot be attributed to BPI because its actions
were authorized by CBP Circular No. 1388, Series of 1993 issued by the Monetary Board of the then Central Bank of the
Philippines (now Bangko Sentral ng Pilipinas).
From the very definition of "banks" as provided under the General Banking Law, it can easily be discerned that banks
perform only two (2) main or basic functions – deposit and loan functions. Thus, cashiering, distribution and bookkeeping are
but ancillary functions whose outsourcing is sanctioned under CBP Circular No. 1388 as well as D.O. No. 10. Even BPI itself
recognizes that deposit and loan functions cannot be legally contracted out as they are directly related or integral to the main
business or operation of banks. The CBP's Manual of Regulations has even categorically stated and emphasized on the
prohibition against outsourcing inherent banking functions, which refer to any contract between the bank and a service
provider for the latter to supply, or any act whereby the latter supplies, the manpower to service the deposit transactions of
the former.
WHEREFORE, the petition is DENIED.

PHILIPPINE BANKING CORPORATION (NOW: GLOBAL BUSINESS BANK INC.), Petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE
G.R. No. 170574, FIRST DIVISION, January 30, 2009, CARPIO, J.
Doctrine:
The SSDA is for depositors who maintain savings deposits with substantial average daily balance and which earn
higher interest rates. The holding period of an SSDA floats at the option of the depositor at 30, 60, 90, 120 days or more and for
maintaining a longer holding period, the depositor earns higher interest rates. There is no pre-termination of accounts in an
SSDA because the account is simply reverted to an ordinary savings status in case of early or partial withdrawal or if the
required holding period is not met. Based on the foregoing, the SSDA has all of the distinct features of a certificate of deposit.
Petitioner is a domestic corporation duly licensed as a banking institution. For the taxable years 1996 and 1997,
petitioner offered its SSDA to its depositors. The SSDA is a form of a savings deposit evidenced by a passbook and earning a
higher interest rate than a regular savings account. Petitioner believes that the SSDA is not subject to Documentary Stamp Tax
(DST) under Section 180 of the 1977 National Internal Revenue Code (NIRC), as amended.
On 10 January 2000, the Commissioner of Internal Revenue (respondent) sent petitioner a Final Assessment Notice
assessing deficiency DST based on the outstanding balances of its SSDA, including increments, in the total sum
of P17,595,488.75 for 1996 and P47,767,756.24 for 1997. These assessments were based on the outstanding balances of the
SSDA appearing in the schedule attached to petitioner's audited financial statements for the taxable years 1996 and 1997.
Petitioner claims that the SSDA is in the nature of a regular savings account since both types of accounts have the
following common features:
A. They are both evidenced by a passbook;
b. The depositors can make deposits or withdrawals anytime which are not subject to penalty; andcralawlibrary
c. Both can have an Automatic Transfer Agreement (ATA) with the depositor's current or checking account.
Petitioner alleges that the only difference between the regular savings account and the SSDA is that the SSDA is for
depositors who maintain savings deposits with a substantial average daily balance, and as an incentive, they are given higher
interest rates than regular savings accounts. These deposits are classified separately in petitioner's financial statements in
order to maintain a separate record for savings deposits with substantial balances entitled to higher interest rates.
Petitioner maintains that the tax assessments are erroneous because Section 180 of the 1977 NIRC does not include
deposits evidenced by a passbook among the enumeration of instruments subject to DST. Petitioner asserts that the language
of the law is clear and requires no interpretation.
Petitioner also argues that even on the assumption that a passbook evidencing the SSDA is a certificate of deposit, no
DST will be imposed because only negotiable certificates of deposits are subject to tax under Section 180 of the 1977
NIRC. Petitioner reasons that a savings passbook is not a negotiable instrument and it cannot be denied that savings passbooks
have never been taxed as certificates of deposits.
The CTA En Banc affirmed the ruling of the CTA’s Second Division. Accordingly, the CTA ruled that a deposit account
with the same features as a time deposit, i.e., a fixed term in order to earn a higher interest rate, is subject to DST imposed in
Section 180 of the 1977 NIRC.24 It is clear that "certificates of deposit drawing interest" are subject to DST. The CTA, citing Far
East Bank and Trust Company v. Querimit, defined a certificate of deposit as "a written acknowledgment by a bank or banker of
the receipt of a sum of money on deposit which the bank or banker promises to pay to the depositor, to the order of the
depositor, or some other person or his order, whereby the relation of debtor and creditor between the bank and the depositor
is created.
The CTA emphasized that Section 180 of the 1977 NIRC imposes DST on documents, whether the documents are negotiable or
non-negotiable. The CTA held that petitioner's argument that Section 180 of the 1977 NIRC imposes the DST only on
negotiable certificates of deposit as implied from the old tax provision is erroneous.
Issue:
Whether petitioner's product called Special/Super Savings Account is subject to DST under Section 180 of the 1977 NIRC prior
to the passage of RA 9243 in 2004.
Ruling:
Yes. The SSDA is for depositors who maintain savings deposits with substantial average daily balance and which earn
higher interest rates. The holding period of an SSDA floats at the option of the depositor at 30, 60, 90, 120 days or more and for
maintaining a longer holding period, the depositor earns higher interest rates. There is no pre-termination of accounts in an
SSDA because the account is simply reverted to an ordinary savings status in case of early or partial withdrawal or if the
required holding period is not met. Based on the foregoing, the SSDA has all of the distinct features of a certificate of deposit.
Petitioner argues that a deposit account evidenced by a passbook cannot be construed as a certificate of deposit
subject to DST under Section 180 of the 1977 NIRC. In International Exchange Bank v. Commissioner of Internal Revenue, this
Court categorically ruled that a passbook representing an interest earning deposit account issued by a bank qualifies as a
certificate of deposit drawing interest and should be subject to DST. The Court added that "a document to be deemed a
certificate of deposit requires no specific form as long as there is some written memorandum that the bank accepted a deposit
of a sum of money from a depositor.
DST is imposed on Certificates of Deposits Bearing Interest including a special savings account evidenced by a passbook. Based on
these features, it is clear that the SSDA is a certificate of deposit drawing interest subject to DST even if it is evidenced by a
passbook and non-negotiable in character. In International Exchange Bank v. Commissioner of Internal Revenue, we held that:
A document to be deemed a certificate of deposit requires no specific form as long as there is some written
memorandum that the bank accepted a deposit of a sum of money from a depositor. What is important and controlling
is the nature or meaning conveyed by the passbook and not the particular label or nomenclature attached to it,
inasmuch as substance, not form, is paramount.
Moreover, a certificate of deposit may be payable to the depositor, to the order of the depositor, or to some other
person or his order. From the use of the conjunction or, instead of and, the negotiable character of a certificate of deposit is
immaterial in determining the imposition of DST.
However, DST is one of the taxes covered by the Tax Amnesty Program under RA 9480. Petitioner, as the absorbed
corporation, can avail of the tax amnesty benefits granted to Metrobank.
Records show that Metrobank, a qualified tax amnesty applicant, has duly complied with the requirements
enumerated in RA 9480, as implemented by DO 29-07 and RMC 19-2008.[65] Considering that the completion of these
requirements shall be deemed full compliance with the tax amnesty program, the law mandates that the taxpayer shall
thereafter be immune from the payment of taxes, and additions thereto, as well as the appurtenant civil, criminal or
administrative penalties under the NIRC of 1997, as amended, arising from the failure to pay any and all internal revenue taxes
for taxable year 2005 and prior years.
Wherefore, we grant the petition, and set aside the Court of Tax Appeals' Decision dated 23 November 2005 in CTA EB No. 63
solely in view of petitioner's availment of the Tax Amnesty Program.
MANUEL M. SERRANO, petitioner,
vs.
CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA; EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO
B. RAMOS, JR., JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA,
RODOLFO LEDESMA, VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, respondents.
G.R. No. L-30511, SECOND DIVISION, February 14, 1980, CONCEPCION, JR.
Doctrine:
Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of
bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans. Current
and savings deposit are loans to a bank because it can use the same. The petitioner here in making time deposits that earn
interests with respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The
respondent Bank was in turn a debtor of petitioner. Failure of the respondent Bank to honor the time deposit is failure to pay s
obligation as a debtor and not a breach of trust arising from depositary's failure to return the subject matter of the deposit
On October 1966 and 1967, Petitioner Manuel Serrano (Serrano) made a time deposit amounting to One Hundred
Fifty-Thousand Pesos, for one year, with 6% interest with Respondent, Overseas Bank of Manila (Overseas Bank). Thereafter,
Concepcion Maneja (Maneja) deposited a time deposit with Overseas Bank amounting to Two Hundred Thousand Pesos, which
was eventually assigned and conveyed to Serrano.
Serrano made a series of demand for encashment of the time deposit, but not a single one of the time deposit
certificates was honoured by Overseas Bank.
Respondent Central Bank admits that it is charged with the duty of administering the banking system of the Republic
and it exercises supervision over all doing business in the Philippines, but denies the petitioner's allegation that the Central
Bank has the duty to exercise a most rigid and stringent supervision of banks, implying that respondent Central Bank has to
watch every move or activity of all banks, including respondent Overseas Bank of Manila.
Petitioner filed a motion for judgment, praying for a decision on the merits, adjudging respondent Central Bank jointly
and severally liable with respondent Overseas Bank of Manila to the petitioner for the P350,000 time deposit made with the
latter bank,
Issue:
Whether Central Bank is jointly and severally liable with Overseas Bank
Ruling:
Claims of these nature are not proper in actions for mandamus and prohibition as there is no shown clear abuse of
discretion by the Central Bank in its exercise of supervision over the other respondent Overseas Bank of Manila, and if there
was, petitioner here is not the proper party to raise that question, but rather the Overseas Bank of Manila.
Furthermore, both parties overlooked one fundamental principle in the nature of bank deposits when the petitioner
claimed that there should be created a constructive trust in his favor when the respondent Overseas Bank of Manila increased
its collaterals in favor of respondent Central Bank for the former's overdrafts and emergency loans, since these collaterals
were acquired by the use of depositors' money.
Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of
bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans. Current
and savings deposit are loans to a bank because it can use the same. The petitioner here in making time deposits that earn
interests with respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The
respondent Bank was in turn a debtor of petitioner. Failure of the respondent Bank to honor the time deposit is failure to pay s
obligation as a debtor and not a breach of trust arising from depositary's failure to return the subject matter of the deposit
WHEREFORE, the petition is dismissed for lack of merit, with costs against petitioner.
SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents.
G.R. No. 88013, FIRST DIVISION, March 19, 1990, Cruz, J.
Doctrine:
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 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 dishonor 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.
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.
Petitioner Simex International (Simex) is a private corporation engaged in the exportation of food products. Most of its exports
are purchased on credit. Simex maintained a checking account with Traders Royal Bank (Traders Bank), where it deposited
One Hundred Thousand Pesos (Php 100,000.00) on May 25, 1981. Subsequently, Simex issued several checks against its
deposit. However, Simex later learned that they had been dishonored for insufficient funds.
Simex received letters of demand, including that of California Manufacturing, threatening prosecution if the dishonored check
issued was not made good. It also withheld delivery of the order made by the petitioner. Simex’s credit line was cancelled by
Malabon Long Life Trading and the latter demanded that future payments be made in cash or certified check.
Simex complained to Traders Bank. Upon investigation, it was discovered that the deposit of Php100,000.00 had not been
credited. Said error was rectified on June 17, 1981.
Simex then demanded reparation from Traders Bank for its gross and wanton negligence. However, this demand was not met.
The petitioner then filed a complaint in the then Court of First Instance of Rizal claiming from the private respondent
moral damages in the sum of P1,000,000.00 and exemplary damages in the sum of P500,000.00, plus 25% attorney's fees, and
costs.
After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and exemplary damages were not called
for under the circumstances. However, observing that the plaintiff's right had been violated, he ordered the defendant to pay
nominal damages in the amount of P20,000.00 plus P5,000.00 attorney's fees and costs. 5 This decision was affirmed in toto by
the respondent court.
Issue:
Whether Simex is entitled to moral and exemplary damages.
Ruling:
As the Court sees it, the initial carelessness of the respondent bank, aggravated by the lack of promptitude in repairing
its error, justifies the grant of moral damages. This rather lackadaisical attitude toward the complaining depositor constituted
the gross negligence, if not wanton bad faith, that the respondent court said had not been established by the petitioner.
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 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 dishonor 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.
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 at bar, it is obvious that the respondent bank was remiss in that duty and violated that
relationship. What is especially deplorable is that, having been informed of its error in not crediting the deposit in question to
the petitioner, the respondent bank did not immediately correct it but did so only one week later or twenty-three days after
the deposit was made. It bears repeating that the record does not contain any satisfactory explanation of why the error was
made in the first place and why it was not corrected immediately after its discovery. Such ineptness comes under the concept
of the wanton manner contemplated in the Civil Code that calls for the imposition of exemplary damages.
ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is ordered to pay the petitioner, in lieu
of nominal damages, moral damages in the amount of P20,000.00, and exemplary damages in the amount of P50,000.00 plus
the original award of attorney's fees in the amount of P5,000.00, and costs.
PHILIPPINE BANK OF COMMERCE, now absorbed by PHILIPPINE COMMERCIAL INTERNATIONAL BANK, ROGELIO
LACSON, DIGNA DE LEON, MARIA ANGELITA PASCUAL, et al., petitioners,
vs.
THE COURT OF APPEALS, ROMMEL'S MARKETING CORP., represented by ROMEO LIPANA, its President & General
Manager, respondents.
G.R. No. 97626, FIRST DIVISION, March 14, 1997, Hermosisima, Jr., J.
Doctrine:
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.
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 private respondent 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.
RMC demanded from petitioner bank the return of its money, but the same went unheeded.
RMC filed a collection suit before the Regional Trial Court of Pasig, Branch 160. The trial court found petitioner bank
negligent. On appeal, the appellate court affirmed the lower court’s decision, but with some modifications, where the
exemplary damages and attorney’s fees were eliminated, among others.
Issue:
Whether the proximate cause of the loss, to the tune of P304,979.74, suffered by the private respondent RMC is
petitioner bank's negligence or that of private respondents
Ruling:
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 private respondent, and not the
latter's act of entrusting cash to a dishonest employee, as insisted by the petitioners.
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.
The foregoing notwithstanding, it cannot be denied that, indeed, private respondent was likewise negligent in not
checking its monthly statements of account. Had it done so, the company would have been alerted to the series of frauds being
committed against RMC by its secretary. The damage would definitely not have ballooned to such an amount if only RMC,
particularly Romeo Lipana, had exercised even a little vigilance in their financial affairs. This omission by RMC amounts to
contributory negligence which shall mitigate the damages that may be awarded to the private respondent.
WHEREFORE, the decision of the respondent Court of Appeals is modified by reducing the amount of actual damages private
respondent is entitled to by 40%. Petitioners may recover from Ms. Azucena Mabayad the amount they would pay the private
respondent. Private respondent shall have recourse against Ms. Irene Yabut. In all other respects, the appellate court's
decision is AFFIRMED.
I. SHORT TITLE: BPI FAMILY VS. FRANCO
II. FULL TITLE: BPI FAMILY BANK, Petitioner, vs. AMADO FRANCO and COURT OF APPEALS, Respondents.
G.R. No. 123498, THIRD DIVISION, November 23, 2007, NACHURA, J.
III. TOPIC: Deposit of money in banks is governed by the provisions on simple loan
IV. DOCTRINE
BPI-FB cannot unilaterally freeze Franco’s accounts and preclude him from withdrawing his deposits. There is no doubt
that BPI-FB owns the deposited monies in the accounts of Franco, but not as a legal consequence of its unauthorized transfer of
FMIC’s deposits to Tevesteco’s account.
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, BPI-FB ultimately acquired ownership of Franco’s deposits, but such ownership is
coupled with a corresponding obligation to pay him an equal amount on demand. Although BPI-FB owns the deposits in Franco’s
accounts, it cannot prevent him from demanding payment of BPI-FB’s obligation by drawing checks against his current account,
or asking for the release of the funds in his savings account. Thus, when Franco issued checks drawn against his current
account, he had every right as creditor to expect that those checks would be honored by BPI-FB as debtor.
V. STATEMENT OF THE FACTS
Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a savings and current account with petitioner BPI Family Bank
(BPI-FB). Thereafter, First Metro Investment Corporation (FMIC) also opened a time deposit account with BPI-FB to mature in
one year.Subsequently, respondent Amado Franco (Franco) opened three accounts: (1) current; (2) savings; and (3) time
deposit with BPI-FB. The three accounts were funded, amounting to a total of ₱2,000,000.00, which is traceable to a check
issued by Tevesteco allegedly in consideration of Franco’s introduction of Eladio Teves (who was looking for a conduit bank
to facilitate Tevesteco’s business transactions) to Jaime Sebastian, then Manager of BPI-FB San Francisco del Monte Branch.
The funding for the check was part of the ₱80,000,000.00 debited by BPI-FB from FMIC’s time deposit account and
credited to Tevesteco’s current account pursuant to an Authority to Debit purportedly signed by FMIC’s officers.
It appears, however, that the signatures of FMIC’s officers on the Authority to Debit were forged. Unfortunately,
Tevesteco had already effected several withdrawals from its current account.
BPI-FB, thru its Senior VP, Severino Coronacion, instructed Jesus Arangorin, BPI-FB’s new manager, to debit Franco’s savings
and current accounts for the amounts remaining therein. However, Franco’s time deposit account could not be debited due to
the capacity limitations of BPI-FB’s computer.
In the meantime, two checks drawn by Franco against his BPI-FB current account were dishonored upon presentment for
payment, and stamped with a notation "account under garnishment" by virtue of an Order of Attachment issued by the RTC
Makati, which had been filed by BPI-FB against Franco et al., to recover Tevesteco’s total withdrawals from its account.
Notably, the dishonored checks were presented for payment at BPI-FB prior to Franco’s receipt of notice that his accounts
were under garnishment. Upon notice, Franco filed a Motion to Discharge Attachment, which was granted. The Order Lifting
the Order of Attachment was served on BPI-FB, with Franco demanding the release to him of the funds in his savings and
current accounts. Jesus Arangorin, BPI-FB’s new manager, could not comply with the demand as the funds had already been
debited because of FMIC’s forgery claim.
VI. STATEMENT OF THE CASE
FMIC filed a Complaint against BPI-FB for the recovery of the amount of ₱80,000,000.00 debited from its account.
In two related cases, namely: (1) in BPI Family Savings Bank, Inc. v. First Metro Investment Corporation, we upheld the finding
that BPI-FB failed to exercise the degree of diligence required by the nature of its obligation to treat the accounts of its
depositors with meticulous care. Thus, BPI-FB was found liable to FMIC for the debited amount in its time deposit; and (2) in
BPI Family Bank v. Buenaventura, we ruled that BPI-FB had no right to freeze Buenaventura, et al.’s accounts and adjudged
BPI-FB liable therefor, in addition to damages.
In light of BPI-FB’s refusal to heed Franco’s demands to unfreeze his accounts and release his deposits therein, Franco filed the
subject suit before the RTC Manila against BPI-FB.
BPI-FB, however, insisted that it was correct in freezing the accounts of Franco and refused to release his deposits, claiming
that it had a better right to the amounts which consisted of part of the money allegedly fraudulently withdrawn from it by
Tevesteco and ending up in Franco’s accounts.
The RTC ruled in favor of Franco, ordering BPI-FB to pay Franco. Both parties filed their respective appeals before the CA. The
CA affirmed the RTC.
Hence, this Petition for Review on Certiorari.
VII. ISSUE
Whether BPI-FB can preclude Franco from withdrawing his deposits. (NO)
VIII. RULING
NO. BPI-FB cannot unilaterally freeze Franco’s accounts and preclude him from withdrawing his deposits. There is no
doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as a legal consequence of its unauthorized
transfer of FMIC’s deposits to Tevesteco’s account.
BPI-FB conveniently forgets that 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, BPI-FB ultimately acquired ownership of
Franco’s deposits, but such ownership is coupled with a corresponding obligation to pay him an equal amount on demand.
Although BPI-FB owns the deposits in Franco’s accounts, it cannot prevent him from demanding payment of BPI-FB’s
obligation by drawing checks against his current account, or asking for the release of the funds in his savings account. Thus,
when Franco issued checks drawn against his current account, he had every right as creditor to expect that those
checks would be honored by BPI-FB as debtor.
More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based on its mere
suspicion that the funds therein were proceeds of the multi-million peso scam Franco was allegedly involved in.
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 of as he sees fit, confident that the bank will deliver it as and to whomever directs. A blunder on the part of the
bank, such as the dishonor of the check without good reason, can cause the depositor not a little embarrassment if not also
financial loss and perhaps even civil and criminal litigation.
Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the signatures of its customers.
Having failed to detect the forgery in the Authority to Debit and in the process inadvertently facilitate the FMIC-Tevesteco
transfer, BPI-FB cannot now shift liability thereon to Franco and the other payees of checks issued by Tevesteco, or
prevent withdrawals from their respective accounts without the appropriate court writ or a favorable final judgment.
Further, it boggles the mind why BPI-FB, even without delving into the authenticity of the signature in the Authority to Debit,
effected the transfer of ₱80,000,000.00 from FMIC’s to Tevesteco’s account, when FMIC’s account was a time deposit and it had
already paid advance interest to FMIC. Considering that there is as yet no indubitable evidence establishing Franco’s
participation in the forgery, he remains an innocent party. As between him and BPI-FB, the latter, which made possible
the present predicament, must bear the resulting loss or inconvenience.
IX. DISPOSITIVE PORTION: WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals Decision
dated November 29, 1995 is AFFIRMED with the MODIFICATION that the award of unearned interest on the time
deposit and of moral and exemplary damages is DELETED. No pronouncement as to costs.
I. SHORT TITLE: PSBANK VS. CHOWKING FOOD CORP.
II. FULL TITLE: PHILIPPINE SAVINGS BANK, petitioner, vs. CHOWKING FOOD CORPORATION, respondent.
G.R. No. 177526, THIRD DIVISION, July 3, 2008, REYES, R.T., J.
III. TOPIC: Highest degree of diligence
IV. DOCTRINE
performance. Needless to say, a bank is "under obligation to treat the accounts of its depositors with meticulous care." The
fiduciary nature of the relationship between the bank and the depositors must always be of paramount concern.
Petitioner, through Santos, was clearly negligent when it honored respondent's checks with the lone endorsement of
Manzano. The proximate cause of the loss is not respondent's alleged negligence in allowing Manzano to take hold and encash
respondent's checks. The proximate cause is petitioner's own negligence in the supervision of its employees when it
overlooked the irregular practice of encashing checks even without the requisite endorsements.
Joe Kuan Food Corporation issued in favor of Chowking five (5) Philippine Savings Bank (PSBank) checks, amounting to a total
of P556,981.86. On the respective due dates of each check, Chowking's acting accounting manager, Rino Manzano, endorsed
and encashed said checks with the Bustos branch of respondent PSBank.
All the five checks were honored by Erlinda Santos, Head of PSBank Bustos branch, even with only the endorsement of
Manzano approving them. The signatures of the other authorized officers of respondent corporation were absent in the five
(5) checks, contrary to usual banking practice. Unexpectedly, Manzano absconded with and misappropriated the check
proceeds.
When Chowking found out Manzano's scheme, it demanded reimbursement from PSBank. When PSBank refused to pay,
Chowking filed a Complaint for a sum of money with damages before the RTC, impleading PSBank's president, Antonio
Abacan, and Santos.
In its Answer, petitioner did not controvert the foregoing facts, but denied liability to respondent for the encashed
checks. Petitioner bank maintained that it exercised due diligence in the supervision of all its employees. Petitioner pointed
out that the proximate cause of respondent's loss was its own negligence. Santos, on the other hand, denied that she had been
negligent in her job. She averred that she merely followed the bank's practice of honoring respondent's checks even if
accompanied only by Manzano's endorsement.
The RTC ruled in favor of respondent. Aggrieved, petitioner filed a Motion for Reconsideration. The RTC reversed its earlier
ruling, and ruled that, it was respondent's own negligence that was the proximate cause of the loss.
Dissatisfied, the respondent appealed to the CA. The CA ruled that both petitioner PSBank and Santos should bear the loss.
The CA explained that with banks like PSB, the degree of diligence required is more than that of a good father of a family
considering that the business of banking is imbued with public interest due to the nature of its functions. Highest degree of
diligence is needed which PSB, in this case, failed to observe. PSB’s argument that it should not be held responsible for the
negligent acts of Santos because those were independent acts perpetrated without its knowledge and consent is without basis
in fact and in law. Assuming that PSB did not err in hiring Santos for her position, its lack of supervision over her made it
solidarily liable for the unauthorized encashment of the checks involved.
Hence, this Petition for Review on Certiorari.
VII. ISSUE
Whether or not the respondent’s negligence was the proximate cause of its own loss. (NO)
VIII. RULING
NO. Petitioner failed to prove that it has observed the due diligence required of banks under the law. Contrary to
petitioner's view, its negligence is the proximate cause of respondent's loss. It cannot be over emphasized that the
banking business is impressed with public interest. Of paramount importance is the trust and confidence of the public in
general in the banking industry. Consequently, the diligence required of banks is more than that of a Roman pater familias or a
good father of a family. The highest degree of diligence is expected.
performance. Needless to say, a bank is "under obligation to treat the accounts of its depositors with meticulous care." The
fiduciary nature of the relationship between the bank and the depositors must always be of paramount concern.
Petitioner, through Santos, was clearly negligent when it honored respondent's checks with the lone endorsement of
Manzano. The proximate cause of the loss is not respondent's alleged negligence in allowing Manzano to take hold and encash
respondent's checks. The proximate cause is petitioner's own negligence in the supervision of its employees when it
overlooked the irregular practice of encashing checks even without the requisite endorsements.
Further, the Court ruled that pursuant to its prime duty to ascertain well the genuineness of the signatures of its client-
depositors on checks being encashed, BPI is "expected to use reasonable business prudence." In the performance of that
obligation, it is bound by its internal banking rules and regulations that form part of the contract it enters into with its
depositors.
Unfortunately, it failed in that regard. Without exercising the required prudence on its part, BPI accepted and encashed the
eight checks presented to it. As a result, it proximately contributed to the fraud and should be held primarily liable for
the "negligence of its officers or agents when acting within the course and scope of their employment." It must bear
the loss.
IX. DISPOSITIVE PORTION: WHEREFORE, the petition is DENIED for lack of merit.
I. SHORT TITLE: CENTRAL BANK VS. CITYTRUST
II. FULL TITLE: CENTRAL BANK OF THE PHILIPPINES, Petitioner, vs. CITYTRUST BANKING
CORPORATION, Respondent.
G.R. No. 141835, SECOND DIVISION, February 4, 2009, CARPIO MORALES, J.
III. TOPIC: Highest degree of diligence
IV. DOCTRINE
This fiduciary relationship means that the bank’s obligation to observe high standards of integrity and performance is deemed
written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks
to assume a degree of diligence higher than that of a good father of a family.
Citytrust’s failure to timely examine its account, cancel the checks and notify petitioner of their alleged loss/theft should
mitigate petitioner’s liability, in accordance with Article 2179 of the Civil Code which provides that if the plaintiff’s negligence
was only contributory, the immediate and proximate cause of the injury being the defendant’s lack of due care, the plaintiff may
recover damages, but the courts shall mitigate the damages to be awarded. For had Citytrust timely discovered the loss/theft
and/or subsequent encashment, their proceeds or part thereof could have been recovered.
In line with the ruling in Consolidated Bank, the Court deems it proper to allocate the loss between petitioner and Citytrust on
a 60-40 ratio.
Pursuant to R.A. No. 625, the old Central Bank Law, respondent Citytrust Banking Corporation (Citytrust), formerly Feati Bank,
maintained a demand deposit account with petitioner Central Bank of the Philippines (CB), now Bangko Sentral ng Pilipinas
(BSP).
As required, Citytrust furnished petitioner with the names and corresponding signatures of five (5) of its officers authorized to
sign checks and serve as drawers and indorsers for its account. It likweise provided petitioner with the list and corresponding
signatures of its roving tellers authorized to withdraw, sign receipt, and perform other transactions on its behalf. Petitioner
later issued security identification cards to the roving tellers one of whom was Rounceval Flores.
Flores presented for payment to petitioner’s Senior Teller Iluminada dela Cruz (Iluminada) two Citytrust checks, payable to
Citytrust, both of which were signed and indorsed by Citytrust’s authorized signatory-drawers.
After the checks were certified by petitioner’s Accounting Department, Iluminada verified them, prepared the cash transfer
slip on which she affixed her signature, stamped the checks with the notation "Received Payment" and asked Flores to, as he
did, sign on the space above such notation. Instead of signing his name, however, Flores signed as "Rosauro C. Cayabyab"
– a fact Iluminada failed to notice.
Iluminada thereupon sent the cash transfer slip and checks to petitioner’s Cash Department where an officer verified and
compared the drawers’ signatures on the checks against their specimen signatures provided by Citytrust, and finding the
same in order, approved the cash transfer slip and paid the corresponding amounts to Flores. Petitioner then debited
the amount of the checks totaling ₱1,750,000 from Citytrust’s demand deposit account.
More than a year and nine months later, Citytrust alleged that the checks were already cancelled because they were stolen, and
demanded petitioner to restore the amounts covered thereby to its demand deposit account. Petitioner, however, did not heed
the demand.
Citytrust filed a Complaint for estafa, with reservation on the filing of a separate civil action, against Flores. Flores was
thereafter convicted. Citytrust then filed before the RTC Manila a Complaint for recovery of sum of money with damages
against petitioner, alleging that the latter erred in encashing the checks and in charging the proceeds thereof to its account,
despite the lack of authority of "Rosauro C. Cayabyab."
The RTC found both Citytrust and petitioner negligent, holding them equally liable for the loss.
Both parties appealed to the CA, which affirmed the RTC. The CA noted that while Citytrust failed to take adequate
precautionary measures to prevent the fraudulent encashment of its checks, petitioner was not entirely blame-free in light of
its failure to verify the signature of Citytrust’s agent authorized to receive payment.
Hence, the present appeal, petitioner maintaining that Flores having been an authorized roving teller, Citytrust is bound by
his acts. Also maintaining that it was not negligent in releasing the proceeds of the checks to Flores, the failure of its teller to
properly verify his signature notwithstanding, petitioner contends that verification could be dispensed with, Flores having
been known to be an authorized roving teller of Citytrust who had had numerous transactions with the petitioner on
Citytrust’s behalf for five years prior to the questioned transaction. Petitioners likewise argued that, assuming arguendo that
its teller was negligent, Citytrust’s negligence, which preceded that committed by the teller, was the proximate cause of the
loss or fraud.
VII. ISSUE
Who should bear the loss? (BOTH PETITIONER AND CITYTRUST ON A 60-40 RATIO BASIS)
VIII. RULING
PETITIONER AND CITYTRUST SHOULD BEAR THE LOSS, ON A 60-40 RATIO BASIS. Petitioner’s teller Iluminada did not
verify Flores’ signature on the flimsy excuse that Flores had had previous transactions with it for a number of years. That
circumstance did not excuse the teller from focusing attention to or at least glancing at Flores as he was signing, and to satisfy
herself that the signature he had just affixed matched that of his specimen signature. Had she done that, she would have
readily been put on notice that Flores was affixing, not his but a fictitious signature.
Given that petitioner is the government body mandated to supervise and regulate banking and other financial institutions, this
Court’s ruling in Consolidated Bank and Trust Corporation v. CA illumines:
Article 1980 of the Civil Code provides that the contract between the bank and its depositor is governed by the
provisions of the Civil Code on simple loan. There is a debtor-creditor relationship between the bank and its
depositor. The bank is the debtor, and the depositor is the creditor. The depositor lends the bank money and the bank
agrees to pay the depositor on demand. The savings deposit agreement between the bank and the depositor is the
contract that determines the rights and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of R.A. 8791, which
took effect on June 13, 2000, declares that the State recognizes the "fiduciary nature of banking that requires high
standards of integrity and performance." This new provision in the General Banking Law, introduced in 2000, is a
statutory affirmation of Supreme Court decisions, holding that "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."
This fiduciary relationship means that the bank’s obligation to observe high standards of integrity and performance is
deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of
banking requires banks to assume a degree of diligence higher than that of a good father of a family.
Citytrust’s failure to timely examine its account, cancel the checks and notify petitioner of their alleged loss/theft
should mitigate petitioner’s liability, in accordance with Article 2179 of the Civil Code which provides that if the plaintiff’s
negligence was only contributory, the immediate and proximate cause of the injury being the defendant’s lack of due care, the
plaintiff may recover damages, but the courts shall mitigate the damages to be awarded. For had Citytrust timely discovered
the loss/theft and/or subsequent encashment, their proceeds or part thereof could have been recovered.
In line with the ruling in Consolidated Bank, the Court deems it proper to allocate the loss between petitioner and Citytrust
on a 60-40 ratio.
IX. DISPOSITIVE PORTION: WHEREFORE, the assailed Court of Appeals Decision of July 16, 1999 is hereby
AFFIRMED with MODIFICATION, in that petitioner and Citytrust should bear the loss on a 60-40 ratio.
(NOTE: REFER ALSO TO THE CASE OF BPI FAMILY VS. FRANCO, PAGE 1)
I. SHORT TITLE: BPI FAMILY VS. BUENAVENTURA
II. FULL TITLE: BPI FAMILY BANK, Petitioners, vs. EDGARDO BUENAVENTURA, MYRNA LIZARDO and
YOLANDA TICA, Respondent.
EDGARDO BUENAVENTURA, MYRNA LIZARDO and YOLANDA TICA, Petitioners, vs. BPI FAMILY
BANK, Respondent. (G.R. No. 148259)
G.R. No. 148196, SECOND DIVISION, September 30, 2005, AUSTRIA-MARTINEZ, J.
III. TOPIC: Deposit of money in banks is governed by the provisions on simple loan
IV. DOCTRINE
BPI-FB has no unilateral right to freeze the current account of Buenaventura, et al. based on the suspicion that the funds in the
latter’s account are illegal or unauthorized having been sourced from the unlawful transfer of funds from the account of FMIC to
Tevesteco and disallow any withdrawal therefrom to allegedly protect its interest.
Needless to stress, the contract between a bank and its depositor is governed by the provisions of the Civil Code on simple
loan. Thus, there is a debtor-creditor relationship between a bank and its depositor. The bank is the debtor, and the depositor is
the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings or current
deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties.
Having been negligent in detecting the forgery prior to clearing the check, BPI-FB should bear the loss and cannot shift
the blame to Buenaventura, et al. having failed to show any participation on their part in the forgery. BPI-FB fails to point
any circumstance which should have put Buenaventura, et al. on inquiry as to the why and wherefore of the possession of the
check by Amado Franco. Buenaventura, et al. were not privies to any transaction involving FMIC, Tevesteco or Franco.
They thus had no obligation to ascertain from Franco what the nature of the latter’s title to the checks was, if any, or
the nature of his possession.
Edgardo Buenaventura, Myrna Lizardo, and Yolanda Tica (Buenaventura, et al.), all officers of the International Baptist Church
and International Baptist Academy, alleged that they accepted from Amado Franco BPI-FB Check No. 129004 in the amount of
₱500,000.00, jointly issued by Eladio Teves and Joseph Teves. They opened Current Account No. 807-065314-0 with a BPI-FB
Branch and deposited the check as initial deposit. The check was subsequently cleared, and the amount was credited to their
Current Account.
Buenaventura et. al. drew a check in the amount of ₱10,171.50 and the check was honored and debited from their Current
Account. Thereafter, they drew another check in the amount of ₱46,189.60, and instead of debiting the said amount against
their Current Account, it was debited, without their knowledge and consent, against their Savings Account No. 08-95332-5
with the same branch.
Buenaventura et. al. drew a check for ₱91,270.00 which, upon presentment for payment, was dishonored for the reason
"account closed," in spite of the balance in the Current Account of ₱490,328.50. Thereafter, they learned from BPI-FB that their
Current Account had been frozen upon instruction of Severino Coronacion, VP of BPI-FB, on the ground that the source of fund
was illegal or unauthorized. They demanded the reinstatement of the account, but BPI-FB refused.
Buenaventura et. al. then filed a Complaint for Reinstatement of Current Account/Release of Money plus Damages
against BPI Family Bank (BPI-FB) before the RTC.
The RTC found that BPI-FB had no right to unilaterally freeze the deposits of Buenaventura, et al. since the latter had no
participation in any fraud that may have attended the prior fund transfers from FMIC to Tevesteco. As holders in good faith
and for value of the BPI-FB Check No. 129004, their rights to the sum embodied in the said check should have been respected.
BPI-FB’s unilateral action of freezing the Current Account amounted to an unlawful confiscation of their property without due
process.
Dissatisfied, BPI-FB appealed to the CA. The CA affirmed the RTC, holding that the relationship between the bank and the
depositor is that of debtor and creditor and, as such, BPI-FB could not lawfully refuse to make payments on the checks drawn
and issued by Buenaventura, et al., provided only that there are funds available in the latter’s deposit. It further declared that
BPI-FB is not justified in freezing the amounts deposited by Buenaventura, et al. for suspicion of being "illegal" or
"unauthorized" as a result of the claimed fraud perpetuated against FMIC.
Both parties filed separate motions for reconsideration, which were denied.
Hence, the present two consolidated petitions for review on certiorari.
VII. ISSUE
Whether BPI-FB has the unilateral right to freeze the current account of Buenaventura, et al. based on the suspicion that the
funds in the latter’s account are illegal or unauthorized having been sourced from the unlawful transfer of funds. (NO)
VIII. RULING
NO. We rule in favor of Buenaventura, et al. BPI-FB has no unilateral right to freeze the current account of Buenaventura, et
al. based on the suspicion that the funds in the latter’s account are illegal or unauthorized having been sourced from the
unlawful transfer of funds from the account of FMIC to Tevesteco and disallow any withdrawal therefrom to allegedly protect
its interest.
Needless to stress, the contract between a bank and its depositor is governed by the provisions of the Civil Code on
simple loan. Thus, there is a debtor-creditor relationship between a bank and its depositor. The bank is the debtor, and the
depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The
savings or current deposit agreement between the bank and the depositor is the contract that determines the rights and
obligations of the parties.
Every bank that issues checks for the use of its customers should know whether or not the drawer's signature thereon is
genuine, whether there are sufficient funds in the drawers account to cover checks issued, and it should be able to detect
alterations, erasures, superimpositions or intercalations thereon, for these instruments are prepared, printed and issued by
itself, it has control of the drawer's account, and it is supposed to be familiar with the drawer's signature. It should possess
appropriate detecting devices for uncovering forgeries and/or alterations on these instruments. Unless a forgery or alteration
is attributable to the fault or negligence of the drawer himself, the remedy of the drawee bank that negligently clears a forged
and/or altered check for payment is against the party responsible for the forgery or alteration, otherwise, it bears the loss.
Having been negligent in detecting the forgery prior to clearing the check, BPI-FB should bear the loss and cannot
shift the blame to Buenaventura, et al. having failed to show any participation on their part in the forgery. BPI-FB fails
to point any circumstance which should have put Buenaventura, et al. on inquiry as to the why and wherefore of the
possession of the check by Amado Franco. Buenaventura, et al. were not privies to any transaction involving FMIC,
Tevesteco or Franco. They thus had no obligation to ascertain from Franco what the nature of the latter’s title to the
checks was, if any, or the nature of his possession. They cannot be guilty of gross neglect amounting to legal absence of
good faith, absent any showing that there was something amiss about Franco’s acquisition or possession of the check, which
was payable to bearer.
In summation, the Court reminds BPI-FB that the banking sector must at all times maintain a high level of meticulousness,
always having in mind the fiduciary nature of its relationship with its depositors. This fiduciary relationship means that the
bank’s obligation to observe "high standards of integrity and performance" is deemed written into every deposit agreement
between a bank and its depositor. Failure to comply with this standard shall render a bank liable to its depositors for damages.
IX. DISPOSITIVE PORTION: WHEREFORE, the petition in G.R. No. 148196 is DENIED and the petition in G.R. No.
148259 is GRANTED. The assailed Decision dated November 27, 2000 and Resolution dated May 3, 2001 of the
Court of Appeals in CA-G.R. CV No. 53962, which affirmed with modification the Decision rendered by the
Regional Trial Court, Branch 25, Manila, dated August 11, 1995 in Civil Case No. 90-53154, are
hereby AFFIRMED with the modification that BPI Family Bank is directed to pay Buenaventura, et al. the amount
of ₱50,000.00 as exemplary damages. Costs against BPI Family Bank.
I. SHORT TITLE: SAMSON VS. BPI
II. FULL TITLE: GERARDO F. SAMSON JR., petitioner, vs. BANK OF THE PHILIPPINE ISLANDS, respondent.
G.R. No. 150487, THIRD DIVISION, July 10, 2003, PANGANIBAN, J.
III. TOPIC: Award of Moral Damages. – Gross negligence of a bank in the handling of its client’s deposit amounts to
bad faith that calls for an award of moral damages. Credit is very important to businessmen, and its loss or
impairment needs to be recognized and compensated.
IV. DOCTRINE
The social standing of the aggrieved party is essential to the determination of the proper amount of the award.
Otherwise, the goal of enabling him to obtain means, diversions, or amusements to restore him to the status quo
ante would not be achieved.
We believe that the award should be increased to P100,000, considering that: (1) petitioner was a businessman and was the
highest lay person in the United Methodist Church; (2) he was regarded by respondent and its officers with arrogance and a
condescending manner; and (3) respondent successfully postponed compensating him for more than a decade. This amount is
more than the P50,000 granted by the CA, but not as much as the P200,000 granted by the RTC.
Petitioner Gerardo Samson Jr. avers that he is a client/depositor of respondent BPI with Savings Account No. 3085-0125-75
through the Express Teller System, a 24-hour banking service. Petitioner deposited to his BPI account a Prudential Bank Check
No. 209116 in the amount of P3,500.00. However, petitioner's account balance was P367.38.
Petitioner instructed his daughter to withdraw P2,000.00 from the said account, which was declined twice due to “Insufficient
Funds.” As such, petitioner suffered embarrassment as he could not then and there produce the required cash to fulfill his
monetary obligation towards a creditor who had waited at his residence.
Petitioner deposited to his said account the amount of P5,500.00, and discovered that his available total balance as of said date
was only P342.38 without his earlier check deposit of P3,500.00, with a P25.00 penalty/service charge.
Petitioner complained to respondent about the discrepancy. The latter confirmed the P3,500.00 check deposit, but could not
account the same, and that investigation only ensued after petitioner informed respondent that his P3,500.00 Prudential Bank
check was encashed by respondent's security guard, Nonilon Rondina.
Per such investigation, it was discovered that one of the deposit envelopes was missing, and that respondent did nothing to
look for the missing check deposit or to inform petitioner about it. Despite respondent's knowledge of the irregularity and
suspicious discrepancy in its records, it did not even bother to conduct its own inquiry into said irregularity. Worse, despite
being at fault, respondent's Manager, Nerissa Cayanga, displayed arrogance, indifference and discourtesy towards petitioner.
Petitioner filed an action for damages against the BPI. The trial court ruled in favor of petitioner, awarding moral damages in
the amount of P200,000.
The CA affirmed the trial court, but modified the amount of damages. It held that since the banking business was affected with
public interest, BPI was required to exercise a high degree of care with respect to the accounts of its clients. Thus, the bank
was rendered liable by its negligence resulting in damage to its depositor. The CA ruled that respondent bank was grossly
negligent in its failure to observe the required degree of care. This gross negligence on the part of BPI amounted to bad faith
that entitled petitioner to moral damages. The moral damages of P200,000 awarded by the trial court was, however, found to
be excessive. It was, therefore, reduced to P50,000, because petitioner claimed only P3,500, which had already been credited
back to his account.
Hence, this Petition for Review.

