UNITED COCONUT PLANTERS BANK vs. TEOFIL RAMOS GR NO. 147800. November 11, 2003 CALLEJO, SR.

, J: FACTS: United Coconut Planters Bank (UCPB) granted a loan amounting to Zamboanga Development Corporation (ZDC) with Venicio Ramos, and the Spouses Teofilo Sr. and Amelita Ramos as sureties. Teofilo Ramos, Sr. was the Executive Officer of the Iglesia ni Cristo. UPCB granted an additional loan to ZDC with the same sureties. However, ZDC failed to pay its account to the petitioner despite demands. Thus, a complaint was filed against ZDC and the said sureties. Judgment was rendered in favor of the petitioner. A Writ of execution to enforce such decision was issued and Deputy Sheriff Pioquinto P. Villapana was ordered to levy and attach all the real and personal properties of the defendants to satisfy the judgment. Eduardo C. Reniva the head of the Litigation and Enforcement Division was requested to investigate on the properties of the defendants. Reniva went to one of the properties covered by TCT No. 275167 (PR-13108) and inspected it. Per information gathered from the neighborhood, Reniva confirmed that the owners of such property were Spouses Teofilo and Rebecca Ramos. The Sheriff prepared a notice of levy. On the other hand, Ramdustrial Corporation applied for a loan with UPCB using the property covered by the same TCT as collateral. Upon verification of the said property, it was found that the same property was subjected to a notice of levy on a civil case. The respondent was shocked and he alleged that he was not a party in the said case and he was also not aware that his property had been levied by the sheriff. An affidavit of denial was executed by the respondent stating that he is not one of the judgment debtors in the previous case and that Teofilo Ramos, Sr., one of the judgment debtors, were not one and the same person. The responded also wrote to the Sheriff alleging that the notice of levy on the property was unlawful considering that the respondent was not Teofilo Ramos, Sr. and cause the cancellation of the said annotation five days from notice thereof, otherwise, the respondent would take the appropriate civil, criminal or administrative action against him. The respondent was informed by the UCPB that Ramdustrial Corporations credit line application had been approved. Subsequently, the respondent executed a promissory note for the said amount payable to UCPB. The business did not go well, Ramdustrial Corporation found it difficult to pay the loan. The company again applied for another loan with UCPB which was however denied. The corporation then applied for a loan with the Planters Development Bank (PDB), the proceeds of which would be utilized to pay its account to the UCPB. The respondent offered his property covered by TCT No. 275167 as collateral with the loan obtained from PDB. It was then discovered that the notice of levy had not yet been cancelled so PDB withheld the release of the loan pending the cancellation of the notice of levy. An order was issued ordering the Register of Deeds to cancel the levy. ISSUE: Whether or not the petitioner acted negligently in causing the annotation of levy on the title of the respondent HELD: The CA ruled that the petitioner was negligent in causing the annotation of notice of levy on the title of the petitioner for its failure to determine with certainty whether the defendant Teofilo Ramos, Sr. in Civil Case No. 16453 was the registered owner of the property covered by TCT No. 275167. It was held that the petitioner acted negligently when it caused the annotation of the notice of levy in TCT No. 275167. It bears stressing that the petitioner is a banking corporation, a financial institution with power to issue its promissory notes intended to circulate as money (known as bank notes); or to receive the money of others on general deposit, to form a joint fund that shall be used by the institution for its own benefit, for one or more of the purposes of making temporary loans and discounts, of dealing in notes, foreign and domestic bills of exchange, coin bullion, credits, and the remission of money; or with both these powers, and with the privileges, in addition to these basic powers, of receiving special deposits, and making collection for the holders of negotiable paper, if the institution sees fit to engage in such business. In funding these businesses, the bank invests the money that it holds in trust of its depositors. For this reason, we have held that the business of a bank is one affected with public interest, for which reason the bank should guard against loss due to negligence or bad faith.In approving the loan of an applicant, the

bank concerns itself with proper informations regarding its debtors. The petitioner, as a bank and a financial institution engaged in the grant of loans, is expected to ascertain and verify the identities of the persons it transacts business with In determining whether or not the petitioner acted negligently, the c onstant test is: Did the defendant in doing the negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. It should have acted more cautiously, especially since some uncertainty had been reported by the appraiser whom the petitioner had tasked to make verifications.

