G.R. No.

L-45866 April 19, 1989

OVERSEAS BANK OF MANILA, petitioner,
vs.
COURT OF APPEALS and NATIONAL WATERWORKS AND SEWERAGE
AUTHORITY, respondents.

Facts: Bonifacio Regalado and NAWASA entered a in a contract of sale with installments
for various materials which the latter agreed to supply to the former. In relation to a contract
of sale between NAWASA, as vendor and Bonifacio Regalado, as vendee, the amount
corresponding to the first payment by Regalado was placed on a time deposit with the
Overseas Bank by the NAWASA Treasurer for a period of 6 months. A second payment
having been made by Regalado, another time deposit was made by the NAWASA Treasurer
with the Overseas Bank, this time in the amount representing the balance of the purchase
price due from Regalado. The period of this second deposit was fixed 1 year. Subsequently,
NAWASAs Acting General Manager wrote to the Overseas Bank advising that (1) as
regards the first time deposit which had already matured, NAWASA wished to withdraw it
immediately, and (2) with respect to the second time deposit of, it intended to withdraw it 60
days thereafter as authorized by the parties agreement set forth in the certificate of the
deposit. Despite several letter requests, nothing was heard from the Overseas Bank. It did
however pay to NAWASA interest on its time deposits.
After maturity of the second time deposit and Overseas Bank not responding to the letter
request of NAWASA for the remittance of the time deposits, NAWASA then wrote to the
Central Bank Governor about the matter. Apparently, even the Central Bank was ignored by
Overseas Bank. One last letter was written by NAWASA to the Overseas Bank, reiterating
its demand for the return of its money. Again the letter went unheeded. NAWASA thus
brought suit to recover its deposits and damages. CFI Manila rendered judgment in favor of
NAWASA and ordered the bank to pay. CA affirmed the trial courts ruling. Hence this
petition.
Overseas Bank: By reason of punitive action taken by the Central Bank, it had been
prevented from undertaking banking operations which would have generated funds to pay
not only its depositors and creditors but likewise the interests due on the deposits.
Issue:

Whether or not Overseas Bank is liable to pay.

Held: The banks contention that the punitive actions taken by the Central Bank prevented
the bank from conducting its business is devoid of merit. There is absolutely no evidence of
these facts in the record. Moreover, the suspension of operations in 1968 could not possibly
excuse non-compliance with the obligations in question which matured in 1966. Again, the
claim that the Central Bank, by suspending the Overseas Banks banking operations, had
made it impossible for the Overseas Bank to pay its debts, whatever validity might be

accorded thereto, or the further claim that it had fallen into a distressed financial situation,
cannot in any sense excuse it from its obligation to the NAWASA, which had nothing
whatever to do with the Central Banks actuations or the events leading to the banks
distressed state.

BANCO DE ORO-EPCI, INC., vs. JAPRL DEVELOPMENT

CORPORATION, RAPID FORMING CORPORATION and JOSE U.
AROLLADO
Facts: Banco de Oro extended financial facilities to JAPRL Development
Corporation (JAPRL) amounting to P230,000,000 with co-respondents Rapid Forming
Corporation (RFC) and Jose Arollado acting as sureties. JAPRL defaulted in the payment of
four trust receipts. Petitioner bank subsequently found out that JAPRL altered and falsified
its financial statements to project itself as a viable investment. Because the demand for
payment was unheeded, petitioner bank sued JAPRL and the sureties for payment of the
balance due on the trust receipts in RTC Makati. Respondents then hastily filed a petition
for rehabilitation and stay order in Calamba of RTC which were granted. As a result, the
complaint was dismissed with respect to JAPRL and RFC. Arollado remained as defendant.
Respondents filed a petition for certiorari before the CA, contending that the trial court did
not acquire jurisdiction over them as the summons were served on a mere administrative
assistant. CA granted the petition and dismissed petitioners motion for reconsideration.
Issue: Whether or not BDO may annul the credit accommodations it extended to JAPRL
and demand immediate payment due to the alteration and falsification of JAPRLs financial
statement.
Held: Respondents abused procedural technicalities (albeit unsuccessfully) for the sole
purpose of preventing, or at least delaying, the collection of their legitimate obligations.
Their reprehensible scheme impeded the speedy dispensation of justice. More importantly,
however, considering the amount involved, respondents utterly disregarded the significance
of a stable and efficient banking system to the national economy.
Banks are entities engaged in the lending of funds obtained through deposits from the
public. They borrow the publics excess money (i.e., deposits) and lend out the same. Banks
therefore redistribute wealth in the economy by channeling idle savings to profitable
investments. Banks operate (and earn income) by extending credit facilities financed
primarily by deposits from the public.[48] They plough back the bulk of said deposits into the
economy in the form of loans.[49] Since banks deal with the publics money, their viability
depends largely on their ability to return those deposits on demand. For this reason,
banking is undeniably imbued with public interest. Consequently, much importance is given
to sound lending practices and good corporate governance.[50]
Protecting the integrity of the banking system has become, by large, the responsibility of
banks. The role of the public, particularly individual borrowers, has not been emphasized.
Nevertheless, we are not unaware of the rampant and unscrupulous practice of obtaining
loans without intending to pay the same.

