Reyes v.

CA
281 SCRA 277

FACTS:

This case involves a 383 sq.m. parcel of land owned by pettitioner’s and respondents’
father. Petitioner alleges that a Deed of Exrajudicial Partition (Deed) was entered into
between him and the respondents. Petitioner managed to register335 sq.m. of the land
under his name; while 50 sq.m. of the land was registeredunder the name of his sister,
Paula (one of the respondents). After discovering the registration of the Deed,
respondents denied having knowledge of its execution and disclaimed having signed the
same; nor did they ever waive their rights, shares and interest in the subject parcel of
land. According to respondents, subject Deed was fraudulently prepared by petitioner
and that their signatures thereon were forged. They also assert that one Atty. Jose
Villena, the Notary Public who notarized the said Deed was not even registered in the
list of accredited Notaries Public of Pasay City.

Thereafter, petitioner executed a Deed of Absolute Sale selling 240 square meters of the
land to his children. After the property was partitioned, petitioner, his children and
private respondent Paula allegedly executed a Deed of Co-owners’ Partition dividing the
property among themselves. This led the respondents to file a Complaint for
“Annulment of Sale and Damages With Prayer for Preliminary Injunction/Restraining
Order” before the RTC, which ruled that private respondents’ signatures on the
questioned Deed of Extrajudicial Partition and Settlement were indeed forged and
simulated. The CA affirmed. Hence, this petition.

ISSUES:

1.Whether the Deed was forged.

2.Whether petitioner(s) had become absolute owners of the subject property by virtue of
acquisitive prescription.

RULING:

1.YES. Petitioner(s) cast doubt on the findings of the lower court as affirmed by
the Court of Appeals regarding the existence of forgery. Factual findings of the trial
court, adopted and confirmed by the Court of Appeals, are final and conclusive and may
not be reviewed on appeal. Petitioners’ ludicrous claim that private respondents
imputed no deception on his part but only forgery of the subject Deed and the
simulation of their signatures is nothing short of being oxymoronic. For what is forgery
and simulation of signatures if not arrant deception! The allegation made by petitioner
that the execution of a public document ratified before a notary public cannot be
impugned by the mere denial of the signatory is baseless. It should be noted that there
was a finding that the subject Deed was notarized by one Atty. Villena who at that time
was not commissioned as a notary in Pasay City.
2.NO. Petitioners cannot justify their ownership and possession of the subject parcel of
land since they could not ave been possessors in good faith of the subject parcel of land
considering the finding that at the very inception they forged the Deed of Extrajudicial
Partition and Settlement which they claim to be the basis for their just title. Having
forged the Deed and simulated the signatures of private respondents, petitioners, in fact,
are in bad faith. The forged Deed containing private respondents’ simulated signatures
is a nullity and cannot serve as a just title. There can be no acquisitive prescription
considering that the parcel of land in dispute is titled property, i.e., titled in the name of
the late Bernardino Reyes, the father of both petitioner Florentino and the private
respondents.

46 Comsavings Bank (now GSIS Family Bank) v. Sps. Danilo and Estrella
Capistrano

G.R. No. 170942, August 28, 2013

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

Facts

Respondent spouses own a 200-sqm lot and applied for a P303,450 loan to construct
their house under government’s Unified Home Lending Program (UHLP) through the
petitioner as an originating bank of the program. Under the scheme, petitioner shall
advance the cost of the construction to the building contractor and shall be reimbursed
by the National Home Mortgage Finance Corp. (NHMFC) upon submission of the
certificate of completion of the construction and its acceptance by the owner, original
copy of the Occupancy Permit, and pictures of the finished construction signed at the
back by the homeowner.

To undertake the construction, respondents signed a contract with GCB Builders for a
price of P265,000 to be completed in 75 days. It was GCB who facilitated the
application of the respondent’s loan with Comsavings who misrepresented to the
respondents that they should pre-sign sets of documents including certificate of
completion and acceptance in order for the fast release of the loan to which respondents
acceded to. The loan was eventually released in tranches to GCB as assignee of
respondent despite the unfinished construction. Despite the incomplete construction
and substandard workmanship and materials, Comsavings was able to obtain
reimbursement from NHMFC through the submission of the pre-signed documents by
the respondents as well as pictures of completed construction of another GCB project
purportedly signed by the respondents. Despite non-completion, NHMFC sent a letter
to respondent requiring them to start payment of the amortization as their loan had
been released to Comsavings bank to which respondent replied by letter protesting such
demand arguing that they have not signed any certificate of completion and acceptance
or that if there be any, they have been forged.

The house not being finished and not having been accepted by respondent more than 1
year after GCB obtained complete payment and nearly 7 months after Comsavings
obtained reimbursement from NHMFC, respondents sued GCB, Comsavings and
NHMFC for breach of contract and damages praying that defendants be ordered to
jointly and severally be liable to finish construction and payment of other damages.
Defendants asserted that the complaint stated no cause of action while GCB claimed the
project had been completed and that respondent failed to occupy and pay balance of
P46,849 while Comsavings argued that respondent is estopped from assailing their pre-
signing of the completion and acceptance report because they are given the option not to
pre-sign and that such pre-signing was not prohibited but a common practice. RTC
ruled in favour of the respondents and declared all defendants jointly and severally
liable. On appeal by defendants (except respondent), CA affirmed RTC but modified the
award of damages and absolved NHMFC of the liability. Thus this further appeal by
Comsavings bank raising the issue of error on CA in declaring it jointly and severally
liable with GCB.

ISSUE

Whether or not petitioner should be held jointly and severally liable with GCB?

COURT RULING

YES.

Comsavings bank is solidarily liable with GCB Builders for damages to respondent on
the basis of Tortious acts as provided by Arts. 20 and 1170 of the CCP. A banking
institution like petitioner 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.

There is no doubt that petitioner was grossly negligent in its dealings with respondents
because it did not comply with its legal obligation to exercise due diligence and integrity.
As an originating bank of the UHLP and being the maker of the certificate of completion
and acceptance, it 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
specification and respondents had thereby accepted the delivery of the complete house.
Knowing such purpose, it should have desisted from presenting the certificate to
respondents for their signature without such conditions having been fulfilled. Had
Comsavings bank been fair to the respondents as its clients, it should have not made
them pre-sign the certificate until it had confirmed that the construction had been
completed and indeed accepted. The court also belied petitioner’s assertion that the
certificate was submitted to NHMFC only after the project has been completed which
was contradicted by the evidence presented by NHMFC. Additionally, the Court
declared petitioner grossly negligent when it submitted to NHMFC fake pictures of
purportedly completed project with spurious signature of the respondents which could
be easily avoided by conducting a simple ocular inspection of the project itself.

WHEREFORE, the CA decision is AFFIRMED with modification on the amount of

temperate damages and attorney’s fees.

URSAL V. CA (G.R. NO. 142411)

Facts:

Spouses Moneset are registered owners of a parcel of land and they executed on it a
Contract to Sell in favor of petitioner Ursal. Petitioner paid the monthly installments but
stopped due to the spouses’ failure to deliver the TCT. The land was subject of an
absolute deed of sale in favor of Dr. Canora, Jr. and was sold again with pacto de retro.
The land was mortgaged with respondent Rural Bank of Larena and corresponding
annotations to the title were made. For failure of the spouses to pay the loan, the bank
served a notice of extra-judicial foreclosure. Petitioner moved for the declaration of the
non-effectivity of the mortgage and the payment of damages alleging that there was
fraud/bad faith in the part of the spouses and with the bank for granting the REM in
spite knowing that the property was in possession of petitioner. RTC ruled in favor of
petitioner but maintained that the property be foreclosed. CA affirmed in toto.

Issue:

Whether or not respondent bank acted in bad faith by failing to look beyond the TCT of
the property before a loan may be extended upon it.

Ruling: YES.

We agree. 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.

As enunciated in Cruz vs. Bancom:

Respondent… 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.
*The ruling in the case however is still unfavorable to petitioner. The court
held:

“Our agreement with petitioner on this point of law, notwithstanding, we

are constrained to refrain from granting the prayers of her petition. 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.”