VII. ISSUE
Whether the reduction of the award of moral damages to Php50,000.00, a mere one-fourth of the moral damages awarded by
the trial court, was proper. (NO)
VIII. RULING
NO. Moral damages are awarded to achieve a "spiritual status quo," thus:
Moral damages are awarded to enable the injured party to obtain means, diversions or amusements that will serve to
alleviate the moral suffering he/she has undergone, by reason of the defendant's culpable action. Its award is aimed at
restoration, as much as possible, of the spiritual status quo ante; thus, it must be proportionate to the suffering
inflicted. Since each case must be governed by its own peculiar circumstances, there is no hard and fast rule in
determining the proper amount.
The social standing of the aggrieved party is essential to the determination of the proper amount of the award.
Otherwise, the goal of enabling him to obtain means, diversions, or amusements to restore him to the status quo
ante would not be achieved.
We believe that the award should be increased to P100,000, considering that: (1) petitioner was a businessman and was
the highest lay person in the United Methodist Church; (2) he was regarded by respondent and its officers with arrogance and
a condescending manner; and (3) respondent successfully postponed compensating him for more than a decade. This amount
is more than the P50,000 granted by the CA, but not as much as the P200,000 granted by the RTC.
The fact that petitioner reported the missing check deposit to the respondent only after three weeks did not constitute
contributory negligence. The injury resulted from the denial of his withdrawal due to insufficient funds, an injury he suffered
before learning that his check deposit had been lost. Respondent, not he, immediately knew that a deposit envelop was
missing, yet it did nothing to solve the problem. His alleged delay in reporting the matter did not at all contribute to his injury.
Though the amount of P3,500 was already credited back to his account, this step was made only after his persistent
prompting. Prior to this development, he suffered damages that could no longer be reversed by the belated restoration of the
amount lost. It is for this suffering that moral damages are due.
IX. DISPOSITIVE PORTION: WHEREFORE, the Petition is partly GRANTED and the assailed Decision MODIFIED. The
award of moral damages is increased to P100,000. No pronouncement as to costs.
I. SHORT TITLE: PCI Bank v. Balmaceda
II. FULL TITLE: PHILIPPINE COMMERCIAL INTERNATIONAL BANK, Petitioner, vs.

ANTONIO B. BALMACEDA and ROLANDO N. RAMOS, Respondents.
III. PONENTE: BRION, J.
IV. TOPIC: SBD
V. STATEMENT OF FACTS:
PCIB filed an action for recovery of sum of money with damages before the RTC against Antonio Balmaceda, the Branch
Manager of its Sta. Cruz, Manila branch. In its complaint, PCIB alleged that between 1991 and 1993, Balmaceda, by taking
advantage of his position as branch manager, fraudulently obtained and encashed 31 Manager’s checks in the total amount of
₱10,782,150.00.
PCIB moved to be allowed to file an amended complaint to implead Rolando Ramos as one of the recipients of a portion of the
proceeds from Balmaceda’s alleged fraud. PCIB also increased the number of fraudulently obtained and encashed Manager’s
checks to 34, in the total amount of ₱11,937,150.00. The RTC granted this motion.
Since Balmaceda did not file an Answer, he was declared in default. On the other hand, Ramos filed an Answer denying any
knowledge of Balmaceda’s scheme. According to Ramos, he is a reputable businessman engaged in the business of buying and
selling fighting cocks, and Balmaceda was one of his clients. Ramos admitted receiving money from Balmaceda as payment for
the fighting cocks that he sold to Balmaceda, but maintained that he had no knowledge of the source of Balmaceda’s money.
VI. STATEMENT OF THE CASE:
Before us is a petition for review on certiorari, filed by the PCIB to reverse and set aside the decision of the Court of Appeals.
The CA overturned the decision of the RTC of Makati City, which held respondent Rolando Ramos liable to PCIB for the amount
of ₱895,000.00.
RTC: Found that Balmaceda, by taking undue advantage of his position and authority as branch manager of the Sta. Cruz,
Manila branch of PCIB, successfully obtained and misappropriated the bank’s funds by falsifying several commercial
documents. He accomplished this by claiming that he had been instructed by one of the Bank’s corporate clients to purchase
Manager’s checks on its behalf, with the value of the checks to be debited from the client’s corporate bank account. First, he
would instruct the Bank staff to prepare the application forms for the purchase of Manager’s checks, payable to several
persons. Then, he would forge the signature of the client’s authorized representative on these forms and sign the forms as
PCIB’s approving officer. Finally, he would have an authorized officer of PCIB issue the Manager’s checks. Balmaceda would
subsequently ask his subordinates to release the Manager’s checks to him, claiming that the client had requested that he
deliver the checks. After receiving the Manager’s checks, he encashed them by forging the signatures of the payees on the
checks.
In ruling that Ramos acted in collusion with Balmaceda, the RTC noted that although the Manager’s checks payable to Ramos
were crossed checks, Balmaceda was still able to encash the checks. After Balmaceda encashed three of these Manager’s
checks, he deposited most of the money into Ramos’ account. The RTC concluded that from the ₱11,937,150.00 that Balmaceda
misappropriated from PCIB, ₱895,000.00 actually went to Ramos. Since the RTC disbelieved Ramos’ allegation that the sum of
money deposited into his Savings Account (PCIB, Pasig branch) were proceeds from the sale of fighting cocks, it held Ramos
liable to pay PCIB the amount of ₱895,000.00.
CA:
According to the CA, the mere fact that Balmaceda made Ramos the payee in some of the Manager’s checks does not suffice to
prove that Ramos was complicit in Balmaceda’s fraudulent scheme. It observed that other persons were also named as payees
in the checks that Balmaceda acquired and encashed, and PCIB only chose to go after Ramos. With PCIB’s failure to prove
Ramos’ actual participation in Balmaceda’s fraud, no legal and factual basis exists to hold him liable.
The CA also found that PCIB acted illegally in freezing and debiting ₱251,910.96 from Ramos’ bank account.
VII. ISSUES:
1) THE APPELLATE COURT ERRED IN HOLDING THAT THERE IS NO EVIDENCE TO HOLD THAT RESPONDENT RAMOS ACTED
IN COMPLICITY WITH RESPONDENT BALMACEDA. (NO)
2) THE APPELLATE COURT ERRED IN ORDERING THE PETITIONER TO RELEASE THE AMOUNT OF ₱251,910.96 TO
RESPONDENT RAMOS AND TO PAY THE LATTER MORAL AND EXEMPLARY DAMAGES AND ATTORNEY’S FEES. (YES)
VIII. RULING:
1) Ramos’ participation in Balmaceda’s scheme not proven
In civil cases, the party carrying the burden of proof must establish his case by a preponderance of evidence, or evidence
which, to the court, is more worthy of belief than the evidence offered in opposition.
Thus, PCIB, as plaintiff, had to prove, by preponderance of evidence, its positive assertion that Ramos conspired with
Balmaceda in perpetrating the latter’s scheme to defraud the Bank.
On its face, all that PCIB’s evidence proves is that Balmaceda used Ramos’ name as a payee when he filled up the application
forms for the Manager’s checks. But, as the CA correctly observed, the mere fact that Balmaceda made Ramos the payee on
some of the Manager’s checks is not enough basis to conclude that Ramos was complicit in Balmaceda’s fraud; a number of
other people were made payees on the other Manager’s checks yet PCIB never alleged them to be liable, nor did the Bank
adduce any other evidence pointing to Ramos’ participation that would justify his separate treatment from the others. Also,
while Ramos is Balmaceda’s brother-in-law, their relationship is not sufficient, by itself, to render Ramos liable, absent
concrete proof of his actual participation in the fraudulent scheme.
Moreover, the evidence on record clearly shows that Balmaceda acted on his own when he applied for the Manager’s checks
against the bank account of one of PCIB’s clients, as well as when he encashed the fraudulently acquired Manager’s checks.
We also find no reason to doubt Ramos’ claim that Balmaceda deposited these large sums of money into his bank account as
payment for the fighting cocks that Balmaceda purchased from him.
PCIB itself at fault as employer

In considering this case, one point that cannot be disregarded is the significant role that PCIB played which contributed to the
perpetration of the fraud. We cannot ignore that Balmaceda managed to carry out his fraudulent scheme primarily because
other PCIB employees failed to carry out their assigned tasks – flaws imputable to PCIB itself as the employer.
Ms. Analiza Vega, an accounting clerk, teller and domestic remittance clerk working at the PCIB, Sta. Cruz, Manila branch at the
time of the incident, testified that Balmaceda broke the Bank’s protocol when he ordered the Bank’s employees to fill up the
application forms for the Manager’s checks, to be debited from the bank account of one of the bank’s clients, without providing
the necessary Authority to Debit from the client. PCIB also admitted that these Manager’s checks were subsequently released
to Balmaceda, and not to the client’s representative, based solely on Balmaceda’s word that the client had tasked him to
deliver these checks.
Another telling indicator of PCIB’s negligence is the fact that it allowed Balmaceda to encash the Manager’s checks that were
plainly crossed checks. Based on jurisprudence, the crossing of a check has the following effects: (a) the check may not be
encashed but only deposited in the bank; (b) the check may be negotiated only once — to the one who has an account with the
bank; and (c) the act of crossing the check serves as a warning to the holder that the check has been issued for a definite
purpose and he must inquire if he received the check pursuant to this purpose; otherwise, he is not a holder in due course.
The General Banking Law of 200031 requires of banks the highest standards of integrity and performance. The banking
business is impressed with public interest. Of paramount importance is the trust and confidence of the public in general in the
banking industry. Consequently, the diligence required of banks is more than that of a Roman pater familias or a good father of
a family. The highest degree of diligence is expected.
This lapse is made all the more glaring by Balmaceda’s repetition of his modus operandi 33 more times in a period of over one
year by the Bank’s own estimation.
2) PCIB illegally froze and debited Ramos’ assets

We also find that PCIB acted illegally in freezing and debiting Ramos’ bank account. In BPI Family Bank v. Franco, we cautioned
against the unilateral freezing of bank accounts by banks, noting that:
…To grant [BPI Family Bank], or any bank for that matter, the right to take whatever action it pleases on deposits which it
supposes are derived from shady transactions, would open the floodgates of public distrust in the banking industry. 37
We see no legal merit in PCIB’s claim that legal compensation took place between it and Ramos, thereby warranting the
automatic deduction from Ramos’ bank account. For legal compensation to take place, two persons, in their own right, must
first be creditors and debtors of each other. While PCIB, as the depositary bank, is Ramos’ debtor in the amount of his deposits,
Ramos is not PCIB’s debtor under the evidence the PCIB adduced. PCIB thus had no basis, in fact or in law, to automatically
debit from Ramos’ bank account.
On the award of damages
Although PCIB’s act of freezing and debiting Ramos’ account is unlawful, we cannot hold PCIB liable for moral and exemplary
damages. As the facts of this case bear out, PCIB did not act out of malice or bad faith when it froze Ramos’ bank account and
subsequently debited the amount of ₱251,910.96 therefrom. We also disallow the award of exemplary damages. Since no
reason exists to award moral damages, so too can there be no reason to award exemplary damages.
We deem it just and equitable, however, to uphold the award of attorney’s fees in Ramos’ favor.
IX. DISPOSITIVE PORTION
WHEREFORE, the petition is PARTIALLY GRANTED. We AFFIRM the decision of the Court of Appeals dated April 29, 2003 in
CA-G.R. CV No. 69955 with the MODIFICATION that the award of moral and exemplary damages in favor of Rolando N. Ramos
is DELETED, while the award of attorney’s fees is INCREASED to ₱75,000.00. Costs against the Philippine Commercial
International Bank.
PREPARED BY: ROCHELLE NIEVA D. CURIBA

I. SHORT TITLE: FIRESTONE TIRE & RUBBER CO. v. CA

II. FULL TITLE: FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and LUZON
DEVELOPMENT BANK, respondents.
III. PONENTE: QUISUMBING, J.
IV. TOPIC: SBD
The initial transaction in this case was between petitioner and Fojas-Arca, whereby the latter purchased tires from the former
with special withdrawal slips drawn upon Fojas-Arca's special savings account with respondent bank. Petitioner in turn
deposited these withdrawal slips with Citibank. The latter credited the same to petitioner's current account, then presented
the slips for payment to respondent bank.
Citibank informed petitioner that special withdrawal slips Nos. 42127 and 42129 were refused payment by respondent bank
due to insufficiency of Fojas-Arca's funds on deposit. That information came about six months from the time Fojas-Arca
purchased tires from petitioner using the subject withdrawal slips. Citibank then debited the amount of these withdrawal slips
from petitioner's account, causing the alleged pecuniary damage subject of petitioner's cause of action.
This petition assails the decision of the Court of Appeals, which affirmed the judgment of the Regional Trial Court of Pasay City
dismissing Firestone's complaint for damages.
VII. ISSUE: WHETHER OR NOT RESPONDENT BANK SHOULD BE HELD LIABLE FOR DAMAGES SUFFERED BY PETITIONER,
DUE TO ITS ALLEGEDLY BELATED NOTICE OF NON-PAYMENT OF THE SUBJECT WITHDRAWAL SLIPS. (NO)
VIII. RULING:
The withdrawal slips were non-negotiable
At the outset, we note that petitioner admits that the withdrawal slips in question were non-negotiable. Hence, the rules
governing the giving of immediate notice of dishonor of negotiable instruments do not apply in this case. Petitioner itself
concedes this point. Thus, respondent bank was under no obligation to give immediate notice that it would not make payment
on the subject withdrawal slips. Citibank should have known that withdrawal slips were not negotiable instruments. It could
not expect these slips to be treated as checks by other entities. Payment or notice of dishonor from respondent bank could not
be expected immediately, in contrast to the situation involving checks.
In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon Development Bank, had honored and
paid the previous withdrawal slips, automatically credited petitioner's current account with the amount of the subject
withdrawal slips, then merely waited for the same to be honored and paid by respondent bank. It presumed that the
withdrawal slips were "good."
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
was no license for Citibank to presume that subsequent slips would be honored and paid immediately. By doing so, it failed in
its fiduciary duty to treat the accounts of its clients with the highest degree of care.
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 in check.
The withdrawal slips deposited with petitioner's current account with Citibank were not checks, as petitioner admits. Citibank
was not bound to accept the withdrawal slips as a valid mode of deposit. But having erroneously accepted them as such,
Citibank — and petitioner as account-holder — must bear the risks attendant to the acceptance of these instruments.
Petitioner and Citibank could not now shift the risk and hold private respondent liable for their admitted mistake.
IX. DISPOSITIVE PORTION:

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 29546 is AFFIRMED. Costs
against petitioner.

I. SHORT TITLE:
II. FULL TITLE: PHILIPPINE NATIONAL BANK, Petitioner, vs. SPOUSES CHEAH CHEE CHONG and OFELIA CAMACHO CHEAH,
Respondents.
III. PONENTE: DEL CASTILLO, J.
IV. TOPIC: SBD
Ofelia Cheah (Ofelia) and her friend Adelina Guarin (Adelina) were having a conversation in the latter’s office when Adelina’s
friend, Filipina Tuazon (Filipina), approached her to ask if she could have Filipina’s check cleared and encashed for a service
fee of 2.5%. The check is Bank of America Check No. 1906 under the account of Alejandria Pineda and Eduardo Rosales and
drawn by Atty. Eduardo Rosales against Bank of America Alhambra Branch in California, USA, with a face amount of
$300,000.00, payable to cash. Because Adelina does not have a dollar account in which to deposit the check, she asked Ofelia if
she could accommodate Filipina’s request since she has a joint dollar savings account with her Malaysian husband Cheah Chee
Chong (Chee Chong) with PNB Buendia Branch. Ofelia agreed.
That same day, Ofelia and Adelina went to PNB Buendia Branch. They met with Perfecto Mendiola of the Loans Department
who referred them to PNB Division Chief Alberto Garin (Garin). Garin discussed with them the process of clearing the subject
check and they were told that it normally takes 15 days. Assured that the deposit and subsequent clearance of the check is a
normal transaction, Ofelia deposited Filipina’s check. PNB then sent it for clearing through its correspondent bank,
Philadelphia National Bank. Five days later, PNB received a credit advice from Philadelphia National Bank that the proceeds of
the subject check had been temporarily credited to PNB’s account. Garin called up Ofelia to inform her that the check had
already been cleared. The following day, PNB Buendia Branch, after deducting the bank charges, credited $299,248.37 to the
account of the spouses Cheah. Acting on Adelina’s instruction to withdraw the credited amount, Ofelia that day personally
withdrew $180,000.00. Adelina was able to withdraw the remaining amount the next day after having been authorized by
Ofelia. Filipina received all the proceeds.
In the meantime, the Cable Division of PNB Head Office in Escolta, Manila received a message from Philadelphia National Bank
informing PNB of the return of the subject check for insufficient funds.
PNB Buendia Branch learned about the bounced check when it received a debit advice, followed by a letter, from Philadelphia
National Bank. Informed about the bounced check and upon demand by PNB Buendia Branch to return the money withdrawn,
Ofelia immediately contacted Filipina to get the money back. But the latter told her that all the money had already been given
to several people who asked for the check’s encashment. In their effort to recover the money, spouses Cheah then sought the
help of the NBI. Said agency’s Anti-Fraud and Action Division was later able to apprehend some of the beneficiaries of the
proceeds of the check and recover from them $20,000.00. Criminal charges were then filed against these suspect beneficiaries.
Meanwhile, the spouses Cheah have been constantly meeting with the bank officials to discuss matters regarding the incident
and the recovery of the value of the check while the cases against the alleged perpetrators remain pending. Chee Chong in the
end signed a PNB drafted letters which states that the spouses Cheah are offering their condominium units as collaterals for
the amount withdrawn. Under this setup, the amount withdrawn would be treated as a loan account with deferred interest
while the spouses try to recover the money from those who defrauded them. Apparently, Chee Chong signed the letter after
the Vice President and Manager of PNB Buendia Branch, Asperilla, asked the spouses Cheah to help him and the other bank
officers as they were in danger of losing their jobs because of the incident. Asperilla likewise assured the spouses Cheah that
the letter was a mere formality and that the mortgage will be disregarded once PNB receives its claim for indemnity from
Philadelphia National Bank.
Although some of the officers of PNB were amenable to the proposal, the same did not materialize. Subsequently, PNB sent a
demand letter to spouses Cheah for the return of the amount of the check, froze their peso and dollar deposits and filed a
complaint against them for Sum of Money RTC of Manila. In said complaint, PNB demanded payment of around ₱8,202,220.44,
plus interests and attorney’s fees, from the spouses Cheah.
As their main defense, the spouses Cheah claimed that the proximate cause of PNB’s injury was its own negligence of paying a
US dollar denominated check without waiting for the 15-day clearing period, in violation of its bank practice as mandated by
its own bank circular, i.e., PNB General Circular No. 52-101/88. Because of this, spouses Cheah averred that PNB is barred
from claiming what it had lost. They further averred that it is unjust for them to pay back the amount disbursed as they never
really benefited therefrom. As counterclaim, they prayed for the return of their frozen deposits, the recoupment of
₱400,000.00 representing the amount they had so far spent in recovering the value of the check, and payment of moral and
exemplary damages, as well as attorney’s fees.
These consolidated Petitions for Review on Certiorari filed by the PNB and by the spouses Cheah both assail the Decision and
Resolution of the CA which declared both parties equally negligent and, hence, should equally suffer the resulting loss. For its
part, PNB questions why it was declared blameworthy together with its depositors, spouses Cheah, for the amount wrongfully
paid the latter, while the spouses Cheah plead that they be declared entirely faultless.
RTC: The RTC ruled in PNB’s favor.
The RTC held that spouses Cheah were guilty of contributory negligence.
Because Ofelia trusted a friend’s friend whom she did not know and considering the amount of the check made payable to
cash, the RTC opined that Ofelia showed lack of vigilance in her dealings. While the court found that the proximate cause of the
wrongful payment of the check was PNB’s negligence in not observing the 15-day guarantee period rule, it ruled that spouses
Cheah still cannot escape liability to reimburse PNB the value of the check as an accommodation party pursuant to Section 29
of the Negotiable Instruments Law. It likewise applied the principle of solutio indebiti under the Civil Code. With regard to the
award of other forms of damages, the RTC held that each party must suffer the consequences of their own acts and thus left
both parties as they are.
CA: While the CA recognized the spouses Cheah as victims of a scam who nevertheless have to suffer the consequences of
Ofelia’s lack of care and prudence in immediately trusting a stranger, the appellate court did not hold PNB scot-free. The Cheah
spouses cannot entirely bear the loss because PNB allowed her to withdraw without waiting for the clearance of the check. The
remedy of the parties is to go after those who perpetrated, and benefited from, the scam.
Accordingly, PNB is hereby ordered to credit to the peso and dollar accounts of the Cheah spouses the amount due to them.
Applying the last clear chance doctrine, the CA held that PNB had the last clear opportunity to avoid the impending loss of the
money and yet, it glaringly exhibited its negligence in allowing the withdrawal of funds without exhausting the 15-day clearing
period which has always been a standard banking practice as testified to by PNB’s own officers, and as provided in its own
General Circular No. 52/101/88. To the CA, PNB cannot claim from spouses Cheah even if the latter are accommodation
parties under the law as the bank’s own negligence is the proximate cause of the damage it sustained. Nevertheless, it also
found Ofelia guilty of contributory negligence. Thus, both parties should be made equally responsible for the resulting loss.
VII. ISSUES: WHETHER OR NOT THE CA ERRED IN ITS DECISION. (NO)
VIII. RULING:
The petitions for review lack merit. Hence, we affirm the ruling of the CA.
PNB’s act of releasing the proceeds of the check prior to the lapse of the 15-day clearing period was the proximate cause of the
loss. "Proximate cause is ‘that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause,
produces the injury and without which the result would not have occurred.’
Here, while PNB highlights Ofelia’s fault in accommodating a stranger’s check and depositing it to the bank, it remains mum in
its release of the proceeds thereof without exhausting the 15-day clearing period, an act which contravened established
banking rules and practice.
It is worthy of notice that the 15-day clearing period alluded to is construed as 15 banking days. Even PNB’s agreement with
Philadelphia National Bank regarding the rules on the collection of the proceeds of US dollar checks refers to "business/
banking days." Ofelia deposited the subject check on November 4, 1992. Hence, the 15th banking day from the date of said
deposit should fall on November 25, 1992. However, what happened was that PNB Buendia Branch, upon calling up Ofelia that
the check had been cleared, allowed the proceeds thereof to be withdrawn on November 17 and 18, 1992, a week before the
lapse of the standard 15-day clearing period.
This Court already held that the payment of the amounts of checks without previously clearing them with the drawee bank
especially so where the drawee bank is a foreign bank and the amounts involved were large is contrary to normal or ordinary
banking practice. Also, in Associated Bank v. Tan, wherein the bank allowed the withdrawal of the value of a check prior to its
clearing, we said that "[b]efore the check shall have been cleared for deposit, the collecting bank can only ‘assume’ at its own
risk x x x that the check would be cleared and paid out." The delay in the receipt by PNB Buendia Branch of the message
notifying it of the dishonor of the subject check is of no moment, because had PNB Buendia Branch waited for the expiration of
the clearing period and had never released during that time the proceeds of the check, it would have already been duly notified
of its dishonor. Clearly, PNB’s disregard of its preventive and protective measure against the possibility of being victimized by
bad checks had brought upon itself the injury of losing a significant amount of money.
It bears stressing that "the diligence required of banks is more than that of a Roman pater familias or a good father of a family.
The highest degree of diligence is expected." PNB miserably failed to do its duty of exercising extraordinary diligence and
reasonable business prudence. The disregard of its own banking policy amounts to gross negligence, which the law defines as
"negligence characterized by the want of even slight care, acting or omitting to act in a situation where there is duty to act, not
inadvertently but wilfully and intentionally with a conscious indifference to consequences in so far as other persons may be
affected." With regard to collection or encashment of checks, suffice it to say that the law imposes on the collecting bank the
duty to scrutinize diligently the checks deposited with it for the purpose of determining their genuineness and regularity. "The
collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus
holds it to a high standard of conduct." A bank is expected to be an expert in banking procedures and it has the necessary
means to ascertain whether a check, local or foreign, is sufficiently funded.
Principle of Solutio Indebiti
In the case at bench, PNB cannot recover the proceeds of the check under the principle it invokes. In the first place, the gross
negligence of PNB, as earlier discussed, can never be equated with a mere mistake of fact, which must be something excusable
and which requires the exercise of prudence. No recovery is due if the mistake done is one of gross negligence.
The spouses Cheah are guilty of contributory negligence and are bound to share the loss with the bank. "Contributory
negligence is conduct on the part of the injured party”.
The CA found Ofelia’s credulousness blameworthy. We agree.
In any case, the complaint against the spouses Cheah could not be dismissed. As PNB’s client, Ofelia was the one who dealt
with PNB and negotiated the check such that its value was credited in her and her husband’s account. Being the ones in privity
with PNB, the spouses Cheah are therefore the persons who should return to PNB the money released to them.
All told, the Court concurs with the findings of the CA that PNB and the spouses Cheah are equally negligent and should
therefore equally suffer the loss. The two must both bear the consequences of their mistakes.
WHEREFORE, premises considered, the Petitions for Review on Certiorari in G.R. No. 170865 and in G.R. No. 170892 are both
DENIED. The assailed August 22, 2005 Decision and December 21, 2005 Resolution of the Court of Appeals in CA-G.R. CV No.
63948 are hereby AFFIRMED in toto.

I. SHORT TITLE: ALLIED BANKING CORP. v. BPI
II. FULL TITLE: ALLIED BANKING CORPORATION, Petitioner, v. BANK OF THE PHILIPPINE ISLANDS, Respondents.
III. PONENTE: VILLARAMA, JR., J.
IV. TOPIC: SBD
A check in the amount of P1,000,000.00 payable to “Mateo Mgt. Group International” (MMGI) was presented for deposit and
accepted at petitioner’s Kawit Branch. The check, post-dated “Oct. 9, 2003”, was drawn against the account of Silva with
respondent BPI Bel-Air Branch. Upon receipt, petitioner sent the check for clearing to respondent through the Philippine
Clearing House Corporation (PCHC).
The check was cleared by respondent and petitioner credited the account of MMGI with P1,000,000.00.
MMGI’s account was closed and all the funds therein were withdrawn. A month later, Silva discovered the debit of
P1,000,000.00 from his account. In response to Silva’s complaint, respondent credited his account with the aforesaid sum.
Respondent returned a photocopy of the check to petitioner for the reason: “Postdated.” Petitioner, however, refused to accept
and sent back to respondent a photocopy of the check. Thereafter, the check, or more accurately, the Charge Slip, was tossed
several times from petitioner to respondent, and back to petitioner, until respondent requested the PCHC to take custody of
the check. Acting on the request, PCHC directed the respondent to deliver the original check and informed it of PCHC’s
authority under Clearing House Operating Memo (CHOM) No. 279 to split 50/50 the amount of the check subject of a “Ping-
Pong” controversy which shall be implemented thru the issuance of Debit Adjustment Tickets against the outward demands of
the banks involved. PCHC likewise encouraged respondent to submit the controversy for resolution thru the PCHC Arbitration
Mechanism.
However, it was petitioner who filed a complaint before the Arbitration Committee, asserting that respondent should solely
bear the entire face value of the check due to its negligence in failing to return the check to petitioner within the 24-hour
reglementary period as provided in Section 20.17 of the Clearing House Rules and Regulations8 (CHRR) 2000. Petitioner
prayed that respondent be ordered to reimburse the sum of P500,000.00 with 12% interest per annum, and to pay attorney’s
fees and other arbitration expenses.
In its Answer with Counterclaims, respondent charged petitioner with gross negligence for accepting the post-dated check in
the first place. It contended that petitioner’s admitted negligence was the sole and proximate cause of the loss.
The Arbitration Committee rendered its Decision in favor of petitioner and against the respondent. First, it ruled that the
situation of the parties does not involve a “Ping-Pong” controversy since the subject check was neither returned within the
reglementary time or through the PCHC return window, nor coursed through the clearing facilities of the PCHC.
As to respondent’s direct presentation of a photocopy of the subject check, it was declared to be without legal basis because
Section 21.111 of the CHRR 2000 does not apply to post-dated checks. The Arbitration Committee further noted that
respondent not only failed to return the check within the 24-hour reglementary period, it also failed to institute any formal
complaint within the contemplation of Section 20.312 and it appears that respondent was already contented with the 50-50
split initially implemented by the PCHC. Finding both parties negligent in the performance of their duties, the Committee
applied the doctrine of “Last Clear Chance” and ruled that the loss should be shouldered by respondent alone
Respondent filed a motion for reconsideration but it was denied by the PCHC Board of Directors. Respondent filed a petition
for review in the RTC.
RTC: RTC affirmed with modification the Arbitration Committee’s decision by deleting the award of attorney’s fees. The RTC
found no merit in respondent’s stance that through inadvertence it failed to discover that the check was post-dated and that
confirmation within 24 hours is often “elusive if not outright impossible” because a drawee bank receives hundreds if not
thousands of checks in an ordinary clearing day.
With the denial of its motion for partial reconsideration, respondent elevated the case to the CA by filing a petition for review
under Rule 42.
CA: set aside the RTC judgment and ruled for a 60-40 sharing of the loss as it found petitioner guilty of contributory negligence
in accepting what is clearly a post-dated check. The CA found that petitioner’s failure to notice the irregularity on the face of
the check was a breach of its duty to the public and a telling sign of its lack of due diligence in handling checks coursed through
it. While the CA conceded that the drawee bank has a bigger responsibility in the clearing of checks, it declared that the
presenting bank cannot take lightly its obligation to make sure that only valid checks are introduced into the clearing system.
According to the CA, considerations of public policy and substantial justice will be served by allocating the damage on a 60-40
ratio.
Its motion for reconsideration having been denied by the CA, petitioner is now before the Court seeking a partial reversal of
the CA’s decision and affirmance of the RTC decision.

Petitioner Allied Banking Corporation appeals the Decision of the Court of Appeals which set aside the Decision of the Regional
Trial Court of Makati City.
VII. ISSUES:
1) WHETHER THE DOCTRINE OF LAST CLEAR CHANCE APPLIES IN THIS CASE; AND
2) WHETHER THE 60-40 APPORTIONMENT OF LOSS ORDERED BY THE CA WAS JUSTIFIED.
VIII. RULING:
As well established by the records, both petitioner and respondent were admittedly negligent in the encashment of a check
post-dated one year from its presentment. The doctrine of last clear chance, stated broadly, is that the negligence of the
plaintiff does not preclude a recovery for the negligence of the defendant where it appears that the defendant, by exercising
reasonable care and prudence, might have avoided injurious consequences to the plaintiff notwithstanding the plaintiff’s
negligence.
In this case, the evidence clearly shows that the proximate cause of the unwarranted encashment of the subject check was the
negligence of respondent who cleared a post-dated check sent to it thru the PCHC clearing facility without observing its own
verification procedure. As correctly found by the PCHC and upheld by the RTC, if only respondent exercised ordinary care in
the clearing process, it could have easily noticed the glaring defect upon seeing the date written on the face of the check “Oct. 9,
2003”. Respondent could have then promptly returned the check and with the check thus dishonored, petitioner would have
not credited the amount thereof to the payee’s account. THUS, NOTWITHSTANDING THE ANTECEDENT NEGLIGENCE OF THE
PETITIONER IN ACCEPTING THE POST-DATED CHECK FOR DEPOSIT, IT CAN SEEK REIMBURSEMENT FROM RESPONDENT
THE AMOUNT CREDITED TO THE PAYEE’S ACCOUNT COVERING THE CHECK.
Following established jurisprudential precedents, we believe the allocation of sixty percent (60%) of the actual damages
involved in this case (represented by the amount of the checks with legal interest) to petitioner is proper under the premises.
Respondent should, in light of its contributory negligence, bear forty percent (40%) of its own loss. (Emphasis supplied)
It bears stressing that “the diligence required of banks is more than that of a Roman pater familias or a good father of a family.
The highest degree of diligence is expected,’ considering the nature of the banking business that is imbued with public interest.
While it is true that respondent’s liability for its negligent clearing of the check is greater, petitioner cannot take lightly its own
violation of the long-standing rule against encashment of post-dated checks and the injurious consequences of allowing such
checks into the clearing system.
Petitioner repeatedly harps on respondent’s transgression of clearing house rules when the latter resorted to direct
presentment way beyond the reglementary period but glosses over its own negligent act that clearly fell short of the conduct
expected of it as a collecting bank. Petitioner must bear the consequences of its omission to exercise extraordinary diligence in
scrutinizing checks presented by its depositors.
Assessing the facts and in the light of the cited precedents, the Court thus finds no error committed by the CA in allocating the
resulting loss from the wrongful encashment of the subject check on a 60-40 ratio.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated March 19, 2009 of the Court of Appeals in
CA-G.R. SP No. 97604 is hereby AFFIRMED.

