DEFINITION and CLASSIFICATION OF BANKS

Republic vs Security Credit and Acceptance (1967)

An investment company which loans out the money of its customers, collects the interest and charges a commission
to both lender and borrower, is a bank.

Banas vs Asia Pacific Corporation (2000)

What is prohibited by law is for investment companies to lend funds obtained from the public through receipts of
deposit, which is a function of banking institutions.

Simex International vs CA (1990)

The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of
every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active
instruments of business and commerce, banks have become an ubiquitous presence among the people, who have
come to regard them with respect and even gratitude and, most of all, confidence. Thus, even the humble wage-
earner has not hesitated to entrust his life's savings to the bank of his choice, knowing that they will be safe in its
custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest
checking account for security and convenience in the settling of his monthly bills and the payment of ordinary
expenses. As for business entities like the petitioner, the bank is a trusted and active associate that can help in the
running of their affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day
transactions like the issuance or encashment of checks.
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.

BPI vs IAC (1992)

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

DILIGENCE REQUIRED OF BANKS

BPI vs CA (2000)
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. Petitioner failed to exercise the diligence of a good father of a family. In total
disregard of its own rules, petitioners personnel negligently handled private respondents account to petitioners
detriment.
The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00 on petitioners part was its
personnels negligence in allowing such withdrawal in disregard of its own rules and the clearing requirement in the
banking system. In so doing, petitioner assumed the risk of incurring a loss on account of a forged or counterfeit
foreign check and hence, it should suffer the resulting damage.

Consolidated Bank vs CA (2003)

This fiduciary relationship means that the banks 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.

However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its
depositors from a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the
depositor is failure to pay a simple loan, and not a breach of trust.[24] The law simply imposes on the bank a higher
standard of integrity and performance in complying with its obligations under the contract of simple loan, beyond
those required of non-bank debtors under a similar contract of simple loan.

The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept
deposits to enrich depositors but to earn money for themselves. The law allows banks to offer the lowest possible
interest rate to depositors while charging the highest possible interest rate on their own borrowers. The interest
spread or differential belongs to the bank and not to the depositors who are not cestui que trust of banks.

Phillippine Banking Corporation vs CA (2004)

(offsetting his time deposits with a fictitious promissory note.)
Banks assume a degree of diligence higher than that of a good father of a family. Its fiduciary duty imposes upon it a
higher level of accountability than that expected of a depositor.
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.

Samsung Construction vs Far East Bank (2004)

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 clients 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.
If a bank pays a forged check, it must be considered as paying out of its funds and cannot charge the amount so
paid to the account of the depositor. A bank is liable, irrespective of its good faith, in paying a forged check.

Heirs of Manlapat vs CA (2005)

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 mortgagors title. This rule is
strictly applied to banking institutions. A mortgagee-bank 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 the real owners thereof are.[52]

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.[53] Thus, this Court clarified that the rule that persons dealing with registered lands can rely solely on
the certificate of title does not apply to banks.[54]

PNB vs Pike (2005)

( the bank 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. )
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,[25] 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.[26]

Cadiz vs CA (2005)
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 depositors 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[22] 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.[23] 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.[24]

Far East Bank vs Pacilan Jr. (2005)

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
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 respondents 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 respondents case is clearly one of damnum absque
injuria.

Citibank vs Cabamongan (2005)

Citibank, with its signature verification procedure, failed to detect the forgery.Its negligence consisted in the omission
of that degree of diligence required of banks. The Court has held 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.

Citibank vs Sabeniano (2006)

The SC held that the off-setting or compensation of respondents loans with Citibank Manila using her dollar
accounts with Citibank Geneva cannot be effected because the parties cannot be considered principal creditor of the
other.
Without the Declaration of Pledge, petitioner Citibank had no authority to demand the remittance of respondents
dollar accounts with Citibank-Geneva and to apply them to her outstanding loans. It cannot effect legal compensation
under Article 1278 of the Civil Code since, petitioner Citibank itself admitted that Citibank-Geneva is a distinct and
separate entity. As for the dollar accounts, respondent was the creditor and Citibank-Geneva is the debtor; and as
for the outstanding loans, petitioner Citibank was the creditor and respondent was the debtor. The parties in these
transactions were evidently not the principal creditor of each other. Therefore, this Court declares that the
remittance of respondents dollar accounts from Citibank-Geneva and the application thereof to her outstanding loans
with petitioner Citibank was illegal, and null and void.

Reyes vs CA (2001)
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.

Considering the foregoing, the respondent bank was not required to exert more than the diligence of a good father of
a family in regard to the sale and issuance of the subject foreign exchange demand draft. The case at bar does
not involve the handling of petitioners deposit, if any, with the respondent bank. Instead, the relationship involved was
that of a buyer and seller, that is, between the respondent bank as the seller of the subject foreign exchange
demand draft, and PRCI as the buyer of the same, with the 20th Asian Racing Conference Secretariat in Sydney,
Australia as the payee thereof. 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.

Solidbank Corp vs Sps Tan (2007)

(negligence for the loss of the subject check)

Like a common carrier whose business is also imbued with public interest, petitioner should have exercised
extraordinary diligence to negate its liability to respondents.

In one case,[16] the Court did not hesitate to apply the doctrine of last clear chance (commonly used in
transportation laws involving common carriers) to a banking transaction where it adjudged the bank responsible for
the encashment of a forged check. There, we enunciated that 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
handling their clients money.

We find no compelling reason to disallow the application of the provisions on common carriers to this case if only to
emphasize the fact that banking institutions (like petitioner) have the duty to exercise the highest degree of diligence
when transacting with the public. By the nature of their business, they are required to observe the highest standards
of integrity and performance, and utmost assiduousness as well.[17]