PNB V. CA- Material Alteration

256 SCRA 491

FACTS:

DECS issued a check in favor of Abante Marketing containing a specific serial

number, drawn against PNB. The check was deposited by Abante in its account with
Capitol and the latter consequently deposited the same with its account with
PBCOM which later deposited it with petitioner for
clearing. The check was thereafter cleared. However, on a relevant date, petitioner
PNB returned the check on account that there had been a material alteration on it.
Subsequent debits were made but Capitol cannot debit the account of Abante any longer
for the latter had withdrawn all the money already from the account. This
prompted Capitol to seek reclarification from PBCOM and demanded the
recrediting of its account. PBCOM followed suit by doing the same against PNB.
Demands unheeded,
it filed an action against PBCOM and the latter filed a third-party complaint against
petitioner.

HELD:

An alteration is said to be material if it alters the effect of the instrument. It means an

unauthorized change in the instrument that purports to modify in any respect the
obligation of a party or an unauthorized addition of words or numbers or other
change to an incomplete instrument relating to the obligation of the party. In other
words, a material alteration is one which changes the items which are required to be
stated under Section 1 of the NIL.

In this case, the alleged material alteration was the alteration of the serial number of
the check in issue—which is not an essential element of a negotiable instrument
under Section 1. PNB alleges that the alteration was material since it is an accepted
concept that a TCAA check by its very
nature is the medium of exchange of governments, instrumentalities and
agencies. As a safety measure, every government office or agency is assigned
checks bearing different serial numbers.

But this contention has to fail. The check’s serial number is not the sole indicia of its
origin. The name of the government agency issuing the check is clearly stated therein.
Thus, the check’s drawer is sufficiently identified, rendering redundant the referral to its
serial number.

Therefore, there being no material alteration in the check committed, PNB could not
return the check to PBCOM. It should pay the same.

BPI V. CA

216 SCRA 51

FACTS:

Someone who identified herself to be Fernando called up BPI, requesting for the
pre-termination of her money market placement with the bank. The person who
took the call didn't bother to verify with Fernando’s office if whether or not she really
intended to preterminate her money market
placement. Instead, he relied on the verification stated by the caller. He proceeded
with the processing of the termination. Thereafter, the caller gave delivery
instructions that instead of delivering the checks to her office, it would be picked up
by her niece and it indeed happen as such. It was found out later on that the person
impersonated Fernando and her alleged niece in getting the checks. The
dispatcher also didn't bother to get the promissory note evincing the placement when
he gave the checks to the impersonated niece. This was aggravated by the fact
that this impersonator opened an account with the bank and deposited the subject
checks. It then withdrew the amounts.

The day of the maturity of the money market placement happened and the real
Fernando surfaced herself. She denied preterminating the money market
placements and though she was the payee of the checks in issue, she didn't receive any
of its proceeds. This prompted the bank to
surrender to CBC the checks and asking for reimbursement on alleged forgery of
payee’s indorsements.

HELD:

The general rule shall apply in this case. Since the payee’s indorsement has
been forged, the instrument is wholly inoperative. However, underlying
circumstances of the case show that the general rule on forgery isn’t applicable. The
issue as to who between the parties should bear the
loss in the payment of the forged checks necessitates the determination of the rights
and liabilities of the parties involved in the controversy in relation to the forged
checks.

The acts of the employees of BPI were tainted with more negligence if not criminal than
the acts of CBC. First, the act of disclosing information about the money market
placement over the phone is a violation of the General Banking Law. Second, there
was failure on the bank’s part to even compare the signatures during the termination
of the placement, opening of a new account with the specimen signature in file of
Fernando. And third, there was failure to ask the surrender of the promissory
note evidencing the placement.

The acts of BPI employees was the proximate cause to the loss. Nevertheless, the
negligence of the employees of CBC should be taken also into consideration. They
closed their eyes to the suspicious large amount withdrawals made over the counter as
well as the opening of the account.

ANNA MARIE L. GUMABON v. PHILIPPINE NATIONAL BANK

The Facts

On August 12, 2004, Anna Marie filed a complaint for recovery of sum of money and
damages before the RTC against the Philippine National Bank (PNB) and the PNB Delta
branch manager Silverio Fernandez (Fernandez). The case stemmed from the PNB's
refusal to release Anna Marie's money in a consolidated savings account and in two
foreign exchange time deposits, evidenced by Foreign Exchange Certificates of
Time Deposit (FXCTD).

In 2001, Anna Marie, together with her mother Angeles and her siblings Anna Elena and
Santiago, (the Gumabons) deposited with the PNB Delta Branch $10,945.28 and
$16,830.91, for which they were issued FXCTD Nos. A-993902[5] and A-
993992,[6] respectively.

The Gumabons also maintained eight (8) savings accounts[7] in the same bank. Anna
Marie decided to consolidate the eight (8) savings accounts and to withdraw P-
2,727,235.85 from the consolidated savings account to help her sister's financial needs.

Anna Marie called the PNB employee handling her accounts, Reino Antonio Salvoro
(Salvoro), to facilitate the consolidation of the savings accounts and the withdrawal.
When she went to the bank on April 14, 2003, she was informed that she could not
withdraw from the savings accounts since her bank records were missing and Salvoro
could not be contacted.

On April 15, 2003, Anna Marie presented her two FXCTDs, but was also unable to
withdraw against them. Fernandez informed her that the bank would still verify and
investigate before allowing the withdrawal since Salvoro had not reported for work.

Thus, Anna Marie sent two demand letters[8] dated April 23 and April 25, 2003 to the
PNB.

After a month, the PNB finally consolidated the savings accounts and issued a passbook
for Savings Account (SA) No. 6121200.[9]The PNB also confirmed that the total
deposits amounted to P-2,734,207.36. Anna Marie, her mother, and the PNB executed
a Deed of Waiver and Quitclaim dated May 23, 2003[10] to settle all questions regarding
the consolidation of the savings accounts. After withdrawals, the balance of her
consolidated savings account was P250,741.82.

On July 30, 2003, the PNB sent letters to Anna Marie to inform her that the PNB
refused to honor its obligation under FXCTD Nos. 993902 and 993992,[11] and that the
PNB withheld the release of the balance of P-250,741.82 in the consolidated savings
account.[12]According to the PNB, Anna Marie pre-terminated, withdrew and/or debited
sums against her deposits.

Thus, Anna Marie filed before the RTC a complaint for sum of money and damages
against the PNB and Fernandez.[13]

As to the two FXCTDs, Anna Marie contended that the PNB's refusal to pay her time
deposits is contrary to law. The PNB cannot claim that the bank deposits have been paid
since the certificates of the time deposits are still with Anna Marie. [14]

As to the consolidated savings account, Anna Marie stated that the PNB had already
acknowledged the account's balance in the Deed of Waiver and Quitclaim amounting to
P2,734,207.36. As of January 26, 2004, the remaining balance was P250,741.82. PNB
presented no concrete proof that this amount had been withdrawn.

Anna Marie prayed that the PNB and Fernandez be held solidarily liable for actual,
moral, and exemplary damages, as well as attorney's fees, costs of suit, and legal
interests because of the PNB's refusal to honor its obligations.

In its answer,[15] the PNB argued that: (1) Anna Marie is not entitled to the balance of
the consolidated savings account based on solutio indebiti; (2) the PNB already paid the
$10,058.01 covered by FXCTD No. 993902; (3) the PNB is liable to pay only $10,718.87
of FXCTD No. 993992, instead of the full amount of $17,235.41; and (4) Anna Marie is
guilty of contributory negligence. The PNB's arguments are discussed below.

First, Anna Marie is not entitled to the alleged balance of P250,741.82. The PNB's
investigation showed that Anna Marie withdrew a total of P251,246.81 [16] from two of
the eight savings accounts and she used this amount to purchase manager's check no.
0000760633.[17]Hence, P251,246.81 should be deducted from the sum agreed upon in
the Deed of Waiver and Quitclaim. The PNB offered photocopies of the
PNB's miscellaneous ticket[18] and the manager's check as evidence to prove the
withdrawals. The PNB argued that unjust enrichment would result if Anna Marie would
be allowed to collect P-250,741.82 from the consolidated savings account without
deducting her previous withdrawal of P251,246.81.