I. SHORT TITLE: BPI v. CA (1994)
II. FULL TITLE: BANK OF THE PHILIPPINE ISLANDS (successor-in- interest of COMMERCIAL AND TRUST CO.), petitioner,
vs.HON. COURT OF APPEALS, EASTERN PLYWOOD CORP. and BENIGNO D. LIM, respondents.
III. PONENTE: DAVIDE, JR., J.
IV. TOPIC: SBD
Private respondents Eastern Plywood Corporation (Eastern) and Benigno D. Lim (Lim), an officer and stockholder of Eastern,
held at least one joint bank account ("and/or" account) with the Commercial Bank and Trust Co. (CBTC), the predecessor-in-
interest of petitioner Bank of the Philippine Islands (BPI). Sometime in March 1975, a joint checking account ("and" account)
with Lim in the amount of P120,000.00 was opened by Mariano Velasco with funds withdrawn from the account of Eastern
and/or Lim. Various amounts were later deposited or withdrawn from the joint account of Velasco and Lim. The money
therein was placed in the money market.
Velasco died. At the time of his death, the outstanding balance of the account stood at P662,522.87. By virtue of an Indemnity
Undertaking executed by Lim for himself and as President and General Manager of Eastern, one-half of this amount was
provisionally released and transferred to one of the bank accounts of Eastern with CBTC.
Thereafter, Eastern obtained a loan of P73,000.00 from CBTC as "Additional Working Capital," evidenced by the "Disclosure
Statement on Loan/Credit Transaction" signed by CBTC. The loan was payable on demand with interest.
For this loan, Eastern issued on the same day a negotiable promissory note for P73,000.00 payable on demand to the order of
CBTC. The note was signed by Lim both in his own capacity and as President and General Manager of Eastern. No reference to
any security for the loan appears on the note. In the Disclosure Statement, the box with the printed word "UNSECURED" was
marked with "X" — meaning unsecured, while the line with the words "this loan is wholly/partly secured by" is followed by
the typewritten words which refers to the joint account of Velasco and Lim with a balance of P331,261.44.
In addition, Eastern and Lim, and CBTC signed another document entitled "Holdout Agreement," wherein it was stated that "as
security for the Loan [Lim and Eastern] have offered [CBTC] and the latter accepts a holdout on said in the joint names of Lim
and Velasco to the full extent of their alleged interests therein as these may appear as a result of final and definitive judicial
action or a settlement between and among the contesting parties thereto."
In the meantime, a case for the settlement of Velasco's estate was filed with the RTC of Pasig. In the said case, the whole
balance of P331,261.44 in the aforesaid joint account of Velasco and Lim was being claimed as part of Velasco's estate. The
intestate court granted the urgent motion of the heirs of Velasco to withdraw the deposit under the joint account of Lim and
Velasco and authorized the heirs to divide among themselves the amount withdrawn.
Sometime in 1980, CBTC was merged with BPI. BPI filed with the RTC of Manila a complaint against Lim and Eastern
demanding payment of the promissory note for P73,000.00. Defendants Lim and Eastern, in turn, filed a counterclaim against
BPI for the return of the balance in the disputed account subject of the Holdout Agreement and the interests thereon after
deducting the amount due on the promissory note.
The petitioner urges us to review and set aside the amended Decision of respondent Court of which modified the Decision of
the Regional Trial Court of entitled Bank of the Philippine Islands (successor-in-interest of Commercial Bank and Trust
Company) versus Eastern Plywood Corporation and Benigno D. Lim. The Court of Appeals had affirmed the dismissal of the
complaint but had granted the defendants' counterclaim for P331,261.44 which represents the outstanding balance of their
account with the plaintiff.
RTC: Dismissed the complaint because BPI failed to make out its case. Furthermore, it ruled that "the promissory note in
question is subject to the 'hold-out' agreement," and that based on this agreement, "it was the duty of plaintiff Bank [BPI] to
debit the account of the defendants under the promissory note to set off the loan even though the same has no fixed maturity."
As to the defendants' counterclaim, the trial court, recognizing the fact that the entire amount in question had been withdrawn
by Velasco's heirs pursuant to the order of the intestate court in Sp. Proc. No. 8959, denied it because the "said claim cannot be
awarded without disturbing the resolution" of the intestate court.
Both parties appealed from the said decision to the Court of Appeals.
CA: rendered a decision affirming the decision of the trial court. It ruled that the settlement of Velasco's estate had nothing to
do with the claim of the defendants for the return of the balance of their account with CBTC/BPI as they were not privy to that
case, and that the defendants, as depositors of CBTC/BPI, are the latter's creditors; hence, CBTC/BPI should have protected the
defendants' interest in Sp. Proc. No. 8959 when the said account was claimed by Velasco's estate. It then ordered BPI "to pay
defendants the amount of P331,261.44 representing the outstanding balance in the bank account of defendants."
BPI filed the instant petition alleging therein that the Holdout Agreement in question was subject to a suspensive condition
stated therein, viz., that the "P331,261.44 shall become a security for respondent Lim's promissory note only if respondents'
Lim and Eastern Plywood Corporation's interests to that amount are established as a result of a final and definitive judicial
action or a settlement between and among the contesting parties thereto." Hence, BPI asserts, the Court of Appeals erred in
affirming the trial court's decision dismissing the complaint on the ground that it was the duty of CBTC to debit the account of
the defendants to set off the amount of P73,000.00 covered by the promissory note.
VII. ISSUES:
1) WHETHER BPI CAN DEMAND PAYMENT OF THE LOAN OF P73,000.00 DESPITE THE EXISTENCE OF THE HOLDOUT
AGREEMENT. (YES)
2) WHETHER BPI IS STILL LIABLE TO THE PRIVATE RESPONDENTS ON THE ACCOUNT SUBJECT OF THE HOLDOUT
AGREEMENT AFTER ITS WITHDRAWAL BY THE HEIRS OF VELASCO.
VIII. RULING:
1) As stated by the respondent Court of Appeals, "[t]here is no question that the promissory note is a negotiable instrument." It
further correctly ruled that BPI was not a holder in due course because the note was not indorsed to BPI by the payee, CBTC.
Only a negotiation by indorsement could have operated as a valid transfer to make BPI a holder in due course. It acquired the
note from CBTC by the contract of merger or sale between the two banks. BPI, therefore, took the note subject to the Holdout
Agreement.
We disagree, however, with the Court of Appeals in its interpretation of the Holdout Agreement. WHAT THE AGREEMENT
CONFERRED ON CBTC WAS A POWER, NOT A DUTY. GENERALLY, A BANK IS UNDER NO DUTY OR OBLIGATION TO MAKE
THE APPLICATION. TO APPLY THE DEPOSIT TO THE PAYMENT OF A LOAN IS A PRIVILEGE, A RIGHT OF SET-OFF WHICH THE
BANK HAS THE OPTION TO EXERCISE.
ALSO, PARAGRAPH 05 OF THE HOLDOUT AGREEMENT ITSELF STATES THAT NOTWITHSTANDING THE AGREEMENT, CBTC
WAS NOT IN ANY WAY PRECLUDED FROM DEMANDING PAYMENT FROM EASTERN AND FROM INSTITUTING AN ACTION TO
RECOVER PAYMENT OF THE LOAN. What it provides is an alternative, not an exclusive, method of enforcing its claim on the
note. When it demanded payment of the debt directly from Eastern and Lim, BPI had opted not to exercise its right to apply
part of the deposit subject of the Holdout Agreement to the payment of the promissory note for P73,000.00. Its suit for the
enforcement of the note was then in order and it was error for the trial court to dismiss it on the theory that it was set off by an
equivalent portion in C/A No. 2310-001-42 which BPI should have debited. The Court of Appeals also erred in affirming such
dismissal.
The "suspensive condition" theory of the petitioner is, therefore, untenable.
The Court of Appeals correctly decided on the counterclaim. In Serrano vs. Central Bank of the Philippines, 21 we held that
bank deposits are in the nature of irregular deposits; they are really loans because they earn interest. The relationship then
between a depositor and a bank is one of creditor and debtor. The deposit under the questioned account was an ordinary bank
deposit; hence, it was payable on demand of the depositor.
The account was proved and established to belong to Eastern even if it was deposited in the names of Lim and Velasco. AS THE
REAL CREDITOR OF THE BANK, EASTERN HAS THE RIGHT TO WITHDRAW IT OR TO DEMAND PAYMENT THEREOF. BPI
CANNOT BE RELIEVED OF ITS DUTY TO PAY EASTERN SIMPLY BECAUSE IT ALREADY ALLOWED THE HEIRS OF VELASCO TO
WITHDRAW THE WHOLE BALANCE OF THE ACCOUNT. The petitioner should not have allowed such withdrawal because it
had admitted in the Holdout Agreement the questioned ownership of the money deposited in the account.
Moreover, the order of the court in Sp. Proc. No. 8959 merely authorized the heirs of Velasco to withdraw the account. BPI was
not specifically ordered to release the account to the said heirs; hence, it was under no judicial compulsion to do so. We have
ruled that when the ownership of a particular property is disputed, the determination by a probate court of whether that
property is included in the estate of a deceased is merely provisional in character and cannot be the subject of execution.
Because the ownership of the deposit remained undetermined, BPI, as the debtor with respect thereto, had no right to pay to
persons other than those in whose favor the obligation was constituted or whose right or authority to receive payment is
indisputable. The payment of the money deposited with BPI that will extinguish its obligation to the creditor-depositor is
payment to the person of the creditor or to one authorized by him or by the law to receive it. Payment made by the debtor to
the wrong party does not extinguish the obligation as to the creditor who is without fault or negligence, even if the debtor
acted in utmost good faith and by mistake as to the person of the creditor, or through error induced by fraud of a third person.
The payment then by BPI to the heirs of Velasco, even if done in good faith, did not extinguish its obligation to the true
depositor, Eastern.
WHEREFORE, the instant petition is partly GRANTED. The challenged amended decision in CA-G.R. CV No. 25735 is hereby
MODIFIED. As modified:
(1) Private respondents are ordered to pay the petitioner the promissory note for P73,000.00 with interest at:
(a) 14% per annum on the principal, computed from

18 August 1978 until payment;
(b) 12% per annum on the interest which had accrued up to the date of the filing of the complaint, computed from that
date until payment pursuant to Article 2212 of the Civil Code.
(2) The award of P331,264.44 in favor of the private respondents shall bear interest at the rate of 12% per annum
computed from the filing of the counterclaim.
No pronouncement as to costs.

Far East Bank v. Gold Palace Jewellery
FAR EAST BANK & TRUST COMPANY vs. GOLD PALACE JEWELLERY CO., as represented by Judy L. Yang, Julie Yang-Go
and Kho Soon Huat
G.R. No. 168274, August 20, 2008, THIRD DIVISION, NACHURA, J
STATEMENT OF FACTS
A foreigner, identified as Samuel Tagoe, purchased from the respondent Gold Palace Jewellery Co.'s store at SM-North
EDSA several pieces of jewelry valued at P258,000.00. In payment of the same, he offered a Foreign Draft issued by the United
Overseas Bank addressed to the Land Bank of the Philippines and payable to the respondent company for P380,000.00.
Before receiving the draft, respondent Judy Yang, the assistant general manager of Gold Palace, inquired from
petitioner Far East Bank & Trust Company's the nature of the draft. The teller informed her that the same was similar to a
manager's check, but advised her not to release the pieces of jewelry until the draft had been cleared. Following the bank's
advice, Yang issued Cash Invoice to the foreigner, asked him to come back, and informed him that the pieces of jewelry would
be released when the draft had already been cleared. Respondent Julie Yang-Go, the manager of Gold Palace, consequently
deposited the draft in the company's account with the aforementioned Far East branch.
When Far East, the collecting bank, presented the draft for clearing to Land Bank, the drawee bank, the latter cleared
the same and Gold Palace's account with Far East was credited with the amount stated in the draft.
The foreigner eventually returned to respondent's store to claim the purchased goods. After ascertaining that the
draft had been cleared, respondent Yang released the pieces of jewelry to Samuel Tagoe; and because the amount in the draft
was more than the value of the goods purchased, she issued, as his change, Far East Check for P122,000.00.This check was
later presented for encashment and was, in fact, paid by the said bank.
After around three weeks, Land Bank informed Far East that the amount in Foreign Draft had been materially altered
from P300.00 to P380,000.00 and that it was returning the same. It is noted at this point that the material alteration was
discovered by Universal Overseas Bank after Land Bank had informed it that its funds were being depleted following the
encashment of the subject draft.Intending to debit the amount from respondent's account, Far East subsequently refunded
the P380,000.00 earlier paid by Land Bank.
Gold Palace, in the meantime, had already utilized portions of the amount. Thus, Far East was able to debit
only P168,053.36, but this was done without a prior written notice to the account holder. Far East only notified by phone the
representatives of the respondent company.
Petitioner Far East demanded from Gold Palace the payment of P211,946.64 or the difference between the amount in
the materially altered draft and the amount debited from the respondent company's account. Because Gold Palace did not heed
the demand, Far East consequently instituted Civil Case for sum of money and damages before the RTC of Makati City.
In their Answer, Gold Palace specifically denied the material allegations in the complaint and interposed as a defense
that the complaint states no cause of action-the subject foreign draft having been cleared and the respondent not being the
party who made the material alteration. Respondents further counterclaimed for actual damages, moral and exemplary
damages, and attorney's fees considering, among others, that the petitioner had confiscated without basis Gold Palace's
balance in its account resulting in operational loss, and had maliciously imputed to the latter the act of alteration.
RTC rendered its Decision in favor of Far East, ordering Gold Palace to pay the former P211,946.64 as actual damages
and P50,000.00 as attorney's fees. The trial court ruled that, on the basis of its warranties as a general indorser, Gold Palace
was liable to Far East.
On appeal, the CA reversed the ruling of the trial court. It ruled in the main that Far East failed to undergo the
proceedings on the protest of the foreign draft or to notify Gold Palace of the draft's dishonor; thus, Far East could not charge
Gold Palace on its secondary liability as an indorser. The appellate court further ruled that the drawee bank had cleared the
check, and its remedy should be against the party responsible for the alteration. Considering that, in this case, Gold Palace
neither altered the draft nor knew of the alteration, it could not be held liable. MR denied, hence this the instant Petition for
Review on Certiorari.
ISSUE: Whether or not Gold Palace could be held liable for the altered draft.
RULING
NO. Gold Palace could not be held liable for the altered draft.
The Negotiable Instruments Law explicitly provides that the acceptor, by accepting the instrument, engages that he
will pay it according to the tenor of his acceptance. This provision applies with equal force in case the drawee pays a bill
without having previously accepted it. His actual payment of the amount in the check implies not only his assent to the order
of the drawer and a recognition of his corresponding obligation to pay the aforementioned sum, but also, his clear compliance
with that obligation.
The drawee bank (Land Bank) cleared and paid the subject foreign draft and forwarded the amount thereof to the
collecting bank (Far East.) The latter then credited to Gold Palace's account the payment it received. Following the plain
language of the law, the drawee, by the said payment, recognized and complied with its obligation to pay in accordance with
the tenor of his acceptance. The tenor of the acceptance is determined by the terms of the bill as it is when the drawee accepts.
Stated simply, Land Bank was liable on its payment of the check according to the tenor of the check at the time of payment,
which was the raised amount.
Because of that engagement, Land Bank could no longer repudiate the payment it erroneously made to a due course
holder. We note at this point that Gold Palace was not a participant in the alteration of the draft, was not negligent, and was a
holder in due course. Having relied on the drawee bank's clearance and payment of the draft, it delivered the purchased
jewelry only when the draft was cleared and paid. Gold Palace is amply protected by the Section 62 of NIL.
In arriving at this conclusion, the Court is not closing its eyes to the other view espoused in common law jurisdictions
that a drawee bank, having paid to an innocent holder the amount of an uncertified, altered check in good faith and without
negligence which contributed to the loss, could recover from the person to whom payment was made as for money paid by
mistake. However, given the foregoing discussion, we find no compelling reason to apply the principle to the instant case.
Thus, considering that, in this case, Gold Palace is protected by Section 62 of the NIL, its collecting agent, Far East,
should not have debited the money paid by the drawee bank from respondent company's account. When Gold Palace
deposited the check with Far East, the latter, under the terms of the deposit and the provisions of the NIL, became an agent of
the former for the collection of the amount in the draft. The subsequent payment by the drawee bank and the collection of the
amount by the collecting bank closed the transaction insofar as the drawee and the holder of the check or his agent are
concerned, converted the check into a mere voucher, and foreclosed the recovery by the drawee of the amount paid. This
closure of the transaction is a matter of course, otherwise, uncertainty in commercial transactions, delay and annoyance will
arise if a bank at some future time will call on the payee for the return of the money paid to him on the check.
As the transaction in this case had been closed and the principal-agent relationship between the payee and the
collecting bank had already ceased, the latter in returning the amount to the drawee bank was already acting on its own and
should now be responsible for its own actions. Neither can petitioner be considered to have acted as the representative of the
drawee bank when it debited respondent's account, because, as already explained, the drawee bank had no right to recover
what it paid. Likewise, Far East cannot invoke the warranty of the payee/depositor who indorsed the instrument for collection
to shift the burden it brought upon itself. This is precisely because the said indorsement is only for purposes of collection
which, under Section 36 of the NIL, is a restrictive indorsement. It did not in any way transfer the title of the instrument to the
collecting bank. Far East did not own the draft, it merely presented it for payment. Considering that the warranties of a general
indorser as provided in Section 66 of the NIL are based upon a transfer of title and are available only to holders in due
course, these warranties did not attach to the indorsement for deposit and collection made by Gold Palace to Far East. Without
any legal right to do so, the collecting bank, therefore, could not debit respondent's account for the amount it refunded to the
drawee bank.
The foregoing considered, we affirm the ruling of the appellate court to the extent that Far East could not debit the
account of Gold Palace, and for doing so, it must return what it had erroneously taken. Far East's remedy under the law is not
against Gold Palace but against the drawee-bank or the person responsible for the alteration. That, however, is another issue
which we do not find necessary to discuss in this case.
DISPOSITIVE PORTION
WHEREFORE, premises considered, the March 15, 2005 Decision and the May 26, 2005 Resolution of the Court of Appeals in
CA-G.R. CV No. 71858 are AFFIRMED WITH THE MODIFICATION that the award of exemplary damages and attorney's fees
is DELETED. SO ORDERED.
PREPARED BY: Ina Guiang

Metropolitan Bank vs. CA
METROPOLITAN BANK AND TRUST COMPANY vs. THE HON. COURT OF APPEALS, RURAL BANK OF PADRE GARCIA, INC.
and ISABEL R. KATIGBAK
G.R. No. 112576 October 26, 1994 THIRD DIVISION ROMERO, J
STATEMENT OF FACTS
The case emanated from a dispute between the Rural Bank of Padre Garcia, Inc. (RBPG) and Metropolitan Bank and
Trust Company (MBTC) relative to a credit memorandum dated April 5, 1982 from the Central Bank in the amount of
P304,000.00 in favor of RBPG.
Isabel Katigbak is the president and director of Rural Bank of Padre Garcia, Inc (RBPG.) Metropolitan Bank and Trust
Company (MBTC) is the rural bank's depository bank, where Katigbak maintains current accounts with MBTC's main office.
Sometime in 1982, MBTC received from the Central Bank a credit memo stating that its demand deposit account was
credited with P304,000.00 for the account of RBPG, representing loans granted by the Central Bank to RBPG. On the basis of
said credit memo, Isabel Katigbak issued several checks against its account with MBTC in the total amount of P300,000.00, two
of which were payable to Dr. Felipe C. Roque and Mrs. Eliza Roque for P25,000.00 each.
Said checks issued to Dr. and Mrs. Roque were subsequently dishonored. After such, Dr. Felipe Roque himself, a
member of the Board of Directors of Philippine Banking Corporation, allegedly went to the Office of Antonio Katigbak (son of
Isabel Katigbank, an officer of the bank as well) chiding him for the bouncing checks. In order to appease the doctor, RBPG paid
Dr. Roque P50,000.00 in cash to replace the aforesaid checks.
Isabel Katigbak who was in Hongkong on a business-vacation with her family received overseas phone calls from Mrs.
San Juan informing Isabel Katigbak that a certain Mr. Rizal Dungo, Assistant Cashier of MBTC berating her about the checks
which bounced, saying "Nag-issue kayo ng tseke, wala namang pondo," even if it was explained to Mr. Dungo that Mrs. San Juan
was not in any way connected with RBPG.
Mrs. Katigbak testified that she informed Mrs. San Juan to request defendant MBTC to check and verify the records
regarding the aforementioned Central Bank credit memo for P304,000.00 in favor of RBPG as she was certain that the checks
were sufficiently covered by the CB credit memo. On the following day, Mrs. San Juan received another insulting call from Mr.
Dungo ("Bakit kayo nag-issue ng tseke na wala namang pondo, Three Hundred Thousand na.") After, informing Isabela Katigbak,
tense and angered, the Katigbaks had to cut short their Hongkong stay with their respective families and flew back to Manila,
catching the first available flight.
Immediately upon arrival, Mrs. Katigbak called up MBTC, through a Mr. Cochico, for a re-examination of the records of
MBTC regarding the Central Bank credit memo for P304,000.00. Mr. Dungo, to whom Cochico handed over the phone,
allegedly arrogantly said: "Bakit kayo magagalit, wala naman kayong pondo?" These remarks allegedly so shocked Mrs.
Katigbak that her blood pressure rose to a dangerous level and she had to undergo medical treatment at the Makati Medical
Center for two days.
Metrobank not only dishonored the checks issued by RBPG, the latter was issued four debit memos representing
service and penalty charges for the returned checks.
RBPG and Isabel Katigbak filed Civil Case against the Metropolitan Bank and Trust Company for damages.
The ultimate facts as alleged by the defendant MBTC in its answer are as follows: that on April 6, 1982, its messenger,
Elizer Gonzales, received from the Central Bank several credit advices which included that of plaintiff RBPG in the amount of
P304,000.00; that due to the inadvertence of said messenger, the credit advice issued in favor of plaintiff RBPG was not
delivered to the department in charge of processing the same; consequently, resulting in the dishonor of the aforementioned
check. That as regards the P304,000.00 which was a re-discounting loan from the Central Bank, the same was credited only on
April 15, 1982 after the Central Bank finally confirmed that a credit advice was indeed issued in favor of RBPG. That after the
confirmation, MBTC credited the amount of the credit advice to plaintiff RBPG's account and thru its officers, allegedly
conveyed personally on two occasions its apologies to plaintiffs to show that the bank and its officers acted with no deliberate
intent on their part to cause injury or damage to plaintiffs
Metrobank's negligence arising from their messenger's misrouting of the credit advice resulting in the return of the
checks in question and Mr. Dungo's improper handling of clients led to the messenger's dismissal from service and Mr.
Dungo's transfer from Metro Manila to Mindoro.
The RTC of Lipa City rendered a decision in against MBTC ordering the latter to:
1. pay plaintiff Isabel Katigbak P50,000.00 as temperate damages;
2. pay P500,000.00 as moral damages
3. pay P100,000.00 as attorney's fees and litigation expenses; and.
4. pay the costs of suit.
MBTC appealed. Court of Appeals rendered a decision affirming that of the trial court except for the deletion of the
award of temperate damages, the reduction of moral damages from P500,000.00 to P50,000.00 in favor of RBPG and
P100,000.00 for Isabel Katigbak and P50,000.00, as attorney's fees.
ISSUE:
Whether or not private respondents RBPG and Isabel Rodriguez are legally entitled to moral damages and attorney's fees
RULING:
YES. Private respondents RBPG and Isabel Rodriguez are legally entitled to moral damages and attorney's
fees
The case at bench was instituted to seek damages caused by the dishonor through negligence of RBPG’s checks which
were actually sufficiently funded, and the insults from MBTC's officer directed against Isabel R. Katigbak.
There is no merit in petitioner's argument that it should not be considered negligent, much less be held liable for
damages on account of the inadvertence of its bank employee as Article 1173 of the Civil Code only requires it to exercise the
diligence of a good pater familias.
As borne out by the records, the dishonoring of the respondent's checks committed through negligence by the
petitioner bank was rectified only nine days after receipt of the credit memo. Clearly, petitioner bank was remiss in its duty
and obligation to treat private respondent's account with the highest degree of care, considering the fiduciary nature of their
relationship. The 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. It must bear the blame for failing to discover the mistake of its employee
despite the established procedure requiring bank papers to pass through bank personnel whose duty it is to check and
countercheck them for possible errors. Responsibility arising from negligence in the performance of every kind of obligation is
demandable. While the bank's negligence may not have been attended with malice and bad faith, nevertheless, it caused
serious anxiety, embarrassment and humiliation to private respondents for which they are entitled to recover reasonable
moral damages.
As the records bear out, insult was added to injury by petitioner bank's issuance of debit memoranda representing
service and penalty charges for the returned checks, not to mention the insulting remarks from its Assistant Cashier.
In the case of Leopoldo Araneta v. Bank of America, we held that: The financial credit of a businessman is a prized and
valuable asset, it being a significant part of the foundation of his business. Any adverse reflection thereon constitutes some
financial loss to him.
It was established that when Mrs. Katigbak learned that her checks were not being honored and Mr. Dungo repeatedly
made the insulting phone calls, her wounded feelings and the mental anguish suffered by her caused her blood pressure to rise
beyond normal limits, necessitating medical attendance for two days at a hospital.
The damage to private respondents' reputation and social standing entitles them to moral damages. Moral damages
include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation and similar injury. The carelessness of petitioner bank, aggravated by the lack of promptness in repairing
the error and the arrogant attitude of the bank officer handling the matter, justifies the grant of moral damages, which are
clearly not excessive and unconscionable.
Moreover, considering the nature and extent of the services rendered by private respondent's counsel, both in the
trial and appellate courts, the Court deems it just and equitable that attorney's fees in the amount of P50,000.00 be awarded.
DISPOSITIVE PORTION
WHEREFORE, the decision of respondent Court of Appeals is AFFIRMED in all respects. S O ORDERED.

BPI vs. CA
BANK OF THE PHILIPPINE ISLANDS vs. COURT OF APPEALS and BENJAMIN C. NAPIZA
G.R. No. 112392, February 29, 2000, FIRST DIVISION, YNARES-SANTIAGO, J.
STATEMENT OF FACTS
By way of accommodation and only for the purpose of clearing, Benjamin Napiza (private respondent herein),
deposited a check in the amount of $2,500.00 in his dollar deposit with the petitioner Bank of the Philippine Islands. This
check belongs to Henry Chan. Napiza delivered to Chan a signed blank withdrawal slip, with the understanding that as soon as
the check is cleared, both of them would go to the bank to withdraw the amount of the check upon private respondent's
presentation to the bank of his passbook. However, using the same blank withdrawal slip, a bank employee was able to
withdraw the amount of $2,541.67, which was made payable to Ramon A. de Guzman and Agnes C. de Guzman. Later, the bank
received a communication that the deposited check was a counterfeit. The bank informed respondent Napiza that the check
bounced, hence, the latter tried to locate Chan. Since Napiza was unable to locate Chan, the bank demanded payment from him.
Napiza refused to pay on the ground that the check was deposited for clearing purposes only to accommodate Chan.
As a result, petitioner bank filed a complaint against private respondent for the return of the amount of $2,500.00 or
the prevailing peso equivalent plus interest, attorney's fees, and litigation costs. |
Private respondent filed his answer, admitting that he indeed signed a "blank" withdrawal slip with the understanding
that the amount deposited would be withdrawn only after the check in question has been cleared. He likewise alleged that he
instructed the party to whom he issued the signed blank withdrawal slip to return it to him after the bank draft's clearance so
that he could lend that party his passbook for the purpose of withdrawing the amount of $2,500.00. However, without his
knowledge, said party was able to withdraw the amount of $2,541.67 from his dollar savings account through collusion with
one of petitioner's employees.
RTC dismissed the complaint. The lower court held that petitioner could not hold private respondent liable based on
the check's face value alone. To so hold him liable "would render inutile the requirement of "clearance" from the drawee bank
before the value of a particular foreign check or draft can be credited to the account of a depositor making such deposit." The
lower court further held that "it was incumbent upon the petitioner to credit the value of the check in question to the account
of the private respondent only upon receipt of the notice of final payment and should not have authorized the withdrawal from
the latter's account of the value or proceeds of the check." Having admitted that it committed a "mistake" in not waiting for the
clearance of the check before authorizing the withdrawal of its value or proceeds, petitioner should suffer the resultant loss.
On appeal, the Court of Appeals affirmed the lower court's decision. The appellate court held that petitioner
committed "clears gross negligence" in allowing Ruben Gayon, Jr. to withdraw the money without presenting private
respondent's passbook and, before the check was cleared and in crediting the amount indicated therein in private
respondent's account. It stressed that the mere deposit of a check in private respondent's account did not mean that the check
was already private respondent's property. The check still had to be cleared and its proceeds can only be withdrawn upon
presentation of a passbook in accordance with the bank's rules and regulations.
ISSUE:
Whether or not respondent Napiza is not liable under warranties as a general indorser
RULING
NO. Respondent Napiza is not liable under warranties as a general indorser.
Pursuant to Sec. 65 and 66 of NIL, it is thus clear that ordinarily private respondent may be held liable as an indorser
of the check or even as an accommodation party. However, to hold private respondent liable for the amount of the check he
deposited by the strict application of the law and without considering the attending circumstances in the case would result in
an injustice and in the erosion of the public trust in the banking system. The interest of justice thus demands looking into the
events that led to the encashment of the check.
Under these rules on passbook, to be able to withdraw from the savings account deposit under the Philippine foreign
currency deposit system, two requisites must be presented to petitioner bank by the person withdrawing an amount: (a) a
duly filled-up withdrawal slip, and (b) the depositor's passbook. Private respondent admits he signed a blank withdrawal slip
ostensibly in violation of Rule No. 6 requiring that the request for withdrawal must name the payee, the amount to be
withdrawn and the place where such withdrawal should be made. That the withdrawal slip was in fact a blank one with only
private respondent's two signatures affixed on the proper spaces is buttressed by petitioner's allegation in the instant petition
that had private respondent indicated therein the person authorized to receive the money, then Ruben Gayon, Jr. could not
have withdrawn any amount.
Moreover, the withdrawal slip contains a boxed warning that states: "This receipt must be signed and presented with
the corresponding foreign currency savings passbook by the depositor in person. For withdrawals thru a representative,
depositor should accomplish the authority at the back." The requirement of presentation of the passbook when withdrawing
an amount cannot be given mere lip service even though the person making the withdrawal is authorized by the depositor to
do so. This is clear from Rule No. 6 set out by petitioner so that, for the protection of the bank's interest and as a reminder to
the depositor, the withdrawal shall be entered in the depositor's passbook. The fact that private respondent's passbook was
not presented during the withdrawal is evidenced by the entries therein showing that the last transaction that he made with
the bank was on September 3, 1984, the date he deposited the controversial check in the amount of $2,500.00. 22
In allowing the withdrawal, petitioner likewise overlooked another rule that is printed in the passbook. Thus:
2. All deposits will be received as current funds and will be repaid in the same manner; provided, however, that
deposits of drafts, checks, money orders, etc. will be accented as subject to collection only and credited to the account
only upon receipt of the notice of final payment.
As correctly held by the Court of Appeals, in depositing the check in his name, private respondent did not become the
outright owner of the amount stated therein. Under the above rule, by depositing the check with petitioner, private respondent
was, in a way, merely designating petitioner as the collecting bank. This is in consonance with the rule that a negotiable
instrument, such as a check, whether a manager's check or ordinary check, is not legal tender. As such, after receiving the
deposit, under its own rules, petitioner shall credit the amount in private respondent's account or infuse value thereon only
after the drawee bank shall have paid the amount of the check or the check has been cleared for deposit. Again, this is in
accordance with ordinary banking practices and with this Court's pronouncement that "the collecting bank or last endorser
generally suffers the loss because has the duty to ascertain the genuineness of all prior endorsements considering that the act
of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to
ascertain the genuineness of the endorsements." The rule finds more meaning in this case where the check involved is drawn
on a foreign bank and therefore collection is more difficult than when the drawee bank is a local one even though the check in
question is a manager's check.
The banking business is affected with public interest. By the nature of its functions, a bank is under obligation to treat
the accounts of its depositors "with meticulous care, always having in mind the fiduciary nature of their relationship." As such,
in dealing with its depositors, a bank should exercise its functions not only with the diligence of a good father of a family but it
should do so with the highest degree of care. In the case at bar, petitioner, in allowing the withdrawal of private respondent's
deposit, failed to exercise the diligence of a good father of a family. In total disregard of its own rules, petitioner's personnel
negligently handled private respondent's account to petitioner's detriment.
DISPOSITIVE PORTION
WHEREFORE, the petition for review on certiorari is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 37392 is
AFFIRMED. SO ORDERED.

Far East Bank vs. Pacilan Jr.
FAR EAST BANK AND TRUST COMPANY, NOW BANK OF THE PHILIPPINE ISLANDS vs.
THEMISTOCLES PACILAN, JR.
G.R. No. 157314 July 29, 2005, CALLEJO, SR., J.
STATEMENT OF FACTS
Respondent Pacilan opened a current account with petitioner bank. His account was. The respondent had since then
issued several postdated checks to different payees drawn against the said account. Sometime in March 1988, the respondent
issued a Check 2434886 (Check A for purposes of this case) in the amount of ₱680.00 and the same was presented for
payment to petitioner bank on April 4, 1988.
Upon its presentment on April 4, said check was dishonored by petitioner bank. The next day, April 5, the respondent
deposited to his current account the amount of ₱800.00. The said amount was accepted by petitioner bank; hence, increasing
the balance of the respondent’s deposit to ₱1,051.43.
Subsequently, when the respondent verified with petitioner bank about the dishonor of Check, he discovered that his
current account was closed on the ground that it was "improperly handled." The records of petitioner bank disclosed that
between the period of March 30,
1988 and April 5, 1988, the respondent issued four checks of a total amount of ₱7,410.00. At the time, however, the
respondent’s current account with petitioner bank only had a deposit of ₱6,981.43. Thus, the total amount of the checks
presented for payment exceeded the balance of the respondent’s deposit in his account. For this reason, petitioner bank,
through its branch accountant, Villadelgado, closed the respondent’s current account effective as it then had an overdraft of
₱428.57. As a consequence of the overdraft, the Check A was dishonored.
Respondent wrote to petitioner bank complaining that the closure of his account was unjustified. When he did not
receive a reply from petitioner bank, the respondent filed with the RTC a complaint for damages against petitioner bank and
Villadelgado. Respondent alleged that the closure of his current account by petitioner bank was unjustified because as he
already deposited an amount sufficient to fund his checks. The respondent pointed out that Check A in particular, was
delivered to petitioner bank at the close of banking hours on April 4 and, following normal banking procedure, it (petitioner
bank) had until the last clearing hour of the following day, or on April 5, 1988, to honor the check or return it, if not funded. In
disregard of this banking procedure and practice, however, petitioner bank hastily closed the respondent’s current account
and dishonored his Check A.
In their answer, petitioner bank and Villadelgado maintained that the respondent’s current account was subject to
petitioner bank’s Rules and Regulations Governing the Establishment and Operation of Regular Demand Deposits which
provide that "the Bank reserves the right to close an account if the depositor frequently draws checks against insufficient
funds and/or uncollected deposits" and that "the Bank reserves the right at any time to return checks of the depositor which
are drawn against insufficient funds or for any reason."
They showed that the respondent had improperly and irregularly handled his current account. For example, in 1986,
the respondent’s account was overdrawn 156 times, in 1987, 117 times and in 1988, 26 times. In all these instances, the
account was overdrawn due to the issuance of checks against insufficient funds. The respondent had also signed several
checks with a different signature from the specimen on file for dubious reasons.
When the respondent made the deposit on April 5, 1988, it was obviously to cover for issuances made the previous
day against an insufficiently funded account. When his Check A was presented for payment on April 4, he had already incurred
an overdraft; hence, petitioner bank rightfully dishonored the same for insufficiency of funds.
After due proceedings, the court a quo rendered judgment in favor of the respondent as it ordered the petitioner bank
and Villadelgado, jointly and severally According to the court a quo, following these rules and regulations, the respondent, as
depositor, had the right to put up sufficient funds for a check that was taken as a returned item for insufficient funds the day
following the receipt of said check from the clearing office. In fact, the said check could still be recleared for one more time. In
previous instances, petitioner bank notified the respondent when he incurred an overdraft and he would then deposit
sufficient funds the following day to cover the overdraft. Petitioner bank thus acted unjustifiably when it immediately closed
the respondent’s account on April 4, and deprived him of the opportunity to reclear his check or deposit sufficient funds
therefor the following day.
On appeal, the CA affirmed with modification the decision of the court a quo. CA declared that even as it may be
conceded that petitioner bank had reserved the right to close an account for repeated overdrafts by the respondent, the
exercise of that right must never be despotic or arbitrary. That petitioner bank chose to close the account outright and return
the check, even after accepting a deposit sufficient to cover the said check, is contrary to its duty to handle the respondent’s
account with utmost fidelity. The exercise of the right is not absolute and good faith, at least, is required. The manner by which
petitioner bank closed the account of the respondent runs afoul of Article 19 of the Civil Code which enjoins every person, in
the exercise of his rights, "to give every one his due, and observe honesty and good faith."
ISSUE:
Whether or not petitioner bank acted in bad faith in closing the account of respondent.
RULING:
NO. Petitioner bank did not act in bad faith in closing the account of respondent.
“Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.” The elements of abuse of rights are the following: (a) the existence of a
legal right or duty; (b) which is exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another. Malice or
bad faith is at the core of the said provision. The law always presumes good faith and any person who seeks to be awarded
damages due to acts of another has the burden of proving that the latter acted in bad faith or with ill-motive.
Undoubtedly, petitioner bank has the right to close the account of the respondent based on the following provisions of
its Rules and Regulations Governing the Establishment and Operation of Regular Demand Deposits: ”The Bank reserves the
right to close an account if the depositor frequently draws checks against insufficient funds and/or uncollected deposits.”
However, it is clearly understood that the depositor is not entitled, as a matter of right, to overdraw on this deposit
and the bank reserves the right at any time to return checks of the depositor which are drawn against insufficient funds or for
any other reason.
The facts, as found by the court a quo and the appellate court, do not establish that, in the exercise of this right,
petitioner bank committed an abuse thereof. Specifically, the second and third elements for abuse of rights are not attendant in
the present case. The evidence presented by petitioner bank negates the existence of bad faith or malice on its part in closing
the respondent’s account on April 4 because on the said date the same was already overdrawn. The respondent issued four
checks, all due on April 4 amounting to ₱7,410.00 when the balance of his current account deposit was only ₱6,981.43. Thus,
he incurred an overdraft of ₱428.57 which resulted in the dishonor of his Check A. Further, petitioner bank showed that in
1986, the current account of the respondent was overdrawn 156 times due to his issuance of checks against insufficient funds.
In 1987, the said account was overdrawn 117 times for the same reason. Again, in 1988, 26 times. All these circumstances
taken together justified the petitioner bank’s closure of the respondent’s account on April 4 for "improper handling."
It is observed that nowhere under its rules and regulations is petitioner bank required to notify the respondent, or
any depositor for that matter, of the closure of the account for frequently drawing checks against insufficient funds. No malice
or bad faith could be imputed on petitioner bank for so acting since the records bear out that the respondent had indeed been
improperly and irregularly handling his account not just a few times but hundreds of times. Under the circumstances,
petitioner bank could not be faulted for exercising its right in accordance with the express rules and regulations governing the
current accounts of its depositors. Upon the opening of his account, the respondent had agreed to be bound by these terms and
conditions.
Neither the fact that petitioner bank accepted the deposit made by the respondent the day following the closure of his
account constitutes bad faith or malice on the part of petitioner bank. The same could be characterized as simple negligence by
its personnel. Said act, by itself, is not constitutive of bad faith.
Further, it has not been shown that these acts were done by petitioner bank with the sole intention of prejudicing and
injuring the respondent. It is conceded that the respondent may have suffered damages as a result of the closure of his current
account. However, there is a material distinction between damages and injury. Injury is the illegal invasion of a legal right;
damage is the loss, hurt or harm which results from the injury; and damages are the recompense or compensation awarded for
the damage suffered. Thus, there can be damage without injury in those instances in which the loss or harm was not the result
of a violation of a legal duty. In such cases, the consequences must be borne by the injured person alone, the law affords no
remedy for damages resulting from an act which does not amount to a legal injury or wrong. These situations are often
called damnum absque injuria.
In other words, in order that a plaintiff may maintain an action for the injuries of which he complains, he must
establish that such injuries resulted from a breach of duty which the defendant owed to the plaintiff – a concurrence of injury
to the plaintiff and legal responsibility by the person causing it. The underlying basis for the award of tort damages is the
premise that the individual was injured in contemplation of law. Thus, there must first be a breach of some duty and the
imposition of liability for that breach before damages may be awarded; and the breach of such duty should be the proximate
cause of the injury.
Whatever damages the respondent may have suffered as a consequence, e.g., dishonor of his other insufficiently
funded checks, would have to be borne by him alone. It was the respondent’s repeated improper and irregular handling of his
account which constrained petitioner bank to close the same in accordance with the rules and regulations governing its
depositors’ current accounts. The respondent’s case is clearly one of damnum absque injuria.
DISPOSITIVE PORTION
WHEREFORE, the petition is GRANTED. The Decision dated August 30, 2002 and Resolution dated January 17, 2003 of the
Court of Appeals in CA-G.R. CV No. 36627 are REVERSED AND SET ASIDE. SO ORDERED.

