GENERAL BANKING LAW

CASE DIGESTS

Submitted to:
Atty. Ronel U. Buenaventura, M.A.

Submitted by:
JD 3C
 GREGORIO H. REYES and CONSUELO PUYAT-REYES, vs. THE HON. COURT OF
APPEALS and FAR EAST BANK AND TRUST COMPANY
G.R. No. 118492, August 15, 2001
DE LEON, JR., J.:

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

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

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

Ruling:
No, the rule is the degree of diligence required of banks, is more than that of a good father
of a family where the fiduciary nature of their relationship with their depositors is concerned, but
the same higher degree of diligence is not expected to be exerted by banks in commercial
transactions that do not involve fiduciary relationship with their depositors.

Considering the foregoing, the respondent bank was not required to exert more than the
diligence of a good father of a family in regard to the sale and issuance of the subject foreign
exchange demand draft. The case at bar does not involve the handling of petitioners’ deposit, if
any, with the respondent bank. Instead, the relationship involved was that of a buyer and seller,
that is, between the respondent bank as the seller of the subject foreign exchange demand draft,
and PRCI as the buyer of the same, with the 20th Asian Racing Conference Secretariat in Sydney,
Australia as the payee thereof.
 COMSAVINGS BANK vs. SPOUSES CAPISTRANO
G.R. No. 170942. August 28, 2005.
BERSAMIN, J.

DOCTRINE:
A banking institution is obliged to exercise the highest degree of diligence as well as high
standards of integrity and performance in all its transactions because its business is imbued with
public interest.

FACTS:
Respondent Spouses Danilo and Estrella Capistrano availed the Unified Home Lending
Program (UHLP) implemented by the National Home Mortgage Finance Corporation (NHMFC)
through an accredited-originator Comsavings Bank. As part of the requirements for the release of
the loan, Comsavings Bank made Capistrano signed various documents, including a ‘Certificate
of House Completion and Acceptance.’ After compliance with the preliminary requirements of the
UHLP, an interim financing loan in the amount of ₱260,000.00, which amount was to be paid out
of the proceeds from NHMFC, was approved and released to the construction contractor GCB
Builders. Thereafter, while the construction is still ongoing and the house was still unfinished,
Capistrano received a letter from NHMFC advising them to pay their monthly amortizations for
the said loan. Respondents protested to said demand contending that the ‘Certificate of Completion
and Acceptance’ passed to NHMFC was only pre-signed and the construction remained not
completed, hence it prompted Capistrano to file a complaint against Comsavings Bank and GCB
Builders for the breach of contract.

ISSUE:
Whether or not Comsavings Bank exercised the degree of diligence required of a banking
institution.

RULING:
No, a banking institution like Comsavings Bank serving as an originating bank for the
Unified Home Lending Program (UHLP) of the Government owes a duty to observe the highest
degree of diligence and a high standard of integrity and performance in all its transactions with its
clients because its business is imbued with public interest, to which it failed to do.

In accordance with Article 20 and Article 1170 of the Civil Code, Comsavings Bank is
liable for the damages for their misrepresentations in obtaining the mortgage loan from NHMFC
in the name of the respondents as it submitted false loan documents, such as photographs of the
completed house, and made the respondent signed the ‘Certificate of House Completion and
Acceptance’ even if the construction of the house had not yet started. Hence, it had prejudiced the
respondents as they are demanded payment for the loan despite the non-completion of the house.
These acts of Comsavings Bank were irregular per se and there is no question that it was grossly
negligent with its dealings with the respondents because it did not comply with is legal obligation
to exercise the required diligence and integrity.
 URSAL vs. COURT OF APPEALS
G.R. No. 142411. October 14, 2005
AUSTRIA-MARTINEZ, J.

Doctrine:
The business of the banks is impressed with public interest. They are expected to exercise
more care and prudence in their dealings than private individuals.