Second, Anna Marie is not entitled to receive $10,058.01 covered by FXCTD No.
993902. Based on the PNB's records, Anna Marie pre-terminated FXCTD No. 993902
on March 11, 2002, and used the deposit, together with another deposit covered by
FXCTD No. 993914 (for $8,111.35), to purchase a foreign demand draft (FX Demand
Draft No. 4699831) payable to Anna Rose/Angeles Gumabon. The PNB presented a
facsimile copy of Anna Rose's Statement of Account (SOA)[19] from the PNB Bank
to prove that the amount covered by FXCTD No. 993902 was already paid.

Third, Anna Marie is only entitled to receive $10,718.87 instead of the full amount of
$17,235.41 covered by FXCTD No. 993992 because: (a) the amount of $1,950.00 was
part of the money used by Anna Marie to purchase the manager's check; (2) the amount
of $2,566.54 was credited to Current Account No. 227-810961-8 owned by Anna Marie's
aunt, Lolita Lim; and (3) the amount of $2,000.00 was credited to Current Account No.
2108107498 of Anna Marie and Savings Account No. 212-5057333 of Anna Marie/or
Angeles or Santiago/or Elena (all surnamed Gumabon). Hence, these amounts should
be deducted from the amount payable to Anna Marie.

Finally, the PNB alleged that Anna Marie was guilty of contributory negligence in her
bank dealings.

In her reply,[20] Anna Marie argued that the best evidence of her withdrawals is the
withdrawal slips duly signed by her and the passbooks pertaining to the accounts. PNB,
however, failed to show any of the withdrawal slips and/or passbooks, and also failed to
present sufficient evidence that she used her accounts' funds.

RULING

Since the PNB is clearly liable to Anna Marie for her deposits, the Court now determines
PNB's liability for damages under existing laws and jurisprudence.

Section 2 of Republic Act No. 8791,[52] declares the State's recognition of the "fiduciary
nature of banking that requires high standards of integrity and performance." It cannot
be overemphasized that the banking business is impressed with public interest. The
trust and confidence of the public to the industry is given utmost importance.[53] Thus,
the bank is under obligation to treat its depositor's accounts with meticulous care,
having in mind the nature of their relationship.[54] The bank is required to assume a
degree of diligence higher than that of a good father of a family.[55]

As earlier settled, the PNB was negligent for its failure to update and properly handle
Anna Marie's accounts. This is patent from the PNB's letter to Anna Marie, admitting
the error and unauthorized withdrawals from her account. Moreover, Anna Marie was
led to believe that the amounts she has in her accounts would remain because of
the Deed of Waiver and Quitclaim executed by her, her mother, and PNB.
Assuming arguendo that Anna Marie made the contested withdrawals, due diligence
requires the PNB to record the transactions in her passbooks.

The Court has established in a number of cases the standard of care required from
banks, and the bank's liability for the damages sustained by the depositor. The bank is
not absolved from liability by the fact that it was the bank's employee who committed
the wrong and caused damage to the depositor.[56] Article 2180 of the New Civil Code
provides that the owners and managers of an establishment are responsible for damages
caused by their employees while performing their functions.[57]

In addition, we held in PNB v. Pike,[58] that although the bank's employees are the ones
negligent, a bank is primarily liable for the employees' acts because banks are expected
to exercise the highest degree of diligence in the selection and supervision of their
employees.

Indeed, a great possibility exists that Salvoro was involved in the unauthorized
withdrawals. Anna Marie entrusted her accounts to and made her banking transactions
only through him. Salvaro's unexplained disappearance further confirms this Court's
suspicions. The Court is alarmed that he was able to repeatedly do these unrecorded
transactions without the bank noticing it. This only shows that the PNB has been
negligent in the supervision of its employees.

As to contributory negligence, the Court agrees with the RTC that the PNB failed to
substantiate its allegation that Anna Marie was guilty of contributory negligence.

Contributory negligence is conduct on the part of the injured party, contributing as a

legal cause to the harm he has suffered, which falls below the standard to which he is
required to conform for his own protection.[59] Whether contributory negligence
transpired is a factual matter that must be proven.

In the present case, Anna Marie cannot be held responsible for entrusting her account
with Salvoro. As shown in the records, Salvoro was the bank's time deposit specialist.
Anna Marie cannot thus be faulted if she engaged the bank's services through Salvoro
for transactions related to her time deposits.

METROPOLITAN BANK V. CA

194 SCRA 169

FACTS:

Gomez opened an account with Golden Savings bank and deposited 38 treasury
warrants. All these warrants were indorsed by the cashier of Golden Savings, and
deposited it to the savings account in a Metrobank branch. They were sent later
on for clearing by the branch office to the principal office of Metrobank, which
forwarded them to the Bureau of Treasury for special clearing. On persistent
inquiries on whether the warrants have been cleared, the branch manager allowed
withdrawal of the warrants, only to find out later on that the treasury warrants
have been
dishonored.

HELD:

The treasury warrants were not negotiable instruments. Clearly, it is indicated

that it was non-negotiable and of equal significance is the indication that they are
payable from a particular fund, Fund 501. This indication as the source of
payment to be made on the treasury warrant
makes the promise to pay conditional and the warrants themselves non-
negotiable.

Metrobank then cannot contend that by indorsing the warrants in general, GS assumed
that they were genuine and in all respects what they purport it to be, in accordance to
Section 66 of the NIL. The simple reason is that the law isn’t applicable to the non-
negotiable treasury warrants. The
indorsement was made for the purpose of merely depositing them with Metrobank
for clearing. It was in fact Metrobank which stamped on the back of the warrants:
“All prior indorsements and/or lack of endorsements guaranteed…”

PNB V. CA - Acceptance of Checks

25 SCRA 693

FACTS:

Lim deposited in his PCIB account a GSIS check drawn against PNB. Following
standard banking procedures, the check was sent to petitioner for clearing. He
didn’t return said check but paid the amount to PCIB as well as debited it against the
account of GSIS. Thereafter, a demand was received from GSIS asking for the credit
of the amount since the signatures found in the check were forged. This was done by
PNB and it now comes after PCIB but the latter wouldn’t want to return the money.

HELD:

Acceptance is not required for checks, for the same are payable on demand.
Acceptance and payment are distinguished with each other. The former pertains to a
promise to perform an act while the latter is the actual performance of the act.
PNB had also been negligent with the particularity that it had been guilty of a greater
degree of negligence because it had a previous and formal notice from GSIS that the
check had been lost, with the request that payment be stopped. Just as important is
that it is its acts, which are the proximate cause of the loss.

BDO VS REPUBLIC

The case involves the proper tax treatment of the discount or interest income arising
from the P35 billion worth of 10-year zero-coupon treasury bonds issued by the Bureau
of Treasury on October 18, 2001 (denominated as the Poverty Eradication and
Alleviation Certificates or the PEACe Bonds by the Caucus of Development NGO
etworks).

By letter4 dated March 23, 2001, the Caucus of Development NGO Networks (CODE-
NGO) “with the assistance of its financial advisors, Rizal Commercial Banking Corp.
(“RCBC”), RCBC Capital Corp. (“RCBC Capital”), CAPEX Finance and Investment Corp.
(“CAPEX”) and SEED Capital Ventures, Inc. (SEED),”5 requested an approval from the
Department of Finance for the issuance by the Bureau of Treasury of 10-year zero-
coupon Treasury Certificates (T-notes).6 The T-notes Banco de Oro vs. Republic, 745
SCRA 361, G.R. No. 198756 January 13, 2015

would initially be purchased by a special purpose vehicle on behalf of CODE-NGO,

repackaged and sold at a premium to investors as the PEACe Bonds.7 The net proceeds
from the sale of the Bonds “will be used to endow a permanent fund (Hanapbuhay®
Fund) to finance meritorious activities and projects of accredited nongovernment
organizations (NGOs) throughout the country.”8

Prior to and around the time of the proposal of CODE-NGO, other proposals for the
issuance of zero-coupon bonds were also presented by banks and financial institutions,
such as First Metro Investment Corporation (proposal dated March 1, 2001),9
International Exchange Bank (proposal dated July 27, 2000),10 Security Bank
Corporation and SB Capital Investment Corporation (proposal dated July 25, 2001),11
and ATR-Kim Eng Fixed Income, Inc. (proposal dated August 25, 1999).12 “[B]oth the
proposals of First Metro Investment Corp. and ATR-Kim Eng Fixed Income indicate
that the interest income or discount earned on the proposed zero-coupon bonds would
be subject to the prevailing withholding tax.”13