Prudential Bank v. Abasolo
PRUDENTIAL BANK AND TRUST COMPANY (now BANK OF THE PHILIPPINE ISLANDS vs.
LIWAYWAY ABASOLO
G.R. No. 186738, September 27, 2010, CARPIO MORALES, J.
STATEMENT OF FACTS
Leonor Valenzuela-Rosales inherited two parcels of land. After she passed away, her heirs executed on a Special
Power of Attorney (SPA) in favor of Liwayway Abasolo (respondent) empowering her to sell the properties.
Sometime in 1995, Corazon Marasigan (Corazon) wanted to buy the properties which were being sold for ₱2,448,960,
but as she had no available cash, she broached the idea of first mortgaging the properties to petitioner Prudential Bank and
Trust Company (PBTC), the proceeds of which would be paid directly to respondent. Respondent agreed to the proposal.
On Corazon and respondent’s consultation with PBTC’s Head Office, its employee, Norberto Mendiola (Mendiola),
allegedly advised respondent to issue an authorization for Corazon to mortgage the properties, and for her (respondent) to act
as one of the co-makers so that the proceeds could be released to both of them.
To guarantee the payment of the property, Corazon executed a Promissory Note for ₱2,448,960 in favor of
respondent.
By respondent’s claim, Mendiola advised her to transfer the properties first to Corazon for the immediate processing
of Corazon’s loan application with assurance that the proceeds thereof would be paid directly to her (respondent), and the
obligation would be reflected in a bank guarantee. Heeding Mendiola’s advice, respondent executed a Deed of Absolute Sale
over the properties in favor of Corazon, Transfer Certificates of Title were issued in the name of Corazon.
Corazon’s application for a loan with PBTC’s Tondo Branch was approved. She thereupon executed a real estate
mortgage covering the properties to secure the payment of the loan. In the absence of a written request for a bank guarantee,
the PBTC released the proceeds of the loan to Corazon. Respondent later got wind of the approval of Corazon’s loan
application and the release of its proceeds to Corazon who, despite repeated demands, failed to pay the purchase price of the
properties.
In view of Corazon’s failure to fully pay the purchase price, respondent filed a complaint for collection of sum of
money and annulment of sale and mortgage with damages, against Corazon and Prudential Bank (hereafter petitioner), before
the RTC
Petitioner also denied that there was any arrangement between it and respondent that the proceeds of the loan would
be released to her. It claimed that it "may process a loan application of the registered owner of the real property who requests
that proceeds of the loan or part thereof be payable directly to a third party [but] the applicant must submit a letter request to
the Bank."
On pre-trial, the parties stipulated that petitioner was not a party to the contract of sale between respondent and
Corazon; that there was no written request that the proceeds of the loan should be paid to respondent.
RTC rendered judgment in favor of respondent and against Corazon who was made directly liable to respondent, and
against petitioner who was made subsidiarily liable in the event that Corazon fails to pay. Thus the trial court disposed:
Liwayway claims that the bank should also be held responsible for breach of its obligation to directly release to her
the proceeds of the loan or part thereof as payment for the subject lots. The evidence shows that her claim is valid. The
Bank had such an obligation as proven by evidence. It failed to rebut the credible testimony of Liwayway which was given
in a frank, spontaneous, and straightforward manner and withstood the test of rigorous cross-examination conducted by
the counsel of the Bank. …
Further, Liwayway would not have executed the deed of sale in favor of Corazon had Norberto Mendiola did not promise
and guarantee that the proceeds of the loan would be directly paid to her. Based on ordinary human experience, she
would not have readily transferred the title over the subject lots had there been no strong and reliable guarantee. In
this case, what caused her to transfer title is the promise and guarantee made by Norberto Mendiola that the proceeds
of the loan would be directly paid to her.
On appeal, the Court of Appeals affirmed the trial court’s decision with modification on the amount of the balance of
the purchase price which was reduced.
ISSUE: Whether or not Prudential Bank is subsidiarily liable
RULING:
NO. Prudential Bank is not subsidiarily liable.
In the absence of a lender-borrower relationship between petitioner and Liwayway, there is no inherent obligation of
petitioner to release the proceeds of the loan to her.
To a banking institution, well-defined lending policies and sound lending practices are essential to perform its lending
function effectively and minimize the risk inherent in any extension of credit.
Thus, Section X302 of the Manual of Regulations for Banks provides that in order to identify and monitor loans that a
bank has extended, a system of documentation is necessary. Under this fold falls the issuance by a bank of a guarantee which is
essentially a promise to repay the liabilities of a debtor, in this case Corazon. It would be contrary to established banking
practice if Mendiola issued a bank guarantee, even if no request to that effect was made.
The principle of relativity of contracts in Article 1311 of the Civil Code supports petitioner’s cause. If a contract should
contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to
the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a third person.
For Liwayway to prove her claim against petitioner, a clear and deliberate act of conferring a favor upon her must be
present. A written request would have sufficed to prove this, given the nature of a banking business, not to mention the
amount involved.
Since it has not been established that petitioner had an obligation to Liwayway, there is no breach to speak of.
Liwayway’s claim should only be directed against Corazon. Petitioner cannot thus be held subisidiarily liable.
To the Court, Liwayway did not rely on Mendiola’s representations, even if he indeed made them. The contract for
Liwayway to sell to Corazon was perfected from the moment there was a meeting of minds upon the properties-object of the
contract and upon the price. Only the source of the funds to pay the purchase price was yet to be resolved at the time the two
inquired from Mendiola. That it was on Corazon’s execution of a promissory note that prompted Liwayway to finally execute
the Deed of Sale is thus clear.
The trial Court’s reliance on the doctrine of apparent authority – that the principal, in this case petitioner, is liable for
the obligations contracted by its agent, in this case Mendiola, – does not lie. Prudential Bank v. Court of Appeals instructs: a
banking corporation is liable to innocent third persons where the representation is made in the course of its business by an
agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his
authority and attempting to perpetuate fraud upon his principal or some person, for his own ultimate benefit.
The onus probandi that attempt to commit fraud attended petitioner’s employee Mendiola’s acts and that he abused
his authority lies on Liwayway. She, however, failed to discharge the onus. It bears noting that Mendiola was not privy to the
approval or disallowance of Corazon’s application for a loan nor that he would benefit by the approval thereof.
DISPOSITIVE PORTION
IN FINE, Liwayway’s cause of action lies against only Corazon.

WHEREFORE, the Decision of January 14, 2008 of the Court of Appeals, in so far as it holds petitioner, Prudential Bank and
Trust Company (now Bank of the Philippine Islands), subsidiary liable in case its co-defendant Corazon Marasigan, who did
not appeal the trial court’s decision, fails to pay the judgment debt, is REVERSED and SET ASIDE. The complaint against
petitioner is accordingly DISMISSED. SO ORDERED.

I. SHORT TITLE: PCIB V. CA AND LIM
II. FULL TITLE: PHILIPPINE COMMERCIAL INTERNATIONAL BANK, petitioner, vs. COURT OF APPEALS and RORY W.
LIM, respondents;
29 March 1996, G.R. No. 97785
III. PONENTE: Francisco, J.
V. STATEMENT OF THE FACTS:
Private respondent Rory Lim delivered to his cousin Lim Ong Tian PCIB Check in the amount of P200,000.00 for the
purpose of obtaining a telegraphic transfer from petitioner PCIB in the same amount. The money was to be transferred to
Equitable Banking Corporation, and credited to private respondents account at the said bank. Upon purchase of the
telegraphic transfer, petitioner issued the corresponding receipt which contained the assailed provision that in case of fund
transfer, the undersigned hereby agrees that such transfer will be made without any responsibility on the part of the BANK, or
its correspondents, for any loss occasioned by errors, or delays in the transmission of message by telegraph or cable
companies or by the correspondents or agencies, necessarily employed by this BANK in the transfer of this money, all risks for
which are assumed by the undersigned.
Subsequent to the purchase of the telegraphic transfer, petitioner in turn issued and delivered eight (8) Equitable
Bank checks to his suppliers as payment for the merchandise. When the checks were presented for payment, five of them
bounced for insufficiency of funds, while the remaining three were held overnight for lack of funds upon presentment. The
dishonor of the checks came to private respondent’s attention only on April 2, 1986, when Equitable Bank notified him of the
penalty charges and after receiving letters from his suppliers that his credit was being cut-off due to the dishonor of the checks
he issued. Petitioner PCIB made the corresponding transfer of funds only on April 3, 1986, twenty-one (21) days after the
purchase of the telegraphic transfer on March 13, 1986. Aggrieved, private respondent demanded from petitioner PCIB that he
be compensated for the resulting damage that he suffered due to petitioner’s failure to make the timely transfer of funds which
led to the dishonor of his checks. Nevertheless, petitioner refused to heed private respondent’s demand.
Private respondent filed a complaint for damages with the Regional Trial Court of Gingoog City. Petitioner denied any
liability to private respondent and interposed alleged the lack of privity between it and private respondent as it was not
private respondent himself who purchased the telegraphic transfer from petitioner. Additionally, petitioner pointed out that
private respondent is nevertheless bound by the stipulation in the telegraphic transfer application/form receipt. The
Regional Trial Court held petitioner liable for breach of contract and struck down the aforecited provision and declaring the
same to be invalid and unenforceable. The provision amounted to a contract of adhesion wherein the objectionable portion
was unilaterally inserted by petitioner in all its application forms without giving any opportunity to the applicants to question
the same and express their conformity thereto. The Court of Appeals affirmed with modifications the judgment of the trial
court. A motion for reconsideration was filed by petitioner but respondent Court of Appeals denied the same. Hence, the
present petition.
VII. ISSUE:
Whether or not petitioner is exempt from liability for any loss occasioned by errors, or delays in the transmission of
message by telegraph or cable companies or by the correspondents or agencies, necessarily employed by PCIB in the
transfer of money.
VIII. RULING:
NO. A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which
the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract,
while the other party merely affixes his signature or his adhesion thereto, giving no room for negotiation and depriving the
latter of the opportunity to bargain on equal footing. Nevertheless, these types of contracts have been declared as binding as
ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely. It has been declared
that a contract of adhesion may be struck down as void and unenforceable, for being subversive to public policy, only when the
weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or
leaving it, completely deprived of the opportunity to bargain on equal footing.
That petitioner failed to discharge its obligation to transmit private respondent’s telegraphic transfer on time in
accordance with their agreement is already a settled matter. Having established that petitioner acted fraudulently and in bad
faith, we find it implausible to absolve petitioner from its wrongful acts on account of the assailed provision exempting it from
any liability. In Geraldez vs. Court of Appeals, it was unequivocally declared that notwithstanding the enforceability of a
contractual limitation, responsibility arising from a fraudulent act cannot be exculpated because the same is contrary to public
policy. Indeed, Article 21 of the Civil Code is quite explicit in providing that “[a]ny person who willfully causes loss or injury to
another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.”
Freedom of contract is subject to the limitation that the agreement must not be against public policy and any agreement or
contract made in violation of this rule is not binding and will not be enforced. The prohibition against this type of contractual
stipulation is moreover treated by law as void which may not be ratified or waived by a contracting party.
Undoubtedly, the services being offered by a banking institution like petitioner are imbued with public interest. The
use of telegraphic transfers have now become commonplace among businessmen because it facilitates commercial
transactions. Any attempt to completely exempt one of the contracting parties from any liability in case of loss
notwithstanding its bad faith, fault or negligence, as in the instant case, cannot be sanctioned for being inimical to public
interest and therefore contrary to public policy.
WHEREFORE, subject to the foregoing modification reducing the amount awarded as moral damages to the sum of Two
Hundred Thousand Pesos (P200,000.00), the appealed decision is hereby AFFIRMED. SO ORDERED.
X. PREPARED BY: Mika Jeza S. Ituriaga

I. SHORT TITLE: PNB V. CA AND LAPEZ
II. FULL TITLE: PHILIPPINE NATIONAL BANK, petitioner, vs. THE COURT OF APPEALS and RAMON LAPEZ, doing
business under the name and style SAPPHIRE SHIPPING, respondents.
G.R. No. 108052. July 24, 1996
III. PONENTE: Panganiban, J.
The defendant (herein petitioner PNB) applied/appropriated the amounts of $2,627.11 and P34,340.38 from
remittances of the plaintiff's (private respondent herein) principals abroad. The first remittance was made by the NCB of
Jeddah for the benefit of Lapez, to be credited to his account at Citibank, Greenhills Branch; the second was from Libya, and
was intended to be deposited at Lapez’s account with PNB. These were admitted by the defendant, subject to the affirmative
defenses of compensation for what is owing to it on the principle of solution indebiti. Lapez made a written demand for
remittance of the equivalent of $2,627.11 by means of a letter dated December 4, 1986. This was answered by PNB on
December 22, 1986 inviting Lapez to come for a conference. There were indeed two instances in the past, one in November
1980 and the other in January 1981 when the plaintiff's account was doubly credited with the equivalents of $5,679.23 and
$5,885.38, respectively. PNB claims, however, that the claim has prescribed.
Defendant PNB made a demand upon the plaintiff for refund of the double or duplicated credits erroneously made on
plaintiff's account, by means of a letter dated October 23, 1986 or 5 years and 11 months from November 1980, and 5 years
and 9 months from January 1981. The deduction of P34,340.38 was made by PNB with the knowledge and consent of Lapez.
Two erroneous double payments made to plaintiff's accounts in 1980 and 1981 created an extra-contractual obligation on the
part of the plaintiff in favor of the defendant, under the principle of solutio indebiti (Article 2154, Civil Code of the Phil.)
The trial court held that the parties are not both principally bound with respect to the $2,627.11 neither are they at
the same time principal creditor of the other. Therefore, their obligations are not subject to compensation or set off under Art.
1279 of the Civil Code, for the reason that the defendant is not a principal debtor nor is the plaintiff a principal creditor insofar
as the amount of $2,627.11 is concerned. They are debtor and creditor only with respect to the double payments; but are
trustee-beneficiary as to the fund transfer of $2,627.11. Only the plaintiff is principally bound as a debtor of the defendant to
the extent of the double credits. On the other hand, the defendant was an implied trustee, who was obliged to deliver to the
Citibank for the benefit of the plaintiff the sum of $2,627.11. The court also held that the defendant's actuation in intercepting
the amount of $2,627.11 supposed to be remitted to another bank is not only improper but erode the trust and confidence of
the international banking community in the banking system of the country.
Moreover, plaintiffcommunicated his unequivocal and unconditional consent to the retention and
application of the amount in question.
The Court believes that insofar as the amount of P34,340.38 is concerned, all the requirements of Art. 1279 of the Civil
Code are present, and the said amount may properly be the subject of compensation or set-off. And since all the requisites of
Art. 1279 of the Civil Code are present (insofar as the amount of P34,392.38 is concerned), compensation takes place by
operation of law (Art. 1286, Ibid.), albeit only partial with respect to plaintiff’s indebtedness of P87,380.44.
On the issue of prescription, the Court believes that Art. 1149 as cited by the plaintiff is not applicable in this
case. Rather, the applicable law is Art. 1145, which fixes the prescriptive period for actions upon a quasi-contract (such
as solutio indebiti) at six years. The respondent Court affirmed the trial court's holding.
VII. ISSUE:
Whether or not PNB was legally justified in making the compensation or set-off against the two remittances coursed
through it in favor of private respondent to recover on the double credits it erroneously made in 1980 and 1981, based on
the principle of solutio indebiti.
VIII. RULING:
NO. SC find no reversible error whatsoever in rulings of both courts, and see no need to add to the extensive
discussions already made regarding the non-existence of all the requisites for legal compensation to take place.
What the petitioner bank is effectively saying is that since the respondent Court of Appeals ruled that petitioner
bank could not do a shortcut and simply intercept funds being coursed through it, for transmittal to another bank, and
eventually to be deposited to the account of an individual who happens to owe some amount of money to the petitioner, and
because respondent Court ordered petitioner bank to return the intercepted amount to said individual, who in turn was found
by the appellate Court to be indebted to petitioner bank, THEREFORE, there must now be legal compensation of the amounts
each owes the other, and hence, there is no need for petitioner bank to actually return the amount, and finally, that petitioner
bank ends up in exactly the same position as when it first took the improper and unwarranted shortcut by intercepting the
said money transfer, notwithstanding the assailed Decision saying that this could not be done.
SC see in this petition a clever ploy to use this Court to validate or legalize an improper act of the petitioner bank, with
the not impossible intention of using this case as a precedent for similar acts of interception in the future. This piratical
attitude of the nation's premier bank deserves a warning that it should not abuse the justice system in its collection efforts,
particularly since we are aware that if the petitioner bank had been in good faith, it could have easily disposed of this
controversy in ten minutes flat by means of an exchange of checks with private respondent for the same amount. The litigation
could have ended there, but it did not. Instead, this plainly unmeritorious case had to clog our docket and take up the valuable
time of this Court.
WHEREFORE, the instant petition is herewith DENIED for being plainly unmeritorious, and the assailed Decision is
AFFIRMED in toto. Costs against petitioner. SO ORDERED.
PREPARED BY: Mika Jeza S. Ituriaga

I. SHORT TITLE: METROBANK. V. CENTRO DEVELOPMENT CORP
II. FULL TITLE: Metropolitan Bank and Trust Company, Petitioner - versus- Centro Development Corporation,
Chongking Kehyeng, Manuel Co Kehyeng and Quirino Kehyeng, Respondents;
G.R. No. 180974. June 13, 2012.
III. PONENTE: Sereno, J.
On 20 March 1990, in a special meeting of the board of directors of respondent Centro Development Corporation
(Centro), its president Go Eng Uy was authorized to mortgage its properties and assets to secure the medium-term loan of ₱84
million of Lucky Two Corporation and Lucky Two Repacking. This authorization was subsequently approved on the same day
by the stockholders. Thus, respondent Centro, represented by Go Eng Uy, executed a Mortgage Trust Indenture (MTI) with the
Bank of the Philippines Islands (BPI). To secure these obligations from different creditors, respondent Centro constituted a
continuing mortgage on all or substantially all of its properties and assets in favor of BPI, the trustee. Should respondent
Centro or any of its affiliates fail to pay their obligations when due, the trustee shall cause the foreclosure of the mortgaged
property.
On 31 March 1993, Centro and BPI amended the MTI to allow an additional loan of ₱36 million and to include San
Carlos Milling Company, Inc. (San Carlos) as a borrower in addition to Centro, Lucky Two Corp. and Lucky Two Repacking.
Then, on 28 July 1994, Centro and BPI again amended the MTI for another loan of P24 million, bringing the total obligation to
P144 million. Meanwhile, respondent Centro, represented by Go Eng Uy, approached petitioner Metrobank and proposed that
the latter assume the role of successor-trustee of the existing MTI. Petitioner and respondent Centro then executed the
assailed MTI, amending the previous agreements by appointing the former as the successor-trustee of BPI.
Respondents herein, Chongking Kehyeng, Manuel Co Kehyeng and Quirino Kehyeng, allegedly discovered that the
properties of respondent Centro had been mortgaged, and that the MTI that had been executed appointing petitioner as
trustee. Notably, respondent Chongking Kehyeng had been a member of the board of directors of Centro, while the two other
respondents, Manuel Co Kehyeng and Quirino Keyheng, had been stockholders since 1987. The Kehyengs allegedly questioned
the mortgage of the properties and that they were not aware of any board or stockholders meeting. Respondents demanded a
copy of the minutes of the meeting held on that date, but received no response. Meanwhile, San Carlos obtained loans in the
total principal amount of P812,793,513.23 from petitioner Metrobank and failed to pay these outstanding obligations despite
demand. Thus, petitioner, as trustee of the MTI, enforced the conditions thereof and initiated foreclosure proceedings.
Before the scheduled foreclosure date, on 3 August 2000, respondents herein filed a Complaint for the annulment of
the 27 September 1994 MTI with a prayer for a temporary restraining order (TRO) and preliminary injunction. The bone of
contention in Civil Case No. 00-942 was that since the mortgaged properties constituted all or substantially all of the corporate
assets, the amendment of the MTI failed to meet the requirements of Section 40 of the Corporation Code on notice and voting
requirements. Under this provision, in order for a corporation to mortgage all or substantially all of its properties and assets, it
should be authorized by the vote of its stockholders representing at least 2/3 of the outstanding capital stock in a meeting held
for that purpose. Furthermore, there must be a written notice of the proposed action and of the time and place of the meeting.
Thus, respondents alleged, the representation of Go Eng Uy that he was authorized by the board of directors and/or
stockholders of Centro was false.
RTC dismissed the Complaint. It held that the evidence presented by respondents was insufficient to support their
claim that there were no meetings held authorizing the mortgage of Centros properties. It noted that the stocks of respondents
Kehyeng constituted only 30% of the outstanding capital stock, while the Go family owned the majority 70%, which
represented more than the 2/3 vote required by Section 40 of the Corporation Code. The RTC also held that laches had
attached, considering that eight (8) years had lapsed before respondents questioned the mortgage executed in 1990. On 19
May 2004, the CA issued a Resolution denying the application for the issuance of a writ of preliminary injunction.
Respondents Centro and San Carlos filed a Complaint before the RTC of Makati City (Civil Case No. 04-612). While Civil
Case No. 04-612 was pending, the clerk of court and the ex-officio sheriff of the RTC of Makati City held an auction sale of the
disputed property, during which petitioner was adjudged as the highest bidder for P344,700,000. The appellate court
subsequently held that the 2/3 vote required by Section 40 was not met. It ruled that the minority stockholders were deprived
of their right to dissent from or to approve the proposed mortgage, considering that they had not been notified in writing of
the meeting in which the corporate action was to be discussed. Regarding the issue of whether laches had already attached, the
CA ruled that the MTI could not be ratified, considering that the requirements of the Corporation Code were not complied
with.
VII. ISSUES:
(1) Whether or not the requirements of Section 40 of the Corporation Code was complied with in the execution of the MTI
 
(2) Whether or not petitioner was negligent or failed to exercise due diligence
VIII. RULING:
1. NO. Section 40 of the Corporation Code finds no application in the present case, as there was no new mortgage to
speak of under the assailed directors Resolution. Nevertheless, while the Court upholds the validity of the stockholders
Resolution appointing Metrobank as successor-trustee, it is not to say that the Court also upholds the validity of the
extrajudicial foreclosure of the mortgage. Reading carefully the Secretary’s Certificate, it is clear that the main purpose of the
directors Resolution was to appoint petitioner as the new trustee of the previously executed and amended MTI. Going through
the original and the revised MTI, the Court finds no substantial amendments to the provisions of the contract. The act of
appointing a new trustee of the MTI was a regular business transaction. The appointment necessitated only a decision of at
least a majority of the directors present at the meeting in which there was a quorum, pursuant to Section 25 of the Corporation
Code.
It is worthy to note that respondents do not assail the previous MTI executed with BPI. They do not question the
validity of the mortgage constituted over all or substantially all of respondent Centro’s assets nor do they question the
additional loans increasing the value of the mortgage to ₱144 million; or the use of Centro’s properties as collateral for the
loans of San Carlos, Lucky Two Corporation, and Lucky Two Repacking. Thus, Section 40 of the Corporation Code finds no
application in the present case, as there was no new mortgage to speak of under the assailed directors Resolution. Petitioner
failed to establish its right to be entitled to the proceeds of the MTI. There is no evidence that petitioner, as creditor or as
trustee, had a cause of action to move for the extrajudicial foreclosure of the subject properties mortgaged under the MTI.
Even if we assume that petitioner was indeed a creditor protected by the MTI, we find that, as trustee and as creditor, it failed
to comply with the MTI’s conditions for granting additional loans to San Carlos—additions that brought the total loan amount
to P1,178,961,181.45—when it did not amend the MTI to accommodate the additional loans in excess of P144 million.
2. YES. Republic Act No. 8971, or the General Banking Law of 2000, recognizes the vital role of banks in providing an
environment conducive to the sustained development of the national economy and the fiduciary nature of banking; thus, the
law requires banks to have high standards of integrity and performance. The fiduciary nature of banking requires banks to
assume a degree of diligence higher than that of a good father of a family.
In the case at bar, petitioner itself was negligent in the conduct of its business when it extended unsecured loans to
the debtors. Worse, it was in serious breach of its duty as the trustee of the MTI. It was not able to protect the interests of the
parties and was even instrumental in violating the terms of the MTI, to the detriment of the parties thereto. Thus, petitioner
has only itself to blame for being left with insufficient recourse under the assailed MTI.
WHEREFORE, in view of the foregoing, the Petition is hereby PARTLY GRANTED. The Mortgage Trust Indenture is
declared VALID. Nonetheless, for reasons stated herein, the Decision of the Court of Appeals in CA-G.R. CV No. 80778, declaring
the foreclosure proceedings in Foreclosure No. S-04-011 over TCT Nos. 139880 and 139881 of no force and effect,
is AFFIRMED. Likewise, the cancellation of the Certificates of Title in the name of petitioner Metropolitan Bank and Trust
Company and the denial of the payment of damages are also AFFIRMED. SO ORDERED.

I. SHORT TITLE: PHILIPPINE BANKING CORP. V. DY
II. FULL TITLE: PHILIPPINE BANKING CORPORATION, Petitioner, v. ARTURO DY, BERNARDO DY, JOSE DELGADO
AND CIPRIANA DELGADO, Respondents.
G.R. No. 183774. November 14, 2012.
III. PONENTE: PERLAS-BERNABE, J.
Cipriana was the registered owner of a 58,129-square meter lot, situated in Cebu. She and her husband, respondent
Jose Delgado (Jose), entered into an agreement with a certain Cecilia Tan (buyer) for the sale of the said property for a
consideration of P10.00/sq.m. It was agreed that the buyer shall make partial payments from time to time and pay the balance
when Cipriana and Jose (Sps. Delgado) are ready to execute the deed of sale and transfer the title to her. At the time of sale, the
buyer was already occupying a portion of the property where she operates a noodle (bihon) factory while the rest was
occupied by tenants which Sps. Delgado undertook to clear prior to full payment.
After paying the total sum of P147,000.00 and being then ready to pay the balance, the buyer demanded the execution
of the deed, which was refused. Eventually, the buyer learned of the sale of the property to the Dys and its subsequent
mortgage to petitioner Philippine Banking Corporation (Philbank), prompting the filing of the Complaint for annulment of
certificate of title, specific performance and/or reconveyance with damages against Sps. Delgado, the Dys and Philbank.
Sps. Delgado, while admitting receipt of the partial payments made by the buyer, claimed that there was no perfected
sale because the latter was not willing to pay their asking price of P17.00/sq.m. They also interposed a cross-claim against the
Dys averring that the deeds of absolute sale were fictitious and merely intended to enable them (the Dys) to use the said
properties as collateral for their loan application with Philbank. Sps. Delgado, thus, prayed for the dismissal of the complaint,
with a counterclaim for damages and a cross-claim against the Dys for the payment of the balance of the purchase price plus
damages.
On the other hand, Philbank asserts that it is an innocent mortgagee for value without notice of the defect in the title
of the Dys. It filed a cross-claim against Sps. Delgado and the Dys for all the damages that may be adjudged against it in the
event they are declared seller and purchaser in bad faith, respectively. In answer to the cross-claim, Sps. Delgado insisted that
Philbank was not a mortgagee in good faith for having granted the loan and accepted the mortgage despite knowledge of the
simulation of the sale to the Dys and for failure to verify the nature of the buyers’ physical possession.
The RTC dismissed the cross-claims of Sps. Delgado against the Dys and Philbank. RTC ruled that they failed to adduce
competent evidence to support their claim. On the other hand, the Dys presented a cash voucher duly signed by Sps. Delgado
acknowledging receipt of the total consideration for the two lots. The RTC also observed that Sps. Delgado notified Philbank of
the purported simulation of the sale to the Dys only after the execution of the loan and mortgage documents and the release of
the loan proceeds to the latter, negating their claim of bad faith. Moreover, they subsequently notified the bank of the Dys' full
payment for the two lots mortgaged to it.
However, on appeal, the CA set aside the RTC's decision and ordered the cancellation of the Dys' certificates of title
and the reinstatement of Cipriana's title. It ruled that there were no perfected contracts of sale between Sps. Delgado and the
Dys. Being merely simulated, the contracts of sale were, thus, null and void. The CA also declared Philbank not to be a
mortgagee in good faith for its failure to ascertain how the Dys acquired the properties and to exercise greater care when it
conducted an ocular inspection thereof. It thereby canceled the mortgage over the two lots.
VII. ISSUE:
Whether or not Philbank is a mortgagee in good faith
VIII. RULING:
YES. Philbank's mortgage rights over the subject properties shall be maintained. 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.
Primarily, the doctrine of "mortgagee in good faith" is based on the rule that all persons dealing with property covered
by a Torrens Certificate of Title are not required to go beyond what appears on the face of the title. In the case of banks and
other financial institutions, however, greater care and due diligence are required since they are imbued with public interest,
failing which renders the mortgagees in bad faith. Thus, 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(s) thereof. The apparent purpose of an ocular inspection is to protect the "true owner" of the
property as well as innocent third parties with a right, interest or claim thereon from a usurper who may have acquired a
fraudulent certificate of title thereto. l
In this case, while Philbank failed to exercise greater care in conducting the ocular inspection of the properties offered
for mortgage, its omission did not prejudice any innocent third parties. In particular, the buyer did not pursue her cause and
abandoned her claim on the property. On the other hand, Sps. Delgado were parties to the simulated sale in favor of the Dys
which was intended to mislead Philbank into granting the loan application. Thus, no amount of diligence in the conduct of the
ocular inspection could have led to the discovery of the complicity between the ostensible mortgagors (the Dys) and the true
owners (Sps. Delgado). In fine, Philbank can hardly be deemed negligent under the premises since the ultimate cause of the
mortgagors' (the Dys') defective title was the simulated sale to which Sps. Delgado were privies.
To be sure, fraud comprises "anything calculated to deceive, including all acts, omissions, and concealment involving a
breach of legal duty or equitable duty, trust, or confidence justly reposed, resulting in damage to another, or by which an
undue and unconscientious advantage is taken of another." In this light, the Dys' and Sps. Delgado's deliberate simulation of
the sale intended to obtain loan proceeds from and to prejudice Philbank clearly constitutes fraudulent conduct. As such, Sps.
Delgado cannot now be allowed to deny the validity of the mortgage executed by the Dys in favor of Philbank as to hold
otherwise would effectively sanction their blatant bad faith to Philbank's detriment.
Accordingly, in the interest of public policy, fair dealing, good faith and justice, the Court accords Philbank the rights of
a mortgagee in good faith whose lien to the securities posted must be respected and protected. In this regard, Philbank is
entitled to have its mortgage carried over or annotated on the titles of Cipriana Delgado over the said properties.
WHERFORE, the assailed January 30, 2008 Decision of the Court of Appeals in CA-G.R. CV No. 51672 is hereby AFFIRMED with
MODIFICATION upholding the mortgage rights of petitioner Philippine Banking Corporation over the subject properties. SO
ORDERED.

EUSEBIO GONZALES v. PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK, EDNA OCAMPO AND ROBERTO NOCEDA
[G.R. No. 180257. February 23, 2011. Velasco, Jr., J]
Doctrine
The degree of diligence required is more than that of a good father of the family considering that the business of banking is
imbued with public interest due to the nature of their function. The law imposes on banks a high degree of obligation to treat the
accounts of its depositors with meticulous care, always having in mind the fiduciary nature of banking-— banks have attained a
ubiquitous presence among the people, who have come to regard them with respect and even gratitude and most of all,
confidence, and it is for this reason, banks should guard against injury attributable to negligence or bad faith on its part.
Statement of Facts
Eusebio was a long-standing client of PCIB. In 1992 PCIB granted a credit line to Gonzales through a Credit-on-Hand Loan
Agreement (COHLA) wherein the aggregate amount of the accounts of Gonzales with PCIB served as collateral and his
availment limit under the credit line. Gonzales had Foreign Currency Deposit (FCD) amounting to $8, 715.
In Oct 1995 Sps. Gonzales obtained a loan for 500k PHP. They obtained additional loan from PCIB amounting to 1.3 M with Sps.
Panlilio as co-borrowers. The three-loan totaling 1.8M were covered by 3 promissory notes, which specified the solidarity
liability of both spouses for the payment of the loan. As security, a REM over a parcel of land was executed by the two spouses.
This signing as co-borrower was upon the suggestion of Ocampo, in order to facilitate a faster releasing of the loan to Sps.
Panlilio. It was only Sps. Panlilio who received the loan proceeds.
The interest for the loan is automatically deducted from the PCIB account of Sps. Panlilio. But on July 1998 they defaulted in
the payment. PCIB allegedly notified Gonzales of this default and the accumulating periodic interest dues that remain unpaid.
In the meantime, Gonzales issued a check in favor of Unson for 250K drawn against the COHLA. However, this was dishonored
on presentment for payment due to the termination of the COHLA for the unpaid interests. The bank also froze the FCD
account of Gonzales. This caused a heated argument between Unson and Gonzales. Since Gonzales’s account is frozen he was
forced to pay Unson in cash
Due to this mishap, Gonzales wrote to the PCIB to demand the return the proceeds of his FCD, that the check he issued is fully
funded and demanded for damaged for the unjust dishonor of the check which PCIB did not heed. Thus, this case.
Gonzales filed a case for damages with the RTC against PCIB on account of the alleged unjust dishonor of the check. RTC ruled
in favor of PCIB on the ground that Gonzales was solidarily liable with Sps. Panlilio on all 3 promissory notes, therefore there
was justification for the dishonor of the check. Also, the COHLA was terminated before the check was presented for
encashment. The RTC found no fault in the termination of the COHLA and the freezing the account of Gonzales.
Aggrieved, Gonzales appealed to the CA, which just affirmed in toto the decision of the RTC.
Thus, this an appeal via a Petition for Review on Certiorari under Rule 45.
Issue
1. Whether Gonzales is liable for the 3 promissory notes for 1.8M PHP made with Sps. Panlilio.
2. Whether PCIB properly dishonored the check of Gonzales drawn against the COHLA.
3. Whether damages is proper in this case.
Ruling
1. Yes. First, he signed the promissory notes as a borrower/co-borrower. Second, the records of PCIB that indeed that 1.8 M
went to Sps. Panlilio. By signing for the benefit of another, he effectively became an accommodation party. As an
accommodation party, Gonzales is solidarily liable with the Sps. Panlilio. The relation between an accommodation party
and the accommodated party is one of principal and surety — the accommodation party being the surety. As such, he is
deemed an original promisor and debtor from the beginning; he is considered in law as the same party as the debtor in
relation to whatever is adjudged touching the obligation of the latter since their liabilities are interwoven as to be
inseparable. On top of this, the promissory note explicitly provided for the solidary liability. Solidary liability cannot be
presumed but must be established by law or contract.
2. No. It was improper for PCIB to dishonor the check issued by Gonzales. First, because there was no proper notice to
Gonzales on the default and delinquency of Sps. Panlilio. Him being an accommodation party does not exonerate him of
the liability but he has the right to be properly appraised of the default being a co-signatory to the loan. Between Gonzales’
denial and bank employee’s assertion of notification, SC found the testimony of bank employees as self-serving. No written
notification can be provided by PCIB employees. Without a clear and determinate demand through a formal written notice
for the exact periodic interest dues for the loans, Gonzales cannot be expected to pay for them. Second, PCIB was grossly
negligent in not giving prior notice to Gonzales about its course of action to suspend, terminate, or revoke the credit line,
thereby violating the clear stipulation in the COHLA which calls for prior notification. True there is a stipulation which
allows the bank to terminate and set off the debt with existing moneys or deposit of the debtor with them, however this is
subject to the requirement of notification, which PCIB did not afford Gonzales who was a long-standing client of theirs.
3. Yes. Gonzales had the right to be informed of the accrued interest and most especially, for the suspension of his COHLA.
For failure to do so, the bank is liable to pay nominal damages. Also, he is entitled to moral damages for the humiliation
and embarrassment he had to endure. As well as, exemplary damages, for the carelessness of the bank. Finally, award for
attorney’s fee is likewise called for the negligence of the bank.
Dispositive
WHEREFORE, this petition is PARTLY GRANTED . Accordingly, the CA Decision dated October 22, 2007 in CA-G.R. CV No.
74466 is hereby REVERSED and SET ASIDE. The Philippine Commercial and International Bank (now Banco De Oro) is
ORDERED to pay Eusebio Gonzales PhP50,000 as nominal damages, PhP50,000 as
moral damages, PhP10,000 as exemplary damages, and PhP50,000 as attorney's fees.
Prepared by: Edielle Anne S. Obnamia

COMSAVINGS BANK (NOW GSIS FAMILY BANK) v. SPS. DANILO AND ESTRELLA CAPISTRANO
[G.R. No. 170942. August 28, 2013. Bersamin, J]
Doctrine
A banking institution 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.
Statement of Facts
Sps. Capistrano owns a lot in Bacoor, Cavite. They wanted their own house, so they obtained loan through Unified Home
Lending Program by the NHFM. In May 1992 they contracted with Carmencita Cruz-Bay, the proprietor of GCB Builders, for
total contract price of 265K PHP, with the agreement that construction would be complete within 75 days. GCB facilitated the
loan application with Comsavings Bank, being an NHFM-accredited originator. Spouses executed in favor of GCB builders a
deed of assignment of the amount of 300K PHP proceeds from the bank.
Capistrano was later informed by the bank that she needs to sign various documents as part of the requirements for the
release of the loan. One such document was a certificate of house completion and acceptance. Later that day the bank notified
GCB that the Capistrano complied with the preliminary requirements to avail of the loan.
By October 1992, GCB had received the total sum of 265k PHP. The year ended with the construction of the house unfinished.
Cruz –Bay gave various excuses for the delay, such as the rainy season. Sps. demanded completion of their house, but Cruz-
Bay requested additional 25K for the construction. The spouses wished to see the breakdown of the expenses, but instead they
were given a demand letter, demanding an additional cost of 52k.
By May 1993, NHFM asked the spouses to start paying their monthly amortization for their loan had been released to the bank
as of April 1993. Yet, the house remains unfinished.
The spouses wrote to NHMFC protesting the demand for amortization since they had not signed any certification of completion
and acceptance. Even if there was one, it would have been forged. They wrote again to NHFMC requesting for them to conduct
an ocular visit. The inspection showed that the unit is being occupied by another person, that there is no toilet and plumbing
fixtures, there are no doorknobs, toilet has no concrete floor and there are hairline cracks on the flooring.
The spouses sued GCB Builders and the bank for breach of contract and damages, praying for the completion of the
construction of the house, and to pay them damages. Spouses later on impleaded NHFMC as additional defendant. In their
defense, GCB claims that the house was finished, but spouses failed to occupy it, that they received only 239k out of the 300k
loan because the difference was applied to the interest and other charges. They further claim that the spouses are estopped by
virtue of a signed certificate of completion.
RTC rendered a decision in favor the spouses. Bank, NHFMC and GCB solidarily liable for the completion of the house and
damages. It found that although the proceeds of the loan had been completely released, the construction of the house of
respondents remained not completed; that the house had remained in the possession of GCB Builders; that GCB Builders did
not comply with the terms and conditions of the construction contract; and that NHMFC was equally liable with the other
defendants by reason of its having released the loan proceeds to Comsavings without verifying whether the construction had
already been completed, thereby indicating that NHMFC had connived and confederated with its co-defendants in the irregular
release of the loan proceeds to Comsavings. Bank, NHFMC and GCB all appealed to the CA.
CA affirmed the RTC subject to the modification that NHMFC was absolved of liability, and that the moral and exemplary
damages were reduced. Comsavings Bank appealed to the SC.
Issue
Whether the CA erred in holding Comsavings Bank solidarily liable with GCB Builder to pay damages to the spouses.
Ruling
No. Based on the provisions Article 20 and Article 1170 of the Civil Code, a banking institution like Comsavings Bank 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. There is no question that Comsavings Bank was grossly negligent in its dealings
with respondents because it did not comply with its legal obligation to exercise the required diligence and integrity. As a
banking institution serving as an originator under the UHLP and being the maker of the certificate of acceptance/completion ,
it was fully aware that the purpose of the signed certificate was to affirm that the house had been completely constructed
according to the approved plans and specifications, and that respondents had thereby accepted the delivery of the complete
house. Given the purpose of the certificate, it should have desisted from presenting the certificate to respondents for their
signature without such conditions having been fulfilled. Yet, it made respondents sign the certificate (through Estrella
Capistrano, both in her personal capacity and as the attorney-in-fact of her husband Danilo Capistrano) despite the
construction of the house not yet even starting.
Dispositive
WHEREFORE, we AFFIRM the decision promulgated by the Court of Appeals on November 30, 2005, subject to the
MODIFICATIONS that Comsavings Bank and GCB Builders are further ordered to pay, jointly and severally, to the Spouses
Danilo and Estrella Capistrano the following amounts: (1) P25,000.00 as temperate damages; (2) P30,000.00 as attorney's
fees; (3) interest of 6% per annum on all the amounts of damages reckoned from the finality of this decision; and (4) the costs
of suit.

