General Banking Laws

I.
SHORT TITLE: SANDEJAS VS SPS IGNACIO
II. FULL CASE TITLE

G.R. No. 155033 December 19, 2007
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.
III. PONENTE: AUSTRIA-MARTINEZ, J.:
IV. TOPIC: diligence of a bank; moral and exemplary damages
V. STATEMENT OF FACTS
Arturo Ignacio [respondent] is the elder brother of Alice [petitioner] and Rosita [petitioner],
Benjamin [petitioner] and Patricia [petitioner] are Arturo's nephew and niece. Arturo and his wife
Evelyn [respondent] are residents of the United States.
Arturo leased for a period of one year from Dr. Borja a condominium unit and was for the benefit of
Benjamin who is the occupant of the unit. As Arturo was intending to renew the lease contract and as
he had to leave for the U.S., he drew up a check, and wrote on it the name of the payee, Dr. Manuel
Borja, but left blank the date and amount. 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 three million pesos (₱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 at Ortigas
Ave., San Juan and that Ignacio preterminated the placement and ran away with it, which rightfully
belonged to Rosita.
Alice then inquired from UCPB Greenhills branch if Arturo still has an account with them. On
getting a confirmation, she together with Rosita drew up a scheme to recover the P3 million 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. Alice and Rosita came to
SBC Greenhills Branch together with a man (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. As initial deposit for the Joint
Savings Account, Alice, Rosita and Kudera deposited the check. 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
from Joint Savings Account and deposited said amount to the current account of Alice with SBC
Greenhills Branch. On the same date, Alice caused the transfer of P2 million from the Joint Savings
Account to two (2) Investment Savings Accounts in the names of Alice, Rosita and/or Patricia.
VI. STATEMENT OF THE CASE

RTC decision: in favor of the respondents. Against SBC, Benjamin Espiritu, Alice Sandejas and
Rosita Cusi. To pay the P3,000,000; awarded moral and exemplary damages, attorney’s fees, cost of
suit
CA: affirmed with modification; damages awarded against Benjamin Espiritu was deleted
VII. ISSUE:
WON Alice and Rosita are justified in encashing the subject check
VIII. RULING:
No. Alice and Rosita are not justified in encashing the subject check.
Alice and Rosita’s contention: they invoke the rule of pari delicto to support their contention that
respondents do not deserve any relief from the courts.
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.
The Court sustains the award of moral and exemplary damages as well as attorney's fees in favor of
respondents.
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 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 SBC and its officers, their negligence is so gross as to amount to a
willful 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. There is no hard-and-fast rule in the
determination of what would be a fair amount of moral damages since each case must be governed
by its own peculiar facts. The yardstick should be that it is not palpably and scandalously excessive.
As to exemplary damages, 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.
IX. COMPLETE DISPOSITIVE PORTION
WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals dated August
27, 2002 in CA-G.R. CV No. 62404 is AFFIRMED.
X. PREPARED BY: Balilo, Victoria Marie S.
I. SHORT TITLE: SBTC VS RCBC
II. FULL CASE TITLE
G.R. No. 170984 January 30, 2009

SECURITY BANK AND TRUST COMPANY, Petitioner,
vs.
RIZAL COMMERCIAL BANKING CORPORATION, Respondent.
G.R. No. 170987 January 30, 2009

RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, vs.
SECURITY BANK AND TRUST COMPANY, Respondent.
III. PONENTE: QUISUMBING, Acting C.J.:
IV. TOPIC:
Security Bank and Trust Company (SBTC) issued a manager’s check for ₱8 million, payable to
"CASH," as proceeds of the loan granted to Guidon Construction and Development Corporation
(GCDC). On the same day, the ₱8-million check, along with other checks, was deposited by
Continental Manufacturing Corporation (CMC) with Rizal Commercial Banking Corporation
(RCBC). Immediately, RCBC honored the ₱8-million check and allowed CMC to withdraw the
same.
GCDC issued a "Stop Payment Order" to SBTC, claiming that the ₱8-million check was released to
a third party by mistake. Consequently, SBTC dishonored and returned the manager’s check to
RCBC. Thereafter, the check was returned back and forth between the two banks, resulting in
automatic debits and credits in each bank’s clearing balance.
RCBC filed a complaint for damages against SBTC. Following the rules of the Philippine Clearing
House, RCBC and SBTC stopped returning the checks to each other. By way of a temporary
arrangement pending resolution of the case, the ₱8-million check was equally divided between, and
credited to, RCBC and SBTC.

RTC: rendered judgment in favor of RCBC and finds SBTC justly liable to RCBC and sentences
SBTC to pay RCBC the amount of:
1. PhP4,000,000.00 as and for actual damages;
2. PhP100,000.00 as and for attorney’s fees; and,
3. the costs.
CA: affirmed with modification. Appellant Security Bank and Trust Co. shall pay appellee Rizal
Commercial Banking Corporation not only the principal amount of ₱4,000,000.00 but also interest
thereon at (6%) per annum covering appellee’s unearned income on interest computed from the time
of filing of the complaint on February 13, 1981 to the date of finality of this Decision. For lack of
factual and legal basis, the award of attorney’s fees is DELETED.
VII. ISSUE:
1. Is SBTC liable to RCBC for the remaining ₱4 million?

2. Is SBTC liable to pay for lost interest income on the remaining ₱4 million, exemplary
damages and attorney’s fees?
VIII. RULING:
RCBC’s contention: the manager’s check issued by SBTC is substantially as good as the money it
represents because by its peculiar character, its issuance has the effect of an advance acceptance.
RCBC claims that it is a holder in due course when it credited the ₱8-million manager’s check to
CMC’s account.
SBTC’s contention: RCBC violated Monetary Board Resolution No. 2202 of the Central Bank of the
Philippines mandating all banks to verify the genuineness and validity of all checks before allowing
drawings of the same. SBTC insists that RCBC should bear the consequences of allowing CMC to
withdraw the amount of the check before it was cleared.
At the outset, it must be noted that the questioned check issued by SBTC is not just an ordinary
check but a manager’s check. A manager’s check is one drawn by a bank’s manager upon the bank
itself. It stands on the same footing as a certified check, which is deemed to have been accepted by
the bank that certified it. As the bank’s own check, a manager’s check becomes the primary
obligation of the bank and is accepted in advance by the act of its issuance.
it is clear from the July 9, 1980 Memorandum that banks were given the discretion to allow
immediate drawings on uncollected deposits of manager’s checks, among others. Consequently,
RCBC, in allowing the immediate withdrawal against the subject manager’s check, only exercised a
prerogative expressly granted to it by the Monetary Board.
Moreover, neither Monetary Board Resolution No. 2202 nor the July 9, 1980 Memorandum alters
the extraordinary nature of the manager’s check and the relative rights of the parties thereto. SBTC’s
liability as drawer remains the same − by drawing the instrument, it admits the existence of the payee
and his then capacity to indorse; and engages that on due presentment, the instrument will be
accepted, or paid, or both, according to its tenor.
In addition to the above-mentioned award of compensatory damages, we also find merit in the need
to award exemplary damages in order 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 an ubiquitous presence among
the people, who have come to regard them with respect and even gratitude and, above all, trust and
confidence. In this connection, it is important that banks should guard against injury attributable to
negligence or bad faith on its part. As repeatedly emphasized, since the banking business is
impressed with public interest, the trust and confidence of the public in it is of paramount
importance. Consequently, the highest degree of diligence is expected, and high standards of
integrity and performance are required of it. SBTC having failed in this respect, the award of
exemplary damages to RCBC in the amount of ₱50,000.00 is warranted.
WHEREFORE, the assailed Decision dated March 29, 2005 and Resolution dated December 12,
2005 of the Court of Appeals in CA-G.R. CV No. 67387 is hereby AFFIRMED with
MODIFICATION. Security Bank and Trust Company is ordered to pay Rizal Commercial Banking
Corporation: (1) the remaining ₱4,000,000.00, with legal interest thereon at six percent (6%) per
annum from the time of filing of the complaint on February 13, 1981 to the date of finality of this
Decision; (2) exemplary damages of ₱50,000.00; and (3) attorney’s fees of ₱25,000.00.
I. SHORT TITLE: PNB VS VELASCO
II. FULL CASE TITLE
PHILIPPINE NATIONAL BANK, Petitioner, VERSUS RAMON BRIGIDO L. VELASCO,

Respondent.
III. PONENTE: CHICO-NAZARIO, J
IV. TOPIC: GBL
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. At that time, the account had a balance of US$15,486.07. 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).
PNB Escolta Branch received the TEC covering the withdrawal which 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. while Velasco
was on a provincial audit, he claimed calling through phone a kin in Manila who just arrived from
abroad. This kin allegedly told him 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 Velascos 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.
in the 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 when he reported at the IAD and verified that he was not able to
deposit in his account the US$15,000.00.
Velasco went to Dolorita Donado, assistant vice president of the Internal Audit Department and team
leader of the Escolta Task Force, and delivered three (3) checks in the amount of US$5,000.00 each
or a total of US$15,000.00. However, Donato returned the checks to Velasco and instructed him that
he should personally deposit the checks. Velasco deposited the checks and the amount was
consequently 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. He submitted his sworn letter-explanation and described the inter-branch withdrawal at
PNB Ligao, Albay Branch as no-book, i.e., without the corresponding presentation to the bank teller
of the savings passbook. He stated 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.
PNB formally charged Velasco alleging that:
(1) he transacted a no-book withdrawal against his Dollar Savings Account No. 010-714698-9 at
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;
(3) the irregular inter-branch withdrawal was aggravated by the failure of Escolta Branch to
post/enter the withdrawal into the computer upon receipt of the TEC advice, resulting in the
overstatement of the account balance by US$15,000.00; and
(4) since he was presumed to be fully aware that neither the deposit nor withdrawal of the
US$15,000.00 was reflected on the passbook, he was able to appropriate the amount for his personal
benefit, free of interest, to the damage and prejudice of PNB
PNB withheld his rice and sugar subsidy, dental/optical/outpatient medical benefits, consolidated
medical benefits, commutation of hospitalization benefits, clothing allowance, longevity pay,
anniversary bonus, Christmas bonus and cash gift, performance incentive award, and mid-year
financial assistance and was placed under preventive suspension for a period of ninety (90) days.
Velasco filed against PNB for illegal suspension, illegal dismissal, and damages before the NLRC.
LA: Dismissing the complaint for illegal dismissal against respondents for want of merit, Ordering
PNB to pay complainant unpaid wages, Dismissing complainants claims for damages and other
monetary claims for lack of merit
As an employee and officer of PNB for eighteen (18) years, Velasco is expected to know bank
procedures, including the expected entries in a savings passbook. Even if it should be assumed that
he presented his passbook when he withdrew US$15,000.00 at the PNB Ligao Branch and he should
have known that there was something wrong with the amounts credited to his account when he made
an update. Being an audit officer, and fully aware of his withdrawal of US$15,000.00, he should
have made inquiries on the inconsistency of the entries in his passbook.
On the charge of illegal suspension, the Labor Arbiter held that the preventive suspension of Velasco
was reasonable in view of the sensitive nature of his position. It was also necessary to protect the
records of PNB. It follows that the withholding of his company benefits is reasonable. Nonetheless,
he should be paid his salary
His claim for damages and attorney’s fees must be denied because PNB did not violate his rights.
NLRC: affirmed the decision with modification - the extent that the award of unpaid salaries is
reduced. It 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. Thus, his subsequent withdrawals
amounted to losses on the part of the bank. He made those withdrawals from his account with full
knowledge that the balance of his passbook of more than US$15,000.00 was attributed to the non-
posting of the June 30, 1995 withdrawal.
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.
VII. ISSUE:
1. WON Velasco was illegally dismissed
2. WON PNB should pay the Velasco separation pay and backwages
VIII. RULING:
1. Yes, Velasco committed serious misconduct, hence, his dismissal is justified.
ordinary misconduct would not justify the termination of the services of an employee. 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
employees duties; and (3) show that the employee has become unfit to continue working for the
employer.
Measured by the foregoing yardstick, Velasco committed serious misconduct that warrants
termination from employment.
Velasco violated bank rules when he transacted a no-book withdrawal by his failure to present his
passbook to the PNB Ligao, Albay. Section 1216 of the Manual of Regulations for Banks and Other
Financial Intermediaries state that banks 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.
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.
2. PNB has no other liability to Velasco, except his unpaid wages.
PNB has the right to preventively suspend Velasco during the pendency of the administrative case
against him. It was obviously done as a measure of self-protection. It was necessary to secure the
vital records of PNB which, in view of the position of Velasco as internal auditor, are easily
accessible to him.
Velasco was preventively suspended for more than thirty (30) days while the records bear that
Velasco was paid his salaries. Thus, the NLRC is correct in its holding that he may recover his
salaries.
Velasco is not entitled to separation and backwages because he was not illegally dismissed. PNB
was not at all insensitive to his plight, considering (1) his restitution of the amount akin to no actual
loss to the bank, and (2) his length of service of eighteen (18) years.
As stated earlier, PNB imposed on Velasco the penalty of forced resignation with benefits, instead of
dismissal. The records bear out that he was granted P542,110.75 as separation benefits which was
used to offset his loan in the bank, leaving an outstanding balance of P167,625.82 as of May 27,
1997. PNB acted humanely under the circumstances.
WHEREFORE, the petition is GRANTED and the appealed Decision REVERSED and SET ASIDE.
The Decision of the National Labor Relations Commission is REINSTATED.
I. SHORT TITLE: Banco de Oro-EPCI, Inc. v. JAPRL Dev. Corp.
II. FULL CASE TITLE:

G.R. No. 179901 April 14, 2008
BANCO DE ORO-EPCI, INC., vs. JAPRL DEVELOPMENT CORPORATION, RAPID
FORMING CORPORATION and JOSE U. AROLLADO
III. PONENTE: Corona, J
IV. TOPIC: General Banking Laws
After evaluating the financial statements of respondent JAPRL Development Corporation (JAPRL)
for fiscal years 1998, 1999 and 2000, petitioner Banco de Oro-EPCI, Inc. extended credit Rfacilities
to it amounting to P230,000,000. Respondents Rapid Forming Corporation (RFC), and Jose U.
Arollado acted as JAPRL's sureties.
Despite its seemingly strong financial position, JAPRL defaulted in the payment of four trust receipts
soon after the approval of its loan. Petitioner later learned from MRM Management, JAPRL's
financial adviser, that JAPRL had altered and falsified its financial statements. It allegedly bloated its
sales revenues to post a big income from operations for the concerned fiscal years to project itself as
a viable investment. The information alarmed petitioner. Citing relevant provisions of the Trust
Receipt Agreement, it demanded immediate payment of JAPRL's outstanding obligations amounting
to P194,493,388.98.

Civil Case No. 03-991
Because JAPRL ignored its demand for payment, petitioner filed a complaint for sum of money with
an application for the issuance of a writ of preliminary attachment against respondents in the RTC of
Makati City on the ground of fraud because JAPRL altered and falsified its financial statements.
The Makati RTC subsequently denied the application (for the issuance of a writ of preliminary
attachment) for lack of merit as petitioner was unable to substantiate its allegations. Nevertheless, it
ordered the service of summons on respondents.
Respondents moved to dismiss the complaint due to an allegedly invalid service of summons because
the officer's return stated that an "administrative assistant" had received the summons.
The Makati RTC denied the motion for lack of merit. It noted that because corporate officers are
often busy, summonses to corporations are usually received only by administrative assistants or
secretaries of corporate officers in the regular course of business.
Respondents moved for reconsideration but withdrew it before the Makati RTC could resolve the
matter.
RTC SEC Case No. 68-2008-C

JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in Calamba RTC. Finding
JAPRL's petition sufficient in form and in substance, the Calamba RTC issued a stay order.
In view of the said order, respondents hastily moved to suspend the proceedings in Civil Case No.
03-991 pending in the Makati RTC.
Makati RTC granted the motion with regard to JAPRL and RFC but ordered Arollado to file an
answer. It ruled that, because he was jointly and solidarily liable with JAPRL and RFC, the
proceedings against him should continue.
Respondents moved for reconsideration but it was denied.
Respondents filed a petition for certiorari in the CA. They asserted that the court did not acquire
jurisdiction over their persons due to defective service of summons. Thus, the Makati RTC could not
hear the complaint for sum of money.
CA granted the petition sustaining the position of respondents.
Petitioner moved for reconsideration but it was denied. Hence, this petition.
Petitioner asserts that respondents maliciously evaded the service of summonses to prevent the
Makati RTC from acquiring jurisdiction over their persons. Furthermore, they employed bad faith to
delay proceedings by cunningly exploiting procedural technicalities to avoid the payment of their
obligations
VII. ISSUES
I. Whether or not the Court acquired jurisdiction over the person of the respondents.
II. Whether or not the Makati RTC shall proceed to hear Civil Case No. 03-991.
VIII. RULING
I. Yes.
When respondents moved for the suspension of proceedings in Civil Case No. 03-991 before the
Makati RTC (on the basis of order of the Calamba RTC), they waived whatever defect there was in
the service of summons and were deemed to have submitted themselves voluntarily to the
jurisdiction of the Makati RTC.
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 public's 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. They plough back the bulk of said deposits into the economy in the form of loans. Since
banks deal with the public's 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.
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, the
Court is not unaware of the rampant and unscrupulous practice of obtaining loans without intending
to pay the same.
II. Yes.
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 petitioner's exposure in JAPRL,
justice and fairness dictate that the Makati RTC hear whether or not respondents indeed committed
fraud in securing the credit accomodation.
Petitioner can use the finding of fraud to move for the dismissal of the rehabilitation case in the
Calamba RTC.
The protective remedy of rehabilitation was never intended to be a refuge of a debtor guilty of fraud.
Makati RTC should proceed to hear Civil Case No. 03-991 against the three respondents guided by
Section 40 of the General Banking Law which states:
Section 40. 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.
Towards this end, a bank may demand from its credit applicants a statement of their assets
and liabilities and of their income and expenditures and such information as may be
prescribed by law or by rules and regulations of the Monetary Board to enable the bank to
properly evaluate the credit application which includes the corresponding financial statements
submitted for taxation purposes to the Bureau of Internal Revenue. Should such statements
prove to be false or incorrect in any material detail, the bank may terminate any loan or credit
accommodation granted on the basis of said statements and shall have the right to demand
immediate repayment or liquidation of the obligation.
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.

ACCORDINGLY, the petition is hereby GRANTED. The June 7, 2007 decision and August 31,
2007 resolution of the Court of Appeals in CA-G.R. SP No. 95659 are REVERSED and SET
ASIDE.
The Regional Trial Court of Makati City, Branch 145 is ordered to proceed expeditiously with the
trial of Civil Case No. 03-991 with regard to respondent Jose U. Arollado, and the other respondents
if warranted.
SO ORDERED.
X. Prepared by: Ramirez, Edrea Jean V.
I. SHORT TITLE: Bank of America NT & SA v. Philippine Racing Club
II. FULL TITLE: Bank of America NT & SA, petitioner, v. Philippine Racing Club,
respondent
III. PONENTE: Justice Leonardo-De Castro
IV. TOPIC: GBL
V. STATEMENT OF FACTS:
Plaintiff PRCI is a domestic corporation which maintains a current account with
petitioner Bank of America. Its authorized signatories are the company President and
Vice-President. By virtue of a travel abroad for these officers, they pre-signed checks to
accommodate any expenses that may come up while they were abroad for a business trip.
The said pre-signed checks were left for safekeeping by PRCs accounting officer.
Unfortunately, an unknown person presented to BA, for encashment, two checks of PRCI,
with value of 110k each. The said check was filled in with the use of a check-writer,
wherein in the blank for the 'Payee', the amount in words was written, with the word
'Cash' written above it.
Despite irregular entries on face of the checks, BA without verifying legitimacy of

checks, encashed said checks. PRCI demanded payment from BA, but failed.
VI. STATEMENT OF CASE:

PRC filed an action for damages against the bank. The lower court awarded actual
and exemplary damages. On appeal, the CA affirmed the lower court's decision and held
that the bank was negligent. Hence this appeal. Petitioner contends that it merely fulfilled
its obligation under the law and contract and duty to inquire only when check bears a
material alteration, since the signatures in the checks are genuine.
VII. ISSUE/S:
Whether the BA can be held liable for negligence and should be liable for damages to
PRCI.
VIII. RULING:
Both parties are held to be at fault but the bank has the last clear chance to prevent the
fraudulent encashment. Here, the negligence on the part of BA, despite the presence of
highly irregular entries on face of checks, and unusual circumstances surrounding the
encashment, it enchased the said checks. It is highly uncommon for a corporation to make
check payable to cash for substantial amount. On the other hand, the negligence on the
part of PRCI, is the act of pre-signing checks which is a dangerous policy. Nevertheless,
BA cannot evade responsibility for the loss by attributing negligence on the part of PRCI,
because BA had the last clear chance to avoid the loss, failing to make necessary
verification due to volume of banking transactions is not an excuse.
PRCI’s own negligence will mitigate only BA’s liability.
IX. COMPLETE DISPOSITIVE PORTION:

WHEREFORE, the Decision of the Court of Appeals dated July 16, 2001 and its
Resolution dated September 28, 2001 are AFFIRMED with the following
MODIFICATIONS: (a) petitioner Bank of America NT & SA shall pay to respondent
Philippine Racing Club sixty percent (60%) of the sum of Two Hundred Twenty
Thousand Pesos (P220,000.00) with legal interest as awarded by the trial court and (b) the
awards of attorneys fees and litigation expenses in favor of respondent are deleted.
X. PREPARED BY: Sadsad, Ivan Benedik T.
I. SHORT TITLE: CITIBANK V. DINOPOL (2010)

II. FULL TITLE: Citibank, N.A., petitioner v. Atty. Ernesto S. Dinopol, respondent.
III. PONENTE: J. Mendoza
IV. TOPIC: General Banking Law- Highest degree of diligence is expected of banks.
In December 1996, Atty. Dinopol availed of Citibanks Ready Credit Checkbooks advertised
offer. After approving his application, Citibank granted Atty. Dinopol a credit line limit of
P30,000.00. Atty. Dinopol then 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 dated December 26, 1996. Thereafter, Citibank billed him the amount of
P1,629.21 for interest and charges as well as late payment charges as stated in his Statement of
Account dated January 26, 1997. 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 such
dishonor and demand notice, Atty. Dinopol filed a civil action for damages against Citibank before
the RTC alleging gross negligence and bad faith in dishonoring said check. In defense, Citibank
alleged that it was justified in dishonoring the check for the account was insufficient because it had
been reduced by the interests and penalty charges imposed as a result of his late payment.
VI. STATEMENT OF THE CASE:
RTC rendered a decision against Citibank and reasoned out that Citibank failed to completely
disclose the terms and conditions of its “Citibank Ready Credit Account” when Atty. Dinopol
applied for it. Furthermore, RTC found that Atty. Dinopol was given a go signal by Citibank before
he issued such check. Citibank failed to advise him that he still had an outstanding balance of P
58.33 as of February 26,1997.
The CA affirmed the RTC decision with modification. It increased the award of moral
damages from P100,000.00 to P500,000.00 and awarded exemplary damages in the amount of
P50,000.00. the CA found that Citibank, as admitted by its witness, Mark Andre P. Hernando,
displayed dishonesty in claiming that Atty. Dinopol was provided with the banks Customer
Guidebook. No proof to the contrary was shown by the bank. Instead of exercising good faith by
providing a new account holder like Atty. Dinopol with the service guidebook, Citibank argued that
since he was a lawyer, the latter should have already been familiar with the terms and conditions of
his Ready Credit Account.
VII. ISSUE: Whether or not the Court of Appeals was correct in ruling that Citibank is liable to
Atty. Dinopol for damages
VIII. RULING:
Yes. The Court agrees with the courts below in concluding that Citibank was liable to Atty.
Dinopol for moral and exemplary damages and attorney’s fees.
The business of banking is impressed with public interest and great reliance is made on the
banks sworn profession of diligence and meticulousness in giving irreproachable service.
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.
IX. DISPOSITIVE PORTION:
WHEREFORE, the December 16, 2008 Decision of the Court of Appeals is MODIFIED to
read as follows:
In view of the foregoing, judgment is hereby rendered ordering defendant Citibank N.A to
pay plaintiff Atty. Ernesto S. Dinopol the following:
1] P100,000.00 as and for moral damages;
2] P50,000.00 as and for exemplary damages;
3] P50,000.00 as and for attorneys fees; and
4] Costs of suit,
plus interest at the legal rate reckoned from the filing of the complaint. SO ORDERED.
X. Prepared by: Isiderio, Joan.
I. SHORT TITLE: GSIS v. Santiago

G.R. No. 155206 October 28, 2003
GOVERNMENT SERVICE INSURANCE SYSTEM vs. EDUARDO M. SANTIAGO, substituted
by his widow ROSARIO ENRIQUEZ VDA. DE SANTIAGO
III. PONENTE: Callejo, Sr., J.

Deceased spouses Jose C. Zulueta and Soledad Ramos obtained various loans from defendant GSIS
in the total amount of ₱3,117,000.00 secured by real estate mortgages over parcels of land.
The Zuluetas failed to pay their loans to defendant GSIS and the latter foreclosed the real estate
mortgages. Not all of the mortgaged properties were sold at public auction. Ninety-one (91) lots were
expressly excluded from the auction since the lots were sufficient to pay for all the mortgage debts.
A Certificate of Sale was issued.
An Affidavit of Consolidation of Ownership executed by defendant GSIS over Zulueta’s lots,

including the lots, which as earlier stated, were already excluded from the foreclosure. Later on,
GSIS began disposing the foreclosed lots including the excluded ones.
Representative Eduardo Santiago and then plaintiff Antonio Vic Zulueta executed an agreement
whereby Zulueta transferred all his rights and interests over the excluded lots. Plaintiff Eduardo
Santiago’s lawyer wrote a demand letter to defendant GSIS asking for the return of the excluded lots.