Facts:
The spouses Jesus and Cristita Moneset (Monesets), the registered owners of the subject
property, executed a “Contract to Sell Lot & House” in favor of petitioner Winifreda Ursal. Ursal
paid the down payment and took possession of the property but after paying six monthly
installments, petitioner stopped paying due to the Monesets’ failure to deliver to her the transfer
certificate of title of the property as per their agreement. Unknown to Ursal, the Monesets executed
an absolute deed of sale in favor of Dr. Rafael Canora, Jr. over the said property and thereafter
executed another sale, this time with pacto de retro with Restituto Bundalo, and was also
mortgaged with respondent Rural Bank of Larena. For the failure of the Monesets to pay the loan,
the Bank served a notice of extrajudicial foreclosure. Ursal filed an action for declaration of non-
effectivity of mortgage and damages against the Monesets, Bundalo and the Bank.

Issue:
Whether or not banks can merely rely on the certificate of title of the mortgaged property.

Ruling:
Banks cannot merely rely on certificates of title in ascertaining the status of mortgaged
properties; as their business is impressed with public interest, they are expected to exercise more
care and prudence in their dealings than private individuals. Indeed, the rule that persons dealing
with registered lands can rely solely on the certificate of title does not apply to banks.
 PHILIPPINE NATIONAL BANK (PNB) vs. JUAN F. VILLA
G.R. No. 213241, August 1, 2016
PEREZ, J.

DOCTRINE:
The banking system is an indispensable institution in the modern world and plays a vital
role in the economic life of every civilized nation. Hence, the highest degree of diligence is
expected, and high standards of integrity and performance are even required, of it.

FACTS:
Spouses Reynaldo Comista and Erlinda Gamboa Comista (Spouses Comista) are the
previous owners of the foreclosed mortgaged real property that has been transferred to Juan F. Vila
(Villa) by way of public auction. Despite the lapse of the redemption period and the fact of issuance
of a Certificate of Final Sale to Villa, the Spouses were nonetheless allowed to buy back the subject
property. Villa filed an action for nullification of redemption, transfer of title and damages against
the Spouses Comista, the court ruled in favor of the respondent. However, the Sheriff could not
successfully enforce the decision because the certificate of title covering the subject property was
no longer registered under the names of the Spouses Comista, as it was found out that during the
interregnum the Spouses were able to secure a loan from the petitioner PNB using the same
property subject of litigation as security.

ISSUE:
Whether or not petitioner exercised greater care and prudence required to a bank by the
law before it had entered into a mortgage contract.

RULING:
No, before approving a loan application, it is a standard operating practice for these
institutions to conduct an ocular inspection of the property offered for mortgage and to verify the
genuineness of the title to determine the real owner thereof. Here, petitioner PNB has failed to
exercise the requisite due diligence in ascertaining the status and condition of the property being
offered to it as security for the loan before it approved the same.

The banking system is an indispensable institution in the modern world and plays a vital
role in the economic life of every civilized nation. Whether as mere passive entities for the
safekeeping and saving of money or as active instruments of business and commerce, banks have
become an ubiquitous presence among the people, who have come to regard them with respect and
even gratitude and, most of all, confidence. Consequently, the highest degree of diligence is
expected, and high standards of integrity and performance are even required, of it.
 ONOFRE ANDRES v. PHILIPPINE NATIONAL BANK
G.R. No. 173548, October 15, 2014
LEONEN, J.

DOCTRINE:
A bank that accepts a mortgage based upon a title which appears valid on its face and after
exercising the requisite care, prudence, and diligence appropriate to the public interest character
of its business can be deemed a mortgagee in good faith. The subsequent consolidation of title in
its name after a valid foreclosure shall be respected notwithstanding later proof showing that the
title was based upon a void transaction.

FACTS:
Spouses Victor and Filomena Andres owns a parcel of land which was extrajudicially
partitioned by his widow and his children upon the death of Victor and resulted to the cancellation
of TCT No. NT-7267 and issuance of a new title under TCT No. NT-5773, in the name of Roman
Andres, one of the children and his wife, Lydia Echaus-Andres, who later mortagaged the property
to PNB wherein no objection was made, even after the mortgage had been cancelled.
Consequently, the Nueva Ecija RTC cancelled the guardianship and transferred ownership of the
properties of the deceased, Roman and Lydia Andres, to their only living heir, Reynaldo Andres,
who used the title and mortgaged the property to PNB, without the consent of Onofre Andres. As
a result, Petitioner Onofre Andres, uncle of Reynaldo filed a complaint for cancellation of title and
reconveyance of the property alleging that title in mortgagor's name was based on a falsified
document denominated as “Self-Adjudication of Sole Heir” executed by Reynaldo and his mother
who is still living at that time. PNB denied the material allegations in the complaint arguing that it
conducted an investigation on the property. The trial court ruled in favor of Onofre by voiding all
derivative titles from TCT No. NT-7267 while the Court of Appeals modified this decision by
declaring as valid and existing titile in PNB’s name.