A zero-coupon bond is a bond bought at a price substantially lower than its face value
(or at a deep discount), with the face value repaid at the time of maturity.14 It does not
make periodic interest payments, or have so-called “coupons,” hence the term zero-
coupon bond.15 However, the discount to face value constitutes the return to the
bondholder.16 Banco de Oro vs. Republic, 745 SCRA 361, G.R. No. 198756 January 13,
2015

On May 31, 2001, the Bureau of Internal Revenue, in reply to CODE--NGO’s letters
dated May 10, 15, and 25, 2001, issued BIR Ruling No. 020--200117 on the tax
treatment of the proposed PEACe Bonds. BIR Ruling No. 020-2001, signed by then
Commissioner of Internal Revenue René G. Bañez confirmed that the PEACe Bonds
would not be classified as deposit substitutes and would not be subject to the
corresponding withholding tax:

Thus, to be classified as “deposit substitutes,” the borrowing of funds must be obtained

from twenty (20) or more individuals or corporate lenders at any one time. In the light
of your representation that the PEACe Bonds will be issued only to one entity, i.e., Code
NGO, the same shall not be considered as “deposit substitutes” falling within the
purview of the above definition. Hence, the withholding tax on deposit substitutes will
not apply.18 (Emphasis supplied)

The tax treatment of the proposed PEACe Bonds in BIR Ruling No. 020-2001 was
subsequently reiterated in BIR Ruling No. 035-200119 dated August 16, 2001 and BIR
Ruling No. DA-175-0120 dated September 29, 2001 (collectively, the 2001 Rulings). In
sum, these rulings pronounced that to be able to determine whether the financial assets,
i.e., debt instruments and securities are deposit substitutes, the “20 or more individual
or corporate lenders” rule must apply. Moreover, the determination of the phrase “at
any one time” for purposes of determining the “20 or more lenders” is to be determined
at the time of the original issuance. Such being the case, the PEACe Bonds were not to
be treated as deposit substitutes. Banco de Oro vs. Republic, 745 SCRA 361, G.R. No.
198756 January 13, 2015

RULING

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

Under the 1997 National Internal Revenue Code, Congress specifically defined “public”
to mean “twenty (20) or more individual or corporate lenders at any one time.” Hence,
the number of lenders is determinative of whether a debt instrument should be
considered a deposit substitute and consequently subject to the 20% final withholding
tax.

20-lender rule

Petitioners contend that “there [is] only one (1) lender (i.e. RCBC) to whom the BTr
issued the Government Bonds.”169 On the other hand, respondents theorize that the
word “any” “indicates that the period contemplated is the entire term of the bond and
not merely the point of origination or issuance[,]”170 such that if the debt instruments
“were subsequently sold in secondary markets and so on, in such a way that twenty (20)
or more buyers eventually own the instruments, then it becomes indubitable that funds
would be obtained from the “public” as defined in Section 22(Y) of the NIRC.”171
Indeed, in the context of the financial market, the words “at any one time” create an
ambiguity.

Meaning of “at any one time”

Thus, from the point of view of the financial market, the phrase “at any one time” for
purposes of determining the “20 or more lenders” would mean every transaction
executed in the primary or secondary market in connection with the purchase or sale
of securities.

For example, where the financial assets involved are government securities like bonds,
the reckoning of “20 or more lenders/investors” is made at any transaction in
connection with the purchase or sale of the Government Bonds.

agreements, including Banco de Oro vs. Republic, 745 SCRA 361, G.R. No. 198756
January 13, 2015

reverse repurchase agreements entered into by and between the Bangko Sentral ng
Pilipinas (BSP) and any authorized agent bank, certificates of assignment or
participation and similar instruments with recourse: Provided, however, That debt
instruments issued for interbank call loans with maturity of not more than five (5) days
to cover deficiency in reserves against deposit liabilities, including those between or
among banks and quasi-banks, shall not be considered as deposit substitute debt
instruments. (Emphasis supplied) Under the 1997 National Internal Revenue Code,
Congress specifically defined “public” to mean “twenty (20) or more individual or
corporate lenders at any one time.” Hence, the number of lenders is determinative of
whether a debt instrument should be considered a deposit substitute and consequently
subject to the 20% final withholding tax. Banco de Oro vs. Republic, 745 SCRA 361, G.R.
No. 198756 January 13, 2015

FIRST PLANTERS PAWNSHOP VS. CIR

G.R. No. 174134

July 30, 2008

FACTS: In a Pre-assessment Notice, petitioner 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. Petitioner protested the assessment for lack of legal and factual bases.

Petitioner subsequently received a Formal Assessment Notice, directing payment of VAT

deficiency and DST deficiency, inclusive of surcharge and interest. Petitioner filed a
protest, which was denied by the Acting Regional Director.

Petitioner then filed a petition for review with the CTA, which upheld the deficiency
assessment. Petitioner filed an MR which was denied.

Petitioner appealed to the CTA En Banc which denied the Petition for Review. Petitioner
sought reconsideration but this was denied by the CTA.. Hence, the present petition for
review under Rule 45 of the ROC.

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.

ISSUE: is petitioner in this case liable for:

1. VAT
2. DST

HELD:

1. NO

The determination of petitioner’s tax liability depends on the tax treatment of a

pawnshop business. It was the CTA’s view that the services rendered by pawnshops fall
under the general definition of “sale or exchange of services” under Section 108(A) of
the Tax Code of 1997.

The Court finds that pawnshops should have been treated as non-bank financial
intermediaries from the very beginning, subject to the appropriate taxes provided by
law.

At the time of the disputed assessment, that is, for the year 2000, pawnshops were not
subject to 10% VAT under the general provision on “sale or exchange of services” as
defined under Section 108(A) of the Tax Code of 1997. Instead, due to the specific nature
of its business, pawnshops were then subject to 10% VAT under the category of non-
bank financial intermediaries, as provided in the same Section 108(A), which reads:

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.–
(A) xx

The phrase “sale or exchange of services” means the performance of all kinds or services
in the Philippines for others for a fee, remuneration or consideration, including x x
x services of banks, non-bank financial intermediaries and finance
companies; and non-life insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding companies..xx

Coming now to the issue at hand – Since petitioner is a non-bank financial

intermediary, it is subject to 10% VAT for the tax years 1996 to 2002; however, with
the levy, assessment and collection of VAT from non-bank financial
intermediaries being specifically deferred by law, then petitioner is not
liable for VAT during these tax years. 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.

1. YES

Applying jurisprudence, it was ruled that the subject of DST is not limited to the
document alone. Pledge, which is an exercise of a privilege to transfer obligations,
rights or properties incident thereto, is also subject to DST, thus –

xx.. the subject of a DST is not limited to the document embodying the enumerated
transactions. A DST is an excise tax on the exercise of a right or privilege to transfer
obligations, rights or properties incident thereto… xx

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.

Also, Section 195 of the NIRC unqualifiedly subjects all pledges to DST. It states
that “[o]n every x x x pledge x x x there shall be collected a documentary stamp tax x x
x.” It is clear, categorical, and needs no further interpretation or construction.
In the instant case, there is no law specifically and expressly exempting pledges entered
into by pawnshops from the payment of DST. Section 199 of the NIRC enumerated
certain documents which are not subject to stamp tax; but a pawnshop ticket is not one
of them. Hence, petitioner’s nebulous claim that it is not subject to DST is without
merit.

I.SHORT TITLE: 12 PDIC V CITIBANK ET.AL

II. FULL TITLE: Philippine Deposit Insurance Corporation vs Citibank and Bank of

America, S.T. N. A – 669 SCRA 191 April 12, 2012, J. Mendoza

III. TOPIC: Foreign Currency Deposit

IV. STATEMENT OF FACTS:

Citibank, N.A. (Citibank) and Bank of America, S.T. & N.A. (BA) are duly organized
corporations and existing under the laws of the United States of America and duly
licensed to do business in the Philippines, with offices in Makati City. Petitioner
Philippine Deposit Insurance Corporation (PDIC) conducted an examination of the
books of account of Citibank and BA in 1977and 1979 respectively. It discovered that
Citibankin the course of its banking business, received from its head office and other
foreign branches a total of P11,923,163,908.00 in dollars from September 30, 1974 to
June 30, 1977 covered by Certificates of Dollar Time Deposit that were interest-bearing
with corresponding maturity dates. And BA 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. For failure to report the said amounts as deposit liabilities that were
subject to assessment for insurance, PDIC sought the remittance of deficiency premium
assessments for dollar deposits.