BPI Family Savings Bank vs First Metro Investment Corporation G.R. No. 132390, May 21, 2004 Justice Sandoval-Gutierrez, J. FACTS: Antonio Ong, acting as Executive Vice President of FMIC, opened a current account with BPI Family Bank and deposited P100M METROBANK check. Jaime Sebastian, the branch manager of petitioner bank guaranteed the payment of P14,667,687.01 representing 17% per annum interest of P100M deposited by the respondent. FMIC assured petitioner-bank that the deposit will be maintained for one year on the condition that the interest stipulated is paid in advance. Subsequently, a signed Authority to Debit authorized BPI FB to transfer P80M from FMICs current account to the savings account of Tevesteco Arrastre- Stevedoring, Inc. (Tevesteco). FMIC denied such authority alleging that the signatures of Ma Theresa David and Ong were falsified in the said signed Authority to Debit. To recover the deposit, FMIC issued a check for P86, 057, 646.72 payable itself and drawn on its deposit with BPI FB SFDM branch. Upon presentation, the same was dishonored for it was allegedly drawn against insufficient funds. Consequently, FMIC filed with the Regional Trial Court, Branch 146, Makati City Civil Case No. 89-5280 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. On appeal by both parties, the CA rendered a decision affirming the assailed decision and modifies the decision of the trial court, rendering the petitioners of the case at bar liable to damages. ISSUE: Whether or not the branch manager of the petitioner bank has the authority to represent the petitioner bank in its transactions even if deemed to be fraudulent, whether or not the banking authority may be rendered liable in case of fraudulent transactions entered into by their employees and managers HELD: We have held that if a corporation knowingly permits its officer, or any other agent, to perform acts within the scope of an apparent authority, holding him out to the public as possessing power to do those acts, the corporation will, as against any person who has dealt in good faith with the corporation through such agent, be estopped from denying such authority. "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.

Moran vs Court of Appeals G.R. No. 105836, March 7, 1994 Ponente: Justice Regalado, J. FACTS: Petitioner spouses George and Librada Moran are the owners of the Wack-Wack Petron gasoline station. Payments of their purchases from Petrophil Corporation are made in checks which are handed upon delivery. They maintained three joint accounts: one current account (No. 37-00066-7) and two savings accounts, (Nos. 1037002387 and 1037001372). Spouses Moran gave authorized CityTrust to automatically transfer funds from their Savings Account No. 1037001372 to their current account at any time whenever the funds from the latter were insufficient to meet withdrawals from the same as part of their pre-authorized transfer (PAT) agreement. The petitioners drew two checks in favor of Petrophil. The latter deposited the two checks to its account with PNB. PNB in turn presented them for clearing and it was discovered that both accounts had insufficient balances. Petitioners filed a complaint for damages with the Regional Trial Court because as a result of the issuing of checks with insufficient funds, Petrophil refused to deliver their orders on a credit basis and that the non-delivery of gasoline forced petitioners to temporarily stop business operations. Citytrust filed a counterclaim for damages, alleging that the case filed against it was unfounded and unjust. After trial, a decision was rendered by the trial court dismissing both the complaint and the counterclaim. ISSUE: Whether or not the bank can be held accountable for the petitioners issuance of checks with insufficient funds HELD: The relationship between the bank and the depositor is that of a debtor and creditor. By virtue of the contract of deposit between the banker and its depositor, the banker agrees to pay checks drawn by the depositor provided that said depositor has money in the hands of the bank. A bank is not liable for its refusal to pay a check on account of insufficient funds. Petitioner had no reason to complain, for they alone were at fault. A drawer must remember his responsibilities every time he issues a check. He must personally keep track of his available balance in the bank and not rely on the bank to notify him of the necessity to fund certain check she previously issued. The bank cannot, therefore, be held liable to the payee and holder of the check for not protesting it upon the day when it was received. In fact, the court added that the bank did more that it was required to do by making an effort to induce the drawer to deposit sufficient money to make the check good, and by notifying its correspondent of the dishonor of the check by telegram. A bank is under no obligation to make part payment on a check, up to only the amount of the drawer's funds, where the check is drawn for an amount larger than what the drawer has on deposit.