Antonio Vic Zulueta, represented by Eduardo M. Santiago, filed with RTC a complaint for
reconveyance of real estate against the GSIS.
Subsequently, the petitioner, as defendant therein, filed its answer alleging inter alia that the action
was barred by the statute of limitations and/or laches and that the complaint stated no cause of action.
Subsequently, Zulueta was substituted by Santiago as the plaintiff in the complaint a quo. Upon the
death of Santiago, he was substituted by his widow, Rosario Enriquez Vda. de Santiago, as the
plaintiff.
After due trial, the RTC rendered judgment against the petitioner ordering it to reconvey to the
respondent, Rosario Enriquez Vda. de Santiago, in substitution of her deceased husband Eduardo, the
lots excluded from the foreclosure sale.
The petitioner elevated the case to the CA which affirmed the decision of the RTC. The petitioner
moved for a reconsideration of the aforesaid decision but the same was denied. Thus, it led to the
filing of this petition to the Supreme Court.
In its petition, the petitioner maintains that it did not act in bad faith when it erroneously included in
its certificate of sale, and subsequently consolidated the titles in its name over subject lots that were
excluded from the foreclosure sale.
VII. ISSUE
Whether or not reconveyance of the excluded lots in favor of the respondents is proper.
VIII. RULING
Yes.
The trial court and appellate court is uniform with its ruling that the petitioner acted in bad faith in
consolidating ownership and causing the issuance of titles in its name over the subject lots,
notwithstanding that these were expressly excluded from the foreclosure sale.
The petitioner is not an ordinary mortgagee. It is a government financial institution and, like banks,
is expected to exercise greater care and prudence in its dealings, including those involving registered
lands. The Court’s ruling in Rural Bank of Compostela v. CA is apropos:
Banks, indeed, should exercise more care and prudence in dealing even with registered lands,
than private individuals, for their business is one affected with public interest, keeping in trust
money belonging to their depositors, which they should guard against loss by not committing
any act of negligence which amounts to lack of good faith by which they would be denied the
protective mantle of land registration statute, Act [No.] 496, extended only to purchasers for
value and in good faith, as well as to mortgagees of the same character and description.
Due diligence required of banks extend even to persons, or institutions like the GSIS, regularly
engaged in the business of lending money secured by real estate mortgages.
In this case, the petitioner executed an affidavit in consolidating its ownership and causing the
issuance of titles in its name over the subject lots despite the fact that these were expressly excluded
from the foreclosure sale. By so doing, the petitioner acted in gross and evident bad faith. It cannot
feign ignorance of the fact that the subject lots were excluded from the sale at public auction. At the
least, its act constituted gross negligence amounting to bad faith. Further, as found by the CA, the
petitioner’s acts of concealing the existence of these lots, its failure to return them to the Zuluetas
and even its attempt to sell them to a third party is proof of the petitioner’s intent to defraud the
Zuluetas and appropriate for itself the subject lots.

WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision dated February 22,
2002 and Resolution dated September 5, 2002 of the Court of Appeals in CA-G.R. CV No. 62309
are AFFIRMED IN TOTO. Costs against the petitioner.
SO ORDERED.
X. PREPARED BY: Ramirez, Edrea Jean V.
I. SHORT TITLE: BPI vs Casa Montessori International
II. FULL CASE TITLE
BANK OF THE PHILIPPINE ISLANDS, petitioner,

vs.
CASA MONTESSORI INTERNATIONALE LEONARDO T. YABUT, respondents.
CASA MONTESSORI INTERNATIONALE, petitioner, vs.

BANK OF THE PHILIPPINE ISLANDS, respondent.
III. PONENTE: PANGANIBAN, J.:
Plaintiff CASA Montessori International5 opened Current Account No. 0291-0081-01 with
defendant BPI with CASA’s President Ms. Ma. Carina C. Lebron as one of its authorized signatories.
After conducting an investigation, plaintiff 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 third party defendant Leonardo T. Yabut who worked as external auditor of CASA. Third
party defendant 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.
RTC: in favor of CASA
CA: affirmed with modification - 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 Leonardo T. 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.
VII. ISSUE:
1. WON there was a forgery under the Negotiable Instruments Law (NIL)
2. WON there are any of the parties negligent and therefore precluded from setting up forgery
as a defense
3. WON moral and exemplary damages, attorney’s fees, and interest be awarded
VIII. RULING:
1. Yes, there was a forgery.
Forged signature wholly inoperative. 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, it
was found out that 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.20 That
he had been coerced into admission was not corroborated by any evidence on record. Second, the
appellate and the trial courts also ruled that the PNP Crime Laboratory, after its examination of the
said checks, had concluded that the handwritings compared to the standard signature of the drawer
were not hers.
2. Yes, 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.
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."108 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. First, Yabut was able to open a bank account in one of its
branches without privity; that is, without the proper verification of his corresponding identification
papers. Second, BPI was unable to discover early on not only this irregularity, but also the marked
differences in the signatures on the checks and those on the signature card. Third, despite the
examination procedures it conducted, the Central Verification Unit of the bank even passed off these
evidently different signatures as genuine. 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.
Yabut was an independent auditor hired by CASA. He handled its monthly bank reconciliations and
had access to all relevant documents and checkbooks. In him was reposed the client’s trust and
confidence that he would perform precisely those functions and apply the appropriate procedures in
accordance with generally accepted auditing standards. Yet he did not meet these expectations.
Nothing could be more horrible to a client than to discover later on that the person tasked to detect
fraud was the same one who perpetrated it.
3. Exemplary and moral damages are denied.
As to moral damages, 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 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 relation154 to the claimant’s act or omission.
In this case CASA was unable to identify the particular instance, upon which its claim for moral
damages is predicated. Neither bad faith nor negligence so gross that it amounts to malice can be
imputed to BPI. Bad faith, under the law, "does not simply connote bad judgment or negligence; it
imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a
known duty through some motive or interest or ill will that partakes of the nature of fraud."
As to exemplary damages, it is imposed by way of correction for the public good, it cannot be
recovered as a matter of right. 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.
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: BPI is held liable for ₱547,115, the total value of the forged checks less the amount
already recovered by CASA from Leonardo T. Yabut, plus interest at the legal rate of six percent
(6%) per annum -- compounded annually, from the filing of the complaint until paid in full; and
attorney’s fees of ten percent (10%) thereof, subject to reimbursement from Respondent Yabut for
the entire amount, excepting attorney’s fees. Let a copy of this Decision be furnished the Board of
Accountancy of the Professional Regulation Commission for such action as it may deem appropriate
against Respondent Yabut. No costs.
I. SHORT TITLE: PBC vs CA
II. FULL CASE TITLE
PHILIPPINE BANKING CORPORATION, petitioner,

vs.
COURT OF APPEALS and LEONILO MARCOS, respondents.
III. PONENTE: CARPIO, J.
IV. TOPIC: General Banking Law
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. The first was for P664,897.67. The BANK issued receipt for this time
deposit. Marcos claimed he again made a time deposit with the BANK for P764,897.67. 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.
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 totalling P851,250. 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.
Marcos believed that he and the BANK became creditors and debtors of each other. Marcos expected
the BANK to offset automatically a portion of his time deposits and the accumulated interest with the
amount covered by the three trust receipts totalling P851,250 less the 30% marginal deposit that he
had paid. Marcos argued that if only the BANK applied his time deposits and the accumulated
interest to his remaining obligation, which is 70% of the total amount of the letters of credit, he
would have paid completely his debt. Marcos further pointed out that since he did not apply for a
renewal of the trust receipt agreements, the BANK had no right to renew the same.
Marcos also denied that he obtained another loan from the BANK for P500,000 with interest at 25%
per annum supposedly covered by promissory note. Marcos bewailed the BANK’s belated claim that
his time deposits were applied to this void promissory note.
When Marcos defaulted in the payment of promissory note, the BANK debited his time deposits and
applied the same to the obligation that is now considered fully paid. The BANK insisted that the
Deed of Assignment authorized it to apply the time deposits in payment of Promissory Note.
The BANK claimed that Marcos freely entered into the trust receipt agreements. When Marcos failed
to account for the goods delivered or for the proceeds of the sale, the BANK filed a complaint for
violation of Presidential Decree No. 115 or the Trust Receipts Law. Instead of initiating negotiations
for the settlement of the account, Marcos filed this suit.
TC:
1. to return to Plaintiff his time deposit in the sum of P971,292.49 with interest thereon at the
legal rate, until fully restituted;
2. to pay attorney’s fees of P200,000.00;
3. to pay the cost of these proceedings.
CA: reversed and set aside - deleted the award of attorney’s fees and to return to the appellee his
time deposit in the sum of P764,897.67 with 17% interest within 90 days
VII. ISSUE: WON the bank is liable to Marcos for offsetting his time deposits
VIII. RULING:
Yes, the bank is liable to Marcos for offsetting his time deposits.
The BANK is liable to Marcos for offsetting his time deposits with a fictitious promissory note. The
existence of Promissory Note 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.
Whether it was the BANK’s negligence and inefficiency or Pagsaligan’s misdeed that deprived
Marcos of the amount due him will not excuse the BANK from its obligation to return to Marcos the
correct amount of his time deposits with interest. The duty to observe "high standards of integrity
and performance" imposes on the BANK that obligation. The BANK cannot also unjustly enrich
itself by keeping Marcos’ money.
Assuming Pagsaligan was behind the spurious promissory note, the BANK would still be
accountable to Marcos. We have held that a bank is liable for the wrongful acts of its officers done in
the interest of the bank or in their dealings as bank representatives but not for acts outside the scope
of their authority. Thus, we held: A bank holding out its officers and agents 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 (10 Am Jur 2d, p. 114). 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, in the particular
case, 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
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION.

Petitioner Philippine Banking Corporation is ordered to return to private respondent Leonilo Marcos
P500,404.11, the remaining principal amount of his time deposits, with interest at 17% per annum
from 30 August 1989 until full payment. Petitioner Philippine Banking Corporation is also ordered to
pay to private respondent Leonilo Marcos P211,622.96, the accumulated interest as of 30 August
1989, plus 12% legal interest per annum from 30 August 1989 until full payment. Petitioner
Philippine Banking Corporation is further ordered to pay P100,000 by way of moral damages and
P20,000 as exemplary damages to private respondent Leonilo Marcos.
I. SHORT TITLE: PNB VS PIKE
II. FULL CASE TITLE
PHILIPPINE NATIONAL BANK, Petitioners, vs. NORMAN Y. PIKE, Respondent.
III. PONENTE: CHICO-NAZARIO, J.
Complainant Pike often traveled to and from Japan as a gay entertainer in said country. Sometime in
1991, he opened U.S. Dollar Savings Account with petitioner PNB Buendia branch for which he was
issued a corresponding passbook. The complaint alleged in substance that before complainant Pike
left for Japan, he kept the passbook inside a cabinet under lock and key, in his home; a few hours
after he arrived from Japan, he discovered that some of his valuables were missing including the
passbook; that he immediately reported the incident to the police which led to the arrest and
prosecution of a certain Mr. Joy Manuel Davasol; that complainant Pike also discovered that Davasol
made two (2) unauthorized withdrawals from his U.S. Dollar Savings Account, both times at the
PNB Buendia branch.
That on several occasions, complainant Pike went to defendant PNB’s Buendia branch and verbally
protested the unauthorized withdrawals and likewise demanded the return of the total withdrawn
amount of U.S. $7,500.00, on the ground that he never authorized anybody to withdraw from his
account as the signatures appearing on the subject withdrawal slips were clearly forgeries; that
defendant PNB refused to credit said amount back to complainant’s U.S. Dollar Savings Account
without justifiable reason, and instead, defendant bank wrote him that it exercised due diligence in
the handling of said account; and, complainant Pike wrote defendant PNB simply to request that the
hold-account be lifted so that he may withdraw the remaining balance left in his U.S.$ Savings
Account and nothing else.
TC:
1. US$7,500.00 plus interest thereon at the rate of 12% per annum until the full amount is paid;
2. P25,000.00 for and as attorney’s fees;
3. P50,000.00 as moral damages and P50,000.00 as exemplary damages; and
4. Plus the costs of suit.
CA: affirmed with modification

1. Ordering appellant, the Philippine National Bank, Buendia Branch, to refund appellee the
amount of $7,500.00 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 the judgment
in this case becomes final and executory until its satisfaction;
2. The award for moral damages is reduced to P20,000.00; and
3. The award for exemplary damages is likewise reduced to P20,000.00.
VII. ISSUE:
1. WON the bank exercised the required degree of diligence it ought to exercise
2. WON the moral and exemplary damages may be awarded
VIII. RULING:
1. No, 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 bank’s employee, Lorenzo T. Bal,
an Assistant Vice President at that, was exceedingly careless in his treatment of respondent
Pike’s savings account.
From the foregoing, the evidence clearly showed that the petitioner bank did not exercise the degree
of diligence that it ought to have exercised in dealing with their clients.
With banks, the degree of diligence required, contrary to the position of petitioner PNB, 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, makes a
categorical declaration that the State recognizes the "fiduciary nature of banking that requires high
standards of integrity and performance."
2. The award of moral and exemplary damages is left to the sound discretion of the court, and if
such discretion is well exercised, as in this case, it will not be disturbed on appeal. In the case
of Philippine Telegraph & Telephone Corporation v. Court of Appeals, we had the occasion
to reiterate the conditions to be met in order that moral damages may be recovered. In said
case we stated:
An award of moral damages would require, firstly, evidence of besmirched reputation, or physical,
mental or psychological suffering sustained by the claimant; secondly, a culpable act or omission
factually established; thirdly, proof that the wrongful act or omission of the defendant is the
proximate cause of the damages sustained by the claimant; and fourthly, that the case is predicated
on any of the instances expressed or envisioned by Articles 2219 and 2220 of the Civil Code.
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) ₱20,000.00
representing attorney’s fees; and 2) ₱10,000.00 representing expenses of litigation. Costs against
petitioner PNB.
CHANTE
I. SHORT TITLE: REYES VS CA
II. FULL CASE TITLE
III. PONENTE:
IV. TOPIC:
In view of the 20th Asian Racing Conference then scheduled to be held in September, 1988 in
Sydney, Australia, the Philippine Racing Club, Inc. (PRCI, for brevity) sent four (4) delegates to the
said conference. Petitioner Gregorio H. Reyes, as vice-president for finance, racing manager,
treasurer, and director of PRCI, sent Godofredo Reyes, the club's chief cashier, to the respondent
bank to apply for a foreign exchange demand draft in Australian dollars.
Godofredo went to respondent bank's Buendia Branch in Makati City to apply for a demand draft in
the amount One Thousand Six Hundred Ten Australian Dollars (AU$1,610.00) payable to the order
of the 20th Asian Racing Conference Secretariat of Sydney, Australia. He was attended to by
respondent bank's assistant cashier, Mr. Yasis, who at first denied the application for the reason that
respondent bank did not have an Australian dollar account in any bank in Sydney. Godofredo asked
if there could be a way for respondent bank to accommodate PRCI's urgent need to remit Australian
dollars to Sydney. Yasis of respondent bank then informed Godofredo of a roundabout way of
effecting the requested remittance to Sydney thus: the respondent bank would draw a demand draft
against Westpac Bank in Sydney, Australia (Westpac-Sydney for brevity) and have the latter
reimburse itself from the U.S. dollar account of the respondent in Westpac Bank in New York,
U.S.A. (Westpac-New York for brevity). This arrangement has been customarily resorted to since
the 1960's and the procedure has proven to be problem-free. PRCI and the petitioner Gregorio H.
Reyes, acting through Godofredo, agreed to this arrangement or approach in order to effect the
urgent transfer of Australian dollars payable to the Secretariat of the 20th Asian Racing Conference.
On August 10, 1988, upon due presentment of the foreign exchange demand draft, denominated as
FXDD No. 209968, the same was dishonored, with the notice of dishonor stating the following: "xxx
No account held with Westpac." Meanwhile, on August 16, 1988, Wespac- New York sent a cable to
respondent bank informing the latter that its dollar account in the sum of One Thousand Six Hundred
Ten Australian Dollars (AU$ 1,610.00) was debited. On August 19, 1988, in response to PRCI's
complaint about the dishonor of the said foreign exchange demand draft, respondent bank informed
Westpac-Sydney of the issuance of the said demand draft FXDD No. 209968, drawn against the
Wespac- Sydney and informing 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. On September 14, 1988,
upon its second presentment for payment, FXDD No. 209968 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.
On September 17, 1988 and September 18, 1988, respectively, petitioners spouses Gregorio H.
Reyes and Consuelo Puyat-Reyes left for Australia to attend the said racing conference. When
petitioner Gregorio H. Reyes arrived in Sydney in the morning of September 18, 1988, 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 secretariat that he
could not register because the foreign exchange demand draft for his registration fee had been
dishonored for the second time. A discussion ensued in the presence and within the hearing of many
delegates who were also registering. Feeling terribly embarrassed and humiliated, petitioner
Gregorio H. 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. In the meantime he demanded that he be
given his name plate and conference kit. The lady member of the conference secretariat relented and
gave him his name plate and conference kit. It was only two (2) days later, or on September 20,
1988, 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 petitioners filed in the Regional Trial Court of Makati, Metro Manila, a complaint for damages,
docketed as Civil Case No. 88-2468, against the 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.
TC: rendered judgment in favor of the defendant (respondent bank) and against the plaintiffs (herein
petitioners). Complaint was dismissed.
CA: complaint was dismissed. there is no basis to hold the respondent bank liable for damages for
the reason that it exerted every effort for the subject foreign exchange demand draft to be honored
VII. ISSUE: WON the bank exercised degree of diligence it required to exercise
VIII. RULING:
Yes. 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 of One
Thousand Six Hundred Ten Australian Dollar (AU $1610.00) 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 (FXDD No. 209968) could be encashed by
the payee, the 20th Asian Racing Conference Secretariat. PRCI and its Vice- President for finance,
petitioner Gregorio H. Reyes, through their said representative, agreed to that arrangement or
procedure. In other words, the 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".
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’S PAWNSHOP v. CIR

II. FULL TITLE: FIRST PLANTERS PAWNSHOP INC., petitioner, v. COMMISSIONER
OF INTERNAL REVENUE, respondent, GR. No. 174134, July 30, 2008
III. PONENTE: AUSTRIA-MARTINEZ, J.
IV. TOPIC: GENERAL BANKING LAW
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 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.
Petitioner protested the assessment for lack of legal and factual bases which was denied by the
Acting Regional Director.
First Planter’s Pawnshop then filed a petition for review with the Court of Tax Appeals (CTA).
In a Decision dated May 9, 2005, the 2nd Division of the CTA upheld the deficiency assessment.
Petitioner filed a motion for reconsideration which was denied in a Resolution dated October 7,
2005. Petitioner appealed to the CTA En Banc which also denied for lack of merit.
Petitioner sought reconsideration but this was denied by the CTA En Banc per Resolution dated
August 14, 2006. Hence, the present petition for review under Rule 45 of the Rules of Court.
VII. ISSUE/S
1. Whether or not First Planter’s Pawnshop is liable for Value Added Tax.
2. Whether or not First Planter’s Pawnshop is liable for Documentary Stamp Tax.
VIII. RULING
1. NO
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.
2.YES
Applying jurisprudence, it was ruled that the subject of DST is not limited to the document
alone. A DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or
properties incident thereto.
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.
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.
X. PREPARED BY: Buzon, Janice Belle

NACAR
#15
I. SHORT TITLE: PCIB v. CABRERA (2005)
II. FULL TITLE: PHILIPPINE COMMERCIAL INDUSTRIAL BANK, petitioner,
vs. PEDRO L. CABRERA, respondent. - G.R. No. 160368. March 31, 2005
III. PONENTE: DAVIDE, JR., C.J.
This case is about the two anomalous withdrawals totalling P202,000.00 against the savings
account of one Philip Inocencio, a depositor of the Sixto Antonio-Pasig Branch of petitioner
Philippine Commercial Industrial Bank. Such anomaly was imputed on respondent Pedro L. Cabrera,
the Assistant Manager-Service Head of that Branch who had been with the petitioner bank for almost
two decades.
The anomaly was discovered when Inocencio went to the Branch to have his passbook
updated. Customer Service Assistant Corazon Alejandro, the branch personnel who attended to him,
discovered that there was a discrepancy between his account balance as appearing on the banks
computer and that appearing on his passbook. The computer reported a balance of only P99,061.71,
while the passbook reflected a balance of P301,841.43.
Cabrera then undertook to personally look into the matter. He(Cabrera) informed the bank
that he was successful in locating a withdrawal slip for P202,000 dated 21 March 1998. He further
informed the latter of the following:
1. The withdrawal slip was validated using the terminal of CSE Amparo Advincula.
2. The withdrawal was approved by Assistant Manager-Sales Head Jose Enriquez, Jr
3. The deposit slip was altered.
4. The withdrawal was post-reviewed by Cabrera himself as Service Head
5. The denomination breakdown of the amount paid was not indicated on the reverse
side of the withdrawal slip.
6. The client signature was forged.
The bank then created a Fact- Finding Committee to investigate the anomaly. Pending
investigation, Cabrera was placed under preventive suspension.
The investigation allegedly revealed that a week before the incident, the respondent requested
a one-day leave of absence on 21 March 1998 to attend his eldest daughters graduation. His request
for leave was approved by Branch Manager Rogelio B. Blaquera on 20 March 1998. On the same
day, at 12:25 p.m. to 12:27 p.m., a balance inquiry, last transaction inquiry, and passbook updating
on Inocencios account were made on respondent’s computer terminal. On 21 March 1998, despite
the fact that he was supposed to be on the official leave, the respondent reported for work in the
morning. Blaquera then offered him to take a half-day leave after lunch. However, in the afternoon,
he was seen getting in and out of the Branch a number of times.
It was discovered in the electronic journal of Advincula that on 21 March 1998, at 1:39 p.m.
and 1:40 p.m., two unauthorized withdrawals amounting to P22,000 and P180,000, respectively,
were made against the account of Inocencio. Advincula stated that she did not process the said
transactions. The corresponding amount of P202,000 were taken from her unlocked drawer while she
was in the Ladies Room. According to her, as a matter of practice, she would not secure her cash and
other valuables in lockable areas or sign off her terminal whenever she would leave her counter.
When the unauthorized withdrawals were made only Corazon Alejandro was in the tellers counter.
The Tellers Electronic Journals, allegedly showed that the respondent approved the
transactions using his password or supervisors and that he delivered coin requisitions to the tellers
and received cash deliveries from them.
The respondent denied having made a balance inquiry and passbook updating on Inocencios
account, and claimed that either Blaquera or Gregorio accessed his computer terminal. He was
supposed to be on vacation leave on 21 March 1998 to attend his eldest daughters graduation. But
having learned that his reliever was not available and considering that his daughters graduation was
still in the afternoon, he decided to report for work in the morning. He left the bank at 1:20 p.m.
When he returned at about 5:30 p.m., the bank was already closed.
To prove his presence in his daughters graduation, he submitted photocopies of (1) the
program paper where the name of his daughter was listed as among the graduates; and (2) a picture
of him, together with his spouse and his daughter, at the venue of the graduation.
The Fact-Finding Committee concluded that Cabrera was culpable in the anomalous
withdrawal.
The petitioner bank terminated Cabrera’s employment with forfeiture of benefits, on the
ground of violation of the New Code of Discipline, specifically, taking, converting or
misappropriating Bank funds, money, property for personal profit and benefit; serious misconduct;
and fraud or willful breach of the trust reposed in him by his employer or duly authorized
representative. He was likewise required to pay the amount of P202,000 representing the amount
irregularly withdrawn PLUS cost of recovery thereof.
Cabrera filed a complaint for illegal suspension and illegal dismissal against the petitioner.
Labor Arbiter Jose G. de Vera rendered a Decision dismissing respondents complaint and
declaring that the petitioner sufficiently established by substantial evidence that the respondent
committed serious misconduct resulting in the loss of trust and confidence reposed on him by the
petitioner
Cabrera appealed to the National Labor Relations Commission. The NLRC dismissed the
appeal on the ground that the appeal was filed way beyond the 10-day reglementary period.
Respondent Cabrera moved for the reconsideration of the dismissal of his appeal. Such
motion, however, was denied by the NLRC. Hence, Cabrera filed with the Court of Appeals a
petition for certiorari.
VII. ISSUE/S
Whether or not the dismissal of Cabrera is valid.

VIII. RULING
No.
Although a bank owes great fidelity to the public it deals with for its operation being
essentially imbued with public interest. It cannot be compelled to continue in its employ a person in
whom it has lost trust and confidence and whose continued employment would patently be inimical
to its interest. Also, the law, in protecting the rights of labor, authorized neither oppression nor self-
destruction of an employer company, which itself is possessed of rights that must be entitled to
recognition and respect.
Moreso, Cabrera was a not mere a rank-and-file employee of the petitioner bank. He was an
assistant manager of the Sixto Antonio-Pasig Branch of the petitioner. His position thus carried
authority for the exercise of independent judgment and discretion characteristic of sensitive posts in
corporate hierarchy where wide latitude could be supposed in setting up stringent standards for
continued employment.
However, it is long settled that it is the employer who has the burden of proving the legality
of the employees’ dismissal. For the respondent to be validly dismissed from the service, the
petitioner bank must prove by substantial evidence the bases of the breach of trust or serious
misconduct against him. Substantial evidence has been defined as that amount of relevant evidence
which a reasonable mind might accept as adequate to justify a conclusion.
In this case, the allegation that a balance inquiry on the account of Inocencio was actually
made by Cabrera was not supported by substantial evidence. Cabrera emphasized that he was even
the one who discovered the use by the perpetrators of the fraud of his computer terminal for such
balance inquiry and that he reported it to the bank manager. Cabrera must not have been so stupid as
to produce a document that would incriminate him.
The mere presence of Cabrera at the bank does not establish his guilt for the fraudulent
withdrawals. Significant is the fact that not a single bank personnel claimed to have seen Cabrera
enter the teller booth of Advincula at the time the questioned withdrawals were made.
The presentation by Cabrera of the missing forged withdrawal slip bolsters his innocence
rather than his guilt. It must be recalled that Gregorio asked respondent for assistance in finding out
the problem on Inocencios account. The respondent then undertook to personally look into the
matter.
Considering the dearth of evidence that would prove the guilt of Cabrera, the termination of
his employment cannot be sustained.