CONSOLIDATED RURAL BANK (CAGAYAN VALLEY), INC v. THE HONORABLE COURT OF APPEALS AND HEIRS OF
TEODORO DELA CRUZ
[G.R. No. 132161. January 17, 2005. Tinga, J.]
Doctrine
Banks, their business being impressed with public interest, are expected to exercise more care and prudence than private
individuals in their dealings, even those involving registered lands. Hence, for merely relying on the certificates of title and for its
failure to ascertain the status of the mortgaged properties as is the standard procedure in its operations, we agree with the Court
of Appeals that CRB is a mortgagee in bad faith.
Statement of Facts
Madrid brothers were registered owners of a lot in Isabela. This was subdivided into several lots. Rizal Madrid later sold his
share to Gamiao and Dayag through a Deed of Sale, to which the brothers had no objections evidenced by a Joint Affidavit. This
Deed of Sale was not registered by Gamiao and Dayag were paying the property taxes under their name. These two sold the
Sothern half of their lot to Dela Cruz, the northern half to Hernandez. Later, Hernandez donated the northern lot to his
daughter, Evangeline. All of whom occupied their respective lands.
In a Deed of Sale the Madrid brothers sold all their rights and interest over the totality of the original lot to Marquez. This was
registered with the Register of Deeds. Subsequently, Marquez subdivided the lot into 8 parts and TCTs were issued to him
accordingly. On the same date, Spouses Marquez mortgaged 4 parts of the lot to Consolidated Rural Bank of Cagayan Valley
(CRB) as security for a 100K Loan. These REM were registered also with the Register of Deeds. He mortgaged another lot again
to secure another loan for 10k to Rural Bank of Cauayan (RBC).
Marquez defaulted on his payment which forced CRB to foreclose the property, which were sold to it as the highest bidder.
Marquez sold 1 part of the remaining 3 part lot to Calixto.
The heir of Dela Cruz filed a case for reconveyance of the southern portion of the lot, it being sold to his Father. Evangeline on
the other hand filed with leave of court a Complaint in Intervention where she is claiming the northern portion of the lot.
Marquez raised the defense of buyer in good faith and for value, claiming the sale to Gamiao and Dayag as not binding upon
him, it being not registered. Calixto manifested that he has no interest because Marquez reacquired the property. While CRB
and RCB are insiting that they are mortgagee in good faith, and that they have the right to rely on the face of the titled it being
free from any lien and encumbrances on the paper.
RTC ruled in favor of Marquez naming him as the owner of the disputed property. RTC resolved the present controversy by
applying the rule on double sale.
CA reversed the decision of RTC. It declared heirs of Dela Cruz as lawful owners of the southern half portion and Evangeline
the northern half. Declared null and void the deed of sale between Marquez and the Madrid brother covering that specific lot.
Furthermore the CA declaring both mortgages as null and void.
Issue
Whether RCB is a mortgagee in good faith.
Ruling
No. Marquez cannot be a purchaser in good faith, because he knew of the fact of the sale. Further the heirs were occupying the
disputed property. Although it is a recognized principle that a person dealing on a registered land need not go beyond its
certificate of title, it is also a firmly settled rule that where there are circumstances which would put a party on guard and
prompt him to investigate or inspect the property being sold to him, such as the presence of occupants/tenants thereon, it is,
of course, expected from the purchaser of a valued piece of land to inquire first into the status or nature of possession of the
occupants, i.e., whether or not the occupants possess the land en concepto de dueño, in concept of owner.
Banks, their business being impressed with public interest, are expected to exercise more care and prudence than private
individuals in their dealings, even those involving registered lands. Hence, for merely relying on the certificates of title and for
its failure to ascertain the status of the mortgaged properties as is the standard procedure in its operations, we agree with the
Court of Appeals that CRB is a mortgagee in bad faith.
Dispositive
WHEREFORE, the Petition is DENIED. The dispositive portion of the Court of Appeals' Decision, as modified by its Resolution
dated 5 January 1998, is AFFIRMED. Costs against petitioner.

WINFREDA URSAL v. COURT OF APPEALS, THE RURAL BANK OF LARENA (SIQUJOR), INC. AND SPS. JESUS AND
CRISTINA MOESET
[G.R. No. 142411. October 14, 2005. Austria-Martinez, J.]
Doctrine
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
As mortgagee-bank is expected to exercise greater care and prudence in its dealings, including those involving registered lands. A
banking institution is expected to exercise due diligence before entering into a mortgage contract. The ascertainment of the status
or condition of a property offered to it as security for a loan must be a standard and indispensable part of its operations.
Statement of Facts
Monesets are the registered owner of a house and lot in Cebu. They executed a Contract to Sell Lot & House in favor of Ursal,
subject to the following condition: Lump sum price of P130k payable on installment basis as follows:
1. Date of signing= P50k

2. Remaining Balance 80k= equal monthly installments amounting to 3k until fully paid.
3. In case of default to pay 6 monthly installments the agreement shall be deemed cancelled. Vendee binds to return to
vendor the deposit of 50k, with obligation to pay the vendor refund for cost/improvements made in the premises by
the vendee.
4. Upon receipt of DP, Vendee will occupy and take possession of the premises, and keep and hold in possession the TCT
on the land.
5. On date of final payment, the vendor shall execute a Deed of Absolute Sale.
Ursal paid the DP and took possession of the property, she immediately built concrete fence and planted fruit bearing trees,
amounting to 50k. After paying for 6 months monthly installments, she stopped paying, for failure of Monesets to give to her
the TCT as agreed upon.
Unknown to the petitioner, Monesets executed an Absolute Deed of Sale in favor of Canora over the same property.
Afterwards, Monesets executed another contract over the same property, this time a Pacto De retro sale with Bundalo. On the
same day, Bundalo, attorney-in-fact of Monesets, used this property in a REM with Rural Bank of Larena for the amount of
100k. The Special Power of Attorney made by Monesets in favor of Bundalo as well as the REM was duly annotated on the TCT.
Monesets failed to pay this loan, the bank thus served a notice of extrajudicial foreclosure of the real estate.
Ursal filed an action for declaration of non-effectivity of mortgage and damages against Monesets, Bundalo and the Bank.
RTC rendered a decision finding that Monesets are liable for damages for fraud and breach of contract to sell. As to the real
estate mortgage, the trial court held that the same was valid and the Bank was not under any obligation to look beyond the
title, although the present controversy could have been avoided had the Bank been more astute in ascertaining the nature of
petitioner's possession of the property.
Ursal and Monesets appealed the decision of the RTC. Ursal alleged that the bank was guilty of bad faith for not investigating
the property which she was occupying.
However, CA affirmed in toto the decision of the trial court. It held that the Bank did not have prior knowledge of the contract
to sell the house and lot and the Monesets acted fraudulently thus they cannot be given preferential right to redeem the
property and were therefore correctly ordered to pay damages.
Ursal appealed to the SC raising the sole error that the CA acted with grave abuse of discretion amounting to excess of
jurisdiction.
Issue
Whether the bank was a mortgagee in good faith.
Ruling
No. 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.
However, Ursal cannot be declared the owner because the contract between petitioner and the Monesets being one of
"Contract to Sell Lot and House," petitioner, under the circumstances, never acquired ownership over the property and her
rights were limited to demand for specific performance from the Monesets, which at this juncture however is no longer
feasible as the property had already been sold to other persons.
Dispositive
WHEREFORE, the petition is DENIED. The decision of the Regional Trial Court of Cebu City, Branch 24, promulgated on
February 5, 1993 and the decision of the Court of Appeals dated June 28, 1999 are hereby AFFIRMED. However, in the higher
interest of substantial justice, the Court MODIFIES the same to the effect that the portion ordering the Rural Bank of Larena
(Siquijor), Inc. to give petitioner the preferential right to redeem the house and lot covered by Transfer Certificate of Title No.
78374 is DELETED for lack of legal basis.