BANK OF COMMERCE vs. SPS. PRUDENCIO SAN PABLO, JR. and NATIVIDAD O. SAN PABLO GR NO. 167848. April 27, 2007 Chico-Nazario, J. FACTS: Santos obtained a loan from Direct Funders Management and Consultancy Inc. (Direct Funders) in the amount of P1,064,000.40. As a security for the loan obligation, Natividad executed a SPA in favor of Santos, authorizing the latter to mortgage to Direct Funders a paraphernal real property registered under her name and covered by Transfer Certificate of Title (TCT) No. (26469)-7561. In the Deed of Real Estate Mortgage executed in favor of Direct Funders, Natividad and her husband, Prudencio, signed as the co-mortgagors of Santos. It was however agreed that the loan obligation was for the sole benefit of Santos and the spouses San Pablo merely signed the deed in order to accommodate the former. The spouses of San Pablo received a letter from Direct Funders informing them that Santos failed to pay his loan obligation. After being confronted, Santos promised to promptly settle his obligation with Direct Funders, which he actually did. Upon learning that the debt had been fully settled, the spouses San Pablo then demanded from Santos to turn over to them the TCT of the property but the latter failed to do so despite of repeated demands. Such refusal prompted the spouses San Pablo to inquire as to the status of the TCT with the Register of Deeds and to their surprise, they discovered that the property was again used by Santos as collateral for another loan obligation he secured from the Bank of Commerce. As shown in the annotation stamped at the back of the title, the spouses San Pablo purportedly authorized Santos to mortgage the subject property to the Bank of Commerce, as evidenced by the SPA allegedly signed by Natividad. It was further shown from the annotation at the back of the title that the spouses San Pablo signed a Deed of Real Estate Mortgage over the subject property in favor of Bank of Commerce, which they never did. The spouses San Pablo filed a Complaint seeking for the Quieting of Title and Nullification of the SPA and the deed of real estate mortgage with the prayer for damages against Santos and the Bank of Commerce before the MTC of Mandaue. The spouses San Pablo claimed that their signatures on the SPA and the Deed of Real Estate Mortgage allegedly executed to secure a loan with the Bank of Commerce were forged. They claimed that while the loan with the Direct Funders was obtained with their consent and direct participation, they never authorized the subsequent loan obligation with the Bank of Commerce. During the pendency of the case, the Bank of Commerce, for non-payment of the loan, initiated the foreclosure proceedings on the strength of the contested Deed of Real Estate Mortgage. During the auction sale, the Bank of Commerce emerged as the highest bidder and thus a Certificate of Sale was issued under its name. Accordingly, the spouses San Pablo amended their complaint to include the prayer for annulment of the foreclosure sale. Santos countered that the loan with the Bank of Commerce was deliberately resorted to with the consent, knowledge and direct participation of the spouses San Pablo in order to pay off the obligation with Direct Funders. In fact, it was Prudencio who caused the preparation of the SPA and together with Santos, they went to the Bank of Commerce, Cebu City Branch to apply for the loan. Bank of Commerce filed an Answer with Compulsory Counterclaim, alleging that the spouses San Pablo, represented by their attorney-in-fact, Santos, together with Intergems, obtained a loan and denied the allegation advanced by the spouses San Pablo that the SPA and the Deed of Real Estate Mortgage were spurious. Since the loan already became due and demandable, the Bank of Commerce sought the foreclosure of the subject property. During the trial, Anastacio Barbarona, Jr., the Manager of the Bank of Commerce, Cebu City Branch, testified that the spouses San Pablo personally signed the Deed of Real Estate Mortgage in his presence. The testimony of a document examiner and a handwriting expert, however, belied this claim. The expert witness, after carefully

examining the loan documents with the Bank of Commerce, attested that the signatures of the spouses San Pablo on the SPA and the Deed of Real Estate Mortgage were forged. The MTC rendered a Decision, dismissing the complaint for lack of merit. The MTC declared that while it was proven that the signatures of the spouses San Pablo on the loan documents were forged, the Bank of Commerce was nevertheless in good faith. Aggrieved, the spouses San Pablo appealed the adverse decision to the RTC of Mandaue City, which, in turn, affirmed the unfavorable ruling of the MTC. A Motion for Reconsideration filed also by the spouses San Pablo which was denied by the RTC for lack of merit. The spouses San Pablo elevated the matter before the Court of Appeals assailing the adverse decisions of the MTC and RTC. The appellate court granted the petition filed by the spouses San Pablo and reversed the decisions of the MTC and RTC. The appellate court ruled that since it was duly proven that the signatures of the spouses San Pablo on the loan documents were forged, then such spurious documents could never become a valid source of title. The mortgage contract executed by Santos over the subject property in favor of Bank of Commerce, without the authority of the Spouses San Pablo, was therefore unenforceable, unless ratified. ISSUES: Whether or not the forged SPA and Special Power of Attorney could be a valid source of a right to foreclosure a property Whether or not the awards of Damages, Attorneys Fees and Litigation Expenses are proper in the case at bar HELD: A mortgagee has a right to rely in good faith on the certificate of title of the mortgagor of the property given as security, and in the absence of any sign that might arouse suspicion, the mortgagee has no obligation to undertake further investigation. This doctrine pre-supposes, however, that the mortgagor who is not the rightful owner of the property, has already succeeded in obtaining Torrents title over the property in his name and that after obtaining the said title, he succeeds in mortgaging the property to another who relies on what appears on the title. This, however, is not the situation in the case at bar since Santos was not the registered owner for he merely represented himself to be the attorney-in-fact of the spouses San Pablo. In cases where the mortgagee does not directly deal with the registered owner of the real property, the law requires that a higher degree of prudence be exercised by the mortgagee. The respondent, however, is not an ordinary mortgagee. It is a mortgagee-bank and 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 Bank of Commerce clearly failed to observe the required degree of caution in ascertaining the genuineness and extent of the authority of Santos mortgage the subject property. It should not have simply relied on the face of the documents submitted. Therefore, the same is not a valid source of the right for the foreclosure of the property. 2. The Court finds that the award for moral damages is proper is proper. The carelessness of the Bank of Commerce caused injury to the spouses which calls for the imposition of moral damages. The award of