V. STATEMENT OF THE CASE:

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.
RTC ruled in favor of Citibank and BAwhich reasoned that there was no depositor-
depository relationship between the respondents and their head office or other
branches. Also, the placements were deposits made outside the Philippines which are
excluded under Section 3.05(b) of the PDIC Rules and Regulations and Section 3(f) of
the PDIC Charter likewise excludes from the definition of the term deposit any
obligation of a bank payable at the office of the bank located outside the Philippines.

PDIC argues that the head offices of Citibank and BA and their individual foreign
branches are separate and independent entities hence not exempt in Section 3(b) of R.A.
No. 3591.

PDIC appealed to the CA which affirmed the ruling of the RTC.

VI. ISSUE:

Whether or not the money placements subject matter of these petitions are
assessable for insurance purposes under the PDIC Act

VII. RULING:

The court ruled that the funds in question are not deposits within the definition of the
PDIC Charter and are, thus, excluded from assessment. Pursuant toSection 3(f) of the
PDIC Charter, the term deposit means unpaid balance of money or its equivalent
received by a bank in the usual course of business and for which it has given or is
obliged to give credit to a commercial, checking, savings, time or thrift account or which
is evidenced by its certificate of deposit, and trust funds held by such bank whether
retained or deposited in any department of said bank or deposit in another bank,
together with such other obligations of a bank as the Board of Directors shall find and
shall prescribe by regulations to be deposit liabilities of the Bank; Provided, 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.As explained by the respondents, 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.

VIII. DISPOSITIVE PORTION:

WHEREFORE, the petition is DENIED. The October 27, 2005 Decision of the Court
of Appeals in CA-G.R. CV No. 61316 is AFFIRMED.

AREZA VS EXPRESS SAVINGS BANK

FACTS:

Petitioners Cesar V. Areza and Lolita B. Areza maintained two bank deposits with
respondent Express Savings Bank's Biñan branch: 1) Savings Account No. 004-01-
000185-5 and 2) Special Savings Account No. 004-02-000092-3.

They were engaged in the business of "buy and sell" of brand new and second-hand
motor vehicles. On 2 May 2000, they received an order from a certain Gerry Mambuay
(Mambuay) for the purchase of a second-hand Mitsubishi Pajero and a brand-new
Honda CRV.

The buyer, Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs Office
(PVAO) checks payable to different payees and drawn against the Philippine Veterans
Bank (drawee), each valued at Two Hundred Thousand Pesos (P200,000.00) for a total
of One Million Eight Hundred Thousand Pesos (P1,800,000.00).

About this occasion, petitioners claimed that Michael Potenciano (Potenciano), the
branch manager of respondent Express Savings Bank (the Bank) was present during the
transaction and immediately offered the services of the Bank for the processing and
eventual crediting of the said checks to petitioners' account.[4] On the other hand,
Potenciano countered that he was prevailed upon to accept the checks by way of
accommodation of petitioners who were valued clients of the Bank.[5]

On 3 May 2000, petitioners deposited the said checks in their savings account with the
Bank. The Bank, in turn, deposited the checks with its depositary bank, Equitable-PCI
Bank, in Biñan, Laguna. Equitable-PCI Bank presented the checks to the drawee, the
Philippine Veterans Bank, which honored the checks.

On 6 May 2000, Potenciano informed petitioners that the checks they deposited with
the Bank were honored. He allegedly warned petitioners that the clearing of the checks
pertained only to the availability of funds and did not mean that the checks were not
infirmed.[6] Thus, the entire amount of P1,800,000.00 was credited to petitioners'
savings account. Based on this information, petitioners released the two cars to the
buyer.

Sometime in July 2000, the subject checks were returned by PVAO to the drawee on the
ground that the amount on the face of the checks was altered from the original amount
of P4,000.00 to P200,000.00. The drawee returned the checks to Equitable-PCI Bank
by way of Special Clearing Receipts. In August 2000, the Bank was informed by
Equitable-PCI Bank that the drawee dishonored the checks on the ground of material
alterations. Equitable-PCI Bank initially filed a protest with the Philippine Clearing
House. In February 2001, the latter ruled in favor of the drawee Philippine Veterans
Bank. Equitable-PCI Bank, in turn, debited the deposit account of the Bank in the
amount of P1,800,000.00.

The Bank insisted that they informed petitioners of said development in August 2000 by
furnishing them copies of the documents given by its depositary bank.[7] On the other
hand, petitioners maintained that the Bank never informed them of these developments.

On 9 March 2001, petitioners issued a check in the amount of P500,000.00. Said check
was dishonored by the Bank for the reason "Deposit Under Hold." According to
petitioners, the Bank unilaterally and unlawfully put their account with the Bank on
hold. On 22 March 2001, petitioners' counsel sent a demand letter asking the Bank to
honor their check. The Bank refused to heed their request and instead, closed the
Special Savings Account of the petitioners with a balance of P1,179,659.69 and
transferred said amount to their savings account. The Bank then withdrew the amount
of P1,800,000.00 representing the returned checks from petitioners' savings account.

Acting on the alleged arbitrary and groundless dishonoring of their checks and the
unlawful and unilateral withdrawal from their savings account, petitioners filed a
Complaint for Sum of Money with Damages against the Bank and Potenciano with the
RTC of Calamba

ISSUE: whether or not the rights of petitioners were violated by

respondents when the deposits of the former were debited by respondents
without any court order and without their knowledge and consent.

RULING:

LIABILITY OF DEPOSITARY BANK AND COLLECTING BANK

A depositary bank is the first bank to take an item even though it is also the payor bank,
unless the item is presented for immediate payment over the counter.[22] It is also the
bank to which a check is transferred for deposit in an account at such bank, even if the
check is physically received and indorsed first by another bank.[23] A collecting bank is
defined as any bank handling an item for collection except the bank on which the check
is drawn.[24]

When petitioners deposited the check with the Bank, they were designating the latter as
the collecting bank. This is in consonance with the rule that a negotiable instrument,
such as a check, whether a manager's check or ordinary check, is not legal tender. As
such, after receiving the deposit, under its own rules, the Bank shall credit the amount
in petitioners' account or infuse value thereon only after the drawee bank shall have
paid the amount of the check or the check has been cleared for deposit.[25]

The Bank and Equitable-PCI Bank are both depositary and collecting banks.

A depositary/collecting bank where a check is deposited, and which endorses the check
upon presentment with the drawee bank, is an endorser. Under Section 66 of the
Negotiable Instruments Law, an endorser warrants "that the instrument is genuine and
in all respects what it purports to be; that he has good title to it; that all prior parties had
capacity to contract; and that the instrument is at the time of his endorsement valid and
subsisting." It has been repeatedly held that in check transactions, the
depositary/collecting bank or last endorser generally suffers the loss because it has the
duty to ascertain the genuineness of all prior endorsements considering that the act of
presenting the check for payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the endorsements.[26] If
any of the warranties made by the depositary/collecting bank turns out to be false, then
the drawee bank may recover from it up to the amount of the check. [27]

The law imposes a duty of diligence on the collecting bank to scrutinize 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 and
the law holds it to a high standard of conduct.[28]

As collecting banks, the Bank and Equitable-PCI Bank are both liable for the amount of
the materially altered checks. Since Equitable-PCI Bank is not a party to this case and
the Bank allowed its account with Equitable-PCI Bank to be debited, it has the option to
seek recourse against the latter in another forum.

24-HOUR CLEARING RULE

Petitioners faulted the drawee bank for not following the 24-hour clearing period
because it was only in August 2000 that the drawee bank notified Equitable-PCI that
there were material alterations in the checks.

We do not subscribe to the position taken by petitioners that the drawee bank was at
fault because it did not follow the 24-hour clearing period which provides that when a
drawee bank fails to return a forged or altered check to the collecting bank within the
24-hour clearing period, the collecting bank is absolved from liability.

Section 21 of the Philippine Clearing House Rules and Regulations provides:

Sec. 21. Special Return Items Beyond The Reglementary Clearing Period. - Items which
have been the subject of material alteration or items bearing forged endorsement when
such endorsement is necessary for negotiation shall be returned by direct presentation
or demand to the Presenting Bank and not through the regular clearing house facilities
within the period prescribed by law for the filing of a legal action by the returning
bank/branch, institution or entity sending the same.