WHEREFORE, the instant petition is hereby DENIED for lack of merit. The assailed
Decision of the Court of Appeals in CAG.R. SP No. 65961 is AFFIRMED with the modification that
if reinstatement is no longer feasible and viable owing to attendant circumstances, a separation pay
equivalent to one month salary for every year of service is hereby adjudged in favor of respondent
Pedro L. Cabrera.
SO ORDERED.
#17
I. SHORT TITLE: Dycoco, Jr. v. Equitable PCI Bank
II. FULL TITLE: JESUS E. DYCOCO, JR., PETITIONER – VERSUS - EQUITABLE PCI
BANK (NOW BANCO DE ORO), RENE BUENAVENTURA AND SILES SAMALEA,
Respondents.; G.R. No. 188271; August 16, 2010; Corona, CJ.
III. TOPIC: General Banking Law
IV. STATEMENT OF THE FACTS:
In February 1997, petitioner was hired by respondent bank as Assistant Manager and/or OIC Branch
Head of its Legazpi City Branch, Region V (Legazpi branch). Petitioner became Branch Head and
respondent bank underwent an internal reorganization. Pursuant thereto, petitioner became the
Personal Banking Manager (PBM) of the Legazpi branch. In June 2005, several clients of the
Legazpi branch filed complaints for alleged unauthorized abstractions of various trust funds, treasury
placements and deposits. Respondent bank promptly commenced an investigation. Consequently,
show cause letters were issued to the officers of the Legazpi branch.
In August 2006, respondent bank issued a second show cause letter to petitioner charging him
with involvement in alleged dollar-trading activities. Petitioner was preventively suspended
from September 20, 2006 to October 20, 2006.
Petitioner filed a complaint in the NLRC Regional Arbitration Branch No. V alleging
constructive dismissal and illegal suspension, and demanding reinstatement/separation pay
and payment of incentives, 13th month pay, bonuses, moral and exemplary damages and
attorneys fees. Respondent bank rendered a decision with respect to the first show cause letter
finding petitioner guilty of violating Articles IV (F) (Class C) (1), IV (D) (Class D) (1) and
IV (E) (Class C) (13) of the banks Code of Conduct, and Article 282 (b) of the Labor Code.
The penalty of dismissal was imposed on him. Petitioner was, however, exonerated from the
charge of dollar-tradingas specified in the second show cause letter.
V. STATEMENT OF THE CASE:
The labor arbiter held that petitioner was illegally dismissed. He ordered respondent bank to
pay separation pay, backwages, incentives, bonuses, 13th month pay and attorneys fees in the
total amount of P1,147,216.00. On appeal, the NLRC reversed the labor arbiters
decision. The CA subsequently affirmed the NLRC.
NLRC ruled that petitioners dismissal was for just cause. He was guilty of serious misconduct,
willful disobedience and gross negligence for not performing his duty to complete the documentary
requirements in the opening of accounts pursuant to the banks internal procedures. This directly
resulted in the unauthorized abstraction of bank funds.
The CA affirmed the decision and resolution of the National Labor Relations Commission (NLRC)
in Jesus Dycoco, Jr. v. Equitable PCI Bank / Rene Buenaventura, et al., docketed as LAC No. 01-
000390-08. The NLRC, on the other hand, reversed and set aside the July 24, 2007 decision of the
labor arbiter of the Regional Arbitration Branch No. V, Legazpi City, in RAB-V Case No. 09-00407-
06 which held that petitioner was illegally dismissed by respondents Equitable PCI Bank (now
Banco de Oro), Rene Buenaventura and Siles Samalea.
VI. ISSUE:
(1) Whether or not Dyoco was illegally dismissed from his post in the Bank
VII. RULING:
NO, there was no illegal dismissal.

By its very nature, the business of the petitioner bank is so impressed with public trust; banks are
mandated to exercise a higher degree of diligence in the handling of its affairs than that expected of
an ordinary business enterprise. Indeed, by the very nature of their work, the degree of responsibility,
care and trustworthiness expected of officials and employees of the bank is far greater than those of
ordinary officers and employees in the other business firms. As the banking industry is impressed
with public interest, all bank personnel are burdened with a high level of responsibility insofar as
care and diligence in the custody and management of funds are concerned. Petitioner miserably
failed to discharge this burden.
Petitioner violated his duties and responsibilities as PBM when he signed and approved the
subject transactions without the necessary signatures of the concerned clients. As PBM, it
was his obligation to ensure that all documentary requirements (were) complied with by
clients being handled and that the banks interest (was) at all times protected. It is significant
that petitioner did not even deny that it was he who signed, approved and facilitated the
subject transactions relating to the various abstractions committed by a bank employee. It was
an implied admission that he was the one who opened the door for the commission of the
unlawful abstractions by failing to ensure that all requirements for the opening of accounts
were complied with. This constituted gross negligence.
As a PBM, petitioner should have exercised much care in performing his functions.
Petitioners failure on three separate occasions to require clients to sign the requisite
documents (a vital and standard procedure in all banking transactions) was a clear
manifestation of serial negligence. Gross negligence connotes want of care in the
performance of ones duties.[8] Petitioners failure to observe basic procedure constituted gross
negligence. His repeated failure to carefully observe his duties as PBM clearly showed utter
want of care.
After committing gross negligence, petitioner surprisingly still expects respondent bank to
retain him. Nothing can compel an employer to continue availing of the services of an
employee guilty of acts inimical to its interests as this is a ground for loss of confidence.
Petitioners breach of respondent banks policies intended to safeguard the bank and its clients
funds was clearly inimical to the interests of his employer. Loss of confidence and dismissal
from employment were therefore justified.
Loss of confidence applies to situations where the employee is routinely charged with the
care and custody of employers money or property. If the employees are cashiers, managers,
supervisors, salesmen or other personnel occupying positions of responsibility, the employers
loss of trust and confidence in said employees may justify termination of their employment.
VIII. DISPOSITIVE PORTION:
WHEREFORE, the motion for reconsideration is DENIED with FINALITY. Costs against
petitioner. No further pleadings or motions shall be entertained. Let entry of judgment be made in
due course. SO ORDERED.
IX. PREPARED BY: Alyanna Jasmine D. Torio
#18
I. SHORT TITLE: UNIONBANK v. SEC (2001)
II. FULL TITLE: UNION BANK OF THE PHILIPPINES, petitioner, v. SECURITIES &
EXCHANGE COMMISSION, respondent, G.R. No. 138949, June 6, 2001
III. PONENTE: PANGANIBAN, J.
Union Bank, through its General Counsel and Corporate Secretary, sought the opinion of the
Securities and Exchange Commission as to the applicability and coverage of the Full Material
Disclosure Rule on banks, contending that said rules, in effect, amend Section 5 (a) (3) of the
Revised Securities Act which exempts securities issued or guaranteed by banking institutions from
the registration requirement provided by Section 4 of the same Act.
In reply thereto, SEC informed petitioner that while the requirements of registration do not
apply to securities of banks which are exempt under Section 5(a) (3) of the Revised Securities Act,
however, banks with a class of securities listed for trading on the Philippine Stock Exchange, Inc. are
covered by certain Revised Securities Act Rules governing the filing of various reports with
respondent Commission, i.e., (1) Rule 11(a)-1 requiring the filing of Annual, Quarterly, Current,
Predecessor and Successor Reports; (2) Rule 34-(a)-1 requiring submission of Proxy Statements; and
(3) Rule 34-(c)-1 requiring submission of Information Statements, among others.
Not satisfied, petitioner, informed SEC Chairman Yasay that they will refer the matter to the
Philippine Stock Exchange for clarification.
Union Bank failed to submit a Proxy/Information Statement in connection with its annual
meeting held on May 23, 1997, in violation of SEC’s Full Material Disclosure Rule, thus the
Commission enjoined the Union Bank to show cause why it should not be penalized.
Failing to respond to the aforesaid communication, petitioner was given a 2nd Show Cause
with Assessment by respondent Commission and was assessed a fine of P50,000.00 plus P500.00 for
every day that the report [was] not filed, or a total of P91, 000.00 as of July 21, 1997.
Union Bank disputed the assessment. However, the Commission denied such. It sought a
reconsideration thereof which was also denied by respondent Commission. Petitioner then elevated
its case to the Court of Appeals which ruled upholding the regulatory authority of the SEC.
The Court of Appeals stressed that Rules were issued by respondent to implement the
Revised Securities Act (RSA). They do not require the registration of petitioners securities; thus, it
cannot be said that the SEC amended Section 5(a)(3) of the said Act.
Hence, the Petition.
VII. ISSUE/S
Whether or not petitioner is required to comply with the respondent SECs full disclosure
rules.
VIII. RULING
Yes.
Although the provision exempted from registration the securities issued by banking or
financial institutions mentioned in the law. Nowhere did it state or even imply that petitioner, as a
listed corporation, was exempted from complying with the reports required by the assailed RSA
Implementing Rules.
It must be emphasized that petitioner is a commercial banking corporation listed in the stock
exchange. Thus, it must adhere not only to banking and other allied special laws, but also to the rules
promulgated by Respondent SEC, the government entity tasked not only with the enforcement of the
Revised Securities Act, but also with the supervision of all corporations, partnerships or associations
which are grantees of government-issued primary franchises and/or licenses or permits to operate in
the Philippines.
RSA Rules 11(a)-1, 34(a)-1 and 34(c)-1 require the submission of certain reports to ensure
full, fair and accurate disclosure of information for the protection of the investing public. These
Rules were issued by respondent pursuant to the authority conferred upon it by Section 3 of the RSA.
The said Rules do not amend Section 5(a)(3) of the Revised Securities Act, because they do
not revoke or amend the exemption from registration of the securities enumerated thereunder. They
are reasonable regulations imposed upon petitioner as a banking corporation trading its securities in
the stock market.
That petitioner is under the supervision of the Bangko Sentral ng Pilipinas (BSP) and the
Philippine Stock Exchange (PSE) does not exempt it from complying with the continuing disclosure
requirements embodied in the assailed Rules. Petitioner, as a bank, is primarily subject to the control
of the BSP; and as a corporation trading its securities in the stock market, it is under the supervision
of the SEC. It must be pointed out that even the PSE is under the control and supervision of
respondent. There is no over-supervision here. Each regulating authority operates within the sphere
of its powers. That stringent requirements are imposed is understandable, considering the paramount
importance given to the interests of the investing public.
Otherwise stated, the mere fact that in regard to its banking functions, petitioner is already
subject to the supervision of the BSP does not exempt the former from reasonable disclosure
regulations issued by the SEC. These regulations are meant to assure full, fair and accurate
disclosure of information for the protection of investors in the stock market. Imposing such
regulations is a function within the jurisdiction of the SEC. Since petitioner opted to trade its shares
in the exchange, then it must abide by the reasonable rules imposed by the SEC
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision of the Court of
Appeals AFFIRMED. Costs against petitioner.
SO ORDERED.
#19
I. SHORT TITLE: PDIC v. CITIBANK (2012)
II. FULL TITLE: PHILIPPINE DEPOSIT INSURANCE CORPORATION VS. CITIBANK,
N.A., AND BANK OF AMERICA, S.T. & N.A., G.R. NO. 170290, April 11, 2012
III. PONENTE: MENDOZA, J.
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 P629,311,869.10 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.
Citibank and BA each filed a petition for declaratory relief before the Court of First Instance
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 Regional Trial Court, Branch 163, Pasig City (RTC) promulgated its Decision in favor of
Citibank and BA. RTC reasoned out that the money placements subject of the petitions were not
assessable for insurance purposes under the PDIC Charter because said placements were deposits
made outside of the Philippines.
Aggrieved, PDIC appealed to the CA which affirmed the ruling of the RTC. The CA found that
the money placements were received as part of the banks internal dealings by Citibank and BA as
agents of their respective head offices. It cited Section 3(f) of R.A. No. 3591, which specifically
excludes obligations payable at the office of the bank located outside the Philippines from the
definition of a deposit or an insured deposit. Since the subject money placements were made in the
respective head offices of Citibank and BA located outside the Philippines, then such placements
could not be subject to assessment under the PDIC Charter.
Hence, this petition.
VII. ISSUE/S
1. Whether or not a branch of a foreign bank has a separate legal entity distinct from the
domestic bank.
2. Whether or not the funds placed in the Philippine branch by the head office and foreign
branches of Citibank and BA are insurable deposits under the PDIC Charter and, corollarily are
subject to assessment for insurance premiums.
VIII. RULING
1. NO.
A branch has no separate legal entity. First, the Court began 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 treated as deposits made by
third parties subject to deposit insurance under the PDIC Charter.
Secondly, the Court due to lack of jurisprudence in the issue cites Sokoloff vs. The National
City Bank of New York, emphasizing that “where a bank maintains branches, each branch becomes
a separate business entity with separate books of account. 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. Ultimate liability
for a debt of a branch would rest upon the parent bank.
Finally, 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. 7221 (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.
2. NO.
These are not insurable deposits and corollarily are excluded from assessment. PDIC
erroneously avers that the funds are dollar deposits and not money placements. PDIC defines money
placement as a deposit which is received with authority to invest. Because there is no evidence to
indicate that the respondents were authorized to invest the subject dollar deposits, it argues that the
same cannot be considered money placements. PDIC heavily relies on the fact that the respondents
documented the money placements with certificates of time deposit to simply conclude that the funds
involved are deposits, as contemplated by the PDIC Charter, and are consequently subject to
assessment for deposit insurance.
The transfer of funds, which resulted from the inter-branch transactions, took place in the
books of account of the respective branches in their head office located in the United States. Hence,
because it is payable outside of the Philippines, it is not considered a deposit pursuant to Section 3(f)
of the PDIC Charter by way of exception provides that “that any obligation of a bank which is
payable at the office of the bank located outside of the Philippines shall not be a deposit for any of
the purposes of this Act or included as part of the total deposits or of the insured deposits.” Thus,
inter-branch deposits refer to funds of one branch deposited in another branch and both branches are
part of the same parent company and it is the practice of the FDIC to exclude such inter-branch
deposits from a bank’s total deposit liabilities subject to assessment.
WHEREFORE, the petition is DENIED. The October 27, 2005 Decision of the Court of
Appeals in CA-G.R. CV No. 61316 is AFFIRMED.
SO ORDERED.
#20
I. SHORT TITLE: PCIB v. CA (1997)
II. FULL TITLE: PHILIPPINE BANK OF COMMERCE, now absorbed by PHILIPPINE
COMMERCIAL INTERNATIONAL BANK, ROGELIO LACSON, DIGNA DE LEON,
MARIA ANGELITA PASCUAL, et al., petitioners, vs. THE CORT OF APPEALS,
ROMMEL’S MARKETING CORP., represented by ROMEO LIPANA, its President &
General Manager, respondents, G. R. No. 97626, March 14, 1997
III. PONENTE: HERMOSISIMA, J.
From May 5, 1975 to July 16, 1976, Romeo Lipana claims to have entrusted Rommel’s
Marketing Corp. (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 Philippine Bank
of Commerce (PBC.) They were not credited to RMC's account but were instead deposited to
Account No. 53-01734-7 of Yabut's husband, Bienvenido Cotas. Romeo Lipana never checked their
monthly statements of account reposing complete trust and confidence on PBC. Irene Yabut's modus
operandi was to furnish 2 copies of deposit slip upon and both are always validated and stamped by
the teller Azucena Mabayad. Original showed the name of her husband as depositor and his current
account number - retained by the bank. Duplicate copy was written the account number of her
husband but the name of the account holder was left blank. 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
to RMC's account number. This went on in a span of more than 1 year without private respondent's
knowledge.
Upon discovery of the loss of its funds, RMC demanded from PBC the return of its money
and later on filed in the RTC. The RTC decided that PBC and Azucena Mabayad jointly and
severally liable. The Court of Appeals subsequently affirmed with modification deleting awards of
exemplary damages and attorney's fees.
Challenged in this petition for review is the Decision dated February 28, 1991 rendered by
pblic respondent Court of Appeals which affirmed the Decision dated November 15, 1985 of the
Regional Trial Court, National Capital Judicial Region, Branch CLX (160), Pasig City, in Civil Case
No. 27288 entitled “Rommel’s Marketing Corporation, etc. v. Philippine Bank of Commerce, now
absorbed by Philippine Commercial and Industrial Bank.”
VII. ISSUE/S
1. W/N applying the last clear chance, PBC's teller is negligent for failing to avoid the injury
by not exercising the proper validation procedure
2. W/N there was contirbutory negligence by RMC
VIII. RULING
1. Yes.
The fact that the duplicate slip was not compulsorily required by the bank in accepting
deposits should not relieve the PBC of responsibility. The odd circumstance alone that such duplicate
copy lacked one vital information (Name of the account holder) should have already put Ms.
Mabayad on guard. Negligence here lies not only on the part of Ms. Mabayad but also on the part of
the bank itself in its lack in selection and supervision of Ms. Mabayad. Mr. Romeo Bonifacio, then
Manager of the Pasig Branch of the petitioner bank and now its Vice-President, to the effect that,
while he ordered the investigation of the incident, he never came to know that blank deposit slips
were validated in total disregard of the bank's validation procedures until 7 years later. Applying the
last clear chance/supervening negligence/discovered peril, where both parties are negligent, but the
negligent act of one is appreciably later in time than that of the other, or when it is impossible to
determine whose fault or negligence should be attributed to the incident, the one who had the last
clear opportunity to avoid the impending harm and failed to do so is chargeable with the
consequences thereof. Antecedent negligence of a person does not preclude the recovery of damages
for the supervening negligence of, or bar a defense against liability sought by another, if the latter,
who had the last fair chance, could have avoided the impending harm by the exercise of due
diligence.
Here, assuming that RMC was negligent in entrusting cash to a dishonest employee, yet it
cannot be denied that PBC bank, thru its teller, had the last clear opportunity to avert the injury
incurred by its client, simply by faithfully observing their self-imposed validation procedure.
If the law or contract does not state the diligence which is to be observed in the performance,
that which is expected of a good father of a family shall be required. 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
2. YES.
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 pivate respondent. Private respondent shall
have recourse against Ms. Irene Yabut. In all other respects, the appelate court’s decision is
AFFIRMED.
Proportionate costs.
SO ORDERED.
X. Prepared by: Buzon, Janice Belle
#21
I. SHORT TITLE: PCIB v. CA (2001)
II. FULL TITLE: PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly
INSULAR BANK OF ASIA AND AMERICA), petitioner, vs. COURT OF APPEALS and
FORD PHILIPPINES, INC. and CITIBANK, N.A., respondents, G.R. No. 121413. January
29, 2001.
FORD PHILIPPINES, INC., petitioner, vs. COURT OF APPEALS and CITIBANK, N.A.
and PHILIPPINE COMMERCIAL INTERNATIONAL BANK, respondents. G.R. No.
121479. January 29, 2001.
FORD PHILIPPINES, INC., petitioner, vs. CITIBANK, N.A., PHILIPPINE

COMMERCIAL INTERNATIONAL BANK and THE COURT OF APPEALS,
respondents, G.R. No. 128604. January 29, 2001.
III. PONENTE: QUISUMBING, J.

A. G.R. Nos. 121413 and 121479:
On October 19, 1977, the plaintiff Ford Philippines (Ford) drew and issued its Citibank
Check in the amount of P4,746,114.41, in favor of the Commissioner of Internal Revenue (CIR) as
payment of Ford’s percentage or manufacturers sales taxes for the third quarter of 1977.
The aforesaid check was deposited with Insular Bank of Asia and America (now PCI Bank)
and was subsequently cleared at the Central Bank. Upon presentment with Citibank, the proceeds of
the check was paid to IBAA as collecting or depository bank.
Upon verification, Ford discovered that its Citibank Check was not paid to CIR. The Acting
CIR informed Ford that its check was not paid to the government or its authorized agent and instead
encashed by unauthorized persons, hence, Ford was compelled to make a second payment to the
Bureau of Internal Revenue (BIR). Upon advise of its lawyers, Ford paid to the BIR the amount.
As a consequence of the refusal of the defendants to reimburse Ford of the payment it had
made for the second time to the BIR of its percentage taxes, Ford filed a complaint.
An investigation by the NBI revealed that the Citibank Check 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 BIR. With Rivera’s instruction,
PCI Bank replaced the check with two of its own Managers Checks (MCs). Alleged members of a
syndicate later deposited the two MCs with the Pacific Banking Corporation (PBC).
B. G.R. No. 128604:
The same syndicate apparently embezzled the proceeds of checks intended, this time, to settle
Ford’s percentage taxes appertaining to the second quarter of 1978 and the first quarter of 1979.
Ford drew Citibank Check No. in the amount of P5,851,706.37 representing the percentage
tax due for the second quarter of 1978 payable to the CIR. Ford then drew another Citibank Check in
the amount of P6,311,591.73, representing the payment of percentage tax for the first quarter of
1979.
Both checks were “crossed checks” and contain two diagonal lines on its upper left corner
between which were written the words “payable to the payee’s account only”.
The checks never reached the payee, CIR. Thus, in a letter, the BIR, demanded for the said
tax payments the corresponding periods. The findings forced Ford to pay the BIR anew, while an
action was filed against Citibank and PCI Bank for the recovery of the amount of the Citibank
Checks.
These consolidated petitions involve several fraudulently negotiated checks.
The original actions a quo were instituted by Ford Philippines to recover from the drawee
bank, CITIBANK,N.A. (Citibank) and collecting bank, Philippine Commercial International Bank
(PCI-Bank) [formerly Insular Bank of Asia and America], the value of several checks payable to the
Commissioner of Internal Revenue, which were embezzled allegedly by an organized syndicate.
G.R. Nos. 121413 and 121479 are twin petitions wherein the trial court decided in favor of
Ford Philippines, and ordering the defendants Citibank and IBAA (now PCI Bank), jointly and
severally to pay the plaintiff. Not satisfied, both defendants elevated their respective petitions for
review on certiorari to the Court of Appeals. The Court of Appeals affirmed the decision of the trial
court with modifications, ordering the defendant IBAA now PCI Bank to pay the plaintiff the amount
representing the face value of the plaintiff’s Citibank Check, with interest thereon.
In G.R. No. 128604, The Court of Appeals affirmed the decision of the trial court holding
Citibank, N.A., solely liable to pay the petitioner, Ford Philippines the amount of P12,163,298.10 as
damages for the misapplied proceeds of the plaintiff’s Citibank Check Numbers SN- 10597 and
16508.
VII. ISSUE/S
Whether or not petitioner Ford has the right to recover from the collecting bank (PCIBank)
and the drawee bank (Citibank) the value of the checks intended as payment to the Commissioner of
Internal Revenue.
VIII. RULING
Yes, Petitioner Ford has the right to recover the collecting bank (PCI Bank) and the drawee
bank (Citibank) the value of the checks intended as payment to the Commissioner of Internal
Revenue.
G.R. Nos. 121413 and 121479:
In the case of Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corporation,
the Supreme Court ruled that in presenting the checks for clearing and for payment, the defendant
made an express guarantee on the validity of all prior endorsements. Thus, stamped at the back of the
checks are the defendants clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF
ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff would not have paid on the
checks.
In this case, the Citibank Check was deposited at PCI Bank 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 PCI Bank, instead of remitting the proceeds to the CIR, prepared
two of its Manager's checks and enabled the syndicate to encash the same.
PCI Bank failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect of
PCI Bank 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 PCI Bank is authorized to collect the payment of taxpayers
in behalf of the BIR. As an agent of BIR, PCI Bank is duty bound to consult its principal regarding
the unwarranted instructions given by the payor or its agent.
Since the questioned crossed check was deposited with IBAA [now PCI Bank], which
claimed to be a depository/collecting bank of the BIR, it has the responsibility to make sure that the
check in question is deposited in Payee's account only.
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 one Godofredo Rivera and in his signature to the authenticity of such
signature considering that the plaintiff is not a client of the defendant IBAA."
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.
Indeed, the crossing of the check with the phrase "Payee's Account Only," is a warning that
the check should be deposited only in the account of the CIR. Thus, it is the duty of the collecting
bank PCI Bank to ascertain that the check be deposited in payee's account only. Therefore, it is the
collecting bank (PCI Bank) which is bound to scrutinize the check and to know its depositors before
it could make the clearing indorsement "all prior indorsements and/or lack of indorsement
guaranteed".
Lastly, 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 PCI Bank is liable in the amount corresponding to the proceeds of Citibank Check No.
SN-04867.
G.R. No. 128604
As a general rule, 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. 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 PCI Bank, Remberto Castro, received Citibank
Check Numbers SN 10597 and 16508. He passed the checks to a co-conspirator, an Assistant
Manager of PCI Bank'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 Checks. The PCI Bank 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 it 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.
Moreover, as correctly pointed out by Ford, Section 5[31] of Central Bank Circular No. 580,
Series of 1977 provides that any theft affecting items in transit for clearing, shall be for the account
of sending bank, which in this case is PCI Bank.
But in this case, responsibility for negligence does not lie on PCI Bank's shoulders alone.
The evidence on record shows that Citibank as drawee bank was likewise negligent in the
performance of its duties. Citibank failed to establish that its payment of Ford's checks were made in
due course and legally in order.
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 PCI
Bank 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 Checks. 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.
Time and again, we have stressed that banking business is so impressed with public interest
where the trust and confidence of the public in general is of paramount importance such that the
appropriate standard of diligence must be very high, if not the highest, degree of diligence. A bank's
liability as obligor is not merely vicarious but primary, wherein the defense of exercise of due
diligence in the selection and supervision of its employees is of no moment.
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV
No. 25017, are AFFIRMED. PCI Bank, known formerly as Insular Bank of Asia and America, is
declared solely responsible for the loss of the proceeds of Citibank Check No. SN-04867 in the
amount of P4,746,114.41, which shall be paid together with six percent (6%) interest thereon to Ford
Philippines, Inc. from the date when the original complaint was filed until said amount is fully paid.
However, the Decision and Resolution of the Court of

Appeals in CA-G.R. No. 28430 are MODIFIED as follows: PCI Bank and Citibank are
adjudged liable for and must share the loss, (concerning the proceeds of Citibank Check Numbers
SN-10597 and 16508 totalling P12,163,298.10) on a fifty-fifty ratio, and each bank is ORDERED to
pay Ford Philippines, Inc. P6,081,649.05, with six percent (6%) interest thereon, from the date the
complaint was filed until full payment of said amount. Costs against Philippine Commercial
International Bank and Citibank, N.A.
SO ORDERED.
I. SHORT TITLE: Consolidated Bank and Trust Corporation v. CA
II. FULL TITLE: THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner,
vs. COURT OF APPEALS and L.C. DIAZ and COMPANY, CPA's, respondents., G.R.
No. 138569. September 11, 2003
III. PONENTE: Justice Carpio
IV. TOPIC: GBL
Solibank is a domestic banking corporation. While L.C. Diaz is a professional
partnership, engaged in the practice of accounting. L.C. Diaz maintained a savings account with
petitioner, Consolidated Bank and Trust Corporation, now known as Solidbank Coroporation.
On August 14, 1991, L.C. Diaz's cashier, Mercedes Macaraya, instructed the messenger of the
former, Ismael Calapre, to deposit money with Solidbank. Macaraya gave Calapre the Solidbank
passbook together with savings deposit slips (both for cash and check) she had previously filled
up for the private respondent.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the
passbook. The teller acknowledged receipt of the deposit by returning to Calapre the duplicate
copies of the two deposit slips. Since the transaction took time and Calapre had to make another
deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Upon his return,
Calapre retrieved the passbook from Solidbank, but Teller No. 6 informed him that "somebody
got the passbook". Calapre went back to L.C. Diaz and reported the incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a check of

P200,000. Macaraya, together with Calapre, went to Solidbank and presented to Teller No. 6 the
deposit slip and check. When Macaraya asked for the passbook, Teller No. 6 told Macaraya that
someone got the passbook but she could not remember to whom she gave the passbook. When
Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that someone
shorter than Calapre got the passbook. Calapre was then standing beside Macaraya.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer,
Luis C. Diaz, called up Solidbank to stop any transaction using the same passbook until L.C.
Diaz could open a new account. On the same day, Diaz formally wrote Solidbank to make the
same request. It was also on the same day that L.C. Diaz learned of the unauthorized withdrawal
the day before, 14 August 1991, of P300,000 from its savings account. The withdrawal slip for
the P300,000 bore the signatures of the authorized signatories of L.C. Diaz, namely Diaz and
Rustico L. Murillo. The signatories, however, denied signing the withdrawal slip. A certain Noel
Tamayo received the P300,000. L.C. Diaz demanded from Solidbank, return of its money.
However, Solidbank refused.