PHILIPPINE NATIONAL BANK, AS THE ATTORNEY-IN-FACT OF OPAL PORTFOLIO INVESTMENTS (SPV-AMC), INC,
Petitioner, -versus- MERCEDES CORPUZ, REPRESENTED BY HER ATTORNEY-IN-FACT VALENTINA CORPUZ, Respondent.
G.R. No. 180945, SECOND DIVISION, February 12, 2010, ABAD, J.
Doctrine
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.
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. She later left her job went to the US.
The rural bank cancelled its lien on Corpuz's title, she having incurred no liability to her employer. Without Corpuz's
knowledge and consent, however, 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 sales, making it appear that Corpuz sold her land to one "Mary
Bondoc" for P50,000 resulting to the issuance of a TCT in Bondoc's name. The trio later executed another fictitious deed of sale
with "Mary Bondoc" selling the property to the spouses Rufo and Teresa Palaganas for P15,000 which resulted in the issuance
of a TCT in favor of the Palaganases. The Palaganases executed a deed of sale in favor of spouses Virgilio and Elena Songcuan
for P50,000, resulting in the issuance of a TCT in favor of Spouses Songcuan.
Four months later, the Songcuans took out a loan of P1.1 million from PNB and, to secure payment, they executed a real estate
mortgage o. Before granting the loan, the PNB had the title verified and the property inspected.
Corpuz filed a complaint before the Dagupan RTC against Mary Bondoc, the Palaganases, the Songcuans, and PNB, asking for
the annulment of the layers of deeds of sale covering the land, the cancellation of TCTs, and the reinstatement of a TCT in her
name.
The RTC rendered a decision granting respondent Corpuz's prayers. This prompted petitioner PNB to appeal to the CA. The CA
affirmed the RTC and denied PNB’s MR, prompting PNB to take recourse to the SC.
Issue:
Whether petitioner PNB is a mortgagee in good faith, entitling it to its lien on the title to the property in dispute.
Ruling:
NO. 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.
PNB was informed of the previous TCTs covering the subject property. It is evident from the faces of those titles that the
ownership of the land changed from Corpuz to Bondoc, from Bondoc to the Palaganases, and from the Palaganases to the
Songcuans in less than three months and mortgaged to PNB within four months of the last transfer.
The above information in turn should have driven the PNB to look at the deeds of sale involved. It would have then discovered
that the property was sold for ridiculously low prices: Corpuz supposedly sold it to Bondoc for just P50,000.00; Bondoc to the
Palaganases for just P15,000.00; and the Palaganases to the Songcuans also for just P50,000.00. Yet the PNB gave the property
an appraised value of P781,760.00. Anyone who deliberately ignores a significant fact that would create suspicion in an
otherwise reasonable person cannot be considered as an innocent mortgagee for value.
WHEREFORE, the Court DENIES the petition and AFFIRMS the decision of the Court of Appeals dated July 31, 2007 and its
resolution dated December 17, 2007 in CA-G.R. CV 60616.
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, -versus- COURT OF APPEALS AND CARLOS CAJES, Respondents.
G.R. No. 129471, SECOND DIVISION, April 28, 2000, MENDOZA, J.
Doctrine
The evidence before us, however, indicates that petitioner DBP is not a mortgagee in good faith. To be sure, an innocent
mortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagor’s title. Nonetheless,
especially in the case of a banking institution, a mortgagee must exercise due diligence before entering into said contract.
Judicial notice is taken of the standard practice for banks, before approving a loan, to send representatives to the premises of
the land offered as collateral and to investigate who are the real owners thereof. Banks, their business being impressed with
public interest, are expected to exercise more care and prudence than private individuals in their dealings, even those
involving registered lands.
The land in dispute, consisting of 19.4 hectares located in San Miguel, Bohol, was originally owned by Ulpiano Mumar. In 1969,
Mumar sold the said land to private respondent Carlo Cajes who was issued Tax Declaration No. R-1475 that same year.
Private respondent occupied and cultivated the said land .
In 1969, unknown to private respondent, Jose Alvarez succeeded in obtaining the registration of a parcel of land with an area
of 1,512,468.00 square meters, in his name for which he was issued an OCT in his name. The parcel of land included the 19.4
hectares occupied by private respondent. Alvarez never occupied nor introduced improvements on said land.
In 1972, Alvarez sold the land to the Gaudencio and Rosario Beduya (spouses Beduya) to whom TCT No. 10101 was issued.
That same year, the spouses Beduya obtained a loan from petitioner Development Bank of the Philippines and, as security,
mortgaged the land to the bank. In 1978, the SAAD Investment Corp., and the SAAD Agro-Industries, Inc., represented by
Gaudencio Beduya, and the spouses Beduya personally executed another mortgage over the land in favor of petitioner to
secure a loan.
The spouses Beduya failed to pay their loans, as a result of which, the mortgage on the property was foreclosed. In the
resulting foreclosure sale, petitioner DBP was the highest bidder. As the spouses Beduya failed to redeem the property,
petitioner consolidated its ownership.
It appears that private respondent had also applied for a loan from petitioner in 1978, offering his 19.4 hectare property as
security for the loan. As part of the processing of the application, a representative of petitioner inspected the land and
appraised its value.
Private respondent’s loan application was later approved by petitioner. However after releasing the amount of the loan to
private respondent, DBP found that the land mortgaged by private respondent was included in the land covered by TCT in the
name of the spouses Beduya. DBP, therefore, cancelled the loan and demanded immediate payment of the amount. Private
respondent paid the loan to petitioner for which the former was issued a Cancellation of Mortgage releasing the property in
question from encumbrance.
More than a year after the foreclosure sale, a re-appraisal of the property covered was conducted by DBP’s representatives. It
was then discovered that private respondent was occupying a portion of said land covered by TCT No. 10101. Private
respondent was informed that DBP had become the owner of the land he was occupying, and he was asked to vacate the
property. As private respondent refused to do so, DBP filed a complaint for recovery of possession befor the RTC of Tagbilaran
City.
The RTC rendered a decision declaring DBP the lawful owner of the entire land. On appeal, the CA reversed and gave judgment
for private respondent, declaring him the owner of the 19.4 hectares of land erroneously included in TCT No. 10101. DBP
moved for reconsideration but its motion was denied in a resolution. Hence, this petition.
Issue:
Whether DBP may be considered as an innocent mortgagee for value of the land in question, having purchased the same
during a public auction sale.
Ruling:
NO. Petitioner contends that an action for reconveyance does not lie against it, because it is an innocent purchaser for value in
the foreclosure sale held in 1985.
The evidence before us, however, indicates that petitioner DBP is not a mortgagee in good faith. To be sure, an innocent
mortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagor’s title. Nonetheless,
especially in the case of a banking institution, a mortgagee must exercise due diligence before entering into said contract.
the land offered as collateral and to investigate who are the real owners thereof. Banks, their business being impressed with
public interest, are expected to exercise more care and prudence than private individuals in their dealings, even those
involving registered lands.
In this case, petitioner’s representative admitted that he came to know of the property for the first time in 1979 when he
inspected it to determine whether the portion occupied by private respondent and mortgaged by the latter to petitioner was
included in TCT No. 10101. This means that when the land was mortgaged by the spouses Beduya in 1972, no investigation
had been made by petitioner. It is clear, therefore, that petitioner failed to exercise due care and diligence in establishing the
condition of the land as regards its actual owners and possessors before it entered into the mortgage contract in 1972 with the
Beduyas. Had it done so, it would not have failed to discover that private respondent was occupying the disputed portion of
19.4 hectares. For this reason, petitioner cannot be considered an innocent purchaser for value when it bought the land
covered by TCT No. 10101 in 1985 at the foreclosure sale.
Indeed, two circumstances negate petitioner’s claim that it was an innocent purchaser for value when it bought the land in
question, including the portion occupied by private respondent: (1) petitioner was already informed by Gaudencio Beduya
that private respondent occupied a portion of the property covered by TCT No. 10101; and (2) petitioner’s representative
conducted an investigation of the property in 1979 to ascertain whether the land mortgaged by private respondent was
included in TCT No. 10101. In other words, petitioner was already aware that a person other than the registered owner was in
actual possession of the land when it bought the same at the foreclosure sale. A person who deliberately ignores a significant
fact which would create suspicion in an otherwise reasonable man is not an innocent purchaser for value. "It is a well-settled
rule that a purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that he
acted in good faith under the belief that there was no defect in the title of the vendor."
Petitioner deliberately disregarded both the fact that private respondent already occupied the property and that he was
claiming ownership over the same. It cannot feign ignorance of private respondent’s claim to the land since the latter
mortgaged the same land to petitioner as security for the loan he contracted in 1978 on the strength of the tax declarations
issued under his name. Instead of inquiring into private respondent’s occupation over the land, petitioner simply proceeded
with the foreclosure sale, pretending that no doubts surround the ownership of the land covered by TCT No. 10101.
Considering these circumstances, petitioner cannot be deemed an innocent mortgagee/purchaser for value.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED in toto.
IBAAN RURAL BANK INC., Petitioner, -versus- THE COURT OF APPEALS AND MR. AND MRS. RAMON TARNATE,
Respondents.
G.R. No. 123817, SECOND DIVISION, December 17, 1999, QUISUMBING, J.
Doctrine
Petitioner is a banking institution on whom the public expects diligence, meticulousness and mastery of its transactions. Had
petitioner diligently reviewed the Certificate of Sale it could have easily discovered that the period was extended one year
beyond the usual period for redemption. Banks, being greatly affected with public interest, are expected to exercise a degree
of diligence in the handling of its affairs higher than that expected of an ordinary business firm.
Spouses Cesar and Leonila Reyes were the owners of three lots covered by TCTs of the Register of Deeds of Lipa City. The
spouses mortgaged these lots to Ibaan Rural Bank, Inc (herein petitioner). With the knowledge and consent of the petitioner,
the spouses as sellers, and Mr. and Mrs. Ramon Tarnate (herein private respondents) as buyers, entered into a Deed of
Absolute Sale with Assumption of Mortgage of the lots in question.
Private respondents failed to pay the loan and the bank extra-judicially foreclosed on the mortgaged lots. The Provincial
Sheriff conducted a public auction of the lots and awarded the lots to the bank, the sole bidder. The Provincial Sheriff issued a
Certificate of Sale which was registered on October 16, 1979. The certificate stated that the redemption period expires two
years from the registration of the sale. No notice of the extrajudicial foreclosure was given to the private respondents.
On September 23, 1981, private respondents offered to redeem the foreclosed lots. However, petitioner Bank refused the
redemption on the ground that it had consolidated its titles over the lots.
Thus, Private respondents filed a complaint to compel the bank to allow their redemption of the foreclosed lots alleging that
they were entitled to redeem the foreclosed lots because they offered to redeem and tendered the redemption price within the
2-year redemption period.
The bank opposed the redemption, contending that the right to redeem had prescribed, as more than one year had elapsed
from the registration of the Certificate of Sale.
The RTC ruled in favor of private respondents ordering the Provincial Sheriff of Batangas to cancel the TCTs issued to
defendant bank and its successors-in-interest and to issue the corresponding TCTs to herein private respondents. The CA
affirmed the decision of the RTC and denied petitioner’s MR. Hence this petition for review under Rule 45 which seeks to set
aside the decision and resolution of the CA
Issue:
What was the period of redemption: two years as unilaterally fixed by the sheriff in the contract, or one year as fixed by law?
Ruling:
When petitioner Ibaan Rural Bank received a copy of the Certificate of Sale registered in the Office of the Register of Deeds of
Lipa City, it had actual and constructive knowledge of the certificate and its contents. For two years, it did not object to the
two-year redemption period provided in the certificate. Thus, it could be said that petitioner consented to the two-year
redemption period specially since it had time to object and did not. When circumstances imply a duty to speak on the part of
the person for whom an obligation is proposed, his silence can be construed as consent. By its silence and inaction, petitioner
misled private respondents to believe that they had two years within which to redeem the mortgage. After the lapse of two
years, petitioner is estopped from asserting that the period for redemption was only one year and that the period had already
lapsed.
Petitioner is a banking institution on whom the public expects diligence, meticulousness and mastery of its transactions. Had
petitioner diligently reviewed the Certificate of Sale it could have easily discovered that the period was extended one year
beyond the usual period for redemption. Banks, being greatly affected with public interest, are expected to exercise a degree
of diligence in the handling of its affairs higher than that expected of an ordinary business firm.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 32984 is AFFIRMED, with the MODIFICATION that the
award of attorney's fees is deleted. No pronouncement as to costs.
OSMUNDO S. CANLAS AND ANGELINA CANLAS, Petitioner, -versus- COURT OF APPEALS, ASIAN SAVINGS BANK,
MAXIMO C. CONTRERAS AND VICENTE MAÑOSCA, Respondent.
G.R. No. 112160, THIRD DIVISION, February 28, 2000, PURISIMA, J.
Doctrine
The degree of diligence required of banks is more than that of a good father of a family; in keeping with their responsibility to
exercise the necessary care and prudence in dealing even on a register or titled property. The business of a bank is affected
with public interest, holding in trust the money of the depositors, which bank deposits the bank should guard against loss due
to negligence or bad faith, by reason of which the bank would be denied the protective mantle of the land registration law,
accorded only to purchases or mortgagees for value and in good faith.
In 1982, Petitioner Osmundo Canlas and private respondent Vicente Mañosca decided to venture in business and to raise the
capital needed therefor. Canlas executed a Special Power of Attorney authorizing Mañosca to mortgage two parcels of land
covered by TCTs the name of Canlas and his wife Angelina.
Canlas agreed to sell the said parcels of land to Manosca. Canlas delivered to Mañosca the TCTs of the parcels of land involved.
Vicente Mañosca, for his part, issued two postdated checks in favor of Canlas in the amounts of P40,000 and P460,000
respectively, but it turned out that the check covering the bigger amount was not sufficiently funded.
Nonetheless, Mañosca was able to mortgage the same parcels of land for P100,000 to a certain Attorney Manuel Magno, with
the help of impostors who misrepresented themselves as the spouses, Osmundo Canlas and Angelina Canlas.
Mañosca was granted a loan by the respondent Asian Savings Bank (ASB) in the amount of P500,000, with the use of subject
parcels of land as security, and with the involvement of the same impostors who again introduced themselves as the Canlas
spouses. When the loan it extended was not paid, respondent bank extrajudicially foreclosed the mortgaged.
Later, Canlas informed the respondent bank that the execution of subject mortgage over the two parcels of land in question
was without their (Canlas spouses) authority, and requested that steps be taken to annul and/or revoke the questioned
mortgage. Asian Savings Bank refused to heed Canlas' stance and proceeded with the scheduled auction sale.
The Spouses Canlas thus instituted the present case for annulment of deed of real estate mortgage.
The RTC rendered its decision declaring the deed of mortgage as null and void. From such decision, Asian Savings Bank
appealed to the CA, which reversed the decision of the RTC. Petitioners thus filed the present Petition for Review on Certiorari
before the SC.
Issue:
Whether respondent Asian Savings Bank exercised due diligence in granting the loan application of respondent Mañosca.
Ruling:
NO. The degree of diligence required of banks is more than that of a good father of a family; in keeping with their responsibility
to exercise the necessary care and prudence in dealing even on a register or titled property. The business of a bank is affected
with public interest, holding in trust the money of the depositors, which bank deposits the bank should guard against loss due
to negligence or bad faith, by reason of which the bank would be denied the protective mantle of the land registration law,
accorded only to purchases or mortgagees for value and in good faith.
Respondent bank did not observe the requisite diligence in ascertaining or verifying the real identity of the couple who
introduced themselves as the spouses Osmundo Canlas and Angelina Canlas. It is worthy to note that not even a single
identification card was exhibited by the said impostors to show their true identity; and yet, the bank acted on their
representations simply on the basis of the residence certificates bearing signatures which tended to match the signatures
affixed on a previous deed of mortgage to a certain Atty. Magno, covering the same parcels of land in question.
Evidently, the efforts exerted by the bank to verify the identity of the couple posing as Osmundo Canlas and Angelina Canlas
fell short of the responsibility of the bank to observe more than the diligence of a good father of a family. The negligence of
respondent bank was magnified by the fact that the previous deed of mortgage (which was used as the basis for checking the
genuineness of the signatures of the suppose Canlas spouses) did not bear the tax account number of the spouses, as well as
the Community Tax Certificate of Angelina Canlas. But such fact notwithstanding, the bank did not require the impostors to
submit additional proof of their true identity.
For not observing the degree of diligence required of banking institutions, whose business is impressed with public interest,
respondent Asian Savings Bank has to bear the loss sued upon.
WHEREFORE, the Petition is GRANTED and the Decision of the Court of Appeals, dated September 30, 1993, in CA-G.R. CV No.
25242 SET ASIDE. The Decision of Branch 59 of the Regional Trial Court of Makati City in Civil Case No. M-028 is hereby
REINSTATED. No pronouncement as to costs.
UNITED COCONUT PLANTERS BANK, Petitioner, vs. TEOFILO C. RAMOS, Respondent.
(G.R. No. 147800, SECOND DIVISION, November 11, 2003, CALLEJO, SR., J.)
DOCTRINE OF THE CASE:
UCPB 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, the Court holds 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.
United Coconut Planters Bank (UCPB) granted two loans to Zamboanga Development Corporation (ZDC) with Venicio Ramos
and the Spouses Teofilo Ramos, Sr. and Amelita Ramos as sureties. However, the ZDC failed to pay its account to the UCPB
despite demands, prompting the latter to file a complaint with the RTC of Makati for the collection of the corporation’s
account. RTC of Makati rendered judgment in favor of UCPB, ordering ZDC, Teofilo Ramos, Sr. and Amelita Ramos to pay the
sum of ₱3,150,000.00 plus interest, penalties and other charges.
To satisfy the judgment, Deputy Sheriff Villapaña was ordered to levy and attach all the real and personal properties belonging
to the defendants. To help the Sheriff implement the writ, an appraiser of UCPB’s Credit and Appraisal Investigation
Department ascertained if the defendants had any leviable real and personal property. In the course of the investigation, a
residential lot in the name of Teofilo C. Ramos, President and Chairman of the Board of Directors of the Ramdustrial Corporation,
married to Rebecca F. Ramos, was found. Thus, Sheriff prepared a notice of levy and caused the annotation thereof by the
Register of Deeds on the said title.
Meanwhile, Teofilo C. Ramos discovered that a notice of levy was annotated in his title in favor of UCPB. Declaring that he and
Teofilo Ramos, Sr. are not one and the same person, Teofilo C. Ramos demanded that Sheriff Villapaña cause the cancellation of
the said annotation. Eventually, the notice of levy was cancelled.
Teofilo C. Ramos, nonetheless, filed a complaint for damages against UCPB and Sheriff Villapaña before the RTC of Makati
City which ruled in his favor. On appeal, CA affirmed the decision and held that UCPB was negligent 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. Hence, the instant petition.
ISSUE:
Whether or not the petitioner acted negligently in causing the annotation of levy on the title of the respondent?
RULING:
YES. UCPB acted negligently when it caused the annotation of the notice of levy in TCT No. 275167. It bears stressing that
UCPB 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, the Court holds 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 UCPB, 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 this case, the UCPB knew that the
sureties to the loan granted to ZDC and the defendants in Civil Case No. 94-1822 were the Spouses Teofilo Ramos, Sr. and
Amelita Ramos. It behooved UCPB to ascertain whether the defendant Teofilo Ramos, Sr. in Civil Case No. 16453 was the same
person who appeared as the owner of the property covered by the said title.
Moreover, UCPB has access to more facilities in confirming the identity of their judgment debtors. It should have acted more
cautiously. Instead, UCPB treated the uncertainty raised by appraiser Eduardo C. Reniva as a flimsy matter, and placed more
importance on the information regarding the marketability and market value of the property, utterly disregarding the identity
of the registered owner thereof. In sum, UCPB acted negligently in causing the annotation of notice of levy in the title of the
herein respondent, and that its negligence was the proximate cause of the damages sustained by the respondent.
DISPOSITIVE PORTION:
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 56737 is AFFIRMED WITH MODIFICATION. The award for
exemplary damages is deleted. No costs.
HEIRS OF EDUARDO MANLAPAT, represented by GLORIA MANLAPAT-BANAAG and LEON M. BANAAG,
JR., Petitioners, v. HON. COURT OF APPEALS, RURAL BANK OF SAN PASCUAL, INC., and JOSE B. SALAZAR, CONSUELO
CRUZ and ROSALINA CRUZ-BAUTISTA, and the REGISTER OF DEEDS of Meycauayan, Bulacan, Respondents.
(G.R. NO. 125585, SECOND DIVISION, June 8, 2005, TINGA, J.)
Banks, indeed, should exercise more care and prudence in dealing even with registered lands, than private individuals, as their
business is one affected with public interest. Banks keep in trust money belonging to their depositors, which they should guard
against loss by not committing any act of negligence that amounts to lack of good faith. Absent good faith, banks would be denied
the protective mantle of the land registration statute, Act 496, which extends only to purchasers for value and good faith, as well
as to mortgagees of the same character and description. Thus, the Court clarified that the rule that persons dealing with
registered lands can rely solely on the certificate of title does not apply to banks.
The act of RBSP of entrusting to respondents the owner's duplicate certificate entrusted to it by the mortgagor without even
notifying the mortgagor and absent any prior investigation on the veracity of respondents' claim and character is a patent fa ilure
to foresee the risk created by the act in view of the provisions of Section 53 of P.D. No. 1529. This act runs afoul of every bank's
mandate to observe the highest degree of diligence in dealing with its clients.
The controversy involves a parcel of land at Panghulo, Obando, Bulacan originally belonging to Eduardo’s grandfather. It is
adjacent to a fishpond owned by one Ricardo Cruz, predecessor-in-interest of Consuelo and Rosalina Cruz-Bautista (Cruzes).
Eduardo sold a portion of said property in Panghulo, Obando, Bulacan to Ricardo, evidenced by a deed of sale (Kasulatan)
which was registered in 1963. In 1981, another Deed of Sale conveying another portion of the subject lot as right of way was
executed by Eduardo in favor of Ricardo in order to have access to his fishpond from the provincial road. The deed was also
duly notarized. In both cases, the deeds were signed by Eduardo himself and his wife.
In December 1981, Eduardo executed a mortgage with the Rural Bank of San Pascual, Obando Branch (RBSP), for P100,000.00
with the subject lot as collateral. The owner's duplicate certificate of OCT No. P-153(M) was deposited with the bank.
Upon learning of their right to the subject lot, the Cruzes immediately tried to confront the Heirs of Eduardo on the mortgage
and obtain the surrender of the OCT. The Cruzes, however, failed to physically obtain the title from the petitioners so they
went to RBSP which had custody of the owner's duplicate certificate of the OCT. Transacting with RBSP's manager, Jose
Salazar, the Cruzes sought to borrow the owner's duplicate certificate for the purpose of photocopying the same and thereafter
showing a copy thereof to the Register of Deeds, and subsequently, for cancellation of OCT and the issuance of two separate
titled in accordance with the approved subdivision plan. Salazar allowed the Cruzes to bring the owner's duplicate certificate
outside the bank premises when the latter showed the Kasulatan.
Upon learning of the Cruzes’ dealings with the bank, three cases were lodged, later consolidated, with the trial court, all
involving the issuance of the TCTs, to wit: (1) for reconveyance with damages filed by the heirs of Eduardo Manlapat against
Consuelo Cruz, Rosalina Cruz-Bautista, Rural Bank of San Pascual, Jose Salazar and Jose Flores, in his capacity as Deputy
Registrar, Meycauayan Branch of the Registry of Deeds of Bulacan; (2) for damages filed by Jose Salazar against Consuelo Cruz,
et. al.; (3) for declaration of nullity of title with damages filed by Rural Bank of San Pascual, Inc. against the spouses Ricardo
Cruz and Consuelo Cruz, et al.
RTC of Malolos rendered a decision in favor of the heirs of Eduardo, declaring TCT Nos. T-9326-P(M) and T-9327-P(M) as
void ab initio and ordering the Register of Deeds, Meycauayan Branch to cancel said titles and to restore Original Certificate of
Title No. P-153(M) in the name of plaintiffs' predecessor-in-interest Eduardo Manlapat. On appeal, CA reversed the decision of
the RTC, ruling that heirs of Eduardo were not bona fide mortgagors since as early as 1954 or before the 1981 mortgage,
Eduardo already sold to Ricardo a portion of the subject lot. Hence, this Petition for Review on Certiorari.
ISSUES:
(1) Whether or not the doctrine of mortgagee in good faith applies to UCPB?
(2) Whether or not the bank is liable for nominal damages?
RULING:
(1) NO. Heirs of Eduardo contend that the mortgagee cannot question the veracity of the registered title of the mortgagor as
noted in the owner's duplicate certificate, and, thus, he cannot deliver the certificate to such third persons invoking an
adverse, prior, and unregistered claim against the registered title of the mortgagor. The strength of this argument is diluted by
the peculiar factual milieu of the case.
Indeed, a mortgagee can rely on what appears on the certificate of title presented by the mortgagor and an innocent
mortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagor's title. This rule, however, is
strictly applied to banking institutions. A mortgagee-bank must exercise due diligence before entering into said contract.
the land offered as collateral and to investigate who the real owners thereof are.
Banks, indeed, should exercise more care and prudence in dealing even with registered lands, than private individuals, as their
business is one affected with public interest. Banks keep in trust money belonging to their depositors, which they should guard
against loss by not committing any act of negligence that amounts to lack of good faith. Absent good faith, banks would be
denied the protective mantle of the land registration statute, Act 496, which extends only to purchasers for value and good
faith, as well as to mortgagees of the same character and description. Thus, the Court clarified that the rule that persons
dealing with registered lands can rely solely on the certificate of title does not apply to banks.
(2) YES. Simple rationalization would dictate that a mortgagee-bank has no right to deliver to any stranger any property
entrusted to it other than to those contractually and legally entitled to its possession. Undoubtedly, in the absence of the
bank's participation, the Register of Deeds could not have issued the disputed TCTs. The bank should not have allowed
complete strangers to take possession of the owner's duplicate certificate even if the purpose is merely for photocopying for a
danger of losing the same is more than imminent. They should be aware of the conclusive presumption in Section 53. Such act
constitutes manifest negligence on the part of the bank which would necessarily hold it liable for damages under Article 1170
and other relevant provisions of the Civil Code.
In the absence of evidence, the damages that may be awarded may be in the form of nominal damages. Nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or
recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. This award rests on the
mortgagor's right to rely on the bank's observance of the highest diligence in the conduct of its business. The act of RBSP of
entrusting to respondents the owner's duplicate certificate entrusted to it by the mortgagor without even notifying the
mortgagor and absent any prior investigation on the veracity of respondents' claim and character is a patent failure to foresee
the risk created by the act in view of the provisions of Section 53 of P.D. No. 1529. This act runs afoul of every bank's mandate
to observe the highest degree of diligence in dealing with its clients.
I. DISPOSITIVE PORTION:
WHEREFORE, the Decision of the Court of Appeals is AFFIRMED, subject to the modifications herein. Respondent Rural Bank of
San Pascual is hereby ORDERED to PAY petitioners Fifty Thousand Pesos (P50,000.00) by way of nominal damages.
Respondents Consuelo Cruz and Rosalina Cruz-Bautista are hereby DIVESTED of title to, and respondent Register of Deeds of
Meycauayan, Bulacan is accordingly ORDERED to segregate, the portion of fifty (50) square meters of the subject Lot No. 2204,
as depicted in the approved plan covering the lot, marked as Exhibit "A", and to issue a new title covering the said portion in
the name of the petitioners at the expense of the petitioners. No costs.
DAVID SIA TIO and ROBERT SIA TIO, petitioners, vs.
LORENZO ABAYATA, TEODULO ABAYATA, FELICIANO ABAYATA MIRANDO, AUREA ABAYATA GODINEZ, DOLORES
ABAYATA PULVERA, CASILDA ABAYATA BOOC, RAFAELA ABAYATA BAGANO, JEREMIAS ABAYATA and the HEIRS OF
ELENA ABAYATA MANATAD, namely: ALVIN, JESELA, ELENITA, CHONA and SUZETTE represented in this instance by
their father ANTONIO MANATAD, respondents*.
(G.R. No. 160898, THIRD DIVISION, June 27, 2008, AUSTRIA-MARTINEZ, J.)
As a banking institution, it is expected to exercise due diligence before entering into a mortgage contract. The ascertainment of
the status or condition of a property offered to it as security for a loan must be a standard and indispensable part of its
operations.
Abayata, et al. claimed that they were the absolute owners of the property in dispute, a 1,868-square meter parcel of land
located in Lapu-Lapu City, Cebu. They relied on the final Decision rendered by the RTC of Lapu-Lapu City in an action for
recovery of property and ownership. They also alleged that through machinations, Lasola was able to register the property in
his name and mortgage it to secure a loan from the Commercial Rural Bank of Tabogon (Cebu), Inc. (Rural Bank). In turn, the
Rural Bank foreclosed the mortgage and sold the property to Tios in 1898 who registered the property.
Thus, Abayata, et al. filed an action for annulment of mortgage, mortgage sale, a subsequent sale and certificates of title
with the RTC. The Tios and the Rural Bank filed their respective Answers, claiming that they were innocent purchasers for
value and in good faith. Defendant Lasola and his wife were declared in default.
RTC rendered its Decision in favor of Abayata, et al., declaring the TCT in the name of Lasola, Jr., the real estate mortgage,
subsequent auction sale and certificate of sale, Deed of Sale, as null and void. On appeal, CA affirmed in toto the lower court’s
ruling. Hence, the present petition.
ISSUE:
Whether or not Rural Bank is a mortgagee in good faith?
RULING:
NO. Rural Bank is a mortgagee in bad faith. Records confirm that the Rural Bank did not exercise the due diligence required of
banking and financial institutions before entering into the mortgage contract with Lasola. As aptly found by the RTC:
[D]efendant Rural Bank was not a mortgagee in good faith because of its failure to examine more closely the title of
the mortgagors despite the first-hand knowledge that other persons, and not the would-be mortgagors, were in
possession of the property. The very fact that the lot was not in the possession of the Lasolas should have put the
defendant bank on guard and prompted it to make a more thorough inquiry into the ownership of the lot. Defendant
Rural Bank relied on the representation of Banjamin Lasola that the residents on the lot were squatters. There is no
showing that it inquired from the residents themselves as to who the real owners were, something it would have done
if it were reasonably diligent and prudent in verifying the true ownership of the lot. Instead, as testified to by Mrs.
Lechido, the bank relied merely on the declarations of Benjamin Lasola and one resident on the lot that the houses
were built and occupied by squatters.
As a banking institution, it is expected to exercise due diligence before entering into a mortgage contract. The ascertainment of
the status or condition of a property offered to it as security for a loan must be a standard and indispensable part of its
operations.
WHEREFORE, the petition is GRANTED. The Decision dated May 6, 2003 and Resolution dated October 8, 2003, rendered by
the Court of Appeals in CA-G.R. CV No. 56665 are REVERSED and SET ASIDE and Civil Case No. 2230-L is DISMISSED.
BANK OF THE PHILIPPINE ISLANDS, Petitioner, v. DOMINGO R. DANDO, Respondent.
(G.R. NO. 177456, THIRD DIVISION, September 4, 2009, CHICO-NAZARIO, J.)
In Sanchez v. Court of Appeals, the Court restated the reasons that may provide justification for a court to suspend a strict
adherence to procedural rules, such as: (a) matters of life, liberty, honor or property; xxx
Herein, BPI instituted Civil Case No. 03-281 before the RTC to recover the amount it had lent to Dando, plus interest and penalties
thereon, clearly, a matter of property. The substantive right of BPI to recover a due and demandable obligation cannot be denied
or diminished by a rule of procedure, more so, since Dando admits that he did avail himself of the credit line extended by FEBTC,
the predecessor-in-interest of BPI, and disputes only the amount of his outstanding liability to BPI. To dismiss Civil Case No. 03-
281 with prejudice and, thus, bar BPI from recovering the amount it had lent to Dando would be to unjustly enrich Dando at the
expense of BPI.
Dando availed of a loan in the amount of P750,000.00 from Far East Bank and Trust Company (FEBTC), under a Privilege
Cheque Credit Line Agreement. Dando, however, defaulted in the payment of the principal amount of the loan, as well as the
interest and penalties thereon despite repeated demands.
In 2000, BPI and FEBTC merged, with the former as the surviving entity, thus absorbing the rights and obligations of the latter.
Consequently, BPI filed a Complaint for Sum of Money and Damages against Dando before the RTC. Acting on said Motion,
RTC, through Acting Presiding Judge Oscar B. Pimentel set the case for pre-trial conference. BPI, however, only submitted its
Pre-trial Brief with the RTC on the very day of the scheduled Pre-Trial Conference, rather than three days before the same.
Consequently, Dando filed with the RTC his written Motion to Dismiss, for violation of the mandatory rule on filing of pre-trial
briefs. BPI filed an Opposition, arguing that its filing with the RTC of the Pre-Trial Brief on the day of the scheduled pre-trial
conference should be considered as compliance with the rules of procedure given that it did not proceed as scheduled on said
date.
RTC, however, granted the Motion to Dismiss the case with prejudice. As a result, BPI filed a Motion for Reconsideration,
praying for the liberal interpretation of the rules. RTC, now presided by Judge Untalan, reconsidered. Dando sought recourse
from the Court of Appeals by filing a Petition for Certiorari under Rule 65 of the Rules of Court. CA annulled and set aside Judge
Untalan’s Order. Hence, this Petition.
ISSUE:
Whether or not Rule 18 of the Rules of Procedure should be liberally applied in this case?
RULING:
YES. Generally, where words of command such as "shall," "must," or "ought" are employed, they are regarded as mandatory.
Thus, where, as in Rule 18, Sections 5 and 6 of the Rules of Court, the word "shall" is used, a mandatory duty is imposed, which
the courts ought to enforce. However, law and jurisprudence grant to courts the prerogative to relax compliance with
procedural rules of even the most mandatory character, mindful of the duty to reconcile both the need to put an end to
litigation speedily and the parties' right to an opportunity to be heard.
In Sanchez v. Court of Appeals, the Court restated the reasons that may provide justification for a court to suspend a strict
adherence to procedural rules, such as: (a) matters of life, liberty, honor or property; (b) the existence of special or
compelling circumstances; (c) the merits of the case; (d) a cause not entirely attributable to the fault or negligence of the party
favored by the suspension of the rules; (e) a lack of any showing that the review sought is merely frivolous and dilatory; and
(f) the fact that the other party will not be unjustly prejudiced thereby.
Herein, BPI instituted Civil Case No. 03-281 before the RTC to recover the amount it had lent to Dando, plus interest and
penalties thereon, clearly, a matter of property. The substantive right of BPI to recover a due and demandable obligation
cannot be denied or diminished by a rule of procedure, more so, since Dando admits that he did avail himself of the credit line
extended by FEBTC, the predecessor-in-interest of BPI, and disputes only the amount of his outstanding liability to BPI. To
dismiss Civil Case No. 03-281 with prejudice and, thus, bar BPI from recovering the amount it had lent to Dando would be to
unjustly enrich Dando at the expense of BPI.
The failure of BPI to file its Pre-Trial Brief with the RTC and provide Dando with a copy thereof within the prescribed period
under Section 1, Rule 18 of the Rules of Court, was the first and, so far, only procedural lapse committed by the bank in Civil
Case No. 03-281. BPI did not manifest an evident pattern or scheme to delay the disposition of the case or a wanton failure to
observe a mandatory requirement of the Rules. In fact, BPI, for the most part, exhibited diligence and reasonable dispatch in
prosecuting its claim against Dando by immediately moving to set Civil Case No. 03-281 for Pre-Trial Conference after its
receipt of Dando's Answer to the Complaint; and in instantaneously filing a Motion for Reconsideration of the Order of the RTC
dismissing the case.
Accordingly, the ends of justice and fairness would be best served if the parties to Civil Case No. 03-281 are given the full
opportunity to thresh out the real issues and litigate their claims in a full-blown trial. Besides, Dando would not be prejudiced
should the RTC proceed with the hearing of Civil Case No. 03-281, as he is not stripped of any affirmative defenses nor
deprived of due process of law.
Wherefore, premises considered, the instant Petition is GRANTED. The Decision dated 20 November 2006 and Resolution
dated 4 April 2007 of the Court of Appeals in CA-G.R. SP No. 82881 are REVERSED and SET ASIDE. The Orders dated 13
January 2004 and 3 March 2004 in Civil Case No. 03-281, insofar as they set aside the prior Order dated 10 October 2003 of
the same trial court dismissing the Complaint of petitioner Bank of the Philippine Islands for failure of the latter to timely file
its Pre-Trial Brief, is REINSTATED. The Regional Trial Court of Makati City, Branch 149, is DIRECTED to continue with the
hearing of Civil Case No. 03-281 with utmost dispatch, until its termination. No costs.
SECURITY BANK AND TRUST COMPANY, Inc., petitioner,
vs.
RODOLFO M. CUENCA, respondent.
G.R. No. 138544, October 3, 2000, PANGANIBAN, J.:
Doctrine: It is a common banking practice to require the JSS ("joint and solidary signature") of a major stockholder or
corporate officer, as an additional security for loans granted to corporations. There are at least two reasons for this: (a) In case
of default, the creditor’s recourse, which is normally limited to the corporate properties under the veil of separate corporate
personality, would extend to the personal assets of the surety. (b) Such surety would be compelled to ensure that the loan
would be used for the purpose agreed upon, and that it would be paid by the corporation.
Statement of the Facts: Petitioner Security Bank and Trust Co. granted defendant-appellant Sta. Ines Melale Corporation
(SIMC) a credit line in the amount of ₱8,000,000.00, to assist the latter in meeting the additional capitalization requirements of
its logging operations, effective until 30 November 1981. To secure the payment of the amounts drawn by appellant SIMC, the
latter executed a Chattel Mortgage over some of its machinery and equipment in favor of petitioner SBTC. As additional
security for the payment of the loan, respondent Rodolfo M. Cuenca executed an Indemnity Agreement in favor of petitioner
whereby he solidarily bound himself with SIMC for said payment including the substitutions, renewals, extensions, increases,
amendments, conversions and revivals of the aforesaid credit accommodations. Consequently, four (4) days prior to the
expiration of the aforesaid credit loan facility, the appellant SIMC made a first drawdown from its credit line with SBTC in the
amount of ₱6,100,000.00 covered by a promissory note. Thereafter, respondent Cuenca resigned as the President and
Chairman of the Board of Directors of SIMC and his shareholdings were sold at public auction which were bought by Adolfo
Angala as the highest bidder. Subsequently, appellant SIMC repeatedly availed of its credit line and obtained six (6) other loans
from petitioner SBTC covered by promissory notes. Appellant SIMC, however, encountered difficulty in making the
amortization payments on its loans and requested the petitioner SBTC for a complete restructuring of its indebtedness. Such
request was accommodated by SBTC which signified its approval in a letter wherein SBTC and defendant-appellant SIMC,
without notice to or the prior consent of respondent Cuenca, agreed to restructure the past due obligations of defendant-
appellant. In order to formalize their agreement to restructure the loan obligations of defendant-appellant, petitioner Security
Bank and defendant-appellant Sta. Ines executed a Loan Agreement. SIMC defaulted in the payment of its restructured loan
obligations to SBTC despite demands made upon appellant SIMC and respondent CUENCA. Thus, SBTC filed a complaint for
collection of sum of money before the RTC.
Statement of the Case: The RTC ruled in favor of SBTC. Respondent Cuenca appealed to the CA which ruled that the1989 Loan
Agreement had novated the 1980 credit accommodation earlier granted by the bank to Sta. Ines, and therefore, such novation
extinguished the Indemnity Agreement by which Cuenca had bound himself solidarily liable for the payment of the loans
secured by that credit accommodation. It noted that the 1989 Loan Agreement had been executed without notice and consent
from Cuenca who at the time was no longer a stockholder of the corporation. Hence, it ruled that Cuenca was liable only for
loans obtained prior to November 30, 1981, and only for an amount not exceeding ₱8 million. It further held that the
restructuring of Sta. Ines’ obligation under the 1989 Loan Agreement was tantamount to a grant of an extension of time to the
debtor without the consent of the surety. The CA also opined that the surety was entitled to notice, in case the bank and Sta.
Ines decided to materially alter or modify the principal obligation after the expiry date of the credit accommodation. Hence,
this recourse to this Court.
Issues:
(a) whether the 1989 Loan Agreement novated the original credit accommodation and Cuenca’s liability under the
Indemnity Agreement; and
(b) whether Cuenca waived his right to be notified of and to give consent to any substitution, renewal, extension,
increase, amendment, conversion or revival of the said credit accommodation.
Ruling: The Petition has no merit.
(a) Yes. The 1989 Loan Agreement novated the original credit accommodation and Cuenca’s liability under the Indemnity
Agreement in pursuant to Article 1292 of the Civil Code. This Court rejected the contentions of the petitioner that
there was no absolute incompatibility between the old and new obligation, and therefore, the latter did not extinguish
the earlier one. Clearly, the requisites of novation are present in this case. This is evident from the explicit provision of
the latter agreement that is to "liquidate" the principal and the interest of the earlier indebtedness while the provision
under the later loan agreement provided that the proceeds were used "to pay-off" the original indebtedness.
Furthermore, several incompatibilities between the 1989 Agreement and the 1980 original obligation demonstrate
that the two cannot coexist. While the 1980 credit accommodation had stipulated that the amount of loan was not to
exceed ₱8 million, the 1989 Agreement provided that the loan was ₱12.2 million. The periods for payment were also
different. Likewise, the later contract contained conditions, "positive covenants" and "negative covenants" not found
in the earlier obligation. Moreover, respondent did not sign or consent to the 1989 Loan Agreement. Hence, his
obligation as a surety should be deemed extinguished, pursuant to Article 2079 of the Civil Code.
(b) No. Respondent Cuenca did not waive his right to be notified of and to give consent to any substitution, renewal,
extension, increase, amendment, conversion or revival of the said credit accommodation. The Supreme Court
emphasized that the essential alteration in the terms of the Loan Agreement without the consent of the surety
extinguishes the latter’s obligation. Hence, petitioner’s assertion that respondent consented to the alterations in the
credit accommodation finds no support in the text of the Indemnity Agreement pursuant to the clause which states
that he will be held liable as to the "credit accommodation including [its] substitutions, renewals, extensions, increases,
amendments, conversions and revival." It should be understood in the context of the ₱8 million limit and the
November 30, 1981 term. It did not give the bank or Sta. Ines any license to modify the nature and scope of the
original credit accommodation, without informing or getting the consent of respondent who was solidarily liable. It
should also be observed that the Credit Approval Memorandum clearly shows that the bank did not have absolute
authority to unilaterally change the terms of the loan accommodation. However, it may do so only upon notice to the
borrower. Although the Indemnity Agreement is a continuing surety, it does not authorize the bank to extend the
scope of the principal obligation inordinately
Moreover, it is a common banking practice to require the JSS ("joint and solidary signature") of a major
stockholder or corporate officer, as an additional security for loans granted to corporations. There are at least
two reasons for this: (a) In case of default, the creditor’s recourse, which is normally limited to the corporate
properties under the veil of separate corporate personality, would extend to the personal assets of the surety. (b) Such
surety would be compelled to ensure that the loan would be used for the purpose agreed upon, and that it would be
paid by the corporation. Following this practice, it was therefore logical and reasonable for the bank to have required
the JSS of respondent, who was the chairman and president of Sta. Ines in 1980 when the credit accommodation was
granted. There was no reason or logic, however, for the bank or Sta. Ines to assume that he would still agree to act as
surety in the 1989 Loan Agreement, because at that time, he was no longer an officer or a stockholder of the debtor-
corporation. Verily, he was not in a position then to ensure the payment of the obligation. Neither did he have any
reason to bind himself further to a bigger and more onerous obligation.
Indeed, the stipulation in the 1989 Loan Agreement providing for the surety of respondent, without even informing
him, smacks of negligence on the part of the bank and bad faith on that of the principal debtor. Since that Loan
Agreement constituted a new indebtedness, the old loan having been already liquidated, the spirit of fair play should
have impelled Sta. Ines to ask somebody else to act as a surety for the new loan. In the same vein, a little prudence
should have impelled the bank to insist on the JSS of one who was in a position to ensure the payment of the loan.. As
it is, the bank is now relying on an unclear Indemnity Agreement in order to collect an obligation that could have been
secured by a fairly obtained surety. For its defeat in this litigation, the bank has only itself to blame.
In sum, we hold that the 1989 Loan Agreement extinguished by novation the obligation under the 1980 ₱8 million
credit accommodation. Hence, the Indemnity Agreement, which had been an accessory to the 1980 credit
accommodation, was also extinguished. Furthermore, we reject petitioner’s submission that respondent waived his
right to be notified of, or to give consent to, any modification or extension of the 1980 credit accommodation.
Dispositive portion: WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO
ORDERED.
STATE INVESTMENT HOUSE INC., petitioner,
vs.
COURT OF APPEALS, LOMUYON TIMBER INDUSTRIES, INC., AMANDA MALONJAO, and RUFINO MALONJAO, respondents.
G.R. No. 112590* July 12, 2001 KAPUNAN, J.:
Doctrine: In exercising this vested power to determine what is iniquitous and unconscionable, the Court must consider the
circumstances of each case. The disallowance of the payment of deficiency was in effect merely a reduction of the penalty
charges and not as a deletion of the penalties. Although petitioner claims that the penalty charge was well within the banking
and business practice, no proof was adduced thereof.
Statement of the Facts: In the sale that should a receivable remain unpaid, the plaintiff may impose a penalty fee of 3% per
month at its own discretion. Such receivables were secured by the Malonjaos with a real estate mortgage over their real
property. Pursuant to their agreement, Lomuyon sold to plaintiff various receivables consisting of checks. Consequently,
TCBTC (The Consolidated Bank and Trust Corporation) checks were all drawn by Amanda Malonjao to the order of payee
Lomuyon which in turn, indorsed the checks to plaintiff. The MBTC (Metropolitan Bank and Trust Company) check was drawn
by one Antonietta Malonjao-Roque to the order of payee Amanda Malonjao who in turn, indorsed said check to
plaintiff. Thereafter, when the latter presented the checks for payment to the drawee banks, the same were dishonored for
having been drawn against insufficient funds. Plaintiff made repeated written demands on defendants to make good the
checks they indorsed and to pay the penalty charges it has imposed thereon. However, the defendants failed to pay the value of
the checks which made the Plaintiff decided to undertake foreclosure of the real estate mortgage.
Plaintiff filed with the Provincial Sheriff of Rizal a petition for extrajudicial foreclosure of real estate mortgage. The Provincial
Sheriff sold at public auction, defendants mortgaged properties to plaintiff who was the highest bidder. Subsequently, plaintiff
filed the complaint alleging that after deducting the price of the mortgaged properties from defendants' outstanding
obligation, there remains a deficiency inclusive of interest and charges. As an alternative cause of action, plaintiff alleged that it
is entitled to recover from the defendant the total value of the checks, and it further prayed that it be awarded exemplary
damages, attorney's fees and litigation expenses.
Statement of the Case: The trial court ruled that the plaintiff is not entitled to any deficiency amount from the defendants. On
appeal, the CA rendered a decision affirming the lower court in disallowing the claim for deficiency with such finding that the
penalty charges imposed by petitioner on the principal obligation were highly iniquitous and unconscionable. Petitioner filed a
motion for reconsideration reiterating its position but it was denied. Hence, this case before the Supreme Court.
Issue: Whether or not the plaintiff is entitled to any deficiency amount from the defendant.
Ruling: No. The Supreme Court does not find any reversible error committed by the respondent court in ruling that the
petitioner was no longer entitled to recover any deficiency amount after the foreclosure sale pursuant to Article 1229. The
respondent court disallowed the payment of the deficiency altogether because it found that tile principal obligation of the
private respondent would not have ballooned to such a horrendous amount of P4.8M if not for the penalty charge of 3% per
month or 36% per annum. The disallowance of the payment of deficiency was in effect merely a reduction of the penalty
charges and not as a deletion of the penalties as contended by the petitioner.
In exercising this vested power to determine what is iniquitous and unconscionable, the Court must consider the
circumstances of each case. It should be stressed that the Court will not make any sweeping ruling that surcharges and
penalties imposed by banks for non-payment of the loans extended by them are generally iniquitous and unconscionable.
Likewise, in the case at bar, the two courts below found the penalty charge of 3% a month or 36% per annum inquitious and
unconscionable. Petitioner computed the amount of P4,809,187.12, as the outstanding obligation of the petitioner as of
September 21, 1981 after imposing the 3% penalty charge when petitioner defaulted in their payments. These foreclosed
properties located in Makati are undoubtedly valuable properties whose market value has greatly appreciated to
substantially satisfy the payment of the outstanding obligation. Notwithstanding the balance of P575,313.12,
petitioner has clearly recouped its investment and earned more than enough profit in two years (1978-1981) by way
of penalty charges. Although petitioner claims that the penalty charge was well within the banking and business
practice, no proof was adduced thereof. To allow the petitioner to recover the amount of P6,835,021.21 at the time of
the foreclosure sale in 1983, or P7,651,969.41 at the time of the trial of the case in 1988 which amounts are almost
three times more than the original investment of about P2,558.073.75 is rather unwarranted.
After due consideration and reflection on all the factual circumstances obtaining in the case at bar, it is the opinion of this
Court that the lower court properly exercised its discretion under Article 1229 of the Civil Code to reduce the penalty charges
for being highly and grossly unconscionable
Dispositive Portion: ACCORDINGLY, the judgment appealed from is hereby AFFIRMED. SO ORDERED.
THE COSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), petitioner
vs.
THE COURT OF APPEALS, CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and SPOUSE, respondents.
G.R. No. 114286, April 19, 2001, YNARES-SANTIAGO, J.:
Doctrine: While it may be acceptable, for practical reasons given the fluctuating economic conditions, for banks to stipulate
that interest rates on a loan not be fixed and instead be made dependent upon prevailing market conditions, there should
always be a reference rate upon which to peg such variable interest rates.
Statement of the Facts: Respondents Continental Cement Corporation and respondent Gregory T. Lim obtained from
petitioner Consolidated Bank and Trust Corporation a letter of credit in the amount of P 1,068,150.00. Such was used to
purchase around five hundred thousand liters of bunker fuel oil from Petrophil Corporation, which the latter delivered directly
to respondent Corporation in its Bulacan plant. In relation to the same transaction, a trust receipt was executed by respondent
Corporation, with respondent Lim as signatory. Claiming that respondents failed to turn over the goods covered by the trust
receipt or the proceeds thereof, petitioner filed a complaint for sum of money with application for preliminary attachment
before the RTC. In answer to the complaint, respondents averred that the transaction between them was a simple loan and not
a trust receipt transaction, and that the amount claimed by petitioner did not take into account payments already made by
them. Respondent Lim also denied any personal liability in the subject transactions.
Statement of the Case: The trial court rendered its decision dismissing the Complaint and ordering petitioner to pay
respondents under their counterclaim representing overpayment of respondent Corporation. On appeal, the CA modified the
decision of the lower court by deleting the award of attorney's fees in favor of respondents, and instead ordering respondent
Corporation to pay petitioner for attorney's fees and litigation expenses. Hence, the instant petition.
Issues: (1) Whether or not the manner of computation of the marginal deposit by the respondent appellate court is
accordance with the banking practice.
(2) Whether or not the agreement among the parties as to the floating of interest rate is valid under applicable
jurisprudence and the rules and regulations of the Central Bank.
(3) Whether or not the respondent appellate court grievously erred in not considering the transaction at bar as a trust
receipt transaction.
Ruling: The petition must be denied.
(1) Yes. Petitioner's contention that the marginal deposit made by respondent Corporation should not be deducted
outright from the amount of the letter of credit is untenable. Petitioner’s argument that the marginal deposit should
be considered only after computing the principal plus accrued interest and other charges cannot be sustained as this
would be to countenance a clear case of unjust enrichment, for while a marginal deposit earns no interest in favor
of the debtor-depositor, the bank is not only able to use the same for its own purposes, interest-free, but is
also able to earn interest on the money loaned to respondent Corporation. Indeed, it would be onerous to
compute interest and other charges on the face value of the letter of credit which the petitioner issued, without first
crediting or setting off the marginal deposit which the respondent Corporation paid to it. Hence, the interests and
other charges on the subject letter of credit should be computed only on the balance which was the portion actually
loaned by the bank to respondent Corporation.
(2) No. The agreement as to the floating of interest rate is invalid. This Court held that the trust receipt agreement
provision providing for stipulation in fixing the interest rates is invalid, there being no reference rate set either by it
or by the Central Bank, leaving the determination thereof at the sole will and control of petitioner. While it may be
acceptable, for practical reasons given the fluctuating economic conditions, for banks to stipulate that interest rates on
a loan not be fixed and instead be made dependent upon prevailing market conditions, there should always be a
reference rate upon which to peg such variable interest rates. A stipulation ostensibly signifying an agreement to "any
increase or decrease in the interest rate," without more, cannot be accepted by this Court as valid for it leaves solely to
the creditor the determination of what interest rate to charge against an outstanding loan.
(3) No. Petitioner failed to convince this Court that such transaction with the respondent corporation is a trust receipt
transaction instead of merely a simple loan. The delivery to respondent Corporation of the goods subject of the trust
receipt occurred long before the trust receipt itself was executed. The subject trust receipt was only executed nearly
two months after full delivery of the oil was made to respondent Corporation. The practice of banks of making
borrowers sign trust receipts to facilitate collection of loans and place them under the threats of criminal prosecution
should they be unable to pay it may be unjust and inequitable if not reprehensible. Such agreements are contracts of
adhesion which borrowers have no option but to sign lest their loan be disapproved. By all indications, then, it is
apparent that there was really no trust receipt transaction that took place. Evidently, respondent Corporation was
required to sign the trust receipt simply to facilitate collection by petitioner of the loan it had extended to the former.
Dispositive portion: WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The Decision of the
Court of Appeals dated July 26, 1993 in CA-G.R. CY No.29950 is AFFIRMED. SO ORDERED.
SPOUSES MARIANO and GILDA FLORENDO, petitioners,
vs.
COURT OF APPEALS and LAND BANK OF THE PHILIPPINES, respondents.
G.R. No. 101771 December 17, 1996 PANGANIBAN, J.
Doctrine: Escalation clauses are valid stipulations in commercial contracts to maintain fiscal stability and to retain the value
of money in long term contracts.
Statement of the Facts: Petitioner Gilda Florendo was an employee of the respondent bank from 1976 until 1984 when she
voluntarily resigned. Before her resignation, she applied for housing loan payable within 25 years from respondent bank’s
provident fund. As a result, the parties executed a Housing Loan Agreement, Real Estate Mortgage, and a promissory note.
Consequently, the respondent bank increased the interest rate of petitioner’s loan from 9% to 17% per annum which would
take effect on March 1985. The petitioners protested such increase and maintained that it was unlawful and unjustifiable.
Because of respondent bank’s repeated demands, petitioners were forced to file the instant suit for Injunction and Damages.
Thereafter, petitioners have faithfully paid and discharged their loan obligations in the original stipulated installment
disregarding the demands of respondent bank for increased interest and monthly installment.
Section I-F of Article VI of the Housing Loan Agreement provides that, for as long as the loan or any portion thereof or any
sum that may be due and payable under the said loan agreement remains outstanding, the borrower shall comply with all the
rules and regulations of the program imposed by the LENDER and to comply with all the rules and regulations that the Central
Bank of the Philippines has imposed or will impose in connection with the financing programs for bank officers and employees
in the form of fringe benefits. Paragraph (f) of the Real Estate Mortgage which states that the rate of interest charged on the
obligation secured by this mortgage shall be subject, during the life of this contract, to such an increase/decrease in
accordance with prevailing rules, regulations and circulars of the Central Bank of the Philippines as the Provident Fund Board
of Trustees of the Mortgagee may prescribe for its debtors and subject to the condition that the increase/decrease shall only
take effect on the date of effectivity of said increase/decrease and shall only apply to the remaining balance of the loan. On the
other hand, the ManCom (Management Committee) Resolution, together with PF (Provident Fund) Memorandum Circular
provides for the escalation of the interest rates on outstanding housing loans of bank employees who voluntarily "secede"
(resign) from the Bank.
Statement of the Case: The trial court ruled in favor of respondent bank, and held that the bank was vested with authority to
increase the interest rate and the corresponding monthly amortizations pursuant to said escalation provisions in the housing
loan agreement and the mortgage contract. The CA subsequently affirmed with modification the decision of the trial court in
the sense that the interest of 17% on the balance of the loan of the spouses shall be computed starting July 1, 1985.
Dissatisfied, the petitioners had recourse to this Court.
Issue: Whether or not a bank unilaterally raise the interest rate on a housing loan granted an employee, by reason of the
voluntary resignation of the borrower.
Ruling: We note that Section 1-F of Article VI of the HLA cannot be read as an escalation clause as it does not make any
reference to increases or decreases in the interest rate on loans. However, paragraph (f) of the mortgage contract is clearly
and indubitably an escalation provision, and therefore, the parties were and are bound by the said stipulation. The Court
reiterated the rule that escalation clauses are valid stipulations in commercial contracts to maintain fiscal stability and to
retain the value of money in long term contracts.
In the case at bar, the loan was perfected on July 20, 1983. PD No. 116, CB Circular No. 416, CB Circ. 504, CB Circ. 706, and CB
Circ. 905 which lifted any interest rate ceiling prescribed under or pursuant to the Usury Law, was promulgated in 1982.
These and other relevant CB issuances had already come into existence prior to the perfection of the housing loan agreement
and mortgage contract, and thus it may be said that these regulations had been taken into consideration by the contracting
parties when they first entered into their loan contract. In light of the CB issuances in force at that time, respondent bank was
fully aware that it could have imposed an interest rate higher than 9% per annum rate for the housing loans of its employees,
but it did not. In the subject loan, the respondent bank knowingly agreed that the interest rate on petitioners' loan shall
remain at 9% p.a. unless a CB issuance is passed authorizing an increase (or decrease) in the rate on such employee loans and the
Provident Fund Board of Trustees acts accordingly. Thus, as far as the parties were concerned, all other onerous factors, such as
employee resignations, which could have been used to trigger an application of the escalation clause were considered barred
or waived. If the intention were otherwise, they — especially respondent bank — should have included such factors in their
loan agreement.
ManCom Resolution No. 85-08, which is neither a rule nor a resolution of the Monetary Board, cannot be used as basis
for the escalation in lieu of CB issuances, since paragraph (f) of the mortgage contract very categorically specifies that any
interest rate increase be in accordance with "prevailing rules, regulations and circulars of the Central. Without such CB
issuance, any proposed increased rate will never become effective. Also, by virtue of CB Circular 905, the Usury Law has been
rendered ineffective. Thus, petitioners' contention that the escalation clause is violative of the said law is bereft of any merit.
On the other hand, it will not be amiss to point out that the unilateral determination and imposition of increased
interest rates by the herein respondent bank is obviously violative of the principle of mutuality of contracts ordained
in Article 1308 of the Civil Code. The respondent bank tried to sidestep this difficulty by averring that petitioner Gilda
Florendo as a former bank employee was very knowledgeable concerning respondent bank's lending rates and procedures,
and therefore, petitioners were "on an equal footing" with respondent bank as far as the subject loan contract was concerned.
That may have been true insofar as entering into the original loan agreement and mortgage contract was concerned. However,
that does not hold true when it comes to the determination and imposition of escalated rates of interest as unilaterally
provided in the ManCom Resolution, where she had no voice at all in its preparation and application.
The bank had the option to impose in its loan contracts the condition that resignation of an employee-borrower would be a
ground for escalation. The fact is it did not. Hence, it must live with such omission. And it would be totally unfair to now
impose said condition, not to mention that it would violate the principle of mutuality of consent in contracts. It goes without
saying that such escalation ground can be included in future contracts — not to agreements already validly entered into.
This Court understands respondent bank's position that the concessional interest rate was really intended as a means to
remunerate its employees and thus an escalation due to resignation would have been a valid stipulation. But no such
stipulation was in fact made, and thus the escalation provision could not be legally applied and enforced as against herein
petitioners.
Dispositive Portion: WHEREFORE, the petition is hereby GRANTED. The Court hereby REVERSES and SETS ASIDE the
challenged Decision of the Court of Appeals. The interest rate on the subject housing loan remains at nine (9) percent per
annum and the monthly amortization at P1,248.72. SO ORDERED.
SECURITY BANK AND TRUST COMPANY, petitioner, vs. REGIONAL TRIAL COURT OF MAKATI, BRANCH 61,
MAGTANGGOL EUSEBIO and LEILA VENTURA, respondents.
G.R. No. 113926, FIRST DIVISION, October 23, 1996, HERMOSISIMA, JR., J.
Doctrine:
In a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof, the rate
shall be 12% per annum. Hence, only in the absence of a stipulation can the court impose the 12% rate of interest.
Statement of Facts:
This is a petition for certiorari questioning the decision of Judge Gorospe of RTC Makati, which found private respondent
Eusebio liable to petitioner for a sum of money. Interest was lowered by the court a quo from 23% per annum as agreed upon
by the parties to 12% per annum.
The private respondent, Eusebio, executed three different promissory notes with a stipulated interest of 23% per annum in
favor of petitioner Bank. On all the above mentioned promissory notes, private respondent Leila Ventura had signed as co-
maker.
Upon the failure and refusal of respondent Eusebio to pay the aforestated balance payable, a collection case was filed in court
by petitioner SBTC.
Consequently, an Order was issued by the court a quo denying the motion to grant the rates of interest beyond 12% per
annum; and holding defendant Leila Ventura jointly and severally liable with co-defendant Eusebio.