Antonio Viray, in his book Handbook on Bank Deposits, elucidated:

It is clear that the so-called "24-hour" rule has been modified. In the case of Hongkong
& Shanghai vs. People's Bank reiterated in Metropolitan Bank and Trust Co. vs. FNCB,
the Supreme Court strictly enforced the 24-hour rule under which the drawee bank
forever loses the right to claim against presenting/collecting bank if the check is not
returned at the next clearing day or within 24 hours. Apparently, the commercial banks
felt strict enforcement of the 24-hour rule is too harsh and therefore made
representations and obtained modification of the rule, which modification is now
incorporated in the Manual of Regulations. Since the same commercial banks
controlled the Philippine Clearing House Corporation, incorporating the amended rule
in the PCHC Rules naturally followed.

As the rule now stands, the 24-hour rule is still in force, that is, any check which should
be refused by the drawee bank in accordance with long standing and accepted banking
practices shall be returned through the PCHC/local clearing office, as the case may be,
not later than the next regular clearing (24-hour). The modification, however, is that
items which have been the subject of material alteration or bearing forged endorsement
may be returned even beyond 24 hours so long that the same is returned within the
prescriptive period fixed by law. The consensus among lawyers is that the prescriptive
period is ten (10) years because a check or the endorsement thereon is a written
contract. Moreover, the item need not be returned through the clearing house but by
direct presentation to the presenting bank.[29]

In short, the 24-hour clearing rule does not apply to altered checks.

ON LEGAL COMPENSATION

Petitioners insist that the Bank cannot be considered a creditor of the petitioners
because it should have made a claim of the amount of P1,800,000.00 from Equitable-
PCI Bank, its own depositary bank and the collecting bank in this case and not from
them.

The Bank cannot set-off the amount it paid to Equitable-PCI Bank with petitioners'
savings account. Under Art. 1278 of the New Civil Code, compensation shall take place
when two persons, in their own right, are creditors and debtors of each other. And the
requisites for legal compensation are:
Art. 1279. In order that compensation may be proper, it is necessary:

That each one of the obligors be bound principally, and that he be at the same time
(1)
a principal creditor of the other;
That both debts consist in a sum of money, or if the things due are consumable,
(2)
they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
That over neither of them there be any retention or controversy, commenced by
(5)
third persons and communicated in due time to the debtor.

It is well-settled that the relationship of the depositors and the Bank or similar
institution is that of creditor-debtor. Article 1980 of the New Civil Code provides that
fixed, savings and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loans. 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 deposit agreement between the bank and the
depositor is the contract that determines the rights and obligations of the parties.[33]

But as previously discussed, petitioners are not liable for the deposit of the altered
checks. The Bank, as the depositary and collecting bank ultimately bears the loss. Thus,
there being no indebtedness to the Bank on the part of petitioners, legal compensation
cannot take place.

CITIBANK vs. SABENIANO

G.R.No. 156132, October 16, 2006

FACTS: Petitioner Citibank is a banking corporation duly authorized under the laws of
the USA to do commercial banking activities n the Philippines. Sabeniano was a client of
both Petitioners Citibank and FNCB Finance. Respondent filed a complaint against
petitioners claiming to have substantial deposits, the proceeds of which were supposedly
deposited automatically and directly to respondent’s account with the petitioner
Citibank and that allegedly petitioner refused to despite repeated demands. Petitioner
alleged that respondent obtained several loans from the former and in default, Citibank
exercised its right to set-off respondent’s outstanding loans with her deposits and
money. RTC declared the act illegal, null and void and ordered the petitioner to refund
the amount plus interest, ordering Sabeniano, on the other hand to pay Citibank her
indebtedness. CA affirmed the decision entirely in favor of the respondent.

ISSUE: Whether petitioner may exercise its right to set-off respondent’s loans with her
deposits and money in Citibank-Geneva

RULING:

Banks and Banking; Compensation; Compensation takes place by operation of law.—

There is little controversy when it comes to the right of petitioner Citibank to
compensate respondent’s outstanding loans with her deposit account. As already found
by this Court, petitioner Citibank was the creditor of respondent for her outstanding
loans. At the same time, respondent was the creditor of petitioner Citibank, as far as her
deposit account was concerned, since bank deposits, whether fixed, savings, or current,
should be considered as simple loan or mutuum by the depositor to the banking
institution. Both debts consist in sums of money. By June 1979, all of respondent’s PNs
in the second set had matured and became demandable, while respondent’s savings
account was demandable anytime. Neither was there any retention or controversy over
the PNs and the deposit account commenced by a third person and communicated in
due time to the debtor concerned. Compensation takes place by operation of law,
therefore, even in the absence of an expressed authority from respondent, petitioner
Citibank had the right to effect, on 25 June 1979, the partial compensation or off-set of
respondent’s outstanding loans with her deposit account, amounting to P31,079.14.
Citibank, N.A. (Formerly First National City Bank) vs. Sabeniano, 504 SCRA 378, G.R.
No. 156132 October 16, 2006

Teofisto Guingona, Jr., Antonio Martin, and Teresita Santos vs. The City Fiscal of
Manila, Hon. Jose Flaminiano, Asst. City Fiscal Felizardo Lota and

Facts:

From March 1979 to March 1981, Clement David made several investments with the
National Savings and Loan Association. On March 21, 1981, the bank was placed under
receivership by the Bangko Sentral. Upon David’s request, petitioners Guingona and
Martin issued a joint promissory note, absorbing the obligations of the bank. On July 17,
1981, they divided the indebtedness. David filed a complaint for estafa and violation of
Central Bank Circular No. 364 and related regulations regarding foreign exchange
transactions before the Office of the City Fiscal of Manila. Petitioners filed the herein
petition for prohibition and injunction with a prayer for immediate issuance of
restraining order and/or writ of preliminary injunction to enjoin the public respondents
to proceed with the preliminary investigation on the ground that the petitioners’
obligation is civil in nature.

Issue:

(1) Whether the contract between NSLA and David is a contract of depositor a contract
of loan, which answer determines whether the City Fiscal has the jurisdiction to file a
case for estafa

(2) Whether there was a violation of Central Bank Circular No. 364

Held:

(1) When private respondent David invested his money on nine. and savings deposits
with the aforesaid bank, the contract that was perfected was a contract of simple loan
or mutuum and not a contract of deposit. Hence, the relationship between the private
respondent and the Nation Savings and Loan Association is that of creditor and debtor;
consequently, the ownership of the amount deposited was transmitted to the Bank upon
the perfection of the contract and it can make use of the amount deposited for its
banking operations, such as to pay interests on deposits and to pay withdrawals. While
the Bank has the obligation to return theamount deposited, it has, however, no
obligation to return or deliver the same money that was deposited. And, the failure of
the Bank to return the amount deposited will not constitute estafa through
misappropriation punishable under Article 315, par. l(b) of the Revised Penal Code, but
it will only give rise to civil liability over which the public respondents have no
jurisdiction.

But even granting that the failure of the bank to pay the time and savings deposits of
private respondent David would constitute a violation of paragraph 1(b) of Article 315 of
the Revised Penal Code, nevertheless any incipient criminal liability was deemed
avoided, because when the aforesaid bank was placed under receivership by the Central
Bank, petitioners Guingona and Martin assumed the obligation of the bank to private
respondent David, thereby resulting in the novation of the original contractual
obligation arising from deposit into a contract of loan and converting the original trust
relation between the bank and private respondent David into an ordinary debtor-
creditor relation between the petitioners and private respondent. Consequently, the
failure of the bank or petitioners Guingona and Martin to pay the deposits of private
respondent would not constitute a breach of trust but would merely be a failure to pay
the obligation as a debtor. Moreover, while it is true that novation does not extinguish
criminal liability, it may however, prevent the rise of criminal liability as long as it
occurs prior to the filing of the criminal information in court. In the case at bar, there is
no dispute that petitioners Guingona and Martin executed a promissory note on June
17, 1981 assuming the obligation of the bank to private respondent David; while the
criminal complaint for estafa was filed on December 23, 1981 with the Office of the City
Fiscal. Hence, it is clear that novation occurred long before the filing of the criminal
complaint with the Office of the City Fiscal. Consequently, as aforestated, any incipient
criminal liability would be avoided but there will still be a civil liability on the part of
petitioners Guingona and Martin to pay the assumed obligation.