L.C. Diaz filed a Complaint for Recovery of a Sum of Money against Solidbank with
the Regional Trial Court of Manila, Branch 8. After trial, the trial court rendered a
decision absolving Solidbank and dismissing the complaint. L.C. Diaz then appealed to
the Court of Appeals. The same court reversed the decision of the trial court.
On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for
reconsideration of Solidbank. The appellate court, however, modified its decision by
deleting the award of exemplary damages and attorney's fees.
VII. ISSUE/S:
1. Whether or not Solidbank should suffer the loss sustained by the private
respondent.
2. Whether or not L.C. Diaz is guilty of contributory negligence.
VIII. RULING:
1. YES. Solidbank is liable for breach of contract due to negligence, or culpa
contractual.
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 law imposes on banks high standards in view of the fiduciary nature of banking.
Section 2 of Republic Act No. 8791 declares that the State recognizes the fiduciary nature
of banking that requires high standards of integrity and performance. 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.
Bank tellers must exercise a high degree of diligence in insuring that they return the
passbook only to the depositor or to his authorized representative. For failing to return the
passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank and Teller No.
6 presumptively failed to observe such high degree of diligence in safeguarding the
passbook, and in insuring its return to the party authorized to receive the same.
2. YES. In a case of culpa contractual, the contributory negligence or last clear chance
by the plaintiff merely serves to reduce the recovery of damages by the plaintiff but does
not exculpate the defendant from his breach of contract. Under Article 1172, liability (for
culpa contractual) may be regulated by the courts, according to the circumstances. This
means that if the defendant exercised the proper diligence in the selection and supervision
of its employee, or if the plaintiff was guilty of contributory negligence, then the courts
may reduce the award of damages. In this case, L.C. Diaz was guilty of contributory
negligence in allowing a withdrawal slip signed by its authorized signatories to fall into
the hands of an impostor. Thus, the liability of Solidbank should be reduced.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with
MODIFICATION. Petitioner Solidbank Corporation shall pay private respondent L.C.
Diaz and Company, CPA's only 60% of the actual damages awarded by the Court of
Appeals. The remaining 40% of the actual damages shall be borne by private respondent
L.C. Diaz and Company, CPA's. Proportionate costs.

I. BPI Family Savings Bank v. First Metro Investment Corp
II. FULL TITLE: BPI FAMILY SAVINGS BANK, INC., petitioner, vs. FIRST METRO
INVESTMENT CORPORATION, respondent.; G.R. No. 132390; May 21, 2004.
III. PONENTE: SANDOVAL-GUTIERREZ, J.
IV. TOPIC: General Bamking Law

V. STATEMENT OF THE FACTS:
First Metro Investment Corporation (FMIC), respondent, is an investment house organized under
Philippine laws. Petitioner, Bank of Philippine Islands Family Savings Bank, Inc. is a banking
corporation also organized under Philippine laws.
On August 25, 1989, FMIC, through its Executive Vice President Antonio Ong, opened current
account and deposited a check of P100 million with BPI Family Bank* (BPI FB). Ong made the
deposit upon request of his friend, Ador de Asis, a close acquaintance of Jaime Sebastian, then
Branch Manager of BPI FB. The latter 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.
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 FMICs 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.
FMIC issued BPI FB check for P86,057,646.72 payable to itself and drawn on its deposit with BPI
FB SFDM branch. But upon presentation for payment, BPI FB dishonored the check as it was drawn
against insufficient funds (DAIF). Consequently, FMIC filed with the Regional Trial Court, Branch
146, Makati City against BPI FB. FMIC likewise caused the filing by the Office of the State
Prosecutors of an Information for estafa against Ong, de Asis, Sebastian and four others. However,
the Information was dismissed on the basis of a demurrer to evidence filed by the accused.

The Trial Court rendered its decision in favor of plaintiff, ordering defendant to pay the amount
of P80 million with interest at the legal rate from the time this complaint was filed
less P14,667,678.01 On appeal by both parties, the Court of Appeals rendered a Decision affirming
the assailed Decision with modification adjudging BPI Family Bank liable to First Metro Investment
Corporation for the amount of P65,332,321.99 plus interest at 17% per annum.
VII. ISSUES:
(1) Whether or not the transaction between FMIC and BPI was a time deposit
(2) Whether or not the bank is liable for the act of its Manager who overstepped its authority
VIII. RULING:
1. YES. 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. The parties 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 (depositors) checks.[4]
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 Tevestecos savings account. Certainly, such was a normal reaction of
respondent as a depositor to petitioners 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.
2. YES. 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.
Under the doctrine in Prudential Bank vs. Court of Appeals, 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.
What transpires in the corporate board room is entirely an internal matter. Hence, petitioner may not
impute negligence on the part of respondents representative in failing to find out the scope of
authority of petitioners 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 respondents Executive Vice President
concerning the deposit with the corresponding 17% interest per annum.

WHEREFORE, the petition is DENIED. The assailed Decision dated July 4, 1997 and the
Resolution dated January 28, 1998 of the Court of Appeals in CA-G.R. CV No. 44986 are hereby
AFFIRMED. Costs against petitioner. SO ORDERED.
X. PREPARED BY: Alyanna Jasmine D. Torio

#24
I. SHORT TITLE: ASSOCIATED BANK V. TAN (2004)
II. FULL TITLE: ASSOCIATED BANK (Now WESTMONT BANK), petitioner, vs.
VICENTE HENRY TAN, respondent.
III. PONENTE: J. Panganiban
IV. TOPIC: General Banking Law- Degree of diligence required of banks
Private Respondent Vicente Henry Tan is a businessman and a regular depositor-creditor of
the petitioner Associated Bank. In September 1990, he deposited a postdated UCPB check with the
said bank in the amount of P101,000.00 The check was duly entered in his bank record thereby
making his balance in the amount of P297,000.00, as of October 1, 1990. 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 because he has issued several checks to his
business partners.
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.

Tan, filed a Complaint for Damages on December 19, 1990, with the Regional Trial Court of
Cabanatuan City. The petitioner bank filed a Motion to Dismiss but the same was denied for lack of
merit. Thereafter, the bank filed its answer arguing that it has all the right to debit the account of
respondent by reason of the dishonor of the check deposited by Tan which was withdrawn by him
prior to its clearing. The lower court rendered its decision in favor of respondent Tan and against the
petitioner Associated Bank because it was shown that the bank was negligent in handling the
particular checking account of Tan.
Petitioner appealed to the CA which ruled against it for 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 respondents 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.
VII. ISSUE: Whether or not the petitioner’s right to debit the amount of the dishonored check from
the account of Tan is clear and unmistakable.
VIII. RULING:
No. It is undisputed that 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.
Under ordinary banking practice, after receiving a check deposit, a bank either immediately credit
the amount to a depositors 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.
Reasonable business practice and prudence, moreover, dictated that petitioner should not have
authorized the withdrawal by respondent of P240,000 on October 1, 1990, as this amount was over
and above his outstanding cleared balance of P196,793.45.
Moreover, 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 banks 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.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.
SO ORDERED.
#25
I. SHORT TITLE: CAGUNGUN et.al v. PLANTER’S BANK (2005)
II. FULL TITLE: 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
III. PONENTE: CHICO-NAZARIO, J.
Country Development Bank (Country) -- which later entered into a merger and has been
changed to Planters Development Bank (Planters) -- had opened an extension office in Olongapo
City, and among their first customers were the Cagungun spouses, who had diverse business interests
in the locality. They opened some accounts, and for two of which, they were issued two Savings
Passbooks in the name of Puring's Dry Goods and V/L Cagungun.
Because their business required the daily deposits of their proceeds, and because of the trust
they have reposed with Country, they entrusted and left with them their said savings passbooks. At
least once a day, the branch manager would come to get their funds, with the agreement that these
would be rounded off and deposited to their account, while the odd remainder will be applied to their
loan.
Their arrangement was going well until one day, the spouses received a letter telling them
that their loan is past due and payment was demanded. This prompted them to investigate, but the
investigation proved to be tedious and difficult because of the lack of cooperation and resistance
from the bank. Finally, they discovered that, with the use of withdrawal slips, a total of PhP220,000
was withdrawn from their passbooks. These withdrawals were invalid for no such withdrawal was
authorized, made, or received by the depositors, and the signatures therein were forgeries.
For their part, Planters explained that two of these alleged anomalous withdrawals were
placed on time deposits on the same date by Vicente Cagungun in five accounts held by their
children, while the others were withdrawals made by Vicente in exchange for Manager's Checks.

The Cagungun spouses filed a suit with the Regional Trial Court (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 found that the withdrawals were not made by the spouses, and considered them to
have paid their mortgage loan in the amount of PhP58,297.16, in view of their instruction to Country
to apply their funds in their savings account. As such, for not applying the same, for the threatened
foreclosure of their property, and for the unauthorized withdrawals of the savings account, the RTC
held Planters liable to pay moral damages. Planters was also ordered to pay exemplary damages for
their attempt to cover up the misdeeds of its employees, constituting malice and bad faith. Finally, it
was also ordered to pay attorney's dees and the cost of suit.
The Court of Appeals (CA) agreed that the money was withdrawn from the deposits without
the knowledge of the spouses. However, it held that they were not free from the obligation to pay the
admitted loan for, though the same was not paid for failure of Planters to comply with the
instructions, it remained admittedly an unpaid obligation. The CA likewise removed the awards for
moral and exemplary damages, and for attorney's fees and litigation expenses.
A motion for reconsideration and, later on, a petition for review before the Supreme Court
was filed by Cagungun, et al.
VII. ISSUE/S
1. Whether Planters exercised the degree of diligence required by banks.

2. Whether moral and exemplary damages should be awarded in favor of Cagungun, et al.
VIII. RULING
1. NO.
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. This
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.
In this case, Planters fell short of the degree of diligence required. The fact that the Cagungun
spouses left the custody of their passbooks to Planters will no excuse them from being liable because
the former would not have done these things were it not for the trust they reposed on the bank. The
bank was indeed grossly negligent when it allowed the sum of money o be withdrawn through
falsified withdrawal slips without Vicente Cagungun’s authority and for their failure to apply their
deposits on their loans. If only Planters had exercised the degree of diligence required, no anomaly or
irregularity would have happened.
2. YES.
In culpa contractual, moral damages are recoverable only if the defendant acted fraudulently or
in bad faith, or is found guilty of gross negligence amounting to bad faith, or wanton disregard of his
contractual obligations. 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.
In the case at bar, the failure of the bank to prevent seven unauthorized withdrawals from the
deposits of the spouses and its non-compliance with their instructions regarding the loan payments
constitute gross negligence, which justifies the award of moral damages. Likewise, as employer,
Planters is liable for the negligence or misdeed of its employees, which caused spouses Cagungun to
have sleepless nights thinking about the threatened foreclosure. In addition, the way the Planters
gave them a hard time in securing copies of the pertinent documents is indicative of bad faith.
The law also 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. 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 Planters to prevent the
unauthorized withdrawals from spouses Cagungun’s deposits and its failure to properly apply the
latter’s deposits to their loan.
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.
I. SHORT TITLE: Prudential Bank v Lim
II. FULL TITLE: Prudential Bank, petitioner, v. Chonney Lim, respondent
III. PONENTE: Associate Justice Dante O. Tinga
IV. TOPIC: GBL
Respondent deposited the amount of P34,000.00 with his savings account. The following day, the
respondent deposited an equal amount with the same savings amount.
After few months, the respondent issued two checks in favor of his current account, which were both
dishonored by the bank. The petitioner claims that the respondent does not have sufficient funds to
cover the amount in the check. The respondent asked the bank to check its records. The manager
apologized to the respondent but made no commitment to honor the first check. When the second
check was dishonored he immediately wrote a letter to the bank, protesting the dishonor of the check.
The bank manager sent a reply stating that the respondent only made one deposit. The respondent
denied the bank’s claim and presented two separate deposit sips covering the transactions. In view of
the banks adamant refusal to alter its stand, respondent files a complaint before the RTC, Baguio
City for the recover of P34,000.00.
Chonney Lim filed an action against the Bank. The RTC ruled in favor of Lim, holding that Lim
made two deposits. 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 P10,000.00. Prudential bank argued in
the SC that the award of damages by the appellate court is groundless that consequently, the assailed
decision is not in accord with law and jurisprudence
VII. ISSUE/S:
Whether the Prudential Bank can be held liable for negligence and should be liable for damages to
Lim
VIII. RULING:
The court maintained that there is no justification to deviate from the factual findings of the trial
court and the appellate court. Article 1172 of the Civil Code ordains that responsibility arising from
negligence in the performance of an obligation is demandable. The failure of the banks employees to
credit the amount of P34,000.00 to respondent’s savings account, resulting as it did in the dishonor
of respondents 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.
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.
X. PREPARED BY: Hermosado, Jimcris Joshua P.
I. SHORT TITLE: Cadiz v. CA
II. FULL TITLE: Romeo C. Cadiz, Carlito Bongkingki and Prisco Gloria IV, petitioner v.
Philippine Commercial International Bak, respondent
III. PONENTE: Associate Justice Dante O. Tinga
IV. TOPIC: GBL
Petitioners Cadiz, Bongkingki and Gloria were employed as signature verifier, bookkeeper, and
foreign currency denomination clerk/bookkeeper-reliever, respectively, in the main office branch of
Philippine Commercial International Bank.
The anomalies in question arose when Alqueza filed a complaint with PCIB for the alleged non-
receipt of a Six Hundred Dollar $600.00 demand draft drawn against it. After the investigation the
bank found that the petitioners had surreptitiously diverted funds deposited by depositors to S/A No.
1083-4 which was under their control and disposition. A show cause memoranda were served on
petitioners, requiring them to explain why no disciplinary action should be taken against them. Not
satisfied, the bank in memoranda dismissed petitioners from employment.
Petitioners lodged a complaint before the labor arbiter for illegal dismissal. The labor arbiter
adjudged that petitioners were illegally dismissed. On appeal, the NLRC reversed the decision of the
Labor Arbiter in stating that the petitioners were dismissed for just cause.
VII. ISSUE/S:
Whether the CA erred in not sustaining the findings of the labor arbiter and upholding those of the
NLRC and whether the Court of Appeals erred in dismissing the petition by ignoring the petitioners
claims that they were dismissed without just cause and due process.
VIII. RULING:
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. As per report, petitioners admitted having used Alfiscars
account to divert funds intended for other accounts.
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.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision of the Court of Appeals
AFFIRMED. Costs against petitioners.
PNB V RODRIGUEZ
29
I. SHORT TITLE: CITYTRUST v. CRUZ (2010)
II. FULL TITLE: CITYTRUST BANKING CORPORATION (now Bank of the Philippine
Islands), petitioner, vs.CARLOS ROMULO N. CRUZ, respondent, G.R. No. 157049,
August 11, 2010.
III. PONENTE: BERSAMIN, J.
Romulo Cruz was an architect and businessman. He maintained a savings and checking
accounts at the petitioners Loyola Heights Branch. The savings account was considered closed due to
the oversight committed by one of the latters 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 petitioners
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).
Cruz then sued in the RTC to claim damages from City Trust. The RTC ruled in the respondent’s
favor, and ordered the petitioner to pay him ₱100,000.00 as moral damages, ₱20,000.00 as
exemplary damage, and ₱20,0000.00 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 Court of Appeals (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 the petition to the Supreme Court.
VII. ISSUE/S
Whether or not bank may be excused from the negligence of its employees
VIII. RULING
No.
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.
The banks were made liable for negligence, even without sufficient proof of malice or bad faith
on their part.
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.
I. SHORT TITLE: Metropolitan Bank v Custodio
II. FULL TITLE: Metropolitan Bank and Trust Company, petitioner, v Maria B. Custodio,
respondent.
III. PONENTE: Associate Justice Leonardo A. Quisumbing
IV. TOPIC: GBL
Respondent Marina Custodio is a bank teller employed at the Laoag City branch of
petitioner Metrobank. 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. After all the tellers had turned over their cash on hand, Ms. Castro
discovered that there was a shortage. The cash transactions were all reviewed, but no
errors were found in the records of the transaction, and the shortage was confirmed.
Later on, petitioner Metrobank alleged that it was able to recover eight bill wrappers
only for bundles of five-hundred-peso bills that purportedly corresponded to the missing
four hundred thousand pesos. 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.
Petitioner Metrobank filed a Complaint for a sum of money with ex-parte application
for a writ of preliminary attachment. The trial court rendered its Decision granting
petitioner Metrobank’s Complaint. On appeal, the Court of Appeals found respondent
Custodio’s appeal meritorious and reversed the trial court’s Decision. Hence, this appeal.
VII. ISSUE/S:
W/N Custodio could be held liable for the shortage.
VIII. 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 admits the existence of the cash transfer slip and the custodian’s
signature thereon. It reasons, though, that it was not unusual for the custodian to sign the
slip without counting the money, since she trusted her co-employees. Petitioner seeks to
impress upon this Court that the custodian’s negligence was in good faith and should not
exonerate respondent Custodio from the cash shortage.
Considering the failure of the cash custodian and the security guard to abide by the
procedural safeguards, petitioner bank is now left to find other evidence to determine the
person liable for the cash shortage. The Court, however, is not sufficiently convinced that
petitioner Metrobank has introduced a preponderance of circumstantial evidence to show
that respondent Custodio was liable for the missing bundles of cash.
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.
I. SHORT TITLE: Metropolitan Bank v Custodio
II. FULL TITLE: Metropolitan Bank and Trust Company, petitioner, v Maria B. Custodio,
respondent.
III. PONENTE: Associate Justice Leonardo A. Quisumbing
IV. TOPIC: GBL

Respondent Marina Custodio is a bank teller employed at the Laoag City branch of petitioner
Metrobank. 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. After all the tellers had
turned over their cash on hand, Ms. Castro discovered that there was a shortage. The cash
transactions were all reviewed, but no errors were found in the records of the transaction, and the
shortage was confirmed.
Later on, petitioner Metrobank alleged that it was able to recover eight bill wrappers only for bundles
of five-hundred-peso bills that purportedly corresponded to the missing four hundred thousand pesos.
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.
Petitioner Metrobank filed a Complaint for a sum of money with ex-parte application for a writ of
preliminary attachment. The trial court rendered its Decision granting petitioner Metrobank’s
Complaint. On appeal, the Court of Appeals found respondent Custodio’s appeal meritorious and
reversed the trial court’s Decision. Hence, this appeal.
VII. ISSUE/S:
W/N Custodio could be held liable for the shortage.
VIII. 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 admits the existence of the cash transfer slip and the custodian’s signature
thereon. It reasons, though, that it was not unusual for the custodian to sign the slip without counting
the money, since she trusted her co-employees. Petitioner seeks to impress upon this Court that the
custodian’s negligence was in good faith and should not exonerate respondent Custodio from the
cash shortage.
Considering the failure of the cash custodian and the security guard to abide by the procedural
safeguards, petitioner bank is now left to find other evidence to determine the person liable for the
cash shortage. The Court, however, is not sufficiently convinced that petitioner Metrobank has
introduced a preponderance of circumstantial evidence to show that respondent Custodio was liable
for the missing bundles of cash.
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.
I. SHORT TITLE: BPI Employees Union-Davao City v. BPI
II. FULL TITLE: BPI Employees Union-Davao City-FUBU, petitioner v Bank of the Philippine
Islands and BPI Officers Claro M. Reyes, Cecil Conanan and Gemma Valez, respondents
III. PONENTE: Associate Justice Jose C. Mendoza

IV. TOPIC: GBL
A service agreement between BPI and BOMC was initially implemented in BPI’s Metro Manila
branches. In this agreement, BOMC 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. Consequently, twelve 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.

The Union then filed a formal protest addressed to BPI Vice Presidents Claro M. Reyes and Cecil
Conanan reiterating its objection. BPI proposed a Labor Management Conference between the
parties. 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 out with a resolution upholding the validity of the service
agreement between BPI and BOMC and 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.
VII. ISSUE/S:
The petition before the CA involved questions of law and its decision did not address the issue of
whether BPI’s act of outsourcing functions formerly performed by union members violates the CBA.
VIII. RULING:
The court ruled that only gross violations of the economic provisions of the CBA are treated as ULP.
Otherwise, they are mere grievances.
In the present case, the alleged violation of the union shop agreement in the CBA, even
assuming it was malicious and flagrant, is not a violation of an economic provision in the agreement.
The provisions relied upon by the Union were those articles referring to the recognition of the union
as the sole and exclusive bargaining representative of all rank-and-file employees, as well as the
articles on union security, specifically, the maintenance of membership in good standing as a
condition for continued employment and the union shop clause.
As far as the twelve former FEBTC employees are concerned, the Union failed to substantially prove
that their transfer, made to complete BOMC’s service complement, was motivated by ill will, anti-
unionism or bad faith so as to affect or interfere with the employees’ right to self-organization.

WHEREFORE, the petition is DENIED.
I. SHORT TITLE: Far East Bank v. Querimit
II. FULL TITLE: Far East Bank and Trust Company, petitioner, v. Estrella O. Querimit,
respondent.
III. PONENTE: Justice Jose C. Mendoza
IV. TOPIC: GBL
Respondent Estrella O. Querimit worked as internal auditor of the Philippine Savings Bank
(PSB) for 19 years. She opened a dollar account in petitioner’s Harrison plaza branch. The
certificates were to mature in 60days. Thus, the bank manger assured respondent that her deposit
would be renewed and earn interest upon maturity even without the surrender of the certificates if
these were not endorsed and withdrawn.
The respondent returned to the Philippines after her husband’s death. She went to petitioner
FEBTC to withdraw her deposit but, to her dismay, she was told that her husband had withdrawn the
money in deposit. The respondent through her counsel sent a demand letter, but the FEBTC refused
respondents demands.
Estrella filed a complaint against FEBTC. The trial court ruled in favor of Estrela. On appeal, the CA
affirmed the decision of RTC in finding the FEBTC liable.
VII. ISSUE/S:
W/N the subject certificates of deposit have already been paid by petitioner.
VIII. RULING:
Petitioner bank failed to prove that it had already paid Estrella Querimit, the bearer and
lawful holder of the subject certificates of deposit. The finding of the trial court on this point, as
affirmed by the Court of Appeals, is that petitioner did not pay either respondent Estrella or her
husband the amounts evidenced by the subject certificates of deposit.
In this case, the certificates of deposit were clearly marked payable to bearer, which means, to the
person in possession of an instrument, document of title or security payable to bearer or indorsed in
blank. Petitioner should not have paid respondents husband or any third party without requiring the
surrender of the certificates of deposit.
Petitioner FEBTC thus failed to exercise that degree of diligence required by the nature of its
business. Because the business of banks is impressed with public interest, the degree of diligence
required of banks is more than that of a good father of the family or of an ordinary business firm.
The fiduciary nature of their relationship with their depositors requires them to treat the accounts of
their clients with the highest degree of care.