ISSUE:
Whether or not a valid title in favor of PNB can be derived from these void titles.

RULING:
Yes. While it is settled that a simulated deed of sale is null and void and therefore, does
not convey any right that could ripen into a valid title, it has been equally ruled that, for reasons of
public policy, the subsequent nullification of title to a property is not a ground to annul the
contractual right which may have been derived by a purchaser, mortgagee or other transferee who
acted in good faith. The court upholds the Court of Appeals’ findings that PNB complied with the
standard operating practice of banks, which met the requisite level of diligence, when it sent
Gerardo Pestaño to conduct an ocular inspection of the property and verify the status of its
ownership and title. Banks, as businesses impressed with public interest, must exercise greater
care, prudence, and due diligence in all their property dealings. Consequently, PNB is a mortgagee
in good faith. The title resulting from the foreclosure sale, therefore, is to be protected. The bank
is an innocent purchaser for value.
 PHILIPPINE NATIONAL BANK vs. CORPUZ
G.R. No. 180945. February 12, 2010.
ABAD, J.

Doctrine:
Banks are expected to be more cautious than ordinary individuals in dealing with lands,
even registered ones, since the business of banks is imbued with public interest.

Facts:
Mercedes Corpuz delivered her owner’s duplicate copy of TCT 32815 to Dagupan City
Rural Bank as security against any liability she might incur as its cashier, which she later left and
went to United States, however, without Corpuz’s knowledge and consent, Natividad Alano, the
rural bank’s manager, turned over Corpuz’s title to Julita Camacho and Amparo Callejo.

Alano, Camacho, and Callejo prepared a falsified deed of sale, making it appear that
Corpuz sold her land to one “Mary Bondoc” and caused the registration of the deed of sale,
resulting in the cancellation of TCT 32815 and the issuance of TCT 63262 in Bondoc’s name.
Subsequent transfers were made to Rufo and Teresa Palaganas and to Virgilio and Elene Songcuan,
which resulted in the issuance of TCT 63528. Finally, the Songcuans took out a loan of P1.1
million from petitioner Philippine National Bank (PNB) and, to secure payment, they executed a
real estate mortgage on their title.

A complaint was filed by Corpuz against Mary Bondoc, the Palaganases, the Songcuans,
and petitioner PNB, asking for the annulment of the layers of deeds of sale covering the land, the
cancellation of TCTs 63262, 63466, and 63528, and the reinstatement of TCT 32815 in her name.

Issue:
Whether or not petitioner PNB is a mortgagee in good faith, entitling it to its lien on the
title to the property in dispute.

Ruling:
No, PNB is not a mortgagee in good faith. As a rule, the Court would not expect a
mortgagee to conduct an exhaustive investigation of the history of the mortgagor’s title before he
extends a loan. But petitioner PNB is not an ordinary mortgagee; it is a bank. Banks are expected
to be more cautious than ordinary individuals in dealing with lands, even registered ones, since the
business of banks is imbued with public interest. It is of judicial notice that the standard practice
for banks before approving a loan is to send a staff to the property offered as collateral and verify
the genuineness of the title to determine the real owner or owners.
 ANNA MARIE L. GUMABON vs. PHILIPPINE NATIONAL BANK
G.R. No. 202514. July 25, 2016.
J. BRION

Doctrine:
Fiduciary Nature - A bank treats the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship. Fiduciary nature of banking that
requires high standards of integrity and performance.

Facts:
This case is a petition for review on certiorari filed by Anna Marie Gumabon assailing the
decision and resolution of the Court of Appeals. The CA reversed the Regional Trial Court ruling
favoring Anna Marie. Anna Marie filed a complaint for recovery of sum of money and damages
before the RTC against the Philippine National Bank and the PNB Delta branch manager Silverio
Fernandez. The case stemmed from the PNB’s refusal to release Anna Marie’s money in a
consolidated savings account and in two foreign exchange time deposits, evidenced by Foreign
Exchange Certificates of Time Deposit.