(2) Petitioner Guingona merely accommodated the request of the Nation Savings and
loan Association in order to clear the bank draft through his dollar account because the
bank did not have a dollar account. Immediately after the bank draft was cleared,
petitioner Guingona authorized Nation Savings and Loan Association to withdraw the
same in order to be utilized by the bank for its operations. It is safe to assume that the
U.S. dollars were converted first into Philippine pesos before they were accepted and
deposited in Nation Savings and Loan Association, because the bank is presumed to
have followed the ordinary course of the business which is to accept deposits in
Philippine currency only, and that the transaction was regular and fair, in the absence of
a clear and convincing evidence to the contrary.

In conclusion, considering that the liability of the petitioners is purely civil in nature and
that there is no clear showing that they engaged in foreign exchange transactions, We
hold that the public respondents acted without jurisdiction when they investigated the
charges against the petitioners. Consequently, public respondents should be restrained
from further proceeding with the criminal case for to allow the case to continue, even if
the petitioners could have appealed to the Ministry of Justice, would work great
injustice to petitioners and would render meaningless the proper administration of
justice.

TEOFISTO GUINGONA, JR., ANTONIO MARTIN, and TERESITA

SANTOS v.
CITY FISCAL FLAMINIANO, ASST. CITY FISCAL LOTA and CLEMENT
DAVID

1984 / Makasiar

David invested several deposits with the Nation Savings and Loan Association
[NSLA]. He said that he was induced into making said investments by an Australian
national who was a close associate of the petitioners [NSLA officials]. On March
1981, NSLA was placed under receivershipby the Central Bank, so David filed
claims for his and his sister’s investments.

On June 1981, Guingona and Martin, upon David’s request, assumed the bank’s
obligation to David by executing a joint promissory note. On July 1981, David
received a report that only a portion of his investments was entered in the
NSLA records.

On December 1981, David filed I.S. No. 81-31938 in the Office of the City Fiscal, which
case was assigned to Asst. City Fiscal Lota for preliminary investigation. David charged
petitioners with estafa and violation of Central Bank Circular No. 364 and related
regulations on foreign exchange transactions.

Petitioners moved to dismiss the charges against them for lack of jurisdiction
because David's claims allegedly comprised a purely civil obligation, but the
motion was denied. After the presentation of David's principal witness, petitioners
filed this petition for prohibition and injunction because:

a. The production of various documents showed that the transactions between

David and NSLA were simple loans (civil obligations which were novated when
Guingona and Martin assumed them)

b. David's principal witness testified that the duplicate originals of the instruments
of indebtedness were all on file with NSLA.

A TRO was issued ordering the respondents to refrain from proceeding with the
preliminary investigation in I.S. No. 81-31938.
Petitioners’ liability is civil in nature, so respondents have no jurisdiction
over the estafa charge. TRO CORRECTLY ISSUED.

GENERAL RULE: Criminal prosecution may not be blocked by court prohibition or

injunction.

EXCEPTIONS

1. For the orderly administration of justice

2. To prevent the use of the strong arm of the law in an oppressive and vindictive
manner

3. To avoid multiplicity of actions

4. To afford adequate protection to constitutional rights

5. In proper cases, because the statute relied upon is unconstitutional or

was held invalid

When David invested his money on time and savings deposits with NSLA, the contract
that was perfected was a contract of simple loan or mutuum and not a contract of
deposit. The relationship between David and NSLA is that of creditor and debtor.
While the Bank has the obligation to return the amount deposited, it has no obligation
to return or deliver the same money that was deposited. NSLA’s failure to
return the amount deposited will not constitute estafa through
misappropriation, but it will only give rise to civil liability over which the public
respondents have no jurisdiction.

Considering that petitioners’ liability is purely civil in nature and that there is no
clear showing that they engaged in foreign exchange transactions, public
respondents acted without jurisdiction when they investigated the charges against the
petitioners. Public respondents should be restrained from further proceeding with the
criminal case for to allow the case to continue would work great injustice to petitioners
and would render meaningless the proper administration of justice.

Even granting that NSLA’s failure to pay the time and savings deposits would constitute
a violation of RPC 315, paragraph 1(b), any incipient criminal liability was deemed
avoided. When NSLA was placed under receivership, Guingona and Martin assumed the
obligation to David, thereby resulting in the novation of the original contractual
obligation. The original trust relationbetween NSLA and David
was converted into an ordinary debtor-creditor relation between the petitioners
and David. While it is true that novation does not extinguish criminal liability, it may
prevent the rise of criminal liability as long as it occurs prior to the filing of the criminal
information in court.

THE CONSOLIDATED BANK and TRUST CORPORATION vs. COURT OF

APPEALS and L.C. DIAZ and COMPANY, CPA’s
G.R. No. 138569, Sep 11, 2003.

FACT:
Petitioner Solidbank is a domestic banking corporation organized and existing under
Philippine laws. Private respondent L.C. Diaz and Company, CPA’s, is a professional
partnership engaged in the practice of accounting.

In March 1976, L.C. Diaz opened a savings account with Solidbank. On 14 August 1991,
L.C. Diaz through its cashier, Mercedes Macaraya, filled up a savings (cash) deposit slip
for P990 and a savings (checks) deposit slip for P50. Macaraya instructed the messenger
of L.C. Diaz, Ismael Calapre, to deposit the money with Solidbank. Macaraya also gave
Calapre the Solidbank passbook.

Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the
passbook. The teller acknowledged the receipt of the deposit by returning to Calapre the
duplicate copies of the two deposit slips. Teller No. 6 stamped the deposit slips with the
words “DUPLICATE” and “SAVING TELLER 6 SOLIDBANK HEAD OFFICE.” 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. Calapre then went to Allied Bank. When
Calapre returned to Solidbank to retrieve the passbook, 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 and Calapre went to Solidbank and presented to Teller No. 6 the
deposit slip and check. The teller stamped the words “DUPLICATE” and “SAVING
TELLER 6 SOLIDBANK HEAD OFFICE” on the duplicate copy of the deposit slip. 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 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 the return of its money. Solidbank refused. L.C.
Diaz filed a Complaint for Recovery of a Sum of Money against Solidbank. The trial
court absolved Solidbank. L.C. Diaz appealed to the CA. CA reversed the ecision of the
trial court. CA denied the motion for reconsideration of Solidbank. But it modified its
decision by deleting the award of exemplary damages and attorney’s fees. Hence this
petition.

ISSUE:
WON petitioner Solidbank is liable.

RULING:
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. Article 1980 of the Civil Code expressly provides that “x x x
savings x x x deposits of money in banks and similar institutions shall be governed by
the provisions concerning simple loan.” There is a debtor-creditor relationship between
the 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 deposit agreement between the bank and the depositor is the contract that
determines the rights and obligations of the parties.

The law imposes on banks high standards in view of the fiduciary nature of banking. 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.

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. 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.

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

The fiduciary nature of banking does not convert a simple loan into a trust agreement
because banks do not accept deposits to enrich depositors but to earn money for
themselves.
Solidbank’s Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that “responsibility arising from negligence in the
performance of every kind of obligation is demandable.” For breach of the savings
deposit agreement due to negligence, or culpa contractual, the bank is liable to its
depositor.

Calapre left the passbook with Solidbank because the “transaction took time” and he had
to go to Allied Bank for another transaction. The passbook was still in the hands of the
employees of Solidbank for the processing of the deposit when Calapre left Solidbank.
When the passbook is in the possession of Solidbank’s tellers during withdrawals, the
law imposes on Solidbank and its tellers an even higher degree of diligence in
safeguarding the passbook.

Solidbank’s tellers must exercise a high degree of diligence in insuring that they return
the passbook only to the depositor or 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.