WHEREFORE, premises considered, the present petition is hereby DENIED and the Decision in
CA-G.R. CV No. 67147 AFFIRMED, with the modification that the award of attorneys fees is
reduced to P20,000.00.
#33
I. SHORT TITLE: Philippine Banking Corporation v. CIR
II. FULL TITLE: PHILIPPINE BANKING CORPORATION (NOW: GLOBAL BUSINESS

BANK, INC.), Petitioner, - versus- COMMISSIONER OF INTERNAL REVENUE,
Respondent; G.R. No. 170574; January 30, 2009.
III. PONENTE: CARPIO, J.
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 NIRC. Respondent sent petitioner a Final Assessment Notice assessing deficiency DST based
on the outstanding balances of its SSDA in the total sum of P17,595,488.75 for 1996
and P47,767,756.24 for 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. 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.
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 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 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.
Citing Far East Bank and Trust Company v. Querimit, a certificate of deposit is 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.
For as long as there is some written memorandum of the fact that the bank accepted a deposit of a
sum of money from a depositor, the writing constitutes a certificate of deposit. The CTA held that a
passbook representing an interest-earning deposit account issued by a bank qualifies as a certificate
of deposit drawing interest
The CTA emphasized that Section 180 of the 1977 NIRC imposes DST on documents, whether the
documents are negotiable or non-negotiable. The requirement of negotiability pertains to promissory
notes only. Furthermore, CTA stated that the fact that the SSDA is evidenced by a passbook is
immaterial because in determining whether certain instruments are subject to DST, substance would
control over form and labels.
VII. ISSUE:
Whether or not SSDA is subject to documentary stamp tax under Section 180 of the 1977 NIRC
VIII. RULING:
YES. SSDAs are subject to Documentary Stamp Tax because they are certificate of deposits drawing
interest as used in Section 180 of the 1997 NIRC.
As the Bureau of Internal Revenue (BIR) explained in Revenue Memorandum Circular No. 16-2003,
the distinct features of a certificate of deposit from a technical point of view are as follows:
a. Minimum deposit requirement;

b. Stated maturity period;
c. Interest rate is higher than the ordinary savings account;
d. Not payable on sight or demand, but upon maturity or in case of pre-termination, prior notice is
required; and
e. Early withdrawal penalty in the form of partial loss or total loss of interest in case of pre-
termination.
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.
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.
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,[54] 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.
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.[67]
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 petitioners availment of the Tax Amnesty
Program. SO ORDERED.
I. SHORT TITLE: Serrano v. Central Bank
II. FULL TITLE: Manuel M. Serrano, petitioner, v. Central Bank of the Philippines; Overseas
Banks of Manila; Ermito M. Ramos, Susana B. Ramos, Emerito B. Ramos., Josefa Ramos Dela
Rama, Horacio Dela Rama, Antonio B. Ramos, Filomena Ramos Ledesma, Rodolfo Ledesma,
Victoria Ramos Tanjuatco and Teofilo Tanjuatco.
III. PONENTE: Justice Conception Jr.
IV. TOPIC: GBL
Petitioner Serrano made a time deposit, for one year with 6% interest with the respondent
Overseas Bank of Manila. Petitioner made series of demands for encashment of the aforementioned
time deposits from the respondent Overseas Bank of Manila. However, not a single one of the time
deposit certificates was honored by respondent Overseas Bank of Manila.
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 in this case filed a motion for judgment in this case, 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,
VII. ISSUE/S:
W/N Central Bank could be held solidary liable with Overseas Bankof Manila.
VIII. RULING:
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 he 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.
#35
I. SHORT TITLE: ALLIED BANKING CORPORATION V. LIM SIO WAN (2007)
II. FULL TITLE: ALLIED BANKING CORPORATION, Petitioner v. LIM SIO WAN,
METROPOLITAN BANK AND TRUST CO., and PRODUCERS
BANK, Respondents.
III. PONENTE: J. Velasco, Jr.
On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied Banking
Corporation (Allied) a money market placement of PhP 1,152,597.35 for a term of 31 days to mature
on December 15, 1983.
On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an officer
of Allied, and instructed the latter to pre-terminate Lim Sio Wans money market placement, to issue
a managers check representing the proceeds of the placement, and to give the check to one Deborah
Dee Santos who would pick up the check.
Thereafter, the managers check was deposited in the account of Filipinas Cement Corporation (FCC)
at respondent Metropolitan Bank and Trust Co. (Metrobank), with the forged signature of Lim Sio
Wan as indorser.
Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP 2 million
with respondent Producers Bank. Santos was the money market trader assigned to handle FCCs
account. The placement matured on October 25, 1983 and was rolled-over until December 5, 1983 as
evidenced by a Letter dated October 25, 1983. When the placement matured, FCC demanded the
payment of the proceeds of the placement. On December 5, 1983, the same date that So received the
phone call instructing her to pre-terminate Lim Sio Wans placement, the managers check in the name
of Lim Sio Wan was deposited in the account of FCC, purportedly representing the proceeds of
FCCs money market placement with Producers Bank.
The check was sent to Allied through the PCHC. Upon the presentment of the check, Allied funded
the check even without checking the authenticity of Lim Sio Wans purported indorsement. Thus, the
amount on the face of the check was credited to the account of FCC.
On December 9, 1983, Lim Sio Wan deposited with Allied a second money market placement to
mature on January 9, 1984. On January 24, 1984, Lim Sio Wan, realizing that the promise that her
money would be recovered would not materialize, sent a demand letter to Allied asking for the
payment of the first placement. Allied refused to pay Lim Sio Wan, claiming that the latter had
authorized the pre-termination of the placement and its subsequent release to Santos.

Lim Sio Wan filed with the RTC a Complaint against Allied to recover the proceeds of her
first money market placement. Allied filed a third party complaint against Metrobank and Santos. In
turn, Metrobank filed a fourth party complaint against FCC which filed a fifth party complaint
against Producers Bank.
The RTC issued its decision ordering Allied Banking Corporation to pay the plaintiff and
dismissed all other claims. Petitioner Allied Bank appealed to the CA, which modified the decision
of the RTC by ordering Allied Bank Corporation to pay sixty (60%) percent and Metropolitan Bank
and Trust Company forty (40%) percent of the amount.
VII. ISSUE: Whether or not the Court of Appeals correctly ruled the petitioner to be liable to the
extent of sixty (60%) percent for the loss
VIII. RULING:
The petition is partly meritorious. The Court ruled that Allied is liable to Lim Sio Wan.
Fundamental and familiar is the doctrine that the relationship between a bank and a client is one of
debtor-creditor.
Articles 1953 and 1980 of the Civil Code provide:
Art. 1953. A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.
Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions
shall be governed by the provisions concerning simple loan.
Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple loan or mutuum.
Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to payment upon
her request, or upon maturity of the placement, or until the bank is released from its obligation as
debtor. Until any such event, the obligation of Allied to Lim Sio Wan remains unextinguished.
We cannot, however, say outright that Allied is solely liable to Lim Sio Wan. The liability of Allied,
however, is concurrent with that of Metrobank as the last indorser of the check. When Metrobank
indorsed the check in compliance with the PCHC Rules and Regulations without verifying the
authenticity of Lim Sio Wans indorsement and when it accepted the check despite the fact that it was
cross-checked payable to payees account only, its negligent and cavalier indorsement contributed to
the easier release of Lim Sio Wans money and perpetuation of the fraud. Given the relative
participation of Allied and Metrobank to the instant case, both banks cannot be adjudged as equally
liable. Hence, the 60:40 ratio of the liabilities of Allied and Metrobank, as ruled by the CA, must be
upheld.
Also, Producers Bank was unjustly enriched at the expense of Lim Sio Wan. Based on the facts and
circumstances of the case, Producers Bank should reimburse Allied and Metrobank for the amounts
the two latter banks are ordered to pay Lim Sio Wan.

WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998 CA Decision in CA-
G.R. CV No. 46290 and the November 15, 1993 RTC Decision in Civil Case No. 6757 are
AFFIRMED with MODIFICATION.
Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is
rendered ordering and sentencing defendant-appellant Allied Banking Corporation to pay sixty
(60%) percent and defendant-appellee Metropolitan Bank and Trust Company forty (40%) of the
amount of P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid. The
moral damages, attorneys fees and costs of suit adjudged shall likewise be paid by defendant-
appellant Allied Banking Corporation and defendant-appellee Metropolitan Bank and Trust
Company in the same proportion of 60-40. Except as thus modified, the decision appealed from is
AFFIRMED.
SO ORDERED.
Additionally and by way of MODIFICATION, Producers Bank is hereby ordered to pay Allied and
Metrobank the aforementioned amounts. The liabilities of the parties are concurrent and independent
of each other.
SO ORDERED.
XI. Prepared by: Isiderio, Joan.
#36
I. SHORT TITLE: EQUITABLE-PCI BANK v. NG SHEUNG (2007)
II. FULL TITLE: EQUITABLE PCI BANK, AIMEE YU and BEJAN LIONEL APAS,
Petitioners, vs. NG SHEUNG NGOR doing business under the name
and style "KEN MARKETING," KEN APPLIANCE DIVISION,
INC. and BENJAMIN E. GO, Respondents.
III. PONENTE: J. Corona
On October 7, 2001, respondents Ng Sheung Ngor, Ken Appliance Division, Inc. and
Benjamin E. Go filed an action for annulment and/or reformation of documents and contracts against
petitioner Equitable PCI Bank (Equitable) and its employees, Aimee Yu and Bejan Lionel Apas, in
the Regional Trial Court (RTC), Branch 16 of Cebu City. They claimed that Equitable induced them
to avail of its peso and dollar credit facilities by offering low interest rates so they accepted
Equitable's proposal and signed the bank's pre-printed promissory notes on various dates beginning
1996. They, however, were unaware that the documents contained identical escalation clauses
granting Equitable authority to increase interest rates without their consent.
Equitable, in its answer, asserted that respondents knowingly accepted all the terms and
conditions contained in the promissory notes. In fact, they continuously availed of and benefited
from Equitable's credit facilities for five years.
The RTC upheld the validity of the promissory notes, however, it invalidated the escalation
clause contained therein because it violated the principle of mutuality in contracts. Lastly, because
the business reputation of respondents was (allegedly) severely damaged when Equitable froze their
accounts, the trial court awarded moral and exemplary damages to them.
Equitable and respondents filed their respective notices of appeal. In the March 1, 2004 order of the
RTC, both notices were denied due course because Equitable and respondents "failed to submit proof
that they paid their respective appeal fees."
Equitable moved for the reconsideration of the March 1, 2004 order of the RTC on the ground that it
did in fact pay the appeal fees. Respondents, on the other hand, prayed for the issuance of a writ of
execution.
On March 24, 2004, the RTC issued an omnibus order denying Equitable's motion for
reconsideration for lack of merit and ordered the issuance of a writ of execution in favor of
respondents. According to the RTC, because respondents did not move for the reconsideration of the
previous order (denying due course to the parties’ notices of appeal), the February 5, 2004 decision
became final and executory as to both parties and a writ of execution against Equitable was in order.
A writ of execution was thereafter issued and three real properties of Equitable were levied upon.
On March 26, 2004, Equitable filed a petition for relief in the RTC from the March 1, 2004 order. It,
however, withdrew that petition on March 30, 2004 and instead filed a petition for certiorari with an
application for an injunction in the CA to enjoin the implementation and execution of the March 24,
2004 omnibus order.
On June 16, 2004, the CA granted Equitable's application for injunction. A writ of preliminary
injunction was correspondingly issued.
Notwithstanding the writ of injunction, the properties of Equitable previously levied upon were sold
in a public auction on July 1, 2004. Respondents were the highest bidders and certificates of sale
were issued to them. Equitable moved to annul the July 1, 2004 auction sale and to cite the sheriffs
who conducted the sale in contempt for proceeding with the auction despite the injunction order of
the CA.
On October 28, 2005, the CA dismissed the petition for certiorari. It found Equitable guilty of forum
shopping because the bank filed its petition for certiorari in the CA several hours before withdrawing
its petition for relief in the RTC. Moreover, Equitable failed to disclose, both in the statement of
material dates and certificate of non-forum shopping (attached to its petition for certiorari in the CA),
that it had a pending petition for relief in the RTC. Equitable moved for reconsideration but it was
denied Thus, this petition.
VII. ISSUE:
1. Whether or not the escalation clause violated the principle of mutuality of contracts
2. Whether or not the award of moral and exemplary damages were proper
VIII. RULING:
1. Yes, the escalation clause violated the principle of mutuality of contracts.
Escalation clauses are not void per se. However, one "which grants the creditor an unbridled right to
adjust the interest independently and upwardly, completely depriving the debtor of the right to assent
to an important modification in the agreement" is void. For this reason, the Court has consistently
held that a valid escalation clause provides:
1. that the rate of interest will only be increased if the applicable maximum rate of interest is
increased by law or by the Monetary Board; and
2. that the stipulated rate of interest will be reduced if the applicable maximum rate of interest is
reduced by law or by the Monetary Board (de-escalation clause).
Equitable dictated the interest rates if the term (or period for repayment) of the loan was extended.
Respondents had no choice but to accept them. This was a violation of Article 1308 of the Civil
Code. Furthermore, the assailed escalation clause did not contain the necessary provisions for
validity, that is, it neither provided that the rate of interest would be increased only if allowed by law
or the Monetary Board, nor allowed de-escalation. For these reasons, the escalation clause was void.
2. No, there is no basis for the award of moral and exemplary damages to the respondents.
The RTC found that respondents did not pay Equitable the interest due on February 9, 2001 (or any
month thereafter prior to the maturity of the loan) or the amount due (principal plus interest) due on
July 9, 2001. Consequently, Equitable applied respondents' deposits to their loans upon maturity.
The relationship between a bank and its depositor is that of creditor and debtor. For this reason, a
bank has the right to set-off the deposits in its hands for the payment of a depositor's indebtedness.

ACCORDINGLY, the petition is hereby GRANTED.
The October 28, 2005 decision and February 3, 2006 resolution of the Court of Appeals in CA-G.R.
SP No. 83112 are hereby REVERSED and SET ASIDE.
The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16, Cebu City in Civil Case
No. CEB-26983 is hereby ANNULLED for being rendered with grave abuse of discretion
amounting to lack or excess of jurisdiction. All proceedings undertaken pursuant thereto are likewise
declared null and void.
The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City in Civil Case No.
CEB-26983 is hereby SET ASIDE. The appeal of petitioners Equitable PCI Bank, Aimee Yu and
Bejan Lionel Apas is therefore given due course.1avvphi1
The February 5, 2004 decision of the Regional Trial Court, Branch 16 of Cebu City in Civil Case
No. CEB-26983 is accordingly SET ASIDE. New judgment is hereby entered:
1. ordering respondents Ng Sheung Ngor, doing business under the name and style of "Ken
Marketing," Ken Appliance Division, Inc. and Benjamin E. Go to pay petitioner Equitable PCI Bank
the principal amount of their dollar- and peso-denominated loans;
2. ordering respondents Ng Sheung Ngor, doing business under the name and style of "Ken
Marketing," Ken Appliance Division, Inc. and Benjamin E. Go to pay petitioner Equitable PCI Bank
interest at:
a) 12.66% p.a. with respect to their dollar-denominated loans from January 10, 2001 to July 9, 2001;
b) 20% p.a. with respect to their peso-denominated loans from January 10, 2001 to July 9, 2001;91
c) pursuant to our ruling in Eastern Shipping Lines v. Court of Appeals,92 the total amount due on
July 9, 2001 shall earn legal interest at 12% p.a. from the time petitioner Equitable PCI Bank
demanded payment, whether judicially or extra-judicially; and
d) after this Decision becomes final and executory, the applicable rate shall be 12% p.a. until full
satisfaction;
3. all other claims and counterclaims are dismissed.
As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall compute the exact
amounts due on the respective dollar-denominated and peso-denominated loans, as of July 9, 2001,
of respondents Ng Sheung Ngor, doing business under the name and style of "Ken Marketing," Ken
Appliance Division and Benjamin E. Go.
SO ORDERED.
#37
I. SHORT TITLE: SIMEX INTERNATIONAL (MANILA), INC. v. COURT OF
APPEALS (1990)
II. FULL TITLE: SIMEX INTERNATIONAL (MANILA), INCORPORATED,
petitioner, vs. THE HONORABLE COURT OF APPEALS and
TRADERS ROYAL BANK, respondents.
III. PONENTE: J. Cruz
The petitioner is a private corporation engaged in the exportation of food products.The
petitioner was a depositor of the respondent bank and maintained a checking account in its branch at
Romulo Avenue, Cubao, Quezon City. On May 25, 1981, the petitioner deposited to its account in
the said bank the amount of P100,000.00, thus increasing its balance as of that date to P190,380.74.
Subsequently, the petitioner issued several checks against its deposit but was suprised to learn later
that they had been dishonored for insufficient funds.
As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter of
demand to the petitioner, threatening prosecution if the dishonored check issued to it was not made
good. It also withheld delivery of the order made by the petitioner. Similar letters were sent to the
petitioner by the Malabon Long Life Trading, on June 15, 1981, and by the G. and U. Enterprises, on
June 10, 1981. Malabon also canceled the petitioner's credit line and demanded that future payments
be made by it in cash or certified check. Meantime, action on the pending orders of the petitioner
with the other suppliers whose checks were dishonored was also deferred.
The petitioner complained to the respondent bank on June 10, 1981. Investigation disclosed
that the sum of P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it.
The error was rectified on June 17, 1981, and the dishonored checks were paid after they were re-
deposited. The petitioner demanded reparation from the respondent bank for its "gross and wanton
negligence." However, this demand was not met.
Petitioner filed a complaint in the then Court of First Instance of Rizal claiming from the
private respondent moral damages and exemplary damages. However, the trial court held that moral
and exemplary damages were not called for under the circumstances; but ordered the payment of
nominal damages and attorney’s fees. Such ruling was affirmed by the Court of Appeals.
VII. ISSUE: Whether or not the petitioner is entitled to moral and exemplary damages
VIII. RULING:
Yes, the petitioner is entitled to claim moral and exemplary damages.
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.
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.

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.
SO ORDERED.
#39
I. SHORT TITLE: BPI FAMILY BANK v. FRANCO (2007)
II. FULL TITLE: BPI FAMILY BANK, Petitioner, vs. AMADO FRANCO and COURT
OF APPEALS, Respondents
III. PONENTE: J. Nachura
On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. opened a savings and current
account with BPI-FB. Soon thereafter, First Metro Investment Corporation (FMIC) also opened a
time deposit account with the same branch of BPI-FB On August 31, 1989. Franco opened three
accounts, namely, a current, savings, and time deposit, with BPI-FB. The total amount of
P2,000,000.00 used to open these accounts is traceable to a check issued by Tevesteco allegedly in
consideration of Franco’s introduction of Eladio Teves, to Jaime Sebastian, who was then BPI-FB
SFDM’s Branch Manager.
In turn, the funding for the P2,000,000.00 check was part of the P80,000,000.00 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
including the 2 million pesos that was paid to Franco. BPI-FB debited Franco’s savings and current
accounts for the amounts remaining therein. In the meantime, two checks drawn by Franco against
his BPI-FB current account were dishonored and stamped with a notation “account under
garnishment.” Apparently, Franco’s current account was garnished by virtue of an Order of
Attachment.
Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB
prior to Franco’s receipt of notice that his accounts were under garnishment. It was only on May 15,
1990, that Franco was impleaded in the Makati case. Immediately, upon receipt of such copy, Franco
filed a Motion to Discharge Attachment. On May 17, 1990, Franco pre-terminated his time deposit
account. BPI-FB deducted the amount of P63,189.00 from the remaining balance of the time deposit
account representing advance interest paid to him. Consequently, in light of BPI-FB’s refusal to heed
Franco’s demands to unfreeze his accounts and release his deposits therein, Franco filed on June 4,
1990 with the Manila RTC the subject suit. On the other hand, BPI-FB insisted that it was correct in
doing so since it was a product of a fraudulent scheme and that the money transferred by BPI-FB to
Tevesteco belongs to them.

The RTC rendered judgment in favor of respondent Franco. Unsatisfied with the decision,
both parties filed their respective appeals before the CA. The CA affirmed the decision with a
modification in the amounts to be paid for by BPI-FB and awarded the respondent with moral and
exemplary damages.
VII. ISSUE: Whether or not Franco has a better right to the deposit
VIII. RULING:
Yes, BPI-FB cannot unilaterally freeze Franco’s accounts and preclude him from
withdrawing his deposits. However, the Court ruled that Franco is not entitled to the unearned
interest on the time deposit as well as moral and exemplary damages. To grant BPI-FB, 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.
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.
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.
Lastly, the Court ruled, as the trial court did, that BPI-FB acted out of the impetus of self-
protection and not out of malevolence or ill will. BPI-FB was not in the corrupt state of mind
contemplated in Article 2201 and should not be held liable for all damages now being imputed to it
for its breach of obligation. For the same reason, it is not liable for the unearned interest on the time
deposit.

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.
SO ORDERED.
#40
I. SHORT TITLE: PHILIPPINE SAVINGS BANK v. CHOWKING FOOD CORP. (2008)
II. FULL TITLE: PHILIPPINE SAVINGS BANK, Petitioner v. CHOWKING FOOD
CORPORATION, Respondent
III. PONENTE: J. Reyes
Between March 15, 1989 and August 10, 1989, Joe Kuan Food Corporation issued in favor of
Chowking five (5) PSBank checks, totaling, P 556,981.86. On the respective due dates of each
check, Chowkings acting accounting manager, Rino T. Manzano, endorsed and encashed said checks
with the Bustos branch of respondent PSBank. All the five checks were honored by defendant
Santos, 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 Manzanos scheme, it demanded reimbursement from PSBank and the
latter refused to pay.
Chowking filed a complaint for a sum of money with damages before the RTC. Both PSBank
and Santos filed cross claims and third party complaints against Manzano. Manzano was declared in
default for failure to file a responsive pleading. Respondent filed a motion for summary judgment,
opposed by the petitioner and denied by the trial court.
The RTC rendered judgment in favor of respondent, ordering PSBank and Santos to pay the
plaintiff jointly and severally. With respect to the cross claim, both Santos and Manzano was ordered
to jointly and severally reimburse petitioner PSBank.
Petitioner filed a motion for reconsideration. The RTC reversed its earlier ruling and held that
it was respondents own negligence that was the proximate cause of the loss.
Respondent appealed to the CA which reinstated the earlier ruling of the RTC which held that
both PSBank and Santos should bear the loss. Hence, this petition.
VII. ISSUE:
1. Whether or not CA erred in not ruling that respondent was estopped from asserting its claim
against the petitioner
2. Whether or not CA erred when it did not rule that respondent’s negligence was the proximate
cause of its own loss
VIII. RULING:
1. No, the doctrine of equitable estoppel or estoppel in pais finds no application in the present
case.
The Court agrees with the CA that Chowking did not make any false representation or
concealment of material facts in relation to the encashments of the previous checks. As adverted to
earlier, respondent may have allowed Manzano to previously encash its checks, but it has always
been accompanied with the endorsements of the other authorized signatories. Respondent did not
allow petitioner to have its checks encashed without the signature of all of its authorized signatories.
2. No, petitioner failed to prove that it has observed the due diligence required of banks under
the law. Contrary to petitioners view, its negligence is the proximate cause of respondents loss.
It cannot be overemphasized 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 if banks is more than that of 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 the 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 respondents
checks with the lone endorsement of Manzano.

WHEREFORE, the petition is DENIED for lack of merit. SO ORDERED.
#41
I. SHORT TITLE: CENTRAL BANK v. CITYTRUST BANKING CORP. (2009)
II. FULL TITLE: CENTRAL BANK OF THE PHILIPPINES, Petitioner, v. CITYTRUST
BANKING CORPORATION, Respondent
III. PONENTE: J. Carpio Morales
Pursuant to Republic Act 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, now Bangko Sentral ng Pilipinas. As required, Citytrust furnished
petitioner with the names and corresponding signatures of five of its officers authorized to sign
checks and serve as drawers and indorsers for its account. And it provided petitioner with the list and
corresponding signatures of its roving tellers authorized to withdraw, sign receipts and perform other
transactions on its behalf. Petitioner later issued security identification cards to the roving tellers one
of whom was Rounceval Flores
On July 15, 1977, Flores presented for payment to petitioners Senior Teller Iluminada dela
Cruz (Iluminada) two Citytrust checks of even date, payable to Citytrust, one in the amount of
P850,000 and the other in the amount of P900,000, both of which were signed and indorsed by
Citytrusts authorized signatory-drawers. After the checks were certified by petitioners 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. The Cash Department approved the cash
transfer slip and paid the corresponding amounts to Flores. Petitioner then debited the amount of the
checks totaling P1,750,000 from Citytrusts demand deposit account.
More than a year and nine months later, Citytrust, by letter dated April 23, 1979, alleging that
the checks were already cancelled because they were stolen, demanded petitioner to restore the
amounts covered thereby to its demand deposit account. Petitioner did not heed the demand,
however.