Issue:
Whether or not PNB is liable to Anna Marie for its negligent acts as a banking institution.

Ruling:
Yes, PNB is liable for its negligence as a banking institution. The Court ruled that Section
2 of Republic Act No. 8791 declares the State’s recognition of the "fiduciary nature of banking
that requires high standards of integrity and performance." It cannot be overemphasized that the
banking business is impressed with public interest, hence, the trust and confidence of the public to
the industry is given utmost importance. Thus, the bank is under obligation to treat its depositor’s
accounts with meticulous care, having in mind the nature of their relationship. The bank is required
to assume a degree of diligence higher than that of a good father of a family.
 SPOUSES CARBONELL vs. METROPOLITAN BANK AND TRUST COMPANY
April 26, 2017; G.R. No. 178467
BERSAMIN, J.

Doctrine:
The General Banking Act of 2000 demands of banks the highest standards of integrity and
performance.

Facts:
The petitioners initiated a civil case against the respondent of an action for damages,
alleging that they had experienced emotional shock and public ridicule during their trip to Thailand
because of the respondent's act of releasing five US$ 100 bills that later on turned out to be fake.
Upon return to the Philippines, the counsel of the petitioners had submitted the subject bills to the
Bangko Sentral ng Pilipinas (BSP) for examination; however, the BSP certified that the four
US$100 bills were near perfect genuine notes. Having failed to enter into a compromise, civil case
was filed against the respondent. The Regional Trial Court ruled in favor of the respondent. On
appeal, the Court of Appeals affirmed the RTC. Hence, this case.

Issue:
Whether or not the respondent bank failed to exercise the degree of diligence required in
handling the affairs of its clients

Ruling:
No. The Supreme Court ruled that the General Banking Act of 2000 demands of banks the
highest standards of integrity and performance. In the instant case, the respondent bank had
exercised the diligence required by law in observing the standard operating procedure, in taking
the necessary precautions for handling the US dollar bills in question, and in selecting and
supervising its employees. Moreover, the BSP even certified that the falsity of the US dollar notes
in question, which were "near perfect genuine notes," could be detected only with extreme
difficulty even with the exercise of due diligence as the security fibers and the printing were perfect
except for some microscopic defects, and that all lines were clear, sharp and well defined. The
Supreme Court dismissed the petition.
 BANCO DE ORO vs. REPUBLIC OF THE PHILIPPINES
G.R. No. 198756 January 13, 2015
LEONEN, J.

Doctrine:
The term ‘deposit substitutes’ shall mean an alternative form of obtaining funds from the
public (the term 'public' means borrowing from twenty (20) or more individual or corporate lenders
at any one time) other than deposits, through the issuance, endorsement, or acceptance of debt
instruments for the borrower’s own account, for the purpose of relending or purchasing of
receivables and other obligations, or financing their own needs or the needs of their agent or dealer.

Facts:
The case involves the proper tax treatment of the discount or interest income arising from
the ₱35 billion worth of 10-year zero-coupon treasury bonds issued by the Bureau of Treasury on
October 18, 2001 (denominated as the Poverty Eradication and Alleviation Certificates or the PEA
Ce Bonds by the Caucus of Development NGO Networks). Wherein the BIR issued the assailed
2011 ruling, that orders the Bureau of Treasury to withheld the 20% tax on the said treasury bond,
ascertaining that such is not a substitute deposit, thus is not exempted from taxation. The trial
court, upon motion, issued the restraining order, however, BTr still withheld the 20% tax. Hence,
present petition.

Issue:
Whether the PEACe Bonds are "deposit substitutes" and thus subject to 20% final
withholding tax under the NIRC.

Ruling:
No, the PEACe Bonds are not deposit substitute. Deposit substitutes’ shall mean an
alternative form of obtaining funds from the public (the term 'public' means borrowing from twenty
(20) or more individual or corporate lenders at any one time) other than deposits, through the
issuance, endorsement, or acceptance of debt instruments for the borrower’s own account, for the
purpose of relending or purchasing of receivables and other obligations, or financing their own
needs or the needs of their agent or dealer.