A collection case was filed in court by petitioner SBTC. The court a quo rendered a judgment in favor of petitioner SBTC setting
the interest at 12% per annum.
A motion for partial reconsideration was filed by petitioner SBTC contending that the interest rate agreed upon by the parties
during the signing of the promissory notes was 23% per annum.
An Order was issued by the court a quo denying the motion to grant the rates of interest beyond 12% per annum; and holding
defendant Leila Ventura jointly and severally liable with co-defendant Eusebio.
Issue/s:
Whether or not the 23% rate of interest per annum agreed upon by petitioner bank and respondents is allowable and not
against the Usury Law. (YES)
Ruling:
In a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof, the rate
shall be 12% per annum. Hence, only in the absence of a stipulation can the court impose the 12% rate of interest.
In the case at bar, parties agreed to 23% interest per annum. The law that governs this interest is the Central Bank Circular No.
905 which took effect on December 22, 1982. Contrary to the claim of respondent court, this circular did not repeal nor in any
way amend the Usury Law but simply suspended the latter’s effectivity.
Further, it held that the promissory notes were signed by both parties voluntarily. Therefore, stipulations therein are binding
between them for it is in accordance with Article 1306 of the Civil Code. Apparent in the facts is that none of the parties
questioned the agreed rate, and the only desire of respondent Eusebio is to negotiate with the petitioner bank for „terms
within which to settle his obligation.
IN VIEW OF THE FOREGOING, the decision of the respondent court a quo, is hereby AFFIRMED with the MODIFICATION that
the rate of interest that should be imposed be 23% per annum.
CAPITAL CREDIT DIMENSION, INC., petitioner, vs. ALLAN VITA CHUA, ALFREDO VITA, JR., NELSON P. VITA, MANUEL P.
VITA, and LORNA P. VITA, respondents.
G.R. No. 157213, SECOND DIVISION, April 28, 2004, PUNO, J.
Doctrine:
In Philippine National Bank v. Court of Appeals we have ruled that an ex-parte writ of possession issued pursuant to Act No.
3135, as amended, cannot be enforced against a third person who is in actual possession of the foreclosed property and who is
not in privity with the debtor/mortgagor. To do so would be to sanction his summary ejectment in violation of the basic tenets
of due process
Statement of Facts:
Respondents appear to be the registered co-owners of the residential property located at No. 25 Yale St., Cubao, Quezon City.
Through a purported Deed of Sale executed by them in favor of Jesus Cunanan, married to Melodina Cunanan, their certificate
of title was cancelled and a new certificate of title was issued in the name of Jesus Cunanan.
Jesus Cunanan mortgaged the property to petitioner Capital Credit Dimension, Inc. ("CCDI") for a loan of P2,350,000.00. When
he failed to pay the loan, the mortgage was extrajudicially foreclosed. It was sold at public auction to CCDI as the highest
bidder. The one-year period of redemption expired and petitioner CCDI consolidated its ownership. TCT No. N-211793 was
issued in its name. Petitioner CCDI then filed a petition for the issuance of a writ of possession over the subject property before
the Regional Trial Court of Quezon City, Branch 97.
Respondent Allan Vita Chua filed a motion to intervene in the proceeding. He alleged that the Deed of Sale executed in favor of
Jesus Cunanan was void as his father, Juanito Chua, stole the owner's copy of TCT No. 91086 (348965) from his residence and
forged his signature and those of his co-owners as sellers. He further alleged that they have filed a case for annulment of deed
of sale, transfer certificates of title and public auction sale ("annulment case") before the Regional Trial Court of Quezon City,
Branch 100. He prayed that the possessory petition be consolidated with the annulment case. His motion was denied. He
challenged the denial in the Court of Appeals but again lost the case. We, in turn, denied the petition to review the Court of
Appeals' decision on technical grounds in our Resolution dated April 3, 2002 in G.R. No. 151399.
It likewise appears that the RTC of Quezon City, Branch 100, decided the annulment case in favor of the respondents Allan
Chua and the Vitas. Petitioner CCDI appealed the decision. Its appeal is still pending before the Court of Appeals.
The possessory petition was resolved by the RTC of Quezon City, Branch 97, in favor of petitioner CCDI,
Faced with eviction, respondents Allan Vita Chua and the Vitas filed a petition for prohibition before the Court of Appeals to
enjoin the implementation of its Order. The Court of Appeals granted the petition in its now assailed Decision. Hence, this
petition.
Issue/s:
Whether the Court of Appeals erred in prohibiting the implementation of the writ of possession against respondents
considering that its issuance is ministerial and cannot be affected by a pending suit to annul the mortgage or its foreclosure.
(NO)
Ruling:
In Philippine National Bank v. Court of Appeals we have ruled that an ex-parte writ of possession issued pursuant to Act No.
3135, as amended, cannot be enforced against a third person who is in actual possession of the foreclosed property and who is
not in privity with the debtor/mortgagor. To do so would be to sanction his summary ejectment in violation of the basic tenets
of due process. This is because properties brought within the ambit of Act No. 3135, unlike those subject to judicial
foreclosure, are foreclosed by the mere filing of a petition with the office of the sheriff of the province where the sale is to be
made. A third person in possession of the extrajudicially foreclosed property, who claims a right superior to that of the original
mortgagor, is thus given no opportunity to be heard in his claim. Considering the lack of opportunity, such third person may
therefore not be dispossessed on the strength of a mere ex-parte possessory writ issued in foreclosure proceedings to which
he was not a party.
The cases cited by petitioner to support his claim that the issuance of a writ of possession in favor of the mortgagee of a
foreclosed property after the period of redemption has expired is ministerial upon the trial court do not apply since the parties
who filed the cases questioning the mortgage and its foreclosure were the debtors/mortgagors themselves, not third parties,
as in the instant case. SE
IN VIEW WHEREOF, the petition is DENIED. The questioned Decision dated February 13, 2003 of the Court of Appeals in CA-
G.R. SP No. 71703 is AFFIRMED. No costs.
Spouses REMPSON SAMSON and MILAGROS SAMSON; and REMPSON REALTY & DEVELOPMENT CORPORATION,
petitioners, vs. Judge MAURICIO M. RIVERA, in His Capacity as Presiding Judge of the Regional Trial Court of Antipolo
City, Branch 73; Atty. JOSELITA MALIBAGO-SANTOS, in Her Capacity as Ex Oficio Sheriff, RTC of Antipolo City; and
LENJUL REALTY CORPORATION, respondents.
G.R. No. 154355, FIRST DIVISION, May 20, 2004, PANGANIBAN, J.
Doctrine:
This Court has consistently held that the duty of the trial court to grant a writ of possession is ministerial. Such writ issues as a
matter of course upon the filing of the proper motion and the approval of the corresponding bond. No discretion is left to the
trial court. Any question regarding the regularity and validity of the sale, as well as the consequent cancellation of the writ, is
to be determined in a subsequent proceeding as outlined in Section 8 of Act 3135. Such question cannot be raised to oppose
the issuance of the writ, since the proceeding is ex parte. The recourse is available even before the expiration of the
redemption period provided by law and the Rules of Court.
Statement of Facts:
Petitioner Spouses Samson incurred from Far East Bank and Trust Company (FEBTC) loan obligations, the principal of which
amounted to (₱55,000,000) in order to secure the payment of the loan obligations, Spouses Samson executed in favor of
FEBTC two real estate mortgages covering five parcels.
Petitioner spouses failed to settle their loan obligations. Thus FEBTC filed an Application for Extra-Judicial Foreclosure of Real
Estate Mortgage before (RTC) of Antipolo City.
Acting on the application, the Office of the Clerk of Court and Ex-Officio Sheriff issued a Notice of Sheriff Sale setting the
foreclosure sale on June 22, 2000. There was only one bidder during the foreclosure sale the sheriff postponed the auction.
Auction sale proceeded with two bidders participating -- FEBTC and Lenjul Realty and Development Corporation, with the
latter declared as the highest bidder in the amount of eighty million pesos (₱80,000,000). A Certificate of Sheriff’s Sale was
issued confirming the sale of the foreclosed properties to the winning bidder.Shortly thereafter, the Certificate of Sale was
registered with the Registry of Deeds of Antipolo City.
Private Respondent Lenjul Realty filed a Petition for the Issuance of a Writ of Possession, which sought an ex parte issuance of
a writ of possession over the foreclosed properties.
While the Petition was pending, Spouses Samson and Rempson Corporation filed with the Antipolo City RTC, an action for
Annulment of Extra-Judicial Foreclosure and/or Nullification of Sale and the Certificates of Title, plus Reconveyance and
Damages with Prayer for a Temporary Restraining Order and/or Writ of Preliminary Injunction. Petitioners filed it against
Lenjul Realty Corporation, FEBTC, Bank of the Philippine Islands, Joselita Malibao-Santos in her capacity as the clerk of court
and ex officio sheriff of the Antipolo City RTC, and the Register of Deeds of Antipolo City.
On November 5, 2001, Judge Rivera gave due course to the Petition for the Issuance of a Writ of Possession and denied the
Opposition of Spouses Samson and Rempson Corporation. Thus, they filed their respective Motions for Reconsideration.
On February 11, 2002, Judge Rivera denied reconsideration of the Order giving due course to the Petition for the Issuance of
the Writ of Possession and directed the issuance of such writ of possession.
On February 20, 2002, Judge Rivera issued an Order granting petitioners’ Motion for Reconsideration with regard to the
September 18, 2001 Order denying the consolidation of cases.
On February 26, 2002, a Writ of Possession was issued directing the sheriff of the Antipolo City RTC to place Lenjul Realty
Corporation in physical possession of the foreclosed properties. On the same date, the sheriff issued a Notice to Vacate
addressed to Rempson Corporation, ordering it to leave the properties on or before March 2, 2002.
On February 22, 2002, petitioners filed with the Court of Appeals the aforesaid Special Civil Action for Certiorari with
Prohibition/Mandamus under Rule 65 with an Application for Issuance of a Writ of Preliminary Injunction and/or Temporary
Restraining Order to annul the November 5, 2001 and the February 11, 2002 Orders of Judge Rivera.
The Court of Appeals ruled that certiorari was improper, because there was an adequate remedy in the ordinary course of law.
Citing Section 8 of Act No. 3135, it opined that petitioners’ remedy was to file a petition to set aside the foreclosure sale and to
cancel the writ of possession in LR Case No. 01-2698. The CA further noted that certiorari was premature inasmuch as
petitioners had failed to file a motion for reconsideration of the Order directing the issuance of the writ of possession.
In denying the Motion for Reconsideration, the Court of Appeals held that the issuance of a writ of possession was a ministerial
function that was done upon the filing of the proper motion and the approval of the corresponding bond. It further ruled that
prohibition did not lie to enjoin the implementation of the writ.
Hence this Petition.
Issue/s:
(1) Whether the trial court committed grave abuse of discretion in granting the Petition for the Issuance of a Writ of
Possession. (NO)
(2) Whether the filing of a Petition for Certiorari with the Court of Appeals was the proper remedy. (NO)
Ruling:
(1) Issuance of the Writ is explicitly authorized by Act 3135 (as amended by Act 4118), which regulates the methods of
effecting an extrajudicial foreclosure of mortgage.
The purchaser in a foreclosure sale may apply for a writ of possession during the redemption period by filing for that purpose
an ex parte motion under oath, in the corresponding registration or cadastral proceeding in the case of a property with
Torrens title. Upon the filing of such motion and the approval of the corresponding bond, the court is expressly directed to
issue the writ.
This Court has consistently held that the duty of the trial court to grant a writ of possession is ministerial. Such writ issues as a
matter of course upon the filing of the proper motion and the approval of the corresponding bond. No discretion is left to the
trial court. Any question regarding the regularity and validity of the sale, as well as the consequent cancellation of the writ, is
to be determined in a subsequent proceeding as outlined in Section 8 of Act 3135. Such question cannot be raised to oppose
the issuance of the writ, since the proceeding is ex parte. The recourse is available even before the expiration of the
redemption period provided by law and the Rules of Court.
The purchaser, who has a right to possession that extends after the expiration of the redemption period, becomes the absolute
owner of the property when no redemption is made. Hence, at any time following the consolidation of ownership and the
issuance of a new transfer certificate of title in the name of the purchaser, he or she is even more entitled to possession of the
property. In such a case, the bond required under Section 7 of Act 3135 is no longer necessary, since possession becomes an
absolute right of the purchaser as the confirmed owner.
This Court has long settled that a pending action for annulment of mortgage or foreclosure does not stay the issuance of a writ
of possession. Therefore, the contention of petitioners that the RTC should have consolidated Civil Case No. 01-6219 with LR
Case No. 01-2698 and resolved the annulment case prior to the issuance of the Writ of Possession is unavailing.
(2) Petitioners pursued the wrong remedy. A special civil action for certiorari could be availed of only if the lower tribunal has
acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction; and if
there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of law.
There is grave abuse when the court -- in the exercise of its judgment -- acts in a capricious, whimsical, arbitrary or despotic
manner equivalent to acting with lack of jurisdiction. Considering that the trial court issued the Writ of Possession in
compliance with the express provisions of Act 3135, it cannot be charged with having acted in excess of its jurisdiction or with
grave abuse of discretion.
Since there was no grave abuse of discretion, petitioner should have filed an ordinary appeal instead of a petition for
certiorari. In GSIS v. CA, this Court held that "the wisdom or soundness of the x x x order granting [the] writ of possession x x x
is a matter of judgment [in] which the remedy is ordinary appeal." An error of judgment committed by a court in the exercise
of its legitimate jurisdiction is not the same as "grave abuse of discretion. Errors of judgment are correctible by appeal, while
those of jurisdiction are reviewable by certiorari.
WHEREFORE, the Petition is DENIED, and the assailed Resolutions of the Court of Appeals AFFIRMED. Costs against
petitioners.
PROVIDENT SAVINGS BANK, petitioner, vs. COURT OF APPEALS, Former SPECIAL EIGHTH DIVISION and WILSON CHUA,
respondents.
G.R. No. 97218, THIRD DIVISION, May 17, 1993, MELO, J.
Doctrine:
Having arrived at the conclusion that a foreclosure is part of a bank's business activity which could not have been pursued by
the receiver then because of the circumstances discussed in the Central Bank case, we are thus convinced that the prescriptive
period was legally interrupted by fuerza mayor in 1972 on account of the prohibition imposed by the Monetary Board against
petitioner from transacting business, until the directive of the Board was nullified in 1981. Indeed, the period during which the
obligee was prevented by a caso fortuito from enforcing his right is not reckoned against him (Article 1154, New Civil Code).
Statement of Facts:
Spouses Lorenzo Guarin and Liwayway Guarin obtained a loan from Provident Savings Bank in the amount of P62,500.00
payable on or before 20 June 1967, executing a real estate mortgage over a parcel of land as a security.
The bank was placed under receivership from 1972 until 27 July 1981 when the receivership was set aside by the Supreme
Court.
Guarin assured that he and his wife had every intention of paying their obligation. They received a Statement of Account from
the bank showing two outstanding accounts. One was account of Lorenzo in the amount of P591,088.80, and the other was the
account of L.K. Guarin Manufacturing Co., Inc. in the amount of P6,287,380.27.
Even after the payment of the obligation of P591,088.80, the mortgaged title could not be released to Lorenzo Guarin, as it also
served as security for the indebtedness of L.Y. Guarin Manufacturing Co., Inc., to the bank, undertaken by Lorenzo K. Guarin in
his personal capacity and as president of the corporation. In the meantime, Wilson Chua informed the bank saying that the
mortgaged property of the Guarins had been offered to him as payment of the judgment he obtained against the Guarins in a
civil case and requested for bank’s conformity to the assignment, expressing his willingness to pay for the obligation of Mr.
Guarin so that the title could be released by the bank.
On 10 July 1986, Spouses Guarins executed a Deed of Absolute Sale with Assumption of Mortgage for the sum of P250,000.00
Chua informed the bank that the mortgaged property had been sold to him by the Guarins, and requested that he be allowed to
pay the loan secured by the mortgage. In reply, defendant-appellant bank informed the former that his request could be
granted if he would settle the obligation of L.K. Guarin Manufacturing Co., Inc., as well.
Chua then requested that the owner's copy of the TCT n the possession of bank be released to him so that he can register the
sale and have the title to the property transferred in his name. He likewise informed the bank that it had lost whatever right or
action had against the Guarins because of prescription. However, the bank cannot comply with the demands.

Chua filed a complaint against the bank to compel the latter to: (1) release the real estate mortgaged executed by the Guarins
in favor of the bank; (2) return or surrender to him, as successor-in-interest of the Guarins, the latter's owner's duplicate of
the TCT; and (3) pay him P2,750,000.00 as actual and/or consequential damages, moral damages as may be proved during the
trial, exemplary damages as may be reasonably assessed by the court, and attorney's fees of P50,00.00.
RTC ruled in favor of Wilson Chua, saying that he can be considered a real-property-in-interest because he is the successor-in-
interest of the Guarins who is naturally entitled to the realty as against the so-called right of Provident Savings Bank, as
mortgagee, to foreclose the mortgage which had become stale through sheer lapse of time.
The bank insists that the period during which it was placed under receivership by the Central Bank is akin to a caso
fortuito and should not thus be reckoned against it.
CA ruled that petitioner cannot anymore foreclose the subject realty on account of the absence of proof to indicate that the
bank was precluded from collecting indebtedness while it was under receivership from September, 1972 until July 20,1981.
Thus, there was no legal interruption of the prescriptive period to speak of, said respondent court, which intervened between
June 20, 1967, the date the mortgage matured, and June 20, 1977 the last day within which petitioner could have foreclosed
the mortgage.
CA reversed the decision of the trial court insofar as it ordered Wilson Chua to pay the sum of P591,088.80 to the bank and
affirmed the other dispositions made the court of origin
The bank filed a motion for reconsideration and a motion for new trial but was denied.
Issue/s:
Whether the bank is barred from foreclosing the subject realty on account of prescription. (NO)
Ruling:
A foreclosure is deemed embraced by the phrase "doing business" as a preparatory measure to acquiring or holding property
for petitioner as a saving bank under Section 34 of the General Banking Act. Like any other banking institution, petitioner is
vested with the usual attributes and powers of a corporation under Section 36 of the Corporation Code. The prerogative of a
bank to foreclose is implicit from and is even necessary to enforce collection of secured debts under Section 36(11) and 45 of
the Corporation Code, in conjunction with Section 29 of the General Banking Act.
When a bank is prohibited to do business by the Central Bank and a receiver is appointed for such bank, that bank would not
be able to do new business, i.e., to grant new loans or to accept new deposits. However, the receiver of the bank is obliged to
collect debts owing to the bank, which debts form part of the assets of the bank. The receiver must assemble the assets and pay
the obligation of the bank under receivership, and take steps to prevent dissipation of such assets. Accordingly, the receiver of
the bank is obliged to collect pre-existing debts due to the bank, and in connection therewith, to foreclose mortgages securing
debts.
Having arrived at the conclusion that the foreclosure is part of bank's business activity which could not have been pursued by
the receiver then because of some circumstances, the Court is convinced that the prescriptive period was legally interrupted
by fuerza mayor in 1972 on account on the prohibition imposed by the Monetary Board against petitioner from transacting
business, until the directive of the board was nullified in 1981. Indeed, the period during which the obligee was prevented by
a caso fortuito from enforcing his right is not reckoned against him.
Thus, a bank placed under receivership interrupts the prescription of actions it may institute. When prescription is
interrupted, all the benefits acquired so far from the possession cease and when prescription starts anew, it will be entirely a
new one. This concept should not be equated with suspension where the past period is included in the computation being
added to the period after prescription is resumed. Consequently, when the closure of the bank was set aside in 1981, the
period of ten years within which to foreclose under Article 1142 of the New Civil Code began to run again and, therefore, the
action filed on August 21, 1986 to compel petitioner to release the mortgage carried with it the mistaken notion that
petitioner's own suit foreclosure had prescribed. What exacerbates the situation is the letter of private respondent requesting
petitioner that private respondent be allowed to pay the loan secured by the mortgage as the result of the Deed of Sale
executed by the Guarins in his favor. In point of law, this written communication is synonymous to an express
acknowledgment of the obligation and had the effect of interrupting the prescription for the second time. And this piece of
document necessarily estops private respondent from setting up prescription vis-a-vis his unfounded supposition that
acknowledgment of the debt is of no moment because the right of the petitioner to foreclose had long prescribed in 1977.
WHEREFORE, the petition is hereby GRANTED. The decision dated August 31, 1990, including the resolution dated February 6,
1991 of respondent court are hereby set aside and another one entered dismissing Wilson Chua's complaint. No special
pronouncement is made to costs.
REGISTER of DEEDS OF MANILA, Petitioner-appellee,
-versus-
CHINA BANKING CORPORATION, Respondent-appellant.
G.R. No. L-11964, EN BANC, April 28, 1962, DIZON, J.
Doctrine:
Assuming, arguendo, that under the provisions of the aforesaid Act [General Banking Act] any commercial bank, whether alien-
owned or controlled or not, may purchase and hold real estate for the specific purposes and in the particular cases enumerated in
Section 25 thereof, we find that the case before Us does not fall under anyone of them.
Paragraph (c), Section 25 of Republic Act 337 allows a commercial bank to purchase and hold such real estate as shall be
conveyed to it in satisfaction of debts previously contracted in the course of its dealings. We deem it quite clear and free from
doubt that the "debts" referred to in this provision are only those resulting from previous loans and other similar transactions
made or entered into by a commercial bank in the ordinary course of its business as such. Obviously, whatever "civil liability" —
arising from the criminal offense of qualified theft — was admitted in favor of appellant bank by its former employee, Alfonso
Pangilinan, was not a debt resulting from a loan or a similar transaction had between the two parties in the ordinary course of
banking business.
In an Information filed in the Court of First Instance of Manila and dated June 16, 1953, Alfonso Pangilinan and one Guillermo
Chua were charged with qualified theft, the money involved amounting to P275,000.00. Three years thereafter, Pangilinan and
his wife, Belen Sta. Ana, executed a public instrument entitled DEED OF TRANSFER whereby, after admitting his civil liability
in favor of his employer, the China Banking Corporation, in relation to the offense aforesaid, he ceded and transferred to the
latter, in satisfaction thereof, a parcel of land located in the City of Manila.
The deed was subsequently presented for registration to the Register of Deeds of the City of Manila, but because the transferee
— the China Banking Corporation — was alien-owned and, as such, barred from acquiring lands in the Philippines, in
accordance with the provisions of Section 5, Article XIII of the Constitution of the Philippines, said officer submitted the matter
of its registration to the Land Registration Commission for resolution.
The Commission, in a resolution, held that the deed of transfer in favor of the appellant is unregistrable for being violative of
the Constitution.
This is an Appeal from a resolution of the Land Registration Commission holding "that the deed of transfer in favor of an alien
bank, subject of the present Consulta, is unregistrable for being in contravention of the Constitution of the Philippines."
Issue:
Whether or not, under Republic Act 337 or the General Banking Act, an alien-owned commercial bank is permitted to acquire
land in the Philippines subject to the obligation of disposing of it within 5 years from the date of its acquisition (NO)
Ruling:
To support its view, appellant relies particularly upon paragraphs (c) and (d), Section 25 of Republic Act 337 which read as
follows:
SEC. 25. Any commercial bank may purchase, hold, and convey real estate for the following purposes:
xxx xxx xxx
(c) Such shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings;
(d) Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it and such as it shall
purchase to secure debts due to it.
But no such bank shall hold the possession of any real estate under mortgage or trust deed, or the title and possession of any
real estate purchased to secure any debt due to it, for a longer period than five years.
Assuming, arguendo, that under the provisions of the aforesaid Act any commercial bank, whether alien-owned or controlled
or not, may purchase and hold real estate for the specific purposes and in the particular cases enumerated in Section 25
thereof, we find that the case before Us does not fall under anyone of them.
Paragraph (c), Section 25 of Republic Act 337 allows a commercial bank to purchase and hold such real estate as shall be
conveyed to it in satisfaction of debts previously contracted in the course of its dealings. We deem it quite clear and free from
doubt that the "debts" referred to in this provision are only those resulting from previous loans and other similar transactions
made or entered into by a commercial bank in the ordinary course of its business as such. Obviously, whatever "civil liability"
— arising from the criminal offense of qualified theft — was admitted in favor of appellant bank by its former employee,
Alfonso Pangilinan, was not a debt resulting from a loan or a similar transaction had between the two parties in the ordinary
course of banking business.
Neither do the provisions of paragraph (d) of the Same section apply to the present case because the deed of transfer in
question can in no sense be considered as a sale made by virtue of a judgment, decree, mortgage, or trust deed held by
appellant bank. In the same manner it cannot be said that the real property in question was purchased by appellant "to secure
debts due to it", considering that, as stated heretofore, the term debt employed in the pertinent legal provision can logically
refer only to such debts as may become payable to appellant bank as a result of a banking transaction.
Even in the case of Smith Bell & Co. vs. Register of Deeds of Davao (50 O.G., 5239) where a lease of a parcel of land for a total
period of 50 years in favor of an alien corporation was held to be registerable, the reason we gave for such ruling was that a
lease — unlike a sale — does not involve the transfer of dominion over the land, the clear implication from this being that
transfer of ownership over land, even for a limited period of time, is not permissible in view of the constitutional prohibition.
The reason for this is manifestly the desire and purpose of the Constitution to place and keep in the hands of the people the
ownership over private lands in order not to endanger the integrity of the nation. Inasmuch as when an alien buys land he
acquires and will naturally exercise ownership over the same, either permanently or temporarily, to that extent his acquisition
jeopardizes the purpose of the Constitution.
WHEREFORE, the resolution appealed from is hereby affirmed

CA AGRO-INDUSTRIAL DEVELOPMENT CORP., Petitioner,
-versus-
THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, Respondents.
G.R. No. 90027, THIRD DIVISION, March 3, 1993, DAVIDE, JR., J.
Doctrine:
We agree with the petitioner that under the deposit theory, notably the prevailing rule in the United States, the relation between a
bank renting out safe-deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee, the
bailment being for hire and mutual benefit.
In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this jurisdiction,
the prevailing rule in the United States has been adopted. Consistent with Section 72 of the General Banking Act , the primary
function [of renting out of the safety deposit boxes] is still found within the parameters of a contract of deposit, i.e., the receiving in
custody of funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this principal function.
In 1979, petitioner, through its President, Sergio Aguirre, agreed to purchase from the spouses Ramon and Paula Pugao two
parcels of land for a consideration of P350, 625.00, payable by three postdated checks. Under their agreement, the certificates
of titles to the lots shall be deposited in a safety deposit box of any bank, withdrawable only upon the joint signatures of a
representative of the petitioner and the Pugaos upon full payment of the purchase price.
Thus, petitioner and the Pugaos rented Safety Deposit Box No. 1448 of private respondent Security Bank and Trust Company
(hereinafter, respondent Bank). For this purpose, both signed a contract of lease which contains, inter alia, the following
conditions: “x x x 13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the
same. x x x 14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes absolutely
no liability in connection therewith.”
After the execution of the contract, two renter's keys were given to the renters — one to Aguirre (for the petitioner) and the
other to the Pugaos. A guard key remained in the possession of the respondent Bank. The safety deposit box has two keyholes,
one for the guard key and the other for the renter's key, and can be opened only with the use of both keys. Petitioner claims
that the certificates of title were placed inside the said box.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two lots at a price which translates to a total
profit of P280, 500.00 for the entire property. Recognizing the necessity of the certificates of title in executing a deed of sale,
Aguirre and the Pugaos proceeded to the respondent Bank to open the safety deposit box and get such certificates. However,
when opened, the box yielded no such certificates. Mrs. Ramos consequently withdrew her earlier offer to purchase the lots; as
a result thereof, the petitioner allegedly failed to realize the expected profit of P280, 500.00.
Hence, the petitioner filed a complaint for damages against the respondent Bank with the Court of First Instance of Pasig. In its
Answer, respondent Bank alleged that the petitioner has no cause of action because of paragraphs 13 and 14 of the contract of
lease; corollarily, loss of any of the items or articles contained in the box could not give rise to an action against it.
In due course, the now Regional Trial Court of Pasig rendered a decision adverse to the petitioner. Petitioner appealed from
the adverse decision to the respondent Court of Appeals.
The respondent Court affirmed the appealed decision principally on the theory that the contract executed by the petitioner
and respondent Bank is in the nature of a contract of lease by virtue of which the petitioner and its co-renter were given
control over the safety deposit box and its contents while the Bank retained no right to open the said box because it had
neither the possession nor control over it and its contents. It ruled that the stipulation absolving the respondent from liability
is in accordance with the nature of the contract of lease and cannot be regarded as contrary to law, public order and public
policy.

This petition for review on certiorari under Rule 45 seeks to set aside the respondent Court’s ruling, affirming the appealed
decision of the Regional Trial Court of Pasig. The Regional Trial Court of Pasig, in its Decision, found against the petitioner.
Issue:
Whether or not the contractual relation between petitioner and respondent in their contract of rent of a safety deposit box
with respect to its contents placed by the former is one of lessor and lessee (NO)
Ruling:
The contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of lease under
Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the joint renters
— the petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; without this key, neither of the
renters could open the box. On the other hand, the respondent Bank could not likewise open the box without the renter's key.
We agree with the petitioner that under the deposit theory, notably the prevailing rule in the United States, the relation
between a bank renting out safe-deposit boxes and its customer with respect to the contents of the box is that of a bailor and
bailee, the bailment being for hire and mutual benefit. This is just the prevailing view because:
There is, however, some support for the view that the relationship in question might be more properly characterized as that of
landlord and tenant, or lessor and lessee. It has also been suggested that it should be characterized as that of licensor and
licensee. The relation between a bank, safe-deposit company, or storage company, and the renter of a safe-deposit box therein,
is often described as contractual, express or implied, oral or written, in whole or in part. But there is apparently no jurisdiction
in which any rule other than that applicable to bailments governs questions of the liability and rights of the parties in respect
of loss of the contents of safe-deposit boxes. (citations omitted)
In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this
jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the General Banking Act pertinently
provides:
Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and
loan associations may perform the following services:
(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such
effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as agents. . .
. (emphasis supplied)
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of
funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent
from, but related to or in conjunction with, this principal function.
A contract of deposit may be entered into orally or in writing and, pursuant to Article 1306 of the Civil Code, the parties
thereto may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order or public policy. The depositary's responsibility for the safekeeping of the
objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable
if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement. In
the absence of any stipulation prescribing the degree of diligence required, that of a good father of a family is to be
observed. Hence, any stipulation exempting the depositary from any liability arising from the loss of the thing deposited on
account of fraud, negligence or delay would be void for being contrary to law and public policy.
In the instant case, petitioner maintains that conditions 13 and 14 of the questioned contract of lease of the safety deposit box
are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition for indeed, said
provisions are inconsistent with the respondent Bank's responsibility as a depositary under Section 72(a) of the General
Banking Act. Both conditions exempt the latter from any liability.
Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not correct to
assert that the Bank has neither the possession nor control of the contents of the box since in fact, the safety deposit box itself
is located in its premises and is under its absolute control; moreover, the respondent Bank keeps the guard key to the said box.
The renters cannot open their respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly
then, to the extent above stated, the foregoing conditions in the contract in question are void and ineffective. It has been said:
With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties, since the
relation is a contractual one, may by special contract define their respective duties or provide for increasing or limiting the
liability of the deposit company, provided such contract is not in violation of law or public policy. It must clearly appear that
there actually was such a special contract, however, in order to vary the ordinary obligations implied by law from the
relationship of the parties; liability of the deposit company will not be enlarged or restricted by words of doubtful meaning.
The company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or
negligence or that of its agents or servants, and if a provision of the contract may be construed as an attempt to do so, it will be
held ineffective for the purpose. Although it has been held that the lessor of a safe-deposit box cannot limit its liability for loss
of the contents thereof through its own negligence, the view has been taken that such a lessor may limits its liability to some
extent by agreement or stipulation. (citations omitted)
Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, the petition should be dismissed. However,
the respondent Bank's exoneration cannot, contrary to the holding of the Court of Appeals, proceed from a characterization of
the impugned contract as a contract of lease, but rather on the fact that no competent proof was presented to show that
respondent Bank was aware of the agreement between the petitioner and the Pugaos to the effect that the certificates of title
were withdrawable from the safety deposit box only upon both parties' joint signatures, and that no evidence was submitted
to reveal that the loss of the certificates of title was due to the fraud or negligence of the respondent Bank.
WHEREFORE, the Petition for Review is partially GRANTED by deleting the award for attorney's fees from the 4 July 1989
Decision of the respondent Court of Appeals in CA-G.R. CV No. 15150. As modified, and subject to the pronouncement We made
above on the nature of the relationship between the parties in a contract of lease of safety deposit boxes, the dispositive
portion of the said Decision is hereby AFFIRMED and the instant Petition for Review is otherwise DENIED for lack of merit.
HOME BANKERS SAVINGS AND TRUST COMPANY, Petitioner,
-versus-
COURT OF APPEALS and FAR EAST BANK & TRUST CO., INC. Respondents.
G.R. No. 115412, SECOND DIVISION, November 19, 1999, BUENA, J.
Doctrine:
Section 14 grants an arbitrator the power to issue subpoena and subpoena duces tecum at any time before rendering the award.
The exercise of such power is without prejudice to the right of a party to file a petition in court to safeguard any matter which is
the subject of the dispute in arbitration. In the case at bar, private respondent filed an action for a sum of money with prayer for a
writ of preliminary attachment. Undoubtedly, such action involved the same subject matter as that in arbitration, i.e., the sum of
P25,200,000.00 which was allegedly deprived from private respondent in what is known in banking as a "kiting scheme." However,
the civil action was not a simple case of a money claim since private respondent has included a prayer for a writ of preliminary
attachment, which is sanctioned by section 14 of the Arbitration Law.
Victor Tancuan issue a Home Bankers Savings and Trust Company (HBSTC) check for P25,250,000.00 while Eugene
Arriesgado issued three Far East Bank and Trust Company (FEBTC) checks in the aggregate amount of P25,200,000.00.
Tancuan and Arriesgado exchanged each other's checks and deposited them with their respective banks for collection.
When FEBTC presented Tancuan's HBSTC check for clearing, HBSTC dishonored it for being "Drawn Against Insufficient
Funds." Meanwhile, HBSTC sent Arriesgado's three FEBTC checks through the Philippine Clearing House Corporation (PCHC)
to FEBTC, but was returned as "Drawn Against Insufficient Funds."
Upon its receipt of the notice of dishonor, HBSTC refused to accept the checks, and instead returned them to FEBTC through
the PCHC for the reason "Beyond Reglementary Period," implying that HBSTC already treated the three FEBTC checks as
cleared and allowed the proceeds thereof to be withdrawn. Despite FEBTC’s demand for reimbursement and inquiry as to any
withdrawal that HBSTC had permitted, the latter refused to make any reimbursement and to provide FEBTC with the needed
information.
Thus, FEBTC submitted the dispute for arbitration before the PCHC Arbitration Committee, under the PCHC's Supplementary
Rules on Regional Clearing to which FEBTC and HBSTC are bound as participants in the regional clearing operations
administered by the PCHC. Pending the arbitration proceeding, FEBTC filed an action for sum of money and damages with
preliminary attachment against HBSTC, Victor Tancuan and Eugene Arriesgado with the Regional Trial Court of Makati.
A motion to dismiss was filed by HBSTC claiming that the complaint stated no cause of action and thus should be dismissed
because it seeks to enforce an arbitral award which as yet does not exist. The trial court issued an omnibus order denying the
motion to dismiss and an order denying the motion for reconsideration.
HBSTC filed a petition for certiorari with the respondent Court of Appeals contending that the trial court acted with grave
abuse of discretion amounting to lack of jurisdiction in denying the motion to dismiss filed by HBSTC. The respondent court
dismissed the petition for lack of merit.
This Appeal by certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the decision of the Court of Appeals,
dismissing the petition for certiorari filed by petitioner to annul the two (2) orders issued by the Regional Trial Court of
Makati in a civil action for sum of money and damages with preliminary attachment, the first one, denying petitioner's motion
to dismiss and the second, denying petitioner's motion for reconsideration thereof.
Issue:
Whether or not private respondent, which commenced an arbitration proceeding under the auspices of the PCHC, may
subsequently file a separate case in court over the same subject matter of arbitration (YES)
Ruling:
Section 14 of Republic Act 876, otherwise known as the Arbitration Law, allows any party to the arbitration proceeding to
petition the court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in arbitration,
thus:
Sec. 14. Subpoena and subpoena duces tecum. — Arbitrators shall have the power to require any person to attend a hearing as a
witness. They shall have the power to subpoena witnesses and documents when the relevancy of the testimony and the
materiality thereof has been demonstrated to the arbitrators… The arbitrator or arbitrators shall have the power at any time,
before rendering the award, without prejudice to the rights of any party to petition the court to take measures to safeguard
and/or conserve any matter which is the subject of the dispute in arbitration. (emphasis supplied)
Section 14 grants an arbitrator the power to issue subpoena and subpoena duces tecum at any time before rendering the
award. The exercise of such power is without prejudice to the right of a party to file a petition in court to safeguard any matter
which is the subject of the dispute in arbitration. In the case at bar, private respondent filed an action for a sum of money with
prayer for a writ of preliminary attachment. Undoubtedly, such action involved the same subject matter as that in
arbitration, i.e., the sum of P25,200,000.00 which was allegedly deprived from private respondent in what is known in banking
as a "kiting scheme." However, the civil action was not a simple case of a money claim since private respondent has included a
prayer for a writ of preliminary attachment, which is sanctioned by section 14 of the Arbitration Law.
Petitioner cites the cases of Associated Bank vs. Court of Appeals, Puromines, Inc. vs. Court of Appeals, and Ledesma vs. Court of
Appeals in contending that "[w]hen arbitration is agreed upon and suit is filed without arbitration having been held and
terminated, the case that is filed should be dismissed." However, the said cases are not in point.
In Associated Bank, we affirmed the dismissal of the third-party complaint filed by Associated Bank against Philippine
Commercial International Bank, Far East Bank & Trust Company, Security Bank and Trust Company, and Citytrust Banking
Corporation for lack of jurisdiction, it being shown that the said parties were bound by the Clearing House Rules and
Regulations on Arbitration of the Philippine Clearing House Corporation, viz:
. . . Under the rules and regulations of the Philippine Clearing House Corporation (PCHC), the mere act of participation of the
parties concerned in its operations in effect amounts to a manifestation of agreement by the parties to abide by its rules and
regulations. As a consequence of such participation, a party cannot invoke the jurisdiction of the courts over disputes and
controversies which fall under the PCHC Rules and Regulations without first going through the arbitration processes laid out by
the body.
Clearly therefore, petitioner Associated Bank, by its voluntary participation and its consent to the arbitration rules cannot go
directly to the Regional Trial Court when it finds it convenient to do so. The jurisdiction of the PCHC under the rules and
regulations is clear, undeniable and is particularly applicable to all the parties in the third party complaint under their
obligation to first seek redress of their disputes and grievances with the PCHC before going to the trial court. (emphasis
supplied)
In Puromines, we found the arbitration clause stated in the sales contract to be valid and applicable, thus, we ruled that the
parties, being signatories to the sales contract, are obligated to respect the arbitration provisions on the contract and cannot
escape from such obligation by filing an action for breach of contract in court without resorting first to arbitration, as agreed
upon by the parties.
WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision of the court a quo is AFFIRMED.
ALLIED BANKING CORPORATION, Petitioner,
-versus-
COURT OF APPEALS and BANK OF THE PHILIPPINE ISLANDS, INC., Respondents.
G.R. No. 123871, FIRST DIVISION, August 31, 1998, PANGANIBAN, J.
Doctrine:
As a general rule, a trial court that has established jurisdiction over the main action also acquires jurisdiction over a third-party
complaint, even if it could not have done so had the latter been filed as an independent action. This rule, however, does not apply
to banks that have agreed to submit their disputes over check clearings to arbitration under the rules of the Philippine Clearing
House Corporation. In that event, primary recourse should be to the PCHC Arbitration Committee, without prejudice to an appeal
to the trial courts. In other words, without first resorting to the PCHC, the third-party complaint would be premature.
By participating in the clearing operations of the PCHC, petitioner agreed to submit disputes of this nature to arbitration.
Accordingly, it cannot invoke the jurisdiction of the trial courts without a prior recourse to the PCHC Arbitration Committee.
Having given its free and voluntary consent to the arbitration clause, petitioner cannot unilaterally take it back according to its
whim.
In 1980, Hyatt Terraces Baguio issued two crossed checks drawn against Allied Banking Corp. (hereinafter, ALLIED BANK) in
favor of Meszellen Commodities Services, Inc. Said checks were deposited with the Commercial Bank and Trust Company
(hereinafter, COMTRUST). COMTRUST stamped at the back thereof the warranty "All prior endorsements and/or lack of
endorsements guaranteed." After the checks were cleared through the Philippine Clearing House Corporation (hereinafter,
PCHC), ALLIED BANK paid the proceeds of said checks to COMTRUST as the collecting bank.
On March 17, 1981, the payee, MESZELLEN, sued the drawee, ALLIED BANK, for damages which it allegedly suffered when the
values of the checks were paid not to it but to some other person.
Almost ten years later, before petitioner ALLIED BANK could finish presenting its evidence, it filed a third party complaint
against respondent Bank of the Philippine Islands (hereinafter, BPI) as successor-in-interest of COMTRUST, for
reimbursement in the event that it would be adjudged liable in the main case to pay plaintiff, MESZELLEN. The third party
complaint was admitted in an Order issued by the Regional Trial Court of Pasig.
BPI filed a motion to dismiss said third party complaint grounded, among others, on the theory that the court had no
jurisdiction over the nature of the action. The trial court issued an order dismissing the third party complaint. Respondent
Court affirmed the trial court.
This is a Petition for review on certiorari under Rule 45, assailing the Decision promulgated by the Court of Appeals on
February 12, 1996. The CA Decision affirmed the trial court's Order dated September 16, 1991, dismissing petitioner's third-
party complaint against private respondent.
Issue:
Whether or not the Court of Appeals erred in holding that the filing of the third party complaint should be disallowed as it
would only delay the resolution of the case (NO)
Ruling:
In Banco de Oro Sayings and Mortgage Bank v. Equitable Banking Corporation, the Court ruled:
The participation of the two banks, petitioner and private respondent, in the clearing operations of PCHC is a manifestation of
their submission to its jurisdiction. Secs. 3 and 36.6 of the PCHC-CHRR clearing rules and regulations provide:
Sec. 3. AGREEMENT TO THESE RULES. — It is the general agreement and understanding that any participant in the Philippine
Clearing House Corporation, MICR clearing operations[,] by the mere fact of their participation, thereby manifests its
agreement to these Rules and Regulations and its subsequent amendments.
Sec. 36.6. (ARBITRATION) — The fact that a bank participates in the clearing operations of the PCHC shall be deemed its
written and subscribed consent to the binding effect of this arbitration agreement as if it had done so in accordance with
section 4 of (the) Republic Act. No. 876, otherwise known as the Arbitration Law.
Further[,] Section 2 of the Arbitration Law mandates:
Two or more persons or parties may submit to the arbitration of one or more arbitrators any controversy existing between
them at the time of the submission and which may be the subject of any action, or the parties of any contract may in such
contract agree to settle by arbitration a controversy thereafter arising between them. Such submission or contract shall be
valid and irrevocable, save upon grounds as exist at law for the revocation of any contract.
Such submission or contract may include question arising out of valuations, appraisals or other controversies which may be
collateral, incidental, precedent or subsequent to any issue between the parties. (Emphasis supplied.)
The Court, in Associated Bank v. Court of Appeals, also disallowed a similar third-party complaint, ruling thus:
Under the rules and regulations of the Philippine Clearing House Corporation (PCHC), the mere act of participation of the
parties concerned in its operations in effect amounts to a manifestation of agreement by the parties to abide by its rules and
regulations. As a consequence of such participation, a party cannot invoke the jurisdiction of the courts over disputes and
controversies which fall under the PCHC Rules and Regulations without first going through the arbitration processes laid out
by the body. Since claims relating to the regularity of checks cleared by banking institutions are among those claims which
should first be submitted for resolution by the PCHC's Arbitration Committee, petitioner Associated Bank, having voluntarily
bound itself to abide by such rules and regulations, is estopped from seeking relief from the Regional Trial Court on the
coattails of a private claim and in the guise of a third party complaint without first having obtained a decision adverse to its
claim from the said body. It cannot bypass the arbitration process on the basis of its averment that its third party complaint is
inextricably linked to the original complaint in the Regional Trial Court. (Emphasis supplied.)
Banco de Oro and Associated Bank are clear and unequivocal: a third-party complaint of one bank against another involving a
check cleared through the PCHC is unavailing, unless the third-party claimant has first exhausted the arbitral authority of the
PCHC Arbitration Committee and obtained a decision from said body adverse to its claim.
Recognizing the role of the PCHC in the arbitration of disputes between participating banks, the Court in Associated
Bank further held: "Pursuant to its function involving the clearing of checks and other clearing items, the PCHC has adopted
rules and regulations designed to provide member banks with a procedure whereby disputes involving the clearance of checks
and other negotiable instruments undergo a process of arbitration prior to submission to the courts below. This procedure not
only ensures a uniformity of rulings relating to factual disputes involving checks and other negotiable instruments but also
provides a mechanism for settling minor disputes among participating and member banks which would otherwise go directly
to the trial courts."
We defer to the primary authority of PCHC over the present dispute, because its technical expertise in this field enables it to
better resolve questions of this nature. This is not prejudicial to the interest of any party, since primary recourse to the PCHC
does not preclude an appeal to the regional trial courts on questions of law, as provided for in Section 13 of the PCHC Rules.
Furthermore, when the error is so patent, gross and prejudicial as to constitute grave abuse of discretion, courts may address
questions of fact already decided by the arbitrator.
We are not unaware of the rule that a trial court, which has jurisdiction over the main action, also has jurisdiction over the
third-party complaint, even if the said court would have had no jurisdiction over it had it been filed as an independent
action. However, this doctrine does not apply in the case of banks, which have given written and subscribed consent to
arbitration under the auspices of the PCHC.
By participating in the clearing operations of the PCHC, petitioner agreed to submit disputes of this nature to arbitration.
Accordingly, it cannot invoke the jurisdiction of the trial courts without a prior recourse to the PCHC Arbitration Committee.
Having given its free and voluntary consent to the arbitration clause, petitioner cannot unilaterally take it back according to its
whim.
WHEREFORE, the petition is DENIED for lack of merit.