Citytrust thereafter filed before the Regional Trial Court (RTC) of Manila a complaint for
recovery of sum of money with damages against petitioner which it alleged 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 of Manila found both Citytrust and petitioner negligent and accordingly held
them equally liable for the loss.
Both parties appealed to the Court of Appeals which, affirmed the trial court’s decision, it
holding that both parties contributed equally to the fraudulent encashment of the checks, hence, they
should equally share the loss in consonance with Article 2179 vis a vis Article 1172 of the Civil
Code.
In arriving at its Decision, the appellate court 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 Citytrusts agent authorized to
receive payment.
VII. ISSUE: Whether or not Central Bank should be held liable for the loss despite Citytrust
Banking Corporation being estopped by the acts of its authorized roving teller, Flores
VIII. RULING:
Yes. The law imposes on banks high standards in view of the fiduciary nature of banking.
Section 2 of Republic Act No. 8791 (RA 8791) declares that the State recognizes the fiduciary nature
of banking that requires high standards of integrity and performance.
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. Article 1172 of the 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
good father of a family. Section 2 of RA 8791 prescribes the statutory diligence required from banks
that banks must observe high standards of integrity and performance in servicing their depositors.
Citytrusts failure to timely examine its account, cancel the checks and notify petitioner of their
alleged loss/theft should mitigate petitioners liability, in accordance with Article 2179 of the Civil
Code which provides that if the plaintiffs negligence was only contributory, the immediate and
proximate cause of the injury being the defendants 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. The Court deems it proper to allocate the loss between petitioner and Citytrust on a
60-40 ratio.

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.
SO ORDERED.
#42
I. SHORT TITLE: Samson v. Bank of P.I.
G.R. No. 150487 July 10, 2003
GERARDO F. SAMSON JR., vs. BANK OF THE PHILIPPINE ISLANDS
III. PONENTE: Panganiban, J.
Gerardo Samson is a client/depositor of BPI with Savings Account No. 3085-0125-75 through the
Express Teller System, a 24-hour banking service.
Samson deposited to his BPI account a Prudential Bank Check in the amount of P3,500.00. At that
time, his account balance was P367.38; Samson later on instructed his daughter to withdraw
P2,000.00 from the said account; that the withdrawal was declined twice as the Express Teller
transaction record showed “Sorry, Insufficient Funds.” Because of such eventuality, Samson suffered
embarrassment as he could not then and there produce the required cash with which to fulfill his
commitment and monetary obligation towards a creditor who had waited at his residence.
He discovered that his available total balance as of said date was only P342.38 without his earlier
check deposit P3,500.00 but with a P25.00 penalty/service charge. Thus, petitioner complained to the
respondent bank about the discrepancy.
Investigation only ensued after petitioner informed respondent that his P3,500.00 Prudential Bank
check was encashed by BPI’s security guard named Nonilon E. Rondina; that per such investigation,
it was discovered that one of the deposit envelopes was missing; that respondent did nothing to look
for the missing check deposit or to inform petitioner about it; that 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; that worse, despite being at fault, BPI’s Manager, Nerissa M. Cayanga,
displayed arrogance, indifference and discourtesy towards Samson.

Samson, Jr. filed an action for damages against the BPI. After trial on the merits, the trial court
rendered a Decision in favor of petititioner.
The CA affirmed the ruling of the trial court, but modified the amount of damages. It ruled that
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.
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.
VIII. RULING
NO.
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.
In the present case, petitioner bases his claim on the failure of respondent to credit the sum of P3,500
to his account due to its gross negligence. As a result of such failure, he was unable to fulfill his
obligation to a valued creditor, resulting in the severance of his credit line. He further alleges that he
suffered humiliation and besmirched reputation. According to him, his suffering was exacerbated by
his subjection to indifference, discourtesy and arrogance from respondents' officers.
The Court believes that the award should be increased to P100,000, considering (1) that petitioner
was a businessman and was the highest lay person in the United Methodist Church; (2) that he was
regarded by respondent and its officers with arrogance and a condescending manner; and (3) that
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.
That petitioner reported the missing check deposit to 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.
In Prudential Bank v. CA, Philippine National Bank v. CA and Metropolitan Bank v. Wong, the
Court consistently awarded moral damages of P100,000 in consideration of the reputation and the
social standing of the claimant, as well as the rulings in similar cases involving the negligence of
banks with regard to the accounts of their depositors.

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.
SO ORDERED.
#43
I. SHORT TITLE: BPI Family Bank v. Buenaventura
II. FULL CASE TITLE

G.R. No. 148196 September 30, 2005
BPI FAMILY BANK vs. EDGARDO BUENAVENTURA, MYRNA LIZARDO and YOLANDA
TICA
x--------------------------x
G.R. No. 148259
EDGARDO BUENAVENTURA, MYRNA LIZARDO and YOLANDA TICA,
vs. BPI FAMILY BANK
III. PONENTE: Austria-Martinez, J.

Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et al.), all officers of the
International Baptist Church and International Baptist Academy, accepted from Amado Franco BPI-
FB Check No. 129004 in the amount of ₱500,000.00, jointly issued by Eladio Teves and Joseph
Teves. Thereafter, they opened Current Account with the BPI-FB and deposited the check as initial
deposit. The check was subsequently cleared and the amount was credited to their Current Account.
On September 9, 1989, they 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; they thereafter learned from BPI-FB that their Current Account had been frozen upon
instruction of Severino P. Coronacion, Vice-President 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. filed a complaint for "Reinstatement of Current Account/Release of Money plus
Damages" against BPI Family Bank (BPI-FB) before the Manila RTC.
RTC rendered its decision, finding 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.
CA affirmed the decision of the Manila RTC, holding that BPI-FB did not act in accordance with
law. It ruled 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.
With regard to award of damages, the CA sustained the award of moral damages and attorney’s fees,
holding that BPI-FB’s actuations were established to have caused Buenaventura, et al. to incur the
distrust of their Baptist brethren, besides suffering mental anguish, serious anxiety, wounded
feelings, and moral shock but found no basis for the award of exemplary damages of ₱200,000.00 for
lack of showing that BPI-FB was not animated by any wanton, fraudulent, reckless, oppressive or
malevolent intent.
Both parties filed separate motions for reconsideration. Buenaventura, et al. sought reconsideration
of the deletion of the award of exemplary damages. On the other hand, BPI-FB also assailed the
findings and conclusions of the CA
CA denied both motions for reconsideration.
Hence, the present two consolidated petitions for review on certiorari.
VII. ISSUES
I. Whether or not the Bank has the unilateral right to freeze the current account of Buenaventua
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.
II. Whether or not the deletion of award of exemplary damages is proper
VIII. RULING:
I. No.
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.
There is nothing inequitable in such a rule for if in the regular course of business the check comes to
the drawee bank which, having the opportunity to ascertain its character, pronounces it to be valid
and pays it, as in this case, it is not only a question of payment under mistake, but payment in neglect
of duty which the commercial law places upon it, and the result of its negligence must rest upon it.
Having been negligent in detecting the forgery prior to clearing the check, BPI-FB should bear the
loss and can’t 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.
Thus, the fact that the funds in deposit with BPI-FB under the name of Buenaventura, et al. were
allegedly derived exclusively from the alleged ₱80,000,000.00 unlawfully transferred from the funds
of FMIC or that the deposit under the name of Tevesteco consisted allegedly exclusively of the said
₱80,000,000.00 debited from FMIC’s account is immaterial. These circumstances cannot be used
against a party not privy to the forgery.
II. No.
The law allows the grant of exemplary damages to set an example for the public good. 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 award of exemplary damages is proper as a
warning to BPI-FB and all concerned not to recklessly disregard their obligation to exercise the
highest and strictest diligence in serving their depositors. However, the award should be in a reduced
amount of ₱50,000.00 since exemplary damages are imposed not to enrich one party or impoverish
another but to serve as a deterrent against or as a negative incentive to curb socially deleterious
actions.
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.

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.
SO ORDERED.
#45
I. SHORT TITLE: PCIB v. Balmaceda
II. FULL CASE TITLE: PHILIPPINE COMMERCIAL INTERNATIONAL BANK vs.

ANTONIO B. BALMACEDA and ROLANDO N. RAMOS
III. PONENTE: Brion, J.
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. It 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.
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.
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
₱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.

RTC issued a decision in favor of PCIB. 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.
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.
CA dismissed the complaint against Ramos, holding that no sufficient evidence existed to prove that
Ramos colluded with Balmaceda in the latter’s fraudulent manipulations. 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. The CA also found that PCIB
acted illegally in freezing and debiting ₱251,910.96 from Ramos’ bank account.
Thus, a petition for review on certiorari is filed by the PCIB to reverse and set aside the decision of
CA.
VII. ISSUES
I. Whether or not CA erred in holding that there is no evidence to hold that respondent Ramos acted
in complicity with respondent Balmaceda
II. Whether or not PCIB acted illegally in freezing and debiting Ramos’ assets
III. Whether or not PCIB is liable for moral and exemplary damages
VIII. RULING
I. No
Ramos’ participation in Balmaceda’s scheme was not proven.
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, PCIB as employer is at fault.
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
The General Banking Law of 2000 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.
While we appreciate that Balmaceda took advantage of his authority and position as the branch
manager to commit these acts, this circumstance cannot be used to excuse the manner the Bank –
through its employees –handled its clients’ bank accounts and thereby ignored established bank
procedures at the branch manager’s mere order. 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. With this kind of record, blame must be imputed on the Bank itself and its
systems, not solely on the weakness or lapses of individual employees.
II. Yes
In BPI Family Bank v. Franco, the Court cautioned against the unilateral freezing of bank accounts
by banks, noting that:
More importantly, BPI Family Bank 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. 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.
There is 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.
III. No
Although PCIB’s act of freezing and debiting Ramos’ account is unlawful, we cannot hold PCIB
liable for moral and exemplary damages. Since a contractual relationship existed between Ramos and
PCIB as the depositor and the depositary bank, respectively, the award of moral damages depends on
the applicability of Article 2220 of the Civil Code, which provides:
Article 2220. Willful injury to property may be a legal ground for awarding moral damages if
the court should find that, under the circumstances, such damages are justly due. The same
rule applies to breaches of contract where the defendant acted fraudulently or in bad faith.
[emphasis ours]
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or
some moral obliquity and conscious commission of a wrong; it partakes of the nature of fraud.
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. While PCIB may have
acted hastily and without regard to its primary duty to treat the accounts of its depositors with
meticulous care and utmost fidelity, we find that its actions were propelled more by the need to
protect itself, and not out of malevolence or ill will. One may err, but error alone is not a ground for
granting moral damages.
We also disallow the award of exemplary damages. Article 2234 of the Civil Code requires a party to
first prove that he is entitled to moral, temperate or compensatory damages before he can be awarded
exemplary damages. Since no reason exists to award moral damages, so too can there be no reason to
award exemplary damages.

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.
SO ORDERED.
#46
I. SHORT TITLE: Firestone Tire and Rubber Co. v. CA

G.R. No. 113236 March 5, 2001
FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES vs. COURT OF APPEALS
and LUZON DEVELOPMENT BANK
III. PONENTE: Quisumbing, J
Fojas-Arca Enterprises Company ("Fojas-Arca" for brevity) maintained a special savings account
with the respondent bank Luzon Development Bank. The latter authorized and allowed withdrawals
of funds therefrom through the medium of special withdrawal slips. These are supplied by the
defendant to Fojas-Arca.
Plaintiff Firestone Tire and Rubber Co. and Fojas-Arca entered into a "Franchised Dealership
Agreement" whereby Fojas-Arca has the privilege to purchase on credit and sell plaintiff's products.
Pursuant to the aforesaid Agreement, Fojas-Arca purchased on credit Firestone products from
plaintiff. In payment of these purchases, Fojas-Arca delivered to plaintiff six (6) special withdrawal
slips drawn upon the defendant bank. In turn, these were deposited by the plaintiff with its current
account with the Citibank. All of them were honored and paid by the defendant. This singular
circumstance made plaintiff believed and relied on the fact that the succeeding special withdrawal
slips drawn upon the defendant would be equally sufficiently funded. Relying on such confidence
and belief and as a direct consequence thereof, plaintiff extended to Fojas-Arca other purchases on
credit of its products.
Later on, 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. The
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.

Petitioner filed a complaint for a sum of money and damages with RTC but was dismissed.
Petitioner appealed the decision to the CA alleging the following tortious acts on the part of private
respondent: 1) the acceptance and payment of the special withdrawal slips without the presentation
of the depositor's passbook thereby giving the impression that the withdrawal slips are instruments
payable upon presentment; 2) giving the special withdrawal slips the general appearance of checks;
and 3) the failure of respondent bank to seasonably warn petitioner that it would not honor two of the
four special withdrawal slips.
CA denied the appeal and affirmed the decision of the RTC.
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.
VIII. RULING
No.
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."
It bears stressing that Citibank could not have missed the non-negotiable nature of the withdrawal
slips. The essence of negotiability which characterizes a negotiable paper as a credit instrument lies
in its freedom to circulate freely as a substitute for money. The withdrawal slips in question lacked
this character.
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.

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.
SO ORDERED
#47
I. SHORT TITLE: Go vs. Metropolitan Bank and Trust Co.

G.R. No. 168842 August 11, 2010
VICENTE GO vs. METROPOLITAN BANK AND TRUST CO.
III. PONENTE: Nachura, J.
Petitioner Vicente Go was doing business under the name "Hope Pharmacy" with Chua as his
pharmacist and trustee or caretaker of the business. Tabañag, on the other hand, took care of the
receipts and invoices and assisted Chua in making deposits for petitioner’s accounts in the business
operations.
Petitioner claimed that there were unauthorized deposits and encashments made by Chua and
Tabañag. Also, petitioner averred that there were 32 checks with Hope Pharmacy as payee, for
varying sums, amounting to 1,492,595.06, that were not endorsed by him but were deposited under
the personal account of Chua with respondent bank.
Petitioner claimed that the said checks were crossed checks payable to Hope Pharmacy only; and that
without the participation and connivance of respondent bank, the checks could not have been
accepted for deposit to any other account, except petitioner’s account.

Petitioner filed two separate cases before the RTC: (1) against Chua and Tabañag for a sum of
money with preliminary attachment (for the unauthorized withdrawals); and (2) action for a sum of
money with damages against herein respondent Metrobank and Chua (for the 32 checks).
RTC rendered a Joint Decision dismissing the complaint against the defendants Chua and in both
cases. However, it ordered Metrobank to pay Vicente Go/Hope Pharmacy the amount of ₱50,000.00
as moral damages, and attorney’s fees and litigation expenses in the aggregate sum of ₱25,000.00.
The trial court absolved Chua in CEB-9866 because of the finding that the subject checks were
payments of petitioner for his loans or borrowings from the parents of Ma. Teresa Chua, through Ma.
Teresa, who was given the total discretion by petitioner to transfer money from the offices of Hope
Pharmacy to pay the advances and other obligations of the drugstore; she was also given the full
discretion where to source the funds to cover the daily overdrafts, even to the extent of borrowing
money with interest from other persons.
While the trial court exonerated Chua in CEB-9866, it however declared respondent bank liable for
being negligent in allowing the deposit of crossed checks without the proper indorsement.
CA affirmed the decision of the RTC but deleted award of attorney’s fees and litigation expenses in
favor of defendants Chua and Tabañag.
Hence, this petition.
VII. ISSUE
Whether or not Metrobank is liable for allowing the deposit of crossed checks, which were issued in
favor of and payable to petitioner and without being indorsed by the petitioner, to the account of
Chua
VIII. RULING
Yes.
While it is true that he respondent bank should not be held liable for the entire amount of the checks
considering that for the checks were actually given to Chua as payments by petitioner for loans
obtained from the parents of Chua, the respondent bank was still negligent in permitting the deposit
and encashment of the crossed checks without the proper indorsement.
An indorsement is necessary for the proper negotiation of checks specially if the payee named
therein or holder thereof is not the one depositing or encashing it. Knowing fully well that the subject
checks were crossed, that the payee was not the holder and that the checks contained no indorsement,
respondent bank should have taken reasonable steps in order to determine the validity of the
representations made by Chua. Respondent bank was amiss in its duty as an agent of the payee.
Prudence dictates that respondent bank should not have merely relied on the assurances given by
Chua.
Negligence was committed by respondent bank in accepting for deposit the crossed checks without
indorsement and in not verifying the authenticity of the negotiation of the checks. The law imposes a
duty of extraordinary diligence on the collecting bank to scrutinize checks deposited with it, for the
purpose of determining their genuineness and regularity. As a business affected with public interest
and because of the nature of its functions, the banks are under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of the relationship. The
fact that this arrangement had been practiced for three years without Mr. Go/Hope Pharmacy raising
any objection does not detract from the duty of the bank to exercise extraordinary diligence.
Thus, the Decision of the RTC, as affirmed by the CA, holding respondent bank liable for moral
damages is sufficient to remind it of its responsibility to exercise extraordinary diligence in the
course of its business which is imbued with public interest.

WHEREFORE, the Decision dated May 27, 2005 and the Resolution dated August 31, 2005 of the
Court of Appeals in CA-G.R. CV No. 63469 are hereby AFFIRMED.
#48
I. SHORT TITLE: Philippine National Bank v. Chea Chee Chong

G.R. No. 170865 April 25, 2012
PHILIPPINE NATIONAL BANK vs. SPOUSES CHEAH CHEE CHONG and OFELIA
CAMACHO CHEAH
x-----------------------x
G.R. No. 170892
SPOUSES CHEAH CHEE CHONG and OFELIA CAMACHO CHEAH vs.
PHILIPPINE NATIONAL BANK
III. PONENTE: Del Castillo, J.
Filipina Tuazon (Filipina), Adelina Guarin’s (Adelina) friend which was Ofelia Cheah’s (Ofelia)
friend, approached Ofelia to ask if she could have Filipina’s check cleared and encashed. The check
is Bank of America against Bank of America in California, USA.
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)
Ofelia agreed.
That same day, Ofelia and Adelina went to PNB Buendia Branch and 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.
On November 16, 1992, PNB Division Chief 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.
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 a week before the lapse of the standard 15-day clearing period.
In the meantime, the Cable Division of PNB Head Office in Escolta, Manila received on November
16, 1992 a SWIFT message from Philadelphia National Bank dated November 13, 1992 informing
PNB of the return of the subject check for insufficient funds.
PNB Buendia Branch learned about the bounced check when it received on November 20, 1992 a
debit advice, followed by a letter on November 24, 1992, from Philadelphia National Bank to which
the November 13, 1992 SWIFT message was attached. 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
Subsequently, PNB sent a demand letter to spouses Cheah for the return of the amount of the
check, froze their peso and dollar deposit.

PNB filed a complaint against Spouses Cheah for Sum of Money with RTC.
The RTC ruled in PNB’s favor. 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. Moreoever, 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
CA reversed and set aside the decision of the RTC and declared both parties equally negligent and
should suffer and shoulder the loss.
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.
Both parties filed their respective Motions for Reconsideration but same were denied.
Hence, these Petitions for Review on Certiorari.

VII. ISSUES
I. Whether or not 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.
II. Whether or not PNB can recover the proceeds of the check under the principle of solution indebiti
III. Whether or not spouses Cheah are guilty of contributory negligence and are bound to share the
loss with the bank
VIII. RULING
I. Yes
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
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.
II. No.
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.
III. Yes.
The CA found Ofelia’s credulousness blameworthy. The Court agreed. Indeed, Ofelia failed to
observe caution in giving her full trust in accommodating a complete stranger and this led her and
her husband to be swindled. Considering that Filipina was not personally known to her and the
amount of the foreign check to be encashed was $300,000.00, a higher degree of care is expected of
Ofelia which she, however, failed to exercise under the circumstances. Another circumstance which
should have goaded Ofelia to be more circumspect in her dealings was when a bank officer called
her up to inform that the Bank of America check has already been cleared way earlier than the 15-
day clearing period. The fact that the check was cleared after only eight banking days from the time
it was deposited or contrary to what Garin told her that clearing takes 15 days should have already
put Ofelia on guard. She should have first verified the regularity of such hasty clearance considering
that if something goes wrong with the transaction, it is she and her husband who would be put at risk
and not the accommodated party. However, Ofelia chose to ignore the same and instead actively
participated in immediately withdrawing the proceeds of the check. Thus, we are one with the CA in
ruling that Ofelia’s prior consultation with PNB officers is not enough to totally absolve her of any
liability. In the first place, she should have shunned any participation in that palpably shady
transaction.
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.
#56
I. SHORT TITLE: PBTC v. Liwayway Abasolo
II. FULL TITLE: PRUDENTIAL BANK AND TRUST COMPANY (now BANK OF THE
PHILIPPINE ISLANDS, Petitioner, - versus- Liwayway Abasolo, Respondent; G.R. No.
186738; September 27, 2010.
III. PONENTE: Carpio Morales, J.
Leonor Valenzuela-Rosales inherited two parcels of land situated in Laguna. After she passed away,
her heirs executed a Special Power of Attorney in favor of Liwayway Abasolo (respondent)
empowering her to sell the properties. Corazon Marasigan (Corazon) wanted to buy the properties
which were being sold for P2,448,960, 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 respondents consultation with PBTCs 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 P2,448,960 in favor of respondent. Mendiola advised respondent to transfer the
properties first to Corazon for the immediate processing of Corazons 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.
Respondent later got wind of the approval of Corazons loan application and the release of its
proceeds to Corazon who, despite repeated demands, failed to pay the purchase price of the
properties. Respondent eventually accepted from Corazon partial payment in kind consisting of one
owner type jeepney and four passenger jeepneys plus installment payments.
Respondent filed a complaint for collection of sum of money and annulment of sale and mortgage
with damages, against Corazon and PBTC (hereafter petitioner), before the Regional Trial Court
(RTC) of Sta. Cruz, Laguna.
Corazon denied that there was an agreement that the proceeds of the loan would be paid directly to
respondent. And she claimed that the vehicles represented full payment of the properties, and had in
fact overpaid P76,040.
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; and that respondent received five vehicles as partial payment of the properties.
Despite notice, Corazon failed to appear during the trial to substantiate her claims.
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. Petitioner also breached its understanding to release the proceeds of the loan to respondent.
Court of Appeals affirmed the lower court’s decision.
VII. ISSUE:
(1) Whether or not Petitioner is subsidiarily liable
VIII. RULING:
NO. 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.
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.
Under the Principle of Relativity of Contracts in Article 1311 of the Civil Code, 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. Therefore,
Liwayways’ claim should only be directed against Corazon. Petitioner cannot thus be held
subisidiarily liable.
The trial Courts 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. The onus probandi that attempt to commit fraud attended petitioners employee Mendiolas 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 Corazons application for
a loan nor that he would benefit by the approval thereof.
Aside from Liwayways bare allegations, evidence is wanting to show that there was collusion
between Corazon and Mendiola to defraud her. Even in Liwayways Complaint, the allegation of
fraud is specifically directed against Corazon.[17]
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 courts decision, fails
to pay the judgment debt, is REVERSED and SET ASIDE. The complaint against petitioner is
accordingly DISMISSED. SO ORDERED.
#58
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; G.R. No. 97785; March 29,
1996.
III. PONENTE: Francisco, J.
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 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. Such happening came to private
respondents’ attention only 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.
Aggrieved, private respondent demanded from petitioner PCIB that he be compensated for the
resulting damage that he suffered due to petitioners failure to make the timely transfer of funds
which led to the dishonor of his checks. Petitioner refused to heed private respondents demand
prompting the latter to file 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. 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.
VII. ISSUE:
(1) Whether or not petitioner is exempt from liability in the loss resulting from errors or delays in
the transfer of funds
VIII. RULING:
YES. 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.
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. 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.
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.

#59
I. SHORT TITLE: PNB v. CA and Lapez
II. FULL TITLE: PHILIPPINE NATIONAL BANK, petitioner, vs. THE COURT OF
APPEALS and RAMON LAPEZ,[1] doing business under the name and style SAPPHIRE
SHIPPING, respondents; G.R. No. 108052; July 24, 1996.
III. PONENTE: Panganiban, J.
The defendant applied/appropriated the amounts of $2,627.11 and P34,340.38 from remittances of
the plaintiff's principals abroad. 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. The plaintiff
made a written demand upon the defendant for remittance of the equivalent of P2,627.11. There were
indeed two instances in the past when the plaintiff's account was doubly credited with the equivalents
of $5,679.23 and $5,885.38, respectively. The defendant's evidence were never refuted nor impugned
by the plaintiff. He claims, however, that plaintiffs 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. The deduction of P34,340.38 was made by the defendant not
without the knowledge and consent of the plaintiff. 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.

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:
(1) Whether or not the respondent court erred in not ruling that legal compensation has taken
place
VIII. RULING:
NO. We 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.
According to 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.
We 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.

#60
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. 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. 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 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.
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. 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. 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. ISSUE:
(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.
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.
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.
61
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. 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:
(1) 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, 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.
I. SHORT TITLE: BPI v. CA
II. FULL TITLE: BANK OF THE PHILIPPINE ISLANDS (successor-in- interest of

COMMERCIAL AND TRUSTCO.), petitioner, vs. HON. COURT OF APPEALS,
EASTERN PLYWOOD CORP. and BENIGNO D. LIM, respondents.  
III. PONENTE: Davide, JR., J.
IV. TOPIC: GBL
Private respondents Eastern Plywood Corporation and Benigno Lim as officer of  
the corporation, had an “AND/OR” joint account with Commercial Bank and Trust Co
(CBTC), the predecessor-in-interest of petitioner Bank of the Philippine Islands. Lim
withdraw funds from such account and used it to open a joint checking account (an
“AND” account) with Mariano Velasco. When Velasco died in 1977, said joint checking
account had P662,522.87. By virtue of an Indemnity Undertaking executed by Lim and as
President and General Manager of Eastern withdrew one half of this amount and
deposited it to one of the accounts of Eastern with CBTC.
Eastern obtained a loan of P73,000.00 from CBTC which was not secured. However,
Eastern and CBTC executed a Holdout Agreement providing that the loan was secured by
the “Holdout of the C/A No. 2310-001-42” referring to the joint checking account of
Velasco and Lim.
Meanwhile, a judicial settlement of the estate of Velasco ordered the withdrawal of
the balance of the account of Velasco and Lim.