Hence, the number of lenders is determinative of whether a debt instrument should be

considered a deposit substitute and consequently subject to the 20% final withholding tax.
 FIRST PLANTERS PAWNSHOP, INC., vs. CIR
G.R. No. 174134, July 30, 2008,
AUSTRIA-MARTINEZ, J.

Doctrine:
It need not be elaborated that pawnshops are non-banks/banking institutions. Moreover,
the nature of their business activities partakes that of a financial intermediary in that its principal
function is lending.

Facts:
First Planters Pawnshop, Inc. (petitioner) contests the deficiency value-added tax imposed
upon it by the Bureau of Internal Revenue (BIR) for the year 2000. The core of petitioner's
argument is that it is not a lending investor within the purview of Section 108(A) of the National
Internal Revenue Code (NIRC), as amended, and therefore not subject to value-added tax (VAT).

In a Pre-Assessment Notice petitioner was informed by the BIR that it has an existing tax
deficiency on its VAT liabilities for the year 2000, the deficiency assessment was at P541,102.79
for VAT Petitioner protested the assessment for lack of legal and factual bases. Petitioner
subsequently received a Formal Assessment Notice directing payment. Petitioner sought
reconsideration but this was denied by the CTA En Banc.

Issue:
Whether petitioner, engaged in pawnshop business, is liable to pay the deficiency
assessment atP541,102.79 for VAT?

Ruling:
No, R.A. No. 9238 classified pawnshops as Other Non-bank Financial Intermediaries.

The nature of their business activities partakes that of a financial intermediary in that its
principal function is lending. That pawnshops are to be treated as non-bank financial
intermediaries is further bolstered by the fact that pawnshops are under the regulatory supervision
of the Bangko Sentral ng Pilipinas and covered by its Manual of Regulations for Non-Bank
Financial Institutions.

Coming now to the issue at hand - Since petitioner is a non-bank financial intermediary, it
is subject to 10% VAT for the tax years 1996 to 2002; however, with the levy, assessment and
collection of VAT from non-bank financial intermediaries being specifically deferred by law, then
petitioner is not liable for VAT during these tax years and beginning 2004 up to the present, by
virtue of R.A. No. 9238, petitioner is no longer liable for VAT but it is subject to percentage tax
on gross receipts from 0% to 5 %, as the case may be.
 PHILIPPINE DEPOSIT INSURANCE CORPORATION vs. CITIBANK
G.R. No. 170290, April 11, 2012
MENDOZA, J.

Doctrine:
Foreign banks; A branch has no separate legal personality from the parent bank.

Facts:
Philippine Deposit Insurance Corporation (PDIC), a government instrumentality,
conducted an examination of the books of account of Citibank and Bank of America (BA) which
are both duly organized and existing under the laws of the United States of America and duly
licensed to do business in the Philippines. During the examination of the books, PDIC discovered
that both banks received from their head offices huge amount of dollars which were not reported
to PDIC as deposit liabilities subject to assessment for insurance. Believing that litigation would
inevitably arise from this dispute, Citibank and BA each filed a petition for declaratory relief,
stating that the money placements they received from their head office and other foreign branches
were not deposits and did not give rise to insurable deposit liabilities under Sections 3 and 4 of
R.A. No. 3591 (the PDIC Charter) and, as a consequence, the deficiency assessments made by
PDIC were improper and erroneous. The cases were then consolidated. RTC ruled in favor of the
Citibank and BA, which was affirmed by the Court of Appeals, hence, the present case.

Issue:
Whether the funds placed in the Philippine branch by the head office and foreign branches
are insurable deposits under the PDIC Charter and, are subject to assessment for insurance
premiums.

Ruling:
No. The Court explained the manner by which a foreign corporation can establish its
presence in the Philippines – it may choose to incorporate its own subsidiary as a domestic
corporation, in which case such subsidiary would have its own separate and independent legal
personality to conduct business in the country. In the alternative, it may create a branch in
the Philippines, which would not be a legally independent unit, and simply obtain a license to do
business in the Philippines.

In the case of Citibank and BA, it is apparent that they both did not incorporate a separate
domestic corporation to represent its business interests in the Philippines. Thus, being one and the
same entity, the funds placed by the respondents in their respective branches in
the Philippines should not be treated as deposits made by third parties subject to deposit insurance
under the PDIC Charter.