I. SHORT TITLE: Metrobank and Trust Co. vs CA
II. FULL TITLE:

METROPOLITAN BANK & TRUST COMPANY, Petitioner, vs. THE HONORABLE COURT OF APPEALS and
UNITED OVERSEAS BANK (formerly known as WESTMONT BANK), Respondents.
III. PONENTE: NACHURA, J.:
IV. TOPIC: GENERAL BANKING LAW
V. DOCTRINE:
Jurisdiction is the authority to hear and determine a cause - the right to act in a case. Jurisdiction over the subject matter is the
power to hear and determine the general class to which the proceedings in question belong. Jurisdiction over the subject
matter is conferred by law and not by the consent or acquiescence of any or all of the parties or by erroneous belief of the
court that it exists.
In the instant case, petitioner and respondent have agreed that the PCHC Rules would govern in case of controversy. However,
since the PCHC Rules came about only as a result of an agreement between and among member banks of PCHC and not by law,
it cannot confer jurisdiction to the RTC. Thus, the portion of the PCHC Rules granting jurisdiction to the RTC to review arbitral
awards, only on questions of law, cannot be given effect.
VI. STATEMENT OF THE FACTS:
Check No. 0801266381 dated January 13, 1997, payable to cash, and drawn against the account of Bienvenido C. Tan with
petitioner Metropolitan Bank & Trust Company (Metrobank) was deposited with respondent United Overseas Bank (UOB).
The check was then forwarded for clearing on January 14, 1997 through the PCHC, and, on the same date, Metrobank cleared
the check. However, Metrobank informed UOB that it was returning the check on account of material alteration—the date was
changed from "January 23, 1997" to "January 13, 1997," and the amount was altered from "₱1,000.00" to "₱91,000.00."
Because UOB refused to accept the return and to reimburse Metrobank the amount it paid on the check, the latter, on July 18,
1997, filed a Complaint before the PCHC Arbitration Committee, contending in the main that UOB had the duty to examine the
deposited check for any material alteration; but since UOB failed to exercise due diligence in determining that the check had
been altered, UOB should bear the loss. UOB interposed the defenses that it exercised due diligence, and that Metrobank failed
to comply with the 24-hour clearing house rule, and, with gross negligence, cleared the check.
The Arbitration Committee directed Metrobank to submit the check to the Philippine National Police (PNP) Crime Laboratory
for examination. In the scheduled December 10, 1998 hearing, Metrobank’s counsel failed to appear. UOB thus moved for the
dismissal of the case, which the Arbitration Committee granted. Metrobank filed a Motion for Reconsideration of the dismissal
order, attaching thereto a copy of the Medical Certificate declaring that its counsel had been afflicted with influenza during the
December 10, 1998 hearing, and a copy of PNP Crime Laboratory Document Examination Report No. 102-98 stating that the
subject check had been altered.
The Arbitration Committee denied Metrobank’s motion. The PCHC Board of Directors issued Resolution No. 08-2000, denying
the second motion for reconsideration. Metrobank again moved for the reconsideration of this resolution. On May 5, 2000,
however, it received communication from the PCHC Executive Secretary informing it that the proper remedy following Section
13 of the PCHC Rules of Procedure for Arbitration (PCHC Rules) was for it to file a notice of appeal with the PCHC and a
petition for review with the Regional Trial Court (RTC) within a non-extendible period of fifteen (15) days counted from the
receipt of the PCHC board resolution.
Hence, on May 9, 2000, Metrobank filed its Petition for Review (Civil Case No. 00-595) with the RTC of Makati City. On July 25,
2003, the trial court rendered its Decision dismissing the petition. It ruled that it had no jurisdiction over the petition, the
same having been filed out of time. The trial court further ruled that the Arbitration Committee correctly dismissed the
original case on account of Metrobank’s failure to prosecute, and that Metrobank’s claim could not be sustained considering
that under prevailing jurisprudence the drawee-bank should bear the loss if it had mistakenly cleared a forged or an altered
check.
Dissatisfied, Metrobank appealed the case to the CA. In the assailed November 30, 2004 Decision, the appellate court affirmed
the ruling of the trial court. The CA ratiocinated, however, that the petition for review before the trial court was filed on time—
its filing was in accordance with the PCHC Rules. The CA nevertheless ruled that the case was correctly dismissed on account
of Metrobank’s lack of interest to prosecute and of its violation of the 24-hour clearing house rule.
VIII. ISSUE:
Whether or not the RTC has jurisdiction over the Petition for Review filed by the petitioner. (NO)
IX. RULING:
The Court notes that, after the PCHC Board of Directors issued Resolution No. 08-2000 denying petitioner’s motion for
reconsideration, petitioner moved for reconsideration of that resolution. Following the incorrect advice of the PCHC Executive
Secretary, petitioner consequently filed the petition for review with the trial court. This erroneous move of the petitioner was
fatal to its cause. The Court has already explained in Insular Savings Bank v. Far East Bank and Trust Company that the PCHC
Rules cannot confer jurisdiction on the RTC to review arbitral awards.
Jurisdiction is the authority to hear and determine a cause - the right to act in a case. Jurisdiction over the subject matter is the
power to hear and determine the general class to which the proceedings in question belong. Jurisdiction over the subject
matter is conferred by law and not by the consent or acquiescence of any or all of the parties or by erroneous belief of the
court that it exists.
In the instant case, petitioner and respondent have agreed that the PCHC Rules would govern in case of controversy. However,
since the PCHC Rules came about only as a result of an agreement between and among member banks of PCHC and not by law,
it cannot confer jurisdiction to the RTC. Thus, the portion of the PCHC Rules granting jurisdiction to the RTC to review arbitral
awards, only on questions of law, cannot be given effect.
Consequently, the proper recourse of petitioner from the denial of its motion for reconsideration by the Arbitration Committee
is to file either a motion to vacate the arbitral award with the RTC, a petition for review with the Court of Appeals under Rule
43 of the Rules of Court, or a petition for certiorari under Rule 65 of the Rules of Court. The RTC will only have jurisdiction
over an arbitral award in cases of motions to vacate the same. The trial court, in this case, properly dismissed Civil Case No. 00-
595 for lack of jurisdiction, not because the petition had been filed out of time, but because the court had no jurisdiction over
the subject matter of the petition.
WHEREFORE, premises considered, the petition for review on certiorari is DENIED.
PREPARED BY: Arra Jean S. Abelende

I. SHORT TITLE: Perez vs. CA
II. FULL TITLE:
CORAZON PEREZ, Petitioner, v. HON. COURT OF APPEALS and MEVER FILMS,

INCORPORATED, Respondents.
III. PONENTE: MELENCIO-HERRERA, J.:
IV. TOPIC: GENERAL BANKING LAW, MONEY MARKET TRANSACTION
V. DOCTRINE:
What is involved here is a money market transaction. As defined by Lawrence Smith "the money market is a market dealing
in standardized short-term credit instruments (involving large amounts) where lenders and borrowers do not deal directly
with each other but through a middle man or dealer in the open market." It involves "commercial papers" which are
instruments "evidencing indebtedness of any person or entity . . ., which are issued, endorsed, sold or transferred or in any
manner conveyed to another person or entity, with or without recourse." The fundamental function of the money market
device in its operation is to match and bring together in a most impersonal manner both the "fund users" and the "fund
suppliers." The money market is an "impersonal market", free from personal considerations." The market mechanism is
intended to provide quick mobility of money and securities."
The impersonal character of the money market device overlooks the individuals or entities concerned. The issuer of a
commercial paper in the money market necessarily knows in advance that it would be expeditiously transacted and
transferred to any investor/lender without need of notice to said issuer. In practice, no notification is given to the borrower
or issuer of commercial paper of the sale or transfer to the investor. Accordingly, we find no applicability herein of Article
1285, 3rd paragraph of the Civil Code. Rather, it is the first paragraph of the same legal provision that is applicable.
CONGENERIC Development & Finance Corporation is, or was, a company engaged in "money market" operations. On May 8,
1974, CONGENERIC issued a promissory note (Bill 1298) in the amount of P111,973.58 in favor of bearer No. 049, later
identified as Ramon C. MOJICA, or an entity owned by him. That promissory note was to mature on August 6, 1974.
CONGENERIC issued another bearer promissory note (Bill 1419) for the sum of P208,666.67, also in favor of MOJICA or an
entity owned by him. The note was to mature on August 13, 1974.
MEVER Films, Inc. the private respondent herein, borrowed P500,000.00 from CONGENERIC, the former issuing in favor of the
latter a negotiable promissory note (NCI-0352) to mature on August 5, 1974. What may be stated in connection with the note
is that it had no provision for interest, except that, if not paid on due date, it would be subject to interest at 14% per annum.
CONGENERIC received P200,000.00 from petitioner herein (CORAZON, for short), and issued to her, as BEARER 209, a
confirmation of sale (CS) numbered 0366. Under the terms of CS-0366, CORAZON was to be paid P203,483.33 on August 5,
1974, CONGENERIC would make collection on behalf of CORAZON; and ALL OF CONGENERIC’S INTEREST IN NCI-0352 WAS
BEING TRANSFERRED TO HER. Under this last provision, CORAZON could have sued MEVER for payment of the full amount of
P500,000.00, especially if CONGENERIC should not object. It may also be noted that while NCI-0352 was not subject to interest
prior to August 5, 1974, CONGENERIC obligated itself to pay CORAZON interest on August 5, 1974 in the amount of P3,483.33,
or roughly an interest rate of 19% per annum.
MEVER paid P100,000.00 to CONGENERIC on account of NCI-0352. CONGENERIC then paid CORAZON the sum of
P103,483.33, the P3,483.33 coming from its own funds. On August 6, 1974, CONGENERIC paid MOJICA the interest due on Bill
1298, the principal being rolled-over to mature on October 4, 1974. On August 13, 1974, CONGENERIC paid MOJICA the
interest due on Bill 1419, the principal being rolled-over to mature on October 11, 1974.
MOJICA assigned Bill 1298 and Bill 1419 to MEVER through a notarized deed. MEVER surrendered the originals of Bill 1298
and Bill 1419 to CONGENERIC, and asked the latter to compute the balance of the account of MEVER with CONGENERIC, taking
account of the amounts of the two Bills, which balance MEVER would then pay.
On October 7, 1974, MEVER was served with garnishment by the Provincial Sheriff of Rizal in two collection cases filed against
CONGENERIC by two of its creditors. CONGENERIC advised MEVER by telephone that of the original amount of P500,000.00 of
NCI-0352, the sum of P200,000.00 was sold on July 3, 1974 to a third party, but not naming CORAZON as the third party.
CONGENERIC confirmed in writing to MEVER the previous "sale" of P200,000.00 out of the P500,000.00 amount of NCI-0352;
and advised that it could not take account of the assignment to MEVER of Bill 1298 and Bill 1419. MEVER turned over to the
Provincial Sheriff of Rizal the sum of P79,359.75, which MEVER had computed as the amount it was still owing CONGENERIC
and which was subject to garnishment.
CONGENERIC filed a Petition for Suspension of Payments in Civil Case No. 20212 of the Court of First Instance of Rizal. In that
petition, MEVER was listed as a debtor. In subsequent proceedings, the Court promulgated an Order to the effect that MEVER
was not a debtor of CONGENERIC, and said Order has become final.
On July 14, 1975, CORAZON filed suit before the Court of First Instance of Rizal against MEVER for the recovery of
P100,000.00, plus interest, damages, and attorney’s fees. She admits that CS-0366 issued to her by CONGENERIC was a
"without recourse" instrument. The Trial Court rendered judgment in favor of CORAZON and, upon her filing a bond, she was
able to have execution pending appeal. MEVER had to pay her P131,166.00 under the Trial Court’s judgment. On Mever’s
appeal, the Court of Appeals reversed the judgment of the Trial Court.
VIII. ISSUES:
1. Whether or not legal compensation had taken place. (NO)
2. Whether or not the Court of Appeals erred gravely in applying the third paragraph of Article 1285 of the Civil Code
allowing compensation of credits if assignment of credit is made without knowledge of the debtor, and in not applying
the first paragraph of said Article 1285 barring the defense of compensation where the debtor has consented to the
assignment of rights in favor of a third person. (YES)
IX. RULING:
1.
If, in fact, Bill No. 1298 and Bill No. 1419 were due and demandable on September 9, 1974, the date of the assignment from
MOJICA to MEVER, or on October 3, 1974, the date of surrender of said Bills by MEVER to CONGENERIC, it could be rightfully
said that legal compensation had taken place. As pointed out by CORAZON, however, said two bills contain the following
notations:
"Bill No. 1298 — Paid 8/6/74 interest only, principal roll over up to 10/4/74 (Annexes A-1, A-2, Petitioner’s Reply
Brief; Exh. 3, Folder of Exhibits).
"Bill No. 1419 — Paid 8/13/74 interest only, principal roll over up to 10/11/74 (Annexes A, A-3, ibid.; Exh. 3-A,
Folder of Exhibits).
Since, on the respective dates of maturity, specifically, August 6, 1974 and August 13, 1974, respectively, Ramon C. Mojica was
still the holder of those bills, it can be safely assumed that it was he who had asked for the roll-overs on the said dates. MEVER
was bound by the roll-overs since the assignment to it was made only on September 9, 1974. The inevitable result of the roll-
overs of the principals was that Bill No. 1298 and Bill No. 1419 were not yet due and demandable as of the date of their
assignment by MOJICA to MEVER on September 9, 1974, nor as of October 3, 1974 when MEVER surrendered said Bills to
CONGENERIC. As a consequence, no legal compensation could have taken place because, for it to exist, the two debts, among
other requisites, must be due and demandable.
2.
There is another aspect to this case. What is involved here is a money market transaction. As defined by Lawrence Smith "the
money market is a market dealing in standardized short-term credit instruments (involving large amounts) where lenders
and borrowers do not deal directly with each other but through a middle man or dealer in the open market." It involves
"commercial papers" which are instruments "evidencing indebtedness of any person or entity . . ., which are issued, endorsed,
sold or transferred or in any manner conveyed to another person or entity, with or without recourse." The fundamental
function of the money market device in its operation is to match and bring together in a most impersonal manner both the
"fund users" and the "fund suppliers." The money market is an "impersonal market", free from personal considerations." The
market mechanism is intended to provide quick mobility of money and securities."
The impersonal character of the money market device overlooks the individuals or entities concerned. The issuer of a
commercial paper in the money market necessarily knows in advance that it would be expeditiously transacted and
transferred to any investor/lender without need of notice to said issuer. In practice, no notification is given to the borrower
or issuer of commercial paper of the sale or transfer to the investor. Accordingly, we find no applicability herein of Article
1285, 3rd paragraph of the Civil Code. Rather, it is the first paragraph of the same legal provision that is applicable:
"ART. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third
person, cannot set up against the assignee the compensation which would pertain to him against the assignor,
unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the
compensation.
If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the
compensation of debts previous to the cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to the
same and also later ones until he had knowledge of the assignment.”
There is need to individuate a money market transaction, a relatively novel institution in the Philippine commercial scene. It
has been intended to facilitate the flow and acquisition of capital on an impersonal basis. And as specifically required by
Presidential Decree No. 678, the investing public must be given adequate and effective protection in availing of the credit of a
borrower in the commercial paper market.
WHEREFORE, the judgment of respondent Appellate Court, dated September 3, 1979 as well as its Resolution dated January
16, 1981 is hereby reversed, and that of the then Court of First Instance of Manila, Branch XXXI, dated December 27, 1976,
hereby reinstated.

I. SHORT TITLE: Sesbreno v. CA
II. FULL TITLE:
RAUL H. SESBRENO, petitioner, vs. HONORABLE COURT OF APPEALS and HERMILO RODIS, SR.,
respondents.
III. PONENTE: QUIASON, J.:
V. DOCTRINE:
The Court of Appeals correctly ruled that a money market transaction partakes of the nature of a loan and therefore
"nonpayment thereof would not give rise to criminal liability for estafa through misappropriation or conversion." The Court of
Appeals noted that private respondent or Philfinance was not obliged under the money market transaction to return the same
money he or the corporation had received from petitioner.
In money market placement, the investor is a lender who loans his money to a borrower through a middleman or dealer.
Petitioner here loaned his money to a borrower through Philfinance. When the latter failed to deliver back petitioner's
placement with the corresponding interest earned at the maturity date, the liability incurred by Philfinance was a civil one. As
such, petitioner could have instituted against Philfinance before the ordinary courts a simple action for recovery of the amount
he had invested and he could have prayed therein for damages.
Rodis, Sr., together with Sandiego and Silverio, Sr., was charged with estafa before the Regional Trial Court of Cebu. The
Information reads:
“That on or about the 9th day of February, 1981, and for sometime prior and subsequent thereto, in the City of Cebu,
Philippines, and within the jurisdiction of this Honorable Court, the said accused, conniving and confederating
together and mutually helping one another, having received from Atty. Raul H. Sesbreno the sum of P300,000.00 as
money market placement for 32 days at 20% interest with said corporation or a maturity date of March 13, 1981, with
the obligation on their part to immediately account for and turn over to said Atty. Raul H. Sesbreno the aforesaid sum
of money including the 20% interest upon maturity, or the total sum of P305,333.33, the said accused, once in
possession of said sum of money, far from complying with their obligation, with deliberate intent, with intent of gain
and of defrauding the herein complainant, did then and there misappropriate, misapply and convert into their own
personal use and benefit the same, and despite repeated demands made upon them by Atty. Raul H. Sesbreno, they
have failed and refused and up to the present time still fail and refuse to comply with their obligation, to the damage
and prejudice of Atty. Raul H. Sesbreno, in the aforementioned sum of P300,000.00 Philippine Currency
Respondent Rodis moved to quash the information on the ground that the Securities and Exchange Commission (SEC), not the
regular courts, had jurisdiction over the offense charged and that the facts stated herein did not constitute an offense. The trial
court denied the motion and private respondent elevated the case to the then Intermediate Appellate Court on a petition
for certiorari. The appellate court dismissed the petition after finding no grave abuse of discretion on the part of the trial court.
Thus, private respondent filed a petition for review on certiorari with this Court which was also denied. Hence, trial ensued in
the criminal case.
After the prosecution had rested its case, private respondent filed a motion to dismiss on demurrer to evidence based on the
core proposition that there was no criminal offense of estafa from the non-payment of a money market placement. The motion
alleged that herein petitioner had also filed a similar complaint against Elizabeth de Villa involving the same money market
placement before the City Fiscal of Cebu; but, upon review of the complaint, then Minister of Justice Mendoza directed the
dismissal of the complaint on the ground that a money market placement partook of the nature of a loan and therefore no
criminal liability for estafa could arise from non-payment thereof.
The trial court denied the motion to dismiss. On December 29, 1987, the appellate court rendered a decision based on Perez
v. Court of Appeals, upholding private respondent's contention that a money market placement is in the nature of a loan which
entails the transfer of ownership of the money so invested and therefore the liability for its return is civil in nature.
VIII. ISSUE:
Whether private respondent could be held liable for estafa under the facts obtaining in the criminal case. (NO)
IX. RULING:
The Court of Appeals correctly ruled that a money market transaction partakes of the nature of a loan and therefore
"nonpayment thereof would not give rise to criminal liability for estafa through misappropriation or conversion." The Court of
Appeals noted that private respondent or Philfinance was not obliged under the money market transaction to return the same
money he or the corporation had received from petitioner.
In money market placement, the investor is a lender who loans his money to a borrower through a middleman or dealer.
Petitioner here loaned his money to a borrower through Philfinance. When the latter failed to deliver back petitioner's
placement with the corresponding interest earned at the maturity date, the liability incurred by Philfinance was a civil one. As
such, petitioner could have instituted against Philfinance before the ordinary courts a simple action for recovery of the amount
he had invested and he could have prayed therein for damages. It appears, however, that petitioner did not even implead
Philfinance in the complaint for damages arising from the non-return of investment with respect to the same money market
placement involved herein, which he eventually filed against Delta Motors Corporation and Pilipinas Bank before the Regional
Trial Court of Cebu City.
Petitioner's recovery of his investment and the dismissal of the criminal aspect of the case he had filed against private
respondent as a consequence of this decision notwithstanding, he still has an opportunity to hold private respondent liable in
Criminal Case No. CU-10568. In People v. Tugbang, the Court categorically pronounced that ". . . an accused acquitted of a
criminal charge may nevertheless be held in the same case civilly liable where the facts established by the evidence so
warrants."
X. DISPOSITIVE PORTION
WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals, as modified by its Resolution of May 27, 1988, is
AFFIRMED in toto.

I. SHORT TITLE: Panlilio v. Citibank NA
II. FULL TITLE:

SPOUSES RAUL and AMALIA PANLILIO, Petitioners, vs. CITIBANK, N.A., Respondent.
III. PONENTE: AUSTRIA-MARTINEZ, J.:
V. DOCTRINE:
Petitioners may not seek a return of their investment directly from respondent at or prior to maturity. As earlier explained, the
investment is not a deposit and is not guaranteed by respondent. Absent any fraud or bad faith, the recourse of petitioners in
the LTCP is solely against the issuer, C&P Homes, and only upon maturity.
Having bound themselves under the contract as earlier discussed, petitioners are governed by its provisions. Petitioners as
principals in an agency relationship are solely obliged to observe the solemnity of the transaction entered into by the agent on
their behalf, absent any proof that the latter acted beyond its authority. Concomitant to this obligation is that the principal also
assumes the risks that may arise from the transaction. Indeed, as in the instant case, bank regulations prohibit banks from
guaranteeing profits or the principal in an investment management account.
VI. STATEMENT OF THE FACTS
Petitioner Amalia Panlilio visited respondent's Makati City office and deposited one million pesos in the bank's "Citihi"
account, a fixed-term savings account with a higher-than-average interest. On the same day, Amalia also opened a current or
checking account with respondent, to which interest earnings of the Citihi account were to be credited. Respondent assigned
one of its employees, Lee, to personally transact with Amalia and to handle the accounts. Amalia opened the accounts as ITF or
"in trust for" accounts, as they were intended to benefit her minor children in case she would meet an untimely death. To open
these accounts, Amalia signed two documents: a Relationship Opening Form (ROF) and an Investor Profiling and Suitability
Questionnaire (Questionnaire).
More than a month later, or on November 28, 1997, Amalia phoned Citibank saying she wanted to place an investment, this
time in the amount of three million pesos. Again, she spoke with Lee, the bank employee, who introduced her to Citibank's
various investment offerings. After the phone conversation, apparently decided on where to invest the money, Amalia went to
Citibank bringing a PCIBank check in the amount of three million pesos. During the visit, Amalia instructed Lee on what to do
with the PhP3 million. Later, she learned that out of the said amount, PhP2,134,635.87 was placed by Citibank in a Long-Term
Commercial Paper (LTCP), a debt instrument that paid a high interest, issued by the corporation Camella and Palmera Homes
(C&P Homes). The rest of the money was placed in two PRPN accounts, in trust for each of Amalia's two children.
Allegations differ between petitioners and respondent as to whether Amalia instructed Lee to place the money in the LTCP of
C&P Homes.
An LTCP is an evidence of indebtedness, with a maturity period of more than 365 days, issued by a corporation to any person
or entity. It is in effect a loan obtained by a corporation (as borrower) from the investing public (as lender) and is one of many
instruments that investment banks can legally buy on behalf of their clients, upon the latter's express instructions, for
investment purposes. LTCPs' attraction is that they usually have higher yields than most investment instruments.
On November 28, 1997, the day she made the PhP3million investment, Amalia signed the following documents: a Directional
Investment Management Agreement (DIMA), Term Investment Application (TIA), and Directional Letter/Specific
Instructions. Key features of the DIMA and the Directional Letter are provisions that essentially clear Citibank of any obligation
to guarantee the principal and interest of the investment, absent fraud or negligence on the latter's part. The provisions
likewise state that all risks are to be assumed by the investor (petitioner). As to the amount invested, only PhP2,134,635.87
out of the PhP3 million brought by Amalia was placed in the LTCP since, according to Lee, this was the only amount of LTCP
then available. According to Lee, the balance of the PhP3 million was placed in two PRPN accounts, each one in trust for
Amalia's two children, per her instructions.
Following this investment, respondent claims to have regularly sent confirmations of investment (COIs) to petitioners. The
first of these COIs was received by petitioners on or about December 9, 1997, as admitted by Amalia, which is around a week
after the investment was made. Respondent claims that other succeeding COIs were sent to and received by petitioners.
Amalia claims to have called Lee as soon as she received the first COI in December 1997, and demanded that the investment in
LTCP be withdrawn and placed in a PRPN. Respondent, however, denies this, claiming that Amalia merely called to clarify
provisions in the COI and did not demand a withdrawal.
On August 6, 1998, petitioners met with respondent's other employee, Colet, to preterminate the LTCP and their other
investments. Petitioners were told that as to the LTCP, liquidation could be made only if there is a willing buyer, a prospect
which could be difficult at that time because of the economic crisis. Still, petitioners signed three sets of Sales Order Slip to sell
the LTCP and left these with Colet
On August 18, 1998, Amalia, through counsel, sent her first formal, written demand to respondent "for a withdrawal of her
investment as soon as possible." In answer to the letters, respondent noted that the investment had a 2003 maturity, was not a
deposit, and thus, its return to the investor was not guaranteed by respondent; however, it added that the LTCP may be sold
prior to maturity and had in fact been put up for sale, but such sale was "subject to the availability of buyers in the secondary
market.
Petitioners filed with the RTC their complaint against respondent for a sum of money and damages. The complaint essentially
demanded a return of the investment, alleging that Amalia never instructed respondent's employee Lee to invest the money in
an LTCP; and that far from what Lee executed, Amalia's instructions were to invest the money in a "trust account" with an
"interest of around 16.25% with a term of 91 days."
In its Answer, respondent admitted that, indeed, Amalia was its client and that she invested the amounts stated in the
complaint. However, respondent disputed the claim that Amalia opened a "trust account" with a "request for an interest rate of
around 16.25% with a term of 91 days;" instead, respondent presented documents stating that Amalia opened a "directional
investment management account," with investments to be made in C&P Homes' LTCP with a 2003 maturity. Respondent
disputed allegations that it violated petitioners' express instructions.
The RTC upheld all the allegations of petitioners and concluded that Amalia never instructed Citibank to invest the money in
an LTCP. Thus, the RTC found Citibank in violation of its contractual and fiduciary duties and held it liable to return the money
invested by petitioners plus damages.
The CA reversed the Decision of the RTC. The CA held that with respect to the amount of PhP2,134,635.87, the account opened
by Amalia was an investment management account; as a result, the money invested was the sole and exclusive obligation of
C&P Homes, the issuer of the LTCP, and was not guaranteed or insured by herein respondent Citibank
VIII. ISSUES:
1. Whether petitioners are bound by the terms and conditions of the Directional Investment Management Agreement
(DIMA), Term Investment Application (TIA), Directional Letter/Specific Instructions, and Confirmations of Investment
(COIs). (YES)
2. Whether respondent is obliged to return the money to petitioners upon their demand prior to maturity. (NO)
IX. RULING:
1.
The DIMA, Directional Letter and COIs are evidence of the contract between the parties and are binding on them. Petitioner
Amalia affixed her signatures on the DIMA, Directional Letter and TIA, a clear evidence of her consent which she cannot deny
absent any evidence of mistake, violence, intimidation, undue influence or fraud.
The documents generally extricate respondent from liability in case the investment is lost. Accordingly, petitioners assumed
all risks and the task of collecting from the borrower/issuer C&P Homes. In addition to the DIMA and Directional Letter,
respondent also sent petitioners the COIs on a regular basis, the first of which was received by petitioners on December 9,
1997. Petitioners admit receiving only the first COI on December 8, 1997. The evidence on record, however, supports
respondent's contentions that petitioners received the three other COIs on February 12, 1998, May 14, 1998, and August 14,
1998, before petitioners' first demand letter.
The DIMA, Directional Letter, TIA and COIs, read together, establish the agreement between the parties as an investment
management agreement, which created a principal-agent relationship between petitioners as principals and respondent as
agent for investment purposes. The agreement is not a trust or an ordinary bank deposit; hence, no trustor-trustee-beneficiary
or even borrower-lender relationship existed between petitioners and respondent with respect to the DIMA account.
Respondent purchased the LTCPs only as agent of petitioners; thus, the latter assumed all obligations or inherent risks
entailed by the transaction under Article 1910 of the Civil Code. The transaction is perfectly legal, as investment management
activities may be exercised by a banking institution, pursuant to Republic Act No. 337 or the General Banking Act of 1948, as
amended, which was the law then in effect. Nothing also taints the legality of the LTCP bought in behalf of petitioners. C&P
Homes' LTCP was duly registered with the Securities and Exchange Commission while the issuer was accredited by the
Philippine Trust Committee.
The Court finds no proof to sustain petitioners' contention that the DIMA and Directional Letter contradict other papers on
record, or were signed in blank, or had unauthorized intercalations. Petitioners themselves admit that Amalia signed the DIMA
and the Directional Letter, which bars them from disowning the contract on the belated claim that she signed it in blank or did
not read it first because of the "fine print."
Nothing irregular or illegal attends the execution or construction of the DIMA and the Directional Letter, as their provisions
merely conform with BSP regulations governing these types of transactions. Specifically, the MORB mandates that investment
managers act as agents, not as trustees, of the investor; that the investment manager is prohibited from guaranteeing returns
on the funds or properties; that a written document should state that the account is not covered by the PDIC; and that losses
are to be borne by clients. That these legal requirements were communicated to petitioners is evident in Amalia's signatures
on the documents and in testimony to this effect.
As to the allegation that the documents were in "fine print," the Court notes that although the print may have looked smaller
than average, they were nevertheless of the same size throughout the documents, so that no part or provision is hidden from
the reader. The Court also takes judicial notice that the print is no smaller than those found in similar contracts in common
usage, such as insurance, mortgage, sales contracts and even ordinary bank deposit contracts.
The parties to this case only disagree on whether petitioners were properly informed of the contents of the documents. But as
earlier stated, petitioners were free to read and study the contents of the papers before signing them, without compulsion to
sign immediately or even days after, as indeed the parties were even free not to sign the documents at all. In addition, it has
been held that contracts of adhesion are not necessarily voidable. The Court has consistently held that contracts of adhesion,
wherein one party imposes a ready-made form of contract on the other, are contracts not entirely prohibited, since the one
who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. All the documents signed
by Amalia, including the DIMA and Directional Letter, show that her agreement with respondent is one of agency, and not a
trust.
The DIMA, TIA, Directional Letter and COIs, viewed altogether, establish without doubt the transaction between the parties,
that on November 28, 1997, with PhP3 million in tow, Amalia opened an investment management account with respondent,
under which she instructed the latter as her agent to invest the bulk of the money in LTCP.
2.
Petitioners may not seek a return of their investment directly from respondent at or prior to maturity. As earlier explained, the
investment is not a deposit and is not guaranteed by respondent. Absent any fraud or bad faith, the recourse of petitioners in
the LTCP is solely against the issuer, C&P Homes, and only upon maturity.
Since the money is committed to C&P Homes via LTCP for five years, or until 2003, petitioners may not seek its recovery from
respondent prior to the lapse of this period. Petitioners must wait and meanwhile just be content with receiving their interest
regularly. If petitioners want the immediate return of their investment before the maturity date, their only way is to find a
willing buyer to purchase the LTCP at an agreed price, or to go directly against the issuer C&P Homes, not against the
respondent. The DIMA states that respondent is a mere agent of petitioners and that losses from both the principal and
interest of the investment are strictly on petitioners' account. Meanwhile, the Directional Letter clearly states that the
investment is to be made in an LTCP which, by definition, has a term of more than 365 days. Prior to the expiry of the term,
which in the case of the C&P Homes LTCP is five years, petitioners may not claim back their investment, especially not from
respondent bank.
Having bound themselves under the contract as earlier discussed, petitioners are governed by its provisions. Petitioners as
principals in an agency relationship are solely obliged to observe the solemnity of the transaction entered into by the agent on
their behalf, absent any proof that the latter acted beyond its authority. Concomitant to this obligation is that the principal also
assumes the risks that may arise from the transaction. Indeed, as in the instant case, bank regulations prohibit banks from
guaranteeing profits or the principal in an investment management account.
X. DISPOSITIVE PORTION
WHEREFORE, the Petition is DENIED. For lack of evidence, the Decision of the Court of Appeals dated dated May 28, 2002 and
its Resolution of December 11, 2002, are AFFIRMED.

Republic Act. No. 7653 As Amended by Act. No. 11211

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Republic Act. No. 7653 As Amended by Act. No. 11211

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3A (2019-2020) | GBL CASE DIGESTS

G.R. No. 155033, December 19, 2007, Austria-Martinez J.

Statement of the Facts:

Statement of the Case:

Whether or not Patricia is entitled to the payment of damages;

Whether or not Benjamin is entitled to the payment of damages;

NO. Patricia is not entitled to the payment of damages.

NO. Benjamin is not entitled to the payment of damage.

G.R. No. 150228, July 30, 2009, Leonardo-De Castro J.

Statement of the Facts:

Statement of the Case:

Petitioner now comes before this Court.

G.R. No. 188412, November 22, 2010, Mendoza J.

Statement of the Facts:

Statement of the Case:

Hence, this petition.

Whether or not CitiBank is liable to Atty. Dinopol for damages;

WHEREFORE, the Decision of the Court of Appeals is MODIFIED.

3] P50,000.00 as and for attorney's fees; and

G.R. No. 149454, May 28, 2004, Panganiban J.

G.R. No. 149507, May 28, 2004, Panganiban J.

Statement of the Facts:

Statement of the Case:

The RTC rendered decision in favor of CASA.

Whether or not BPI is negligent; (SPCL)

YES. There is forgery.

YES. BPI was negligent.

Clear Negligence in Allowing Payment Under a Forged Signature

Loss Borne by Proximate Source of Negligence

Moral Damages Denied

Exemplary Damages Also Denied

Attorney’s Fees Granted

G.R. No. 127469, January 15, 2004, Carpio, J.

Statement of the Case:

The trial court rendered its decision in favor of Marcos.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION.

G.R. No. 157845, SECOND DIVISION, September 20, 2005

III. PONENTE: CHICO-NAZARIO, J.

IV. TOPIC: General Banking Law

VI. STATEMENT OF FACTS:

Hence, this petition.

VII. STATEMENT OF THE CASE:

XI. PREPARED BY: AMOSIN, AIRON JEUNNE B.

G.R. No. 170598, FIRST DIVISION, October 09, 2012

III. PONENTE: BERSAMIN, J.

IV. TOPIC: General Banking Law

VI. STATEMENT OF FACTS:

Hence, this petition.

VII. STATEMENT OF THE CASE:

XI. PREPARED BY: AMOSIN, AIRON JEUNNE B.

G.R. No. 118492, SECOND DIVISION, August 15, 2001

III. PONENTE: DE LEON, JR., J.

IV. TOPIC: General Banking Law

VI. STATEMENT OF FACTS:

Hence, this petition.

XI. PREPARED BY: AMOSIN, AIRON JEUNNE B.

G.R. No. 174134, THIRD DIVISION, July 30, 2008

III. PONENTE: AUSTRIA-MARTINEZ, J.

IV. TOPIC: General Banking Law

VI. STATEMENT OF FACTS:

VII. STATEMENT OF THE CASE:

Hence, this petition.

1. Whether or not First Planter’s Pawnshop is liable for VAT.