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exemplary damages is deemed to be proper by the Court for the Bank of Commerce was remiss in this obligation to inquire into the veracity of Santos authority to mortgage the subject property, causing damage to the Spouses. The award of attorneys fees and litigation expenses are likewise valid since the spouses were compelled to litigate and thus incur expenses in order to protect its rights over the subject property.

BANK OF THE PHILIPPINE ISLANDS VS THE INTERMEDIATE APPEALLATE COURT GR NO. 69162. February 21, 1992 Grino-Aquino, J. FACTS: The respondent spouses, Arthur and Vivienne Canlas, opened a joint current account in the Quezon City branch of the Commercial Bank and Trust Company of the Philippines (CBTC) with an initial deposit of P2,250. Prior thereto, Arthur Canlas had an existing separate personal checking account in the same branch. When the respondent spouses opened their joint current account, the new accounts teller pulled out from the banks files the old and existing signature card of Arthur Canlas from his separate personal checking account for use as ID and reference. By mistake, the teller placed the old personal account number of Arthur Canlas on the deposit slip for the new joint checking account of the spouses so that the initial deposit of P2,250 for the joint checking account was miscredited to Arthurs personal account. The spouses subsequently deposit other amounts in their account. However, when respondent Vivienne Canlas issued a check in April 1977 and another on June 1, 1977, one of the checks was dishonored by the bank for insufficient funds and a penalty of P20 was deducted from the account in both instances. In view thereof, the bank tried to call up the spouses at the telephone number which they had given in their application form, but the bank could not contact them because they actually reside in Porac, Pampanga. The city address and telephone number which they gave to the bank belonged to Mrs. Canlas parents. The private respondents then filed a complaint for damages against CBTC in the Court of First Instance of Pampanga. The bank filed a motion to dismiss the complaint for improper venue but it was likewise denied. During the pendency of the case, the Bank of the Philippine Islands (BPI) and CBTC were merged. As the surviving corporation, BPI took over the prosecution and defense of any pending claims, actions or proceedings by and against CBTC. The Regional Trial Court of Pampanga rendered a decision against BPI. On appeal, the Intermediate Appellate Court deleted the actual damages and reduced the other awards. Hence, this petition. ISSUES: Whether or not the venue of the case had been properly laid at Pampanga in the light of privates respondents earlier declaration that Quezon City is their true residenc e Whether or not the petitioner was guilty of gross negligence in handling the private respondents bank account Whether or not private respondents are entitled to the moral and exemplary damages and attorney s fees adjudged by the respondent appellate court HELD: Pursuant to the Rules of Court, personal actions may be instituted in the Court of First Instance (now Regional Trial Court) of the province where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff. In the case at bar, there was ample proof of the residence of the plaintiffs at Pampanga. The city address of Mrs. Canlas parents was placed by the private respondent as per suggestion of the new accounts teller, presumably to facilitate mailing of the bank statements and communicating with the private respondents in case any problems should arise involving the account. No waiver of their provincial residence for purposes of determining the venue of an action against the bank may be inferred from the so-called misrepresentation of their true residence. There is no merit in petitioners argument that it should not be considered negligent, much less liable for damages on account of the inadvertence of its bank employee for Article 1173 of the Civil Code only requires it to exercise the diligent of a good father of the family. In this case, the bank must take the blame for not discovering the mistake of its teller despite the established procedure requiring the papers and bank books to pass through a battery of bank personnel whose duty is to check and countercheck them for possible errors. Apparently, the officials and employees tasked to do that did not perform their

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duties in due care for as discovered in trial, they considered such procedure as a petty thing. Unfortunately, such petty thing sparked the half-a-million-peso damage suit against the bank. Although the banks negligence may not have been attended with malice and bad faith, it still caused serious anxiety, embarrassment and humiliation to the private respondents for which they are entitled to recover reasonable moral the damages. The award for reasonable attorney s fees is proper for the private respondents were compelled to litigate to protect their interest. However, the absence of malice and bad faith renders the award of exemplary damages improper. The court deleted the award for exemplary damages to the private respondents.