Asserting that the Holdout Agreement provides for the security of the loan obtained
by Eastern and that it is the duty of CBTC to debit the account of respondents to set off
the amount of P73,000 covered by the promissory note, BPI filed the instant petition for
recovery. Private respondents Eastern and Lim, however, assert that the amount deposited
in the joint account of Velasco and Lim came from Eastern and therefore rightfully
belong to Eastern and/or Lim. Since the Holdout Agreement covers the loan of P73,000,
then petitioner can only hold that amount against the joint checking account and must
return the rest.
VII. ISSUE/S:
1. Whether BPI can demand the payment of the loan despite the existence of the
Holdout Agreement and; 
2. Whether BPI is still liable to the private respondents on the account subject of
the withdrawal by the heirs of Velasco.
VIII. RULING:
1. YES. The Holdout Agreement conferred on CBTC the power, not the duty, to set off
the loan from the account subject of the Agreement. When BPI demanded payment of
the loan from Eastern, it exercised its right to collect payment based on the
promissory note, and disregarded its option under the Holdout Agreement. Therefore,
its demand was in the correct order.
2. YES. BPI was the debtor and Eastern was the creditor with respect to the joint
checking account. Therefore, BPI was obliged to return the amount of the said
account only to the creditor. When it allowed the withdrawal of the balance of the
account by the heirs of Velasco, it made the payment to the wrong party. The law
provides that payment made by the debtor to the wrong party does not extinguish its
obligation to the creditor who is without fault or negligence. Therefore, BPI was still
liable to the true creditor, 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.

I. SHORT TITLE: Far East Bank v. Gold Palace Jewellery Co.
II. FULL TITLE: FAR EAST BANK & TRUST COMPANY, petitioner, vs. GOLD
PALACE JEWELLERY CO., as represented by Judy L. Yang, Julie Yang- Go and Kho
Soon Huat, respondent.
III. PONENTE: Justice Nachura
IV. TOPIC: GBL
Samuel Tagoe, purchased from the respondent Gold Palace Jewellery Co.'s (Gold
Palace's) store at SM-North EDSA several pieces of jewelry valued at P258,000.00.3 In
payment of the same, he offered Foreign Draft No. M-069670 issued by the United Overseas
Bank (Malaysia) BHD Medan Pasar, Kuala Lumpur Branch (UOB), addressed to the Land
Bank of the Philippines, Manila (LBP), and payable to the respondent company for
P380,000.00.
Before receiving the draft, Judy Yang, the assistant general manager of Gold Palace,
inquired from petitioner Far east, the nature of the draft. The teller informed her that it was
the same as a manager’s check but advised her not to release the pieces of jewelry until the
draft had been cleared. Yang then issued cash invoice to the foreigner and asked him to come
back when the drafts have already been cleared. The draft was deposited in the company’s
account with Far East.
When the draft was presented to LBP for cleaing, the latter cleared the same, UOB’s
account with LBP was debited and Gold Palace's account with Far East was credited with the
amount stated in the draft. Samuel Tagoe returned to the store and the pieces of jewelry were
released together with the change in a Far East check which was presented for encashment
was in fact paid by the said bank.
Three weeks later, LBP informed Far East that the amount in the draft had been
materially altered from P300.00 to P380,000 and that it was returning the same. Intending to
debit the amount from respondent's account, Far East subsequently refunded the P380,000.00
earlier paid by LBP.
Gold Palace had already used portions of the amount. Thus as the outstanding balance of
its account was already inadequate, Far East was able to debit only P168,053.36,17 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. Far East demanded from Golden
Palace the amount missing and as the latter did not heed the demand, Far East sued Golden
Palace.

On August 12, 1998, petitioner demanded from respondents 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.20 Because Gold Palace did not
heed the demand, Far East consequently instituted Civil Case No. 99-296 for sum of
money and damages before the Regional Trial Court (RTC), Branch 64 of Makati City.
In their Answer, respondents specifically denied the material allegations in the

complaint. After trial on the merits, the RTC rendered its July 30, 2001 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, in the assailed March 15, 2005 Decision,26 reversed the ruling of
the trial court.
VII. ISSUE/S:
Whether or not Land Bank of the Philippines is liable for the subject amount.
VIII. RULING:
Yes. Act No. 2031, or the Negotiable Instruments Law (NIL), 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. Actual payment by the drawee is greater than his acceptance, which
is merely a promise in writing to pay. The payment of a check includes its acceptance.
Unmistakable herein is the fact that the drawee bank cleared and paid the subject
foreign draft and forwarded the amount thereof to the collecting bank. 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, LBP
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.
Banking institutions can readily protect themselves against liability on altered
instruments either by qualifying their acceptance or certification, or by relying on forgery
insurance and special paper which will make alterations obvious. What the Court cannot
understand is why LBP, having the most convenient means to correspond with UOB, did
not first verify the amount of the draft before it cleared and paid the same. Gold Palace,
on the other hand, had no facility to ascertain with the drawer, UOB Malaysia, the true
amount in the draft. It was left with no option but to rely on the representations of LBP
that the draft was good.
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, as already discussed, 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. 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.

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.

I. SHORT TITLE: Metropolitan Bank v. CA
II. FULL TITLE: Metropolitan Bank and Trust Company v. The Hon. Court of Appeals,
Rural Bank of Padre Gracia, INC. And Isabel R. Katigbak, G.R. No. 112576, October 26,
1994
III. PONENTE: Justice Romero
IV. TOPIC: GBL
Isabel Katigbak (Isabel), respondent, is the president and owner of 65% shares of the
Rural Bank of Padre Garcia, Inc. (RBPG), who maintains accounts with Metropolitan
Bank and Trust Company (MBTC), petitioner, in Makati as well as in Lipa, Batangas.
MBTC received a Central Bank credit memo that its demand deposit account was
credited with P304,000 for the account of RBPG. Under such credit memo, Isabel issued
several checks against its account with MBTC in the amount of P300,000. Two of which
is payable to Dr. Felipe Roque and Mrs. Eliza Roque for P25,000 each.
These checks were deposited by the Roques with Philippine Banking Corporation.
When these checks were forwarded with the MBTC, these were returned for being drawn
against insufficient funds and so these were again deposited two days after but then again
these were dishonored. This prompted Dr. Roque to go to RBPG and RBPG paid Dr.
Roque an amount of P50,000.
Isabel, who was on vacation in Hongkong with her family, received an overseas call
from Mrs. Maris Katigbak that Mr. Dungo, Asst. Cashier of MBTC, reiterating the issue
about the bounced check stating the following words: “nag-issue kayo ng tseke, wala
namang pondo.”
Mrs. San Juan was then given instruction by Isabel to check and verify the credit
memo of the Central Bank for P304,000 in favor of RBPG because she was sure that the
checks were covered by the credit memo. Later on, Mr. Dungo again called Mrs. San
Juan stating “Bakit kayo nag-iissue ng tseke na wala namang pondo, P300,000 na.” Mr.
Dungo further sarcastically stated that he was certain that no such credit memo existed.
Isabel went home and immediately called MBTC and was able to talk to Mr. Dungo
who arrogantly said “Bakit kayo magagalit, eh wala naman kayong pondo?” This made
Isabel’s blood pressure to rise in a dangerous level that she needed to be trated in Makati
Medical Center for two days.
MBTC not only dishonored the checks issued by RBPG but MBTC also issued four
debit memos representing service and penalty charges for the returned checks.

Isabel and RBPG file a civil case in the RTC of Batangas against MBTC for damages.
RTC ruled in favor of Isabel and RBPG. RTC ordered MBTC to pay Isabel temperate
damages, moral damages, attorney’s fees, and costs of suit.
MBTC appealed to the CA alleging that the trial courl erred in awarding temperate
damages, moral damages, attorney’s fees as well as costs of suit. Thereafter, CA rendered
a decision affirming the trial court’s decision except the award of temperate damages and
reduction of moral damages and attorney’s fees. Hence this petition.
VII. ISSUE/S:
1. Whether or not private respondents RBPG and Isabel Rodriguez are legally entitled to
moral damages and attorney’s fees, and
2. Whether or not the amounts awarded are excessive and unconscionable.
VIII. RULING:
1. YES. The presence of malice and the evidence of besmirched reputation or loss of
credit and business standing, as well as reappraisal of its probative value involves
factual matters which are no longer reviewable by SC. There is no merit on the
petitioner’s contention that it should not be held liable for damages on account of
inadvertence of its bank employee as Art.1173 of the Civil Code only requires it to
exercise the diligence of a good father of a family.
The act of MBTC in dishonoring respondent’s checks committed through negligence
by the petitioner was rectified nine days after the receipt of the credit memo. MBTC
therefore was remiss in its duty to treat respondents account with the highest degree of
care, considering their fiduciary relationship. The bank is under the obligation to treat
the accounts of its depositors with meticulous care. Responsibility arising from the
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, humiliation for which they are entitled to
recover moral damages.
2. No. The carelessness of MBTC aggravated by the lack of promptness in repairing the
error and arrogant attitude of Mr.Dungo 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 trial court and
appellate courts, the Court deems it just and equitable that attorney’s fees in the
amount of P50,000 be awarded.

WHEREFORE, the decision of respondent Court of Appeals is AFFIRMED in all
respects.

I. SHORT TITLE: BPI v. CA
II. FULL TITLE: Bank of the Philippine Islands vs. Court of Appeals and Benjamin C.
Napiza  
III. PONENTE: Ynares- Santiago, J.
IV. TOPIC: GBL
Private respondent Benjamin Napiza deposited in Foreign Currency Deposit Unit
(FCDU) Savings Account No. 028-187 which he maintained in BPI’s Buendia Avenue
Extension Branch, Continental Bank manager’s check payable to “cash” in $2,500 and
duly endorsed by Napiza. The check belonged to Henry Chan who requested Napiza to
deposit it in his dollar account by way of the accommodation and for the purpose of
clearing the same.
Napiza agreed to deliver 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.
With the use of the blank withdrawal slip, Ruben Gayon, Jr. was able to withdraw
$2,541.67 from the FCDU savings account. The withdrawal slip showed that the amount
was payable to Ramon A. de Guzman and Agnes C. de Guzman and duly initialed by the
branch assistant manager. Teresita Lindo.
BPI was notified by Wells Fargo Bank International of New York that the check
deposited was a counterfeit check. Ariel Reyes, the manager of the Buendia Avenue
Extension Branch instructed Benjamin Napiza IV, employee of BPI and son of private
respondent, to inform his father that the check bounced. Reyes also sent a telegram to
private respondent of the fact of the dishonor. Napiza IV wrote to Reyes that the check
had been “for encashment” to Ramon A. de Guzman and/or Agnes C. de Guzman after it
shall have been cleared upon instruction of Chan. He also said that upon learning of the
dishonor of the check, his father immediately tried to contact Chan but the latter was out
of town.
Napiza IV promised to return the $2,500 to BPI. Reyes reminded private respondent
of his son’s promise and if he should fail to return the amount within seven days’
appropriate action would be taken to protect the bank’s interest. A demand letter was also
sent to Napiza. Private respondent Napiza claimed that he deposited the check “for
clearing purposes” only to accommodate Chan.
BPI filed a complaint against Napiza, praying for the return of the $2,500 or its
prevailing peso equivalent plus legal interest from date of demand to date of full
payment, a sum equivalent to 20% of the total amount due as attorney’s fees, and
litigation and/or costs of suit.
Private respondent admitted that he 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 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. Napiza alleges that BPI was grossly negligent because it should have
disallowed the withdrawal since the passbook was not presented.
Napiza also filed a motion for admission of a third party complaint against Chan to
make him refund the amount withdrawn.

The trial court directed private respondent Napiza to actively participate in locating
Chan but after he failed to comply the trial court dismissed the third party complaint
without prejudice.
The trial court likewise dismissed the complaint, ruling that BPI could not be held
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.
CA affirmed the lower court’s decision. BPI committed “clear 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.
VII. ISSUE/S:
Whether or not BPI was grossly negligent in allowing the withdrawal.
VIII. RULING:
Yes. The 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.
Petitioner violated its own rules by allowing the withdrawal of an amount that is
definitely over and above the aggregate amount of private respondent’s dollar deposits
that had yet to be cleared. Petitioner’s personnel allowed the withdrawal of an amount
bigger than the original deposit of $750.00 and the value of the check deposited in the
amount of $2,500.00 although they had not yet received notice from the clearing bank in
the United States on whether or not the check was funded.
While it is true that private respondent’s having signed a blank withdrawal slip set in
motion the events that resulted in the withdrawal and encashment of the counterfeit
check, the negligence of petitioner’s personnel was the proximate cause of the loss that
petitioner sustained.
The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00
on petitioner’s part was its personnel’s 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.
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.

I. SHORT TITLE: Prudential Bank v. CA
II. FULL TITLE: PRUDENTIAL BANK, petitioner, vs. COURT OF APPEALS and
LETICIA TUPASI-VALENZUELA joined by husband Francisco
Valenzuela, respondents.
III. PONENTE: Justice Quisumbing
IV. TOPIC: GBL
Private respondent Leticia Tupasi-Valenzuela opened Savings Account and Current

Account in the Valenzuela Branch of petitioner Prudential Bank, with automatic transfer
of funds from the savings account to the current account.
Private respondent deposited in her savings account Check No. 666B the amount of
P35,271.60, drawn against the Philippine Commercial International Bank (PCIB). Taking
into account that deposit and a series of withdrawals, private respondent as of June 21,
1988 had a balance of P35,993.48 in her savings account and P776.93 in her current
account, or total deposits of P36,770.41, with petitioner.
Thereafter, private respondent issued Prudential Bank Check No. 983395 in the
amount of P11,500.00 post-dated June 20, 1988, in favor of one Belen Legaspi. It was
issued to Legaspi as payment for jewelry which private respondent had purchased.
Legaspi, who was in jewelry trade, endorsed the check to one Philip Lhuillier, a
businessman also in the jewelry business. When Lhuillier deposited the check in his
account with the PCIB, Pasay Branch, it was dishonored for being drawn against
insufficient funds. Lhuillier's secretary informed the secretary of Legaspi of the dishonor.
The latter told the former to redeposit the check. Legaspi's secretary tried to contact
private respondent but to no avail.
Upon her return from the province, private respondent was surprised to learn of the
dishonor of the check. She went to the Valenzuela Branch of Prudential Bank on July 4,
1988, to inquire why her check was dishonored. She approached one Albert Angeles
Reyes, the officer in charge of current account, and requested him for the ledger of her
current account. Private respondent discovered a debit of P300.00 penalty for the
dishonor of her Prudential Check No. 983395. She asked why her check was dishonored
when there were sufficient funds in her account as reflected in her passbook. Reyes told
her that there was no need to review the passbook because the bank ledger was the best
proof that she did not have sufficient funds. Then, he abruptly faced his typewriter and
started typing.
Later, it was found out that the check in the amount of P35,271.60 deposited by
private respondent on June 1, 1988, was credited in her savings account only on June 24,
1988, or after a period of 23 days. Thus the P11,500.00 check was redeposited by
Lhuillier on June 24, 1988, and properly cleared on June 27, 1988.
Because of this incident, the bank tried to mollify private respondent by explaining to
Legaspi and Lhuillier that the bank was at fault. Since this was not the first incident
private respondent had experienced with the bank, private respondent was unmoved by
the bank's apologies and she commenced the present suit for damages before the RTC of
Valenzuela.

After trial, the court rendered a decision on August 30, 1991, dismissing the
complaint of private respondent, as well as the counterclaim filed by the defendant, now
petitioner.
Undeterred, private respondent appealed to the Court of Appeals. On January 31,
1996, respondent appellate court rendered a decision in her favor, setting aside the trial
court's decision and ordering herein petitioner to pay private respondent the sum of
P100,000.00 by way of moral damages; P50,000.00 exemplary damages; P50,000.00 for
and as attorney's fees; and to pay the costs.
Firstly, petitioner questions the award of moral damages. It claims that private
respondent did not suffer any damage upon the dishonor of the check. Petitioner avers it
acted in good faith. It was an honest mistake on its part, according to petitioner, when
misposting of private respondent's deposit on June 1, 1988, happened. Further, petitioner
contends that private respondent may not "claim" damages because the petitioner's
manager and other employee had profusely apologized to private respondent for the error.
They offered to make restitution and apology to the payee of the check, Legaspi, as well
as the alleged endorsee, Lhuillier.
VII. ISSUE/S:
Whether the respondent court erred and gravely abused its discretion in awarding
moral and exemplary damages and attorney's fees to be paid by petitioner to private
respondent.
VIII. RULING:
NO. Even if malice or bad faith was not sufficiently proved in the instant case, the fact
remains that petitioner has committed a serious mistake. It dishonored the check issued by
the private respondent who turned out to have sufficient funds with petitioner. The bank's
negligence was the result of lack of due care and caution required of managers and
employees of a firm engaged in so sensitive and demanding business as banking.
Accordingly, the award of moral damages by the respondent Court of Appeals could not
be said to be in error nor in grave abuse of its discretion.

WHEREFORE, the assailed DECISION of the Court of Appeals is hereby
AFFIRMED, with MODIFICATION. The petitioner is ordered to pay P100,000.00 by
way of moral damages in favor of private respondent Leticia T. Valenzuela. It is further
ordered to pay her exemplary damages in the amount of P20,000.00 and P30,000.00,
attorney's fees.

I. SHORT TITLE: Far East Bank v. Pacilan, Jr.
II. FULL TITLE: FAR EAST BANK AND TRUST COMPANY, NOW BANK OF THE
PHILIPPINE ISLANDS, petitioner, vs. THEMISTOCLES PACILAN, JR., respondent.
III. PONENTE: Justice Callejo, SR.
IV. TOPIC: GBL
On May 23, 1980, respondent a current account with petitioner’s bank. The
respondent had since then issued several postdated checks to different payees drawn
against the said account. Sometime in March 1988, the respondent issued Check No.
2434886 in the amount of P680.00 and the same was presented for payment to petitioner
bank on April 4, 1988.
Subsequently, when the respondent verified with petitioner bank about the dishonor of
Check No. 2434866, he discovered that his current account was closed on the ground that
it was, improperly handled.
The respondent wrote a letter to the bank alleging that the closure was unjustified.
However, the bank did not reply. Hence, the respondent filed a case for damages against
the bank. The respondent, as complainant therein, alleged that the closure of his current
account by petitioner bank was unjustified because on the first banking hour of April 5,
1988, he already deposited an amount sufficient to fund his checks. Further, he alleged
that due to the unjustified closure, creditors filed a case against him in violation of BP 22
which ruined his credit standing in the business community as a prominent and respected
leader both in the civic and banking communities.
In their answer, petitioner bank and Villadelgado maintained that the respondents
current account was subject to petitioner banks 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.

The RTC ruled in favor of the respondent, the decision was anchored on Article 19 of
the Civil Code. Accordingly, that even granting arguendo that petitioner bank had the
right to close the respondent’s account, the manner which attended the closure constituted
an abuse of the said right.
The CAupheld the ruling of RTC and only decreased the amount of damages.
VII. ISSUE/S:
1. Whether or Not the Bank acted in bad faith when it closed the defendant’s account
2. Whether or Not the defendant is entitled to Moral and Exemplary damages
VIII. RULING:
1. NO. 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 on the ground of irregular and improper handling.
The suit was based on Article 19 of the Civil Code. 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. However, 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. In
the case, the respondent failed to established bad faith. The closure of account was
properly based on the improper and irregular handling, evidently, 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.
Lastly, the acceptance of the bank of deposit from the defendant despite the fact that
the account was previously closed does not constitute bad faith, but only simple
negligence.
2. NO. 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.
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.

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.
I. SHORT TITLE: Gonzales vs PCI Bank (2011)

II. FULL TITLE: EUSEBIO GONZALES, Petitioner - versus - PHILIPPINE
COMMERCIAL AND INTERNATIONAL BANK, EDNA OCAMPO, and ROBERTO
NOCEDA, Respondents.
III. PONENTE: VELASCO, JR., J.:
IV. TOPIC: GENERAL BANKING LAWS

Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for at least 15 years before he
filed the instant case. PCIB granted a credit line to Gonzales through the execution of a Credit-
On-Hand Loan Agreement.
Gonzales and his wife obtained a loan for PhP 500,000 and subsequently, obtained two
additional loans from PCIB in the amounts of PhP 1,000,000 and PhP 300,000,
respectively. These three loans amounting to PhP 1,800,000 were covered by three promissory
notes. To secure the loans, a real estate mortgage over a parcel of land (co-owned) was executed
by Gonzales and the spouses Panlilio. The promissory notes specified, the solidary liability of
Gonzales and the spouses Panlilio for the payment of the loans. However, it was the spouses
Panlilio who received the loan proceeds of PhP 1,800,000.
The spouses Panlilio defaulted in the payment of the periodic interest dues from their PCIB
account.
Subsequently, Gonzales issued a check in favor of Rene Unson for PhP 250,000 drawn
against the credit line. However, upon presentment for payment by Unson of said check, it was
dishonored by PCIB due to the termination of the credit line, by reason of the unpaid periodic
interest dues from the loans of Gonzales and the spouses Panlilio. PCIB likewise froze the FCD
account of Gonzales. Gonzales, through counsel, wrote PCIB insisting that the check he issued
had been fully funded, and demanded the return of the proceeds of his FCD as well as damages
for the unjust dishonor of the check. PCIB replied and stood its ground in freezing Gonzales
accounts due to the outstanding dues of the loans. Gonzales reiterated his demand, reminding
PCIB that it knew well that the actual borrowers were the spouses Panlilio and he never benefited
from the proceeds of the loans, which were serviced by the PCIB account of the spouses Panlilio.
Gonzales then filed the instant case for damages with the RTC, on account of the alleged
unjust dishonor of the check issued in favor of Unson.
The RTC rendered a Decision in favor of PCIB.
The RTC found Gonzales solidarily liable with the spouses Panlilio on the three promissory
notes. The trial court found no fault in the termination by PCIB of the COHLA with Gonzales
and in freezing the latter’s accounts to answer for the past due PhP 1,800,000 loan. The trial court
ruled that the dishonor of the check issued by Gonzales in favor of Unson was proper considering
that the credit line under the COHLA had already been terminated or revoked before the
presentment of the check.
The appellate court rendered its Decision dismissing Gonzales appeal and affirming in toto the
RTC Decision.
VII. ISSUE/S:
1. Whether or not PCIB is negligent in terminating the credit line of Gonzales.
VIII. RULING:
Yes.
Art. 19 of the New Civil Code clearly provides that 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. This is the basis of the principle of abuse of right which, in turn, is based
upon the maxim suum jus summa injuria (the abuse of right is the greatest possible wrong).
The court finds that the bank abused its legal duty. Since it did not apprised Gonzales of the
fact that his credit line was terminated because of the delinquency in the payment of the interest
of the Php 1,800,000 loan.
With banks, 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. Had Gonzales been properly notified of the delinquencies of the PhP 1,800,000 loan
and the process of terminating his credit line under the COHLA, he could have acted accordingly
and the dishonor of the check would have been avoided.
Moreover, the effectivity clause of the COHLA is crystal clear that termination of the COH
should be done only upon prior notice served on the CLIENT. This is the legal duty of PCIBto
inform Gonzales of the termination. However, as shown by evidence, PCIB failed to give prior
notice to Gonzales.
Therefore, the PCIB was negligent on its duty to notify Gonzales of the termination of his
credit line.
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 PhP 50,000 as nominal damages, PhP 50,000 as moral damages, PhP 10,000
as exemplary damages, and PhP 50,000 as attorney’s fees.
X. PREPARED BY: Villanueva, Mary Grace R.
I. SHORT TITLE: Comsavings Bank vs. Capistrano, 704 SCRA 72 2013
II. FULL TITLE: COMSAVINGS BANK (NOW GSIS FAMILY BANK), petitioner vs. SPOUSES
DANILO AND ESTRELLA CAPISTRANO, respondents.
III. PONENTE: BERSAMIN, J.:
Respondents were the owner of a lot located somewhere in Cavite. Desirous of building their
own house on the lot, they availed themselves of the Unified Home Lending Program (UHLP)
implemented by the National Home Mortgage Finance Corporation (NHMFC). They also engaged
the services of Carmencita Cruz-Bay, proprietor of GCB Builders, to construct their house thereon
for a total contract price of 265,000 pesos with the latter undertaking to complete the construction
within 75 days.
To finance the construction, they apply for a loan with the petitioner bank, an NHFMC-
accredited originator. Upon complying with the preliminary requirements of UHLP and signing
various documents such as "certificate of house completion and acceptance" as required by
Comsavings Bank, they availed of the amount of 303, 450 pesos payable within 25 years at 16% per
annum, subject to the following terms and conditions, namely: (a) the signing of mortgage
documents, (b) 100% completion of the construction of the housing unit, (c) original certificate of
occupancy permit and certification of completion, and (d) submission of house pictures signed by the
borrower at the back.
On August 10, 1992, the petitioner released the amount of 265,000 pesos to GCB Builders as
construction cost in four releases which shall be paid out of the loan granted to them by NHMFC.
However, GCB Builders defaulted in their obligation after more than 1 year has passed but
the construction was not yet finished.
Thereafter, the respondents received a letter from NHMFC advising that they should already
start paying their monthly amortization. The petitioner protested the demand for amortization
payments considering that they had not signed any certification of completion and acceptance, and
that even if there was such certification, it is forged.
Respondent sued GCB Builders, Comsavings Bank and NHMFC for breach of contract and
damages praying that they be order jointly and severally liable.
In their defense, GCB Builders claimed that the construction was already completed a long
time ago. Moreover, Comsavings Bank averred that respondent is already estopped from assailing
their signing of the certificate of house acceptance/completion considering that they had the option
not to sign it. While the NHMFC alleged that it administered the UHLP of the government by
granting financing to qualified home borrowers through loan originators (like the petitioner in this
case) and that respondent was given a housing loan. As security, they executed a "loan and mortgage
agreement" and promissory note.
The RTC rendered a decision in favor of the respondent, stating the following: (a) that
construction of the house remained not completed yet there was complete release of the proceeds of
the loan by NHMFC to petitioner, and (b) that GCB builders did not comply with the terms and
conditions of the construction contract.
The CA affirmed the decision of the CA. It ratiocinated that the first condition for the release
of the loan was not met because the certificate of house completion and acceptance was signed even
if the construction was not yet complete. Worse, the appellant submitted to NHMFC false documents
when it photographed the house as if it was already complete considering that it should warrant the
genuineness of all loan documents it submitted to NHMFC.
VII. ISSUE/S:
1. Whether or not Comsavings Bank is guilty of negligence in dealing with the Capistrano spouses.
VIII. RULING:
Yes.
Petitioner is solidarily liable not because of the breach of warranties under its purchase of
loan agreement with NHMFC but on the strength of article 20 (“Every person who, contrary to law,
willfully or negligently causes damage to another, shall indemnify the latter for the same”) and
article 1170 (“Those who in the performance of their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for damages”) of the
Civil Code.
Based on the provision, 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. Gross negligence connotes want of
care in the performance of one’s duties; it is a 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 willfully
and intentionally, with a conscious indifference to consequences insofar as other persons may be
affected. A banking institution served as an originator and, being the maker of the certificate of
acceptance/completion, should be 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 there was acceptance of delivery of the complete house; worse would be for the bank to
have pre-signed the certificate even before the completion of the house.
Comsavings Bank, a banking institution serving as an originator under the UHLP and being
the maker of the certificate of acceptance/completion, 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. Its act was irregular per se because it contravened the purpose of the certificate. On the other
hand, respondents were prejudiced, considering that the construction of the house was then still
incomplete and was ultimately defective. Compounding their plight was that NHMFC demanded
payment of their monthly amortizations despite the non-completion of the house. Had Comsavings
Bank been fair towards them as its clients, it should not have made them pre-sign the certificate until
it had confirmed that the construction of the house had been completed.
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) ₱25,000.00 as temperate damages; (2) ₱30,000.00 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.
SO ORDERED.