In this case, petitioner alleged that JAPRL fraudulently altered and falsified its financial
statements in order to obtain its credit facilities. Considering the amount of petitioners
exposure in JAPRL, justice and fairness dictate that the Makati RTC hear whether or not
respondents indeed committed fraud in securing the credit accommodation.
The protective remedy of rehabilitation was never intended to be a refuge of a debtor guilty
of fraud.
Section 40 of the General Banking Law which states:
Requirement for Grant of Loans or Other Credit Accommodations.
Before granting a loan or other credit accommodation, a bank must ascertain that the
debtor is capable of fulfilling his commitments to the bank.
Under this provision, banks have the right to annul any credit accommodation or loan, and
demand the immediate payment thereof, from borrowers proven to be guilty of fraud.
Petitioner would then be entitled to the immediate payment of P194,493,388.98 and other
appropriate damages.
CITIBANK, N.A., Petitioner,
vs.
SPS. LUIS and CARMELITA CABAMONGAN and their sons LUISCABAMONGAN, JR. and LITO
CABAMONGAN, Respondents.

Facts:
1. The Cabamongan spouses Luis and Carmelita are both based in California, USA.
The spouses opened a foreign currency time deposit account for their children with
petitioner CitiBank with a 180-day term. An impostor who claimed to be Carmelita
(wife) succeeded to preterminate the time deposit after presenting passport, credit
card and other identification.
2. The bank personnel who attended to the transaction ignored several red flags
which could have alerted the bank as to the real identity of the person claiming to
be 'Carmelita'. For one, she failed to present the certificate of time deposit, there
was also a discrepancy in her signature with that in the signature cards of the bank.
Finally, the photo in the bank's file did not look like this person claiming to be
Carmelita. Despite all these irregularities, the bank went through with the
transaction, which only took 40 minutes. The document waiver which the impostor
signed was also not notarized, as required under bank's procedures.
3. To the aghast of the spouses, they only came to learn of the incident through a
daughter-in-law who called them up in the US. Apparently, a break-in occurred
previously in their US residence and several important documents were lost to the
thief. The spouses demanded payment from the bank who refused. Hence the filing
of the suit against petitioner bank.
4. The spouses presented a PNP Document Examiner expert who analysed the
signature and concluded that the signature was forged, hence the discrepancy

between the signature of the impostor and the one written in the signature cards
held by the bank.
5. The trial court ruled in favor of the spouses Cabamongan, held the bank negligent
and awarded actual, moral and exemplary damages. The bank appealed to the CA
which affirmed the lower court's decision. CA ruled: The actual damages in amount
of $55,216.69, representing the amount of appellees' foreign currency time deposit
shall earn an interest of 2.5625% for the period 16 August 1993 to 14 February
1994, as stipulated in the contract. From 16 September 1994 until full payment, the
amount of $55,216.69 shall earn interest at the legal rate of 12% per annum. Both
parties filed a petition for review on certiorari before the SC where the petitioner
insisted that it Carmela who preterminated the TD despite claims to the contrary,
while the Cabamongan spouses contended that Citibank's negligence was
established by evidence.

CITIBANK:
Citibank avers that the claim of the Cabamongan spouses does not
constitute a loan or forbearance of money and therefore, the interest rate of 6%, not
12%, applies.

Held: The time deposit subject matter of herein petition is a simple loan. The
provisions of the New Civil Code on simple loan govern the contract between a bank
and its depositor. Specifically, Article 1980 thereof categorically provides that ". . .
savings . . . deposits of money in banks and similar institutions shall be governed by
the provisions concerning simple loan." Thus, the relationship between a bank and
its depositor is that of a debtor-creditor, the depositor being the creditor as it lends
the bank money, and the bank is the debtor which agrees to pay the depositor on
demand.
The applicable interest rate on the actual damages of $55,216.69, should be in
accordance with the guidelines set forth in Eastern Shipping Lines, Inc. v. Court of
Appeals.
Thus, 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 counted
from the time of demand. Accordingly, the stipulated interest rate of 2.562% per
annum shall apply for the 182-day contract period from August 16, 1993 to
February 14, 1994. For the period from the date of extra-judicial demand,
September 16, 1994, until full payment, the rate of 12% shall apply. As for the
intervening period between February 15, 1994 to September 15, 1994, the rate of
interest then prevailing granted by Citibank shall apply since the time deposit
provided for roll over upon maturity of the principal and interest.