I. SHORT TITLE: Gonzales vs PCI Bank (2011)
II. FULL TITLE: CONSOLIDATED RURAL BANK (CAGAYAN VALLEY),
INC., petitioner, vs. THE HONORABLE COURT OF APPEALS and HEIRS OF
TEODORO DELA CRUZ, respondents.
III. PONENTE: TINGA, J.:
Rizal, Anselmo, Gregorio, Filomeno and Domingo, all surnamed Madrid (Madrid brothers),
were the registered owners of a lot situated is San Mateo, Isabela. The said lot was subdivided
into several lots under a subdivision plan. One of the resulting subdivision lots was Lot No.
7036-A-7. Sometime in 1957, Rizal Madrid sold part of his share identified as Lot No. 7036-A-7,
to Aleja Gamiao (Gamiao) and Felisa Dayag (Dayag), by virtue of a Deed of Sale, to which his
brothers Anselmo, Gregorio, Filomeno and Domingo offered no objection. Subsequently,
Gamiao and Dayag declared the said lot for taxation purposes in their names on March 1964.
Later, Gamiao and Dayag sold the southern half of Lot No. 7036-A-7 (denominated as Lot
No. 7036-A-7-B) to Teodoro dela Cruz, and the northern half, identified as Lot No. 7036-A-7-
A, to Restituto Hernandez. Thereupon, Teodoro dela Cruz and Restituto Hernandez took
possession of and cultivated the portions of the property respectively sold to them. Later,
Restituto donated the northern half to his daughter; the children of Teodoro dela Cruz continued
possession of the southern half after their father’s death.
In a Deed of Sale, the Madrid brothers conveyed all their rights and interests over Lot No.
7036-A-7 to Pacifico Marquez (Marquez). The deed of sale was registered with the Office of the
Register of Deeds of Isabela on 2 March 1982. Subsequently, Marquez subdivided Lot No. 7036-
A-7 into eight (8) lots. On the same date, Marquez and his spouse, Mercedita Mariana,
mortgaged 4 Lots to the Consolidated Rural Bank, Inc. of Cagayan Valley (CRB) to secure a loan
of ₱100,000.00. Another lot was likewise mortgaged to the Rural Bank of Cauayan (RBC) to
secure a loan of Ten Thousand Pesos (₱10,000.00); and another one sold to Romeo Calixto
(Calixto).
As Marquez defaulted in the payment of his loan, CRB caused the foreclosure of the
mortgages in its favor and the lots were sold to it as the highest bidder. The Heirs (now
respondents) filed a case for reconveyance and damages the southern portion of Lot No. 7036-A
(subject property) against Marquez, Calixto, RBC and CRB, claiming as null and void the
issuance of the 8 TCTs in Marquez’s favor, the foreclosure sale of the 4 Lots, the mortgage to
RBC; and the sale to Calixto.
Marquez, in his answer, alleged that apart from being the first registrant, he was a buyer in
good faith and for value. He also argued that the sale executed by Rizal Madrid to Gamiao and
Dayag was not binding upon him, it being unregistered. For his part, Calixto manifested that he
had no interest in the subject property as he ceased to be the owner thereof, the same having been
reacquired by defendant Marquez. CRB and co-defendant RBC insisted that they were
mortgagees in good faith and that they had the right to rely on the titles of Marquez which were
free from any lien or encumbrance.
The Regional Trial Court (RTC) rendered a decision in favor of defendants, dismissing the
complaint and declaring Pacifico Marquez as the lawful owner of the Lots; declaring the
mortgage of Lots in favor of the defendant Consolidated Rural Bank (CRB) and Rural Bank of
Cauayan (RBC) by Pacifico V. Marquez valid; declaring the Heirs of Teodoro dela Cruz the
lawful owners of the lots covered by TCTs. It explained that since the case at bar is one which
involved two sales over the same property, the provisions of Art. 1544 of the Civil Code shall
apply. Under the same provision, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property (first registrant in good faith), if it involves
an immovable property. Applying it in this case, Marquez should be declared as the lawful owner
of the lot, being the one who first registered the sale.
The Court of Appeals however, reversed the decision of the trial court holding that Marquez
failed to prove that he was a purchaser in good faith and for value, Marquez having admitted that
he had knowledge that the subject property was "being taken" by the Heirs at the time of the sale,
and that said heirs were in possession of the land at the time. The CA also found mortgagees
RBC and CRB to have acted in bad faith since they did not ascertain the status and condition
thereof according to standard banking practice. Thus, the CA declared null and void the
mortgages made by Marquez in their favor. On reconsideration, the judgment was modified
which declared the Heirs of Teodoro dela Cruz the lawful owners of the southern half portion of
Lot; declared null and void the deed of sale between Pacifico V. Marquez and the Madrid
brothers (with respect to the southern half portion); declared the mortgage made by defendant
Pacifico V. Marquez in favor of defendant Consolidated Rural Bank (Cagayan Valley) and
defendant Rural Bank of Cauayan as null and void; and ordered Marquez to reconvey the
southern portion of the Lot to the Heirs of Teodoro dela Cruz.
Hence this petition to the Supreme Court, wherein petitioner CRB alleges that the heirs
cannot claim ownership over the subject property considering that there was no finding that they
acted in good faith in taking possession thereof nor was there proof that the first buyers, Gamiao
and Dayag, ever took possession of the subject property.
VII. ISSUE/S:
1. Whether or not Article 1544 of the Civil Code is applicable in this case?
VIII. RULING:
No.
While both the trial court and the Court of Appeals applied Art. 1544 of the Civil Code (Rule
on Double Sale), both courts awarded the subject property to different persons- to the defendants
(in the trial court), and to the Heirs (in the Court of Appeals).
However, the Court ruled that Article 1544 of the Civil Code is not applicable in this case.
The said provision contemplates a case of double or multiple sales by a single vendor (that is, a
situation where a single vendor sold one and the same immovable property to two or more
buyers). To be applicable, it is necessary that the conveyance must have been made by a party
who has an existing right in the thing and the power to dispose of it. It cannot be invoked where
the two different contracts of sale are made by two different persons, one of them not being the
owner of the property sold. And even if the sale was made by the same person, if the second sale
was made when such person was no longer the owner of the property, because it had been
acquired by the first purchaser in full dominion, the second purchaser cannot acquire any right. It
is necessary that the conveyor had the right and the will to convey the thing. The intention to
transfer is not sufficient as it only constitutes the will. It is, furthermore, necessary that the
conveyor could juridically perform that act; that he had the right to do so, since a right which he
did not possess could not be vested by him in the transferee.
In this case, the subject property was not transferred to several purchasers by a single vendor.
In the first deed of sale, the vendors were Gamiao and Dayag whose right to the subject property
originated from their acquisition thereof from Rizal Madrid with the conformity of all the other
Madrid brothers. On the other hand, the vendors in the other or later deed were the Madrid
brothers but at that time they were no longer the owners since they had long before disposed of
the property in favor of Gamiao and Dayag.
In awarding the subject property in favor of the heirs of Teodoro, it explained that in a
situation where not all the requisites are present which would warrant the application of Art.
1544, the principle of prior tempore, potior jure ("he who is first in time is preferred in
right,") should apply. And, accordingly, the only one who can invoke this is the first vendee since
he is considered a purchaser in good faith because at the time he bought the real property, there
was still no sale to a second vendee. In the instant case, the sale to the Heirs by Gamiao and
Dayag, who first bought it from Rizal Madrid, preceded the sale by the Madrid brothers to
Marquez; the Heirs also had possessed the subject property first in time. Thus, applying the
aforementioned principle, the Heirs have a superior right to the subject property. Since the
Madrid brothers were no longer the owners of the subject property at the time of sale to Marquez,
the latter could not have acquired a right thereto.
Moreover, even if Art. 1544 is made applicable in this case, the same cannot the claim of
Marquez still cannot prevail over the right of the Heirs since according to the evidence he was
not a purchaser and registrant in good faith.
Prior registration of the subject property does not by itself confer ownership or a better right
over the property. Article 1544 requires that before the second buyer can obtain priority over the
first, he must show that he acted in good faith (i.e., in ignorance of the first sale and of the first
buyer’s rights) from the time of acquisition until the title is transferred to him by registration or
failing registration, by delivery of possession. In this case, however, as found by the Court of
Appeals, Marquez knew at the time of the sale that the subject property was being claimed or
"taken" by the Heirs. Also, Marquez admitted that he did not take possession of the property and
at the time he testified he did not even know who was in possession.
The Court stressed that one who purchases real property which is in actual possession of
others should, at least, make some inquiry concerning the rights of those in possession. The
actual possession by people other than the vendor should, at least, put the purchaser upon inquiry.
Absent such inquiry, he cannot be regarded as a bona fide purchaser, and the rule of caveat
emptor requires the purchaser to be aware of the supposed title of the vendor and one who buys
without checking the vendor’s title takes all the risks and losses consequent to such failure.
It was noted that the Court found circumstances that would which would reasonably require a
purchaser of real property to investigate to determine whether defects existed in his vendor’s
title. Instead, Marquez willfully closed his eyes to the possibility of the existence of these flaws.
For failure to exercise the measure of precaution which may be required of a prudent man in a
like situation, he cannot be called a purchaser in good faith.
The rule that a person dealing on a registered land, in the presence of circumstances which
would put a party on guard and prompt him to investigate or inspect the property being sold to
him, is expected to inquire first into the status or nature of possession of the occupants, also
applies to mortgagees of real property. Banks, for example, since their business is impressed with
public interest, are expected to exercise more care and prudence than private individuals in their
dealings, even those involving registered lands. They cannot simply rely on the certificates of
title presented to them and their failure to ascertain the status of the mortgaged properties would
put them in bad faith. Thus, in this case, CRB and RBC merely relied on the certificates of title of
the mortgaged properties. They did not ascertain the status and condition thereof according to
standard banking practice. For failure to observe the ordinary banking procedure, they cannot be
considered as purchasers in good faith.
WHEREFORE, the motion for reconsideration is hereby GRANTED. This Court's

Resolution dated July 12, 1999 is MODIFIED insofar as respondents are found to have lost their
right to redeem the subject foreclosed property.

I. SHORT TITLE: Ursal vs. CA
II. FULL TITLE: WINIFREDA URSAL, petitioner, VS. THE COURT OF APPEALS, THE
RURAL BANK OF LARENA (SIQUIJOR), INC., AND SPOUSES JESUS MONESET AND
CRISTITA MONESET, respondent.
III. PONENTE: AUSTRIA-MARTINEZ, J.:
Spouses Jesus and Cristita Moneset (Monesets) are the registered owners of a 333-square
meter land together with a house at Sitio Laguna, Basak, Cebu. On January 9, 1985, they executed a
Contract to Sell Lot & House in favor of petitioner Winifreda Ursal (Ursal). Ursal paid the down
payment and took possession of the propertyand all amounted to P50,000.00. 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; and because of the failure of the
Monesets to turn over said title, petitioner failed to have the contract of sale annotated thereon.
On November 5, 1985 without the knowledge of Ursal, the Monesets executed an absolute
deed of sale in favor of Dr. Rafael Canora, Jr. over the said property for P14,000.00. Additionally, on
September 15, 1986, the Monesets executed another sale, this time with a pacto de retro with
Restituto Bundalo and executed a real estate mortgage over said property with Rural Bank of Larena
(Bank) located in Siquijor for the amount of P100,000.00. Since the Monesets failed to pay the loan,
the Bank served a notice of extrajudicial foreclosure dated January 27, 1988
On September 30, 1989, Ursal filed an action for declaration of non-effectivity of mortgage
and damages against the Monesets, Bundalo and the Bank claiming that, the defendants committed
fraud and/or bad faith in mortgaging the property she earlier bought from the Monesets with a bank
located in another island, Siquijor and the Bank acted in bad faith since it granted the real estate
mortgage in spite of its knowledge that the property was in the possession of petitioner.
The Monesets countered the same by claiming that it was Ursal who stopped paying the
agreed monthly installments in breach of their agreement. On the other hand the Bank, averred that
the title of the property was in the name of Cristita Radaza Moneset married to Jesus Moneset and
did not show any legal infirmity.
Trial on the merits proceeded. The Regional Trial Court (RTC) decided the case in favor of
Ursal, and that the Monesets are liable for damages for fraud and breach of the contract to sell. With
respect to the Bank, the RTC held that the real estate mortgage 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.
Both parties appealed the decision to the Court of Appeals (CA). Ursal alleged that the Bank
was guilty of bad faith for not investigating the presence of Ursal on the property in question. On the
other hand, the Monesets claimed that the RTC erred in giving preferential right to Ursal to redeem
the property and in ordering them to pay damages. The CA affirmed in toto the decision of the RTC.
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.
Both parties filed a motion of reconsideration but were denied due to the Monesets filing out
of time and of Ursal due to lack of merit, Hence the instant petition.
VII. ISSUE/S:
1. Whether or not the Bank must be held liable for its failure to look beyond the transfer certificate of
title.
VIII. RULING:
YES.
The bank must be held liable. 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. Citing Cruz vs. Bancom, respondent Bank is not an ordinary mortgagee; it is a mortgagee-
bank. As such, unlike private individuals, it 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.
Notwithstanding the proclamation on the liability of the bank, the prayers, to declare the deed
of Real Estate Mortgage non-effective and non-enforceable, to be declared as the absolute owner of
the house, that the Monesets be ordered to execute a deed of absolute sale covering the subject
property and that the Bank be ordered to direct the collection or payment of the loan of P100,000.00
plus interest from the Monesets for they were the ones who received and enjoyed the said loan
cannot be granted.
The reason is that, 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.
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. NO COSTS. SO
ORDERED.
I.SHORT TITLE: PNB vs. Corpuz (2005)
II. FULL TITLE: PHILIPPINE NATIONAL BANK, AS THE ATTORNEY-IN-FACT OF
OPAL PORTFOLIO INVESTMENTS (SPV-AMC), INC., petitioner, vs. MERCEDES CORPUZ,
REPRESENTED BY HER ATTORNEY-IN-FACT VALENTINA CORPUZ, respondent.
III. PONENTE: ABAD, J.:
On October 4, 1974 Mercedes Corpuz delivered her owner’s duplicate copy of Transfer
Certificate of Title to Dagupan City Rural Bank as security against any liability she might incur as its
cashier. She later left her job and went to the United States. On 1994, the rural bank cancelled its
lien on Corpuz’ title since she did not incur any liability to her employer. Without Corpuz’
knowledge and consent, Alano, the rural bank’s manager, turned over Corpuz’ title to Julita
Camacho and Amparo Callejo.
Alano, Camacho, and Callejo prepared a falsified deed of sale and caused the registration of
the deed of sale resulting in the cancellation of Corpuz’ title. The titles were later transferred to
spouses Songcuans who subsequently took out a loan of P1.1m from PNB. Before granting the loan,
the PNB had the title verified and the property inspected.
On November 20, 1995, Corpuz filed a complaint for the annulment of the layers of deeds of
sale covering the land, the cancellation of Transfer Certificate of Titles.
On June 29, 1998 the RTC rendered a decision granting respondent Corpuz’ prayers. This
prompted petitioner PNB to appeal to the CA. On July 31, 2007, the CA affirmed the decision of the
RTC and denied the motion for its reconsideration, prompting PNB to take recourse to this Court.
VII. ISSUE/S:
1. Whether or not petitioner PNB is a mortgagee in good faith, entitling it to its lien on the title to the
property in dispute.
VIII. RULING:
No.
This is because PNB is not an ordinary mortgagee but is a bank, wherein greater diligence is
expected, hence it should be more cautious than ordinary individuals in dealing with lands, 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
genuiness of the title to determine the real owner or owners. PNB should have discovered that the
property was sold for ridiculously low prices. 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.
IX.COMPLETE DISPOSITIVE PORTION:
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-GR CV 60616.

I.SHORT TITLE: DBP vs. CA
II. FULL TITLE: DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF
APPEALS and CARLOS, CAJES, respondents.
III. PONENTE: MENDOZA, J.:
The land in dispute, consists of 19.4 hectares located in San Miguel, Province of Bohol,
whom was originally owned by Ulpiano Mumar. In 1950, Mumar sold the land to Carlos Cajes,
private respondent who 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
OCT No. 546 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 spouses Gaudencio and Rosario Beduya to whom TCT
No. 10101 was issued. That same year, the spouses Beduya obtained a loan from petitioner
Development Bank of the Philippines (DBP) and, as security, mortgaged the land covered by TCT
No. 10101 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 DBP to secure a loan.
The spouses Beduya later failed to pay their loans, as a result of which, the mortgage on the
property was foreclosed. In the resulting foreclosure sale, DBP was the highest bidder. As the
spouses Beduya failed to redeem the property, DBP consolidated its ownership.
However, it appears that Carlos Cajes had also applied for a loan from petitioner in 1978,
offering the same 19.4 hectare property as security for the loan.
Cajes’ loan application was later approved by DBP. However after releasing the amount of
the loan to Carlos Cajes, DBP found that the land mortgaged by Carlos Cajes was included in the
land covered by TCT No. 10101 in the name of the spouses Beduya. DBP, therefore, cancelled the
loan and demanded immediate payment of the amount. Carlos Cajes paid the loan to petitioner for
which the former was issued a Cancellation of Mortgage, dated March 18, 1981, releasing the
property in question from encumbrance.
Sometime in April of 1986, more than a year after the foreclosure sale, a re-appraisal of the
property covered by TCT No. 10101 was conducted by DBP's representatives. It was then discovered
that Carlos Cajes was occupying a portion of said land. Carlos Cajes was informed that petitioner
had become the owner of the land he was occupying, and he was asked to vacate the property. As
Carlos Cajes refused to do so, DBP filed a complaint for recovery of possession with damages
against him.
This is a petition for certiorari seeking to reverse the decision and resolution of the Court of
Appeals dated August 30, 1996 and April 23, 1997, respectively, declaring private respondent Carlos
Cajes the owner of 19.4 hectares of land embraced in TCT No. 10101 and ordering the segregation
and reconveyance of said portion to him.
VII. ISSUE/S:
1. Whether or not Development Bank of the Philippines may be considered as an innocent mortgagee
for value of the land in question having purchased the same during a public auction sale.
VIII. RULING:
No.
Development Bank of the Philippines is not an innocent mortgagee for value of the land.
The evidence indicates that petitioner 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.
In this case, petitioner's representative, Patton R. Olano, 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.
Thus, a person who deliberately ignores a significant fact which would create suspicion in an
otherwise reasonable man is not an innocent purchaser for value.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED in toto. SO ORDERED.

I. SHORT TITLE: SPS. CANLAS vs CA
II. FULL TITLE: OSMUNDO S. CANLAS and ANGELINA CANLAS VS COURT OF APPEALS,
ASIAN SAVINGS BANK, MAXIMO C. CONTRERAS and VICENTE MAOSCA - G.R. No.
112160 - February 28, 2000
III. PONENTE: MI-SO, J.:
In 1982 Osmundo Canlas, and Viscente Maosca went into business where the former
bestowed the power of attorney to the latter to mortgage two of his properties located in Paranaque.
After sometime Canlas sold the same to Maosca who in turn issued two post-dated checks that was
later found out to have insufficient funds.
In September of the same year Maosca with the help of two impostors posing as the Spouses
Canlas to one Atty. Manuel Magno. Later in the same month, again with the imposters mortgaged
the same to Asian Savings Bank which was also granted.
When the loan matured the bank extrajudicially foreclosed the said properties. The real
Osmundo Canlas wrote the bank to cancel the same but was denied. In 1983 the spouses sued to
cancel the same.
TRIAL COURT: The lower court issued a restraining order, and for failure to file an answer
Maosca was declared in default and the foreclosure was annulled.
COURT OF APPEALS: Unsatisfied with the decision, the asian bank contested to the
appellate court stating that under Art. 1173 of the Civil Code; If the law or contract does not state the
diligence which is to be observed in the performance, that which is expected of a good father of a
family shall be required. The lower court’s decision was affirmed.
VII. ISSUE/S:
1. Whether or not the bank required to provide only the diligence of a good father of a family when
its agreement does not stipulate the level of diligence required?
VIII. 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.
In the case at bar it can be gleamed that the bank did not observe the requisite diligence in
ascertaining or verifying the real identity of the couple who introduced themselves as the spouses
Canlas. It granted the loan without being presented a single identification card, and based its
confirmation merely on the presented residence certificates which tended to match the signatures on
the property titles.
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.

General Banking Laws

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I.

SHORT TITLE: SANDEJAS VS SPS IGNACIO

II. FULL CASE TITLE

III. PONENTE: AUSTRIA-MARTINEZ, J.:

IV. TOPIC: diligence of a bank; moral and exemplary damages

VI. STATEMENT OF THE CASE

IX. COMPLETE DISPOSITIVE PORTION

X. PREPARED BY: Balilo, Victoria Marie S.

I. SHORT TITLE: SBTC VS RCBC

II. FULL CASE TITLE

G.R. No. 170984 January 30, 2009

G.R. No. 170987 January 30, 2009

III. PONENTE: QUISUMBING, Acting C.J.:

VI. STATEMENT OF THE CASE

1. Is SBTC liable to RCBC for the remaining ₱4 million?

IX. COMPLETE DISPOSITIVE PORTION

X. PREPARED BY: Balilo, Victoria Marie S.

I. SHORT TITLE: PNB VS VELASCO

II. FULL CASE TITLE

PHILIPPINE NATIONAL BANK, Petitioner, VERSUS RAMON BRIGIDO L. VELASCO,

III. PONENTE: CHICO-NAZARIO, J

IV. TOPIC: GBL

PNB formally charged Velasco alleging that:

VI. STATEMENT OF THE CASE

1. Yes, Velasco committed serious misconduct, hence, his dismissal is justified.

2. PNB has no other liability to Velasco, except his unpaid wages.

IX. COMPLETE DISPOSITIVE PORTION

I. SHORT TITLE: Banco de Oro-EPCI, Inc. v. JAPRL Dev. Corp.

II. FULL CASE TITLE:

III. PONENTE: Corona, J

IV. TOPIC: General Banking Laws

VI. STATEMENT OF THE CASE

RTC SEC Case No. 68-2008-C

Respondents moved for reconsideration but it was denied.

CA granted the petition sustaining the position of respondents.

IX. COMPLETE DISPOSITIVE PORTION

X. Prepared by: Ramirez, Edrea Jean V.

I. SHORT TITLE: Bank of America NT & SA v. Philippine Racing Club

III. PONENTE: Justice Leonardo-De Castro

IV. TOPIC: GBL

Despite irregular entries on face of the checks, BA without verifying legitimacy of

VI. STATEMENT OF CASE:

IX. COMPLETE DISPOSITIVE PORTION:

X. PREPARED BY: Sadsad, Ivan Benedik T.

I. SHORT TITLE: CITIBANK V. DINOPOL (2010)

VI. STATEMENT OF THE CASE:

IX. DISPOSITIVE PORTION:

X. Prepared by: Isiderio, Joan.

I. SHORT TITLE: GSIS v. Santiago

II. FULL CASE TITLE:

III. PONENTE: Callejo, Sr., J.

IV. TOPIC: General Banking Laws

An Affidavit of Consolidation of Ownership executed by defendant GSIS over Zulueta’s lots,

VI. STATEMENT OF THE CASE

IX. COMPLETE DISPOSITIVE PORTION

X. PREPARED BY: Ramirez, Edrea Jean V.

I. SHORT TITLE: BPI vs Casa Montessori International

II. FULL CASE TITLE

BANK OF THE PHILIPPINE ISLANDS, petitioner,

CASA MONTESSORI INTERNATIONALE, petitioner, vs.

III. PONENTE: PANGANIBAN, J.:

IV. TOPIC: General Banking Laws

VI. STATEMENT OF THE CASE

RTC: in favor of CASA