In culpa contractual, once the plaintiff proves a breach of contract, there is a

presumption that the defendant was at fault or negligent. The burden is on the
defendant to prove that he was not at fault or negligent. In contrast, in culpa aquiliana
the plaintiff has the burden of proving that the defendant was negligent. In the present
case, L.C. Diaz has established that Solidbank breached its contractual obligation to
return the passbook only to the authorized representative of L.C. Diaz. There is thus a
presumption that Solidbank was at fault and its teller was negligent in not returning the
passbook to Calapre. The burden was on Solidbank to prove that there was no
negligence on its part or its employees. But Solidbank failed to discharge its burden.
Solidbank did not present to the trial court Teller No. 6, the teller with whom Calapre
left the passbook and who was supposed to return the passbook to him. Solidbank also
failed to adduce in evidence its standard procedure in verifying the identity of the
person retrieving the passbook, if there is such a procedure, and that Teller No. 6
implemented this procedure in the present case.

Solidbank is bound by the negligence of its employees under the principle of respondeat
superior or command responsibility. The defense of exercising the required diligence in
the selection and supervision of employees is not a complete defense in culpa
contractual, unlike in culpa aquiliana. The bank must not only exercise “high standards
of integrity and performance,” it must also insure that its employees do likewise because
this is the only way to insure that the bank will comply with its fiduciary duty

Proximate Cause of the Unauthorized Withdrawal

Proximate cause is that cause which, in natural and continuous sequence, unbroken by
any efficient intervening cause, produces the injury and without which the result would
not have occurred. Proximate cause is determined by the facts of each case upon mixed
considerations of logic, common sense, policy and precedent.
L.C. Diaz was not at fault that the passbook landed in the hands of the impostor.
Solidbank was in possession of the passbook while it was processing the deposit. After
completion of the transaction, Solidbank had the contractual obligation to return the
passbook only to Calapre, the authorized representative of L.C. Diaz. Solidbank failed to
fulfill its contractual obligation because it gave the passbook to another person.

Had the passbook not fallen into the hands of the impostor, the loss of P300,000 would
not have happened. Thus, the proximate cause of the unauthorized withdrawal was
Solidbank’s negligence in not returning the passbook to Calapre.

Doctrine of Last Clear Chance

The doctrine of last clear chance states that where both parties are negligent but the
negligent act of one is appreciably later than that of the other, or where it is impossible
to determine whose fault or negligence caused the loss, the one who had the last clear
opportunity to avoid the loss but failed to do so, is chargeable with the loss. The
antecedent negligence of the plaintiff does not preclude him from recovering damages
caused by the supervening negligence of the defendant, who had the last fair chance to
prevent the impending harm by the exercise of due diligence.

We do not apply the doctrine of last clear chance to the present case. This is a case of
culpa contractual, where neither the contributory negligence of the plaintiff nor his last
clear chance to avoid the loss, would exonerate the defendant from liability. Such
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

Mitigated Damages
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.

In PBC v. CA where the Court held the depositor guilty of contributory negligence, we
allocated the damages between the depositor and the bank on a 40-60 ratio. Applying
the same ruling to this case, we hold that L.C. Diaz must shoulder 40% of the actual
damages awarded by the appellate court. Solidbank must pay the other 60% of the
actual damages.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with

MODIFICATION.

FEB VS QUERIMIT

FACTS:
Respondent Estrella O. Querimit worked as internal auditor of the Philippine Savings
Bank (PSB) for 19 years, from 1963 to 1992.[3] On November 24, 1986, she opened a
dollar savings account in petitioners Harrison Plaza branch,[4] for which she was issued
four (4) Certificates of Deposit (Nos. 79028, 79029, 79030, and 79031), each certificate
representing the amount of $15,000.00, or a total amount of $60,000.00. The
certificates were to mature in 60 days, on January 23, 1987, and were payable to bearer
at 4.5% interest per annum. The certificates bore the word accrued, which meant that if
they were not presented for encashment or pre-terminated prior to maturity, the money
deposited with accrued interest would be rolled over by the bank and annual interest
would accumulate automatically.[5] The petitioner banks manager assured respondent
that her deposit would be renewed and earn interest upon maturity even without the
surrender of the certificates if these were not indorsed and withdrawn.[6] Respondent
kept her dollars in the bank so that they would earn interest and so that she could use
the fund after she retired.[7]

In 1989, respondent accompanied her husband Dominador Querimit to the United

States for medical treatment. She used her savings in the Bank of the Philippine Islands
(BPI) to pay for the trip and for her husbands medical expenses.[8] In January 1993, her
husband died and Estrella returned to the Philippines. 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

RULING

A certificate of deposit is defined as 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 to some other person or his order,
whereby the relation of debtor and creditor between the bank and the depositor is
created. The principles governing other types of bank deposits are applicable to
certificates of deposit,[25] as are the rules governing promissory notes when they contain
an unconditional promise to pay a sum certain of money absolutely.[26] The principle
that payment, in order to discharge a debt, must be made to someone authorized to
receive it is applicable to the payment of certificates of deposit. Thus, a bank will be
protected in making payment to the holder of a certificate indorsed by the payee, unless
it has notice of the invalidity of the indorsement or the holders want of title.[27] A bank
acts at its peril when it pays deposits evidenced by a certificate of deposit, without its
production and surrender after proper indorsement.[28] As a rule, one who pleads
payment has the burden of proving it. Even where the plaintiff must allege non-
payment, the general rule is that the burden rests on the defendant to prove payment,
rather than on the plaintiff to prove payment. The debtor has the burden of showing
with legal certainty that the obligation has been discharged by payment.[29]

In this case, the certificates of deposit were clearly marked payable to bearer, which
means, to [t]he person in possession of an instrument, document of title or security
payable to bearer or indorsed in blank.[30] Petitioner should not have paid respondents
husband or any third party without requiring the surrender of the certificates of deposit.

Petitioner claims that it did not demand the surrender of the subject certificates of
deposit since respondents husband, Dominador Querimit, was one of the banks senior
managers. But even long after respondents husband had allegedly been paid
respondents deposit and before his retirement from service, the FEBTC never required
him to deliver the certificates of deposit in question.[31] Moreover, the accommodation
given to respondents husband was made in violation of the banks policies and
procedures.[32]

Petitioner FEBTC thus failed to exercise that degree of diligence required by the nature
of its business.[33] 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.[34] A bank is under obligation to treat the accounts of its depositors with
meticulous care whether such accounts consist only of a few hundred pesos or of
millions of pesos. Responsibility arising from negligence in the performance of every
kind of obligation is demandable.[35] Petitioner failed to prove payment of the subject
certificates of deposit issued to the respondent and, therefore, remains liable for the
value of the dollar deposits indicated thereon with accrued interest.

BPI VS FERNANDEZ

FACTS

The present case arose from respondent Tarcila "Baby" Fernandez's (Tarcila) claim to
her proportionate share in the proceeds of four joint AND/OR accounts that the
petitioner BPI released to her estranged husband Manuel G. Fernandez (Manuel)
without the presentation of the requisite certificates of deposit. The facts leading to this
dispute are outlined below.

In 1991, Tarcila together with her husband, Manuel and their children Monique
Fernandez and Marco Fernandez, opened AND/OR deposit accounts with the
petitioner BPI, Shaw Blvd. Branch

On September 24, 1991, Tarcila went to the BPI Shaw Blvd. Branch to pre-terminate
these joint AND/OR accounts. She brought with her the certificates of time deposit and
the passbook, and presented them to the bank. BPI, however, refused the requested pre-
termination despite Tarcila's presentation of the covering certificates. Instead, BPI,
through its branch manager, Mrs. Elma San Pedro Capistrano (Capistrano),
insisted on contacting Manuel, alleging in this regard that this is an integral
part of its standard operating procedure

Shortly after Tarcila left the branch, Manuel arrived and likewise requested the pre-
termination of the joint AND/OR accounts.[7] Manuel claimed that he had lost the same
certificates of deposit that Tarcila had earlier brought with her. [8] BPI, through
Capistrano, this time acceded to the pre-termination requests, blindly believed Manuel's
claim,[9] and requested him to accomplish BPI's pro-forma affidavit of loss.

Tarcila never received her proportionate share of the pre-terminated

deposits,[16] prompting her to demand from BPI the amounts due her as a co-depositor
in the joint AND/OR accounts. When her demands remained unheeded, Tarcila
initiated a complaint for damages with the Regional Trial Court (RTQ of Makati City,
Branch 59, docketed as Civil Case No. 95-67.

RULING:

A certificate of deposit is defined as 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 to some other person or his
order, whereby the relation of debtor and creditor between the bank and the
depositor is created.[35] In particular, the certificates of depositcontain provisions
on the amount of interest, period of maturity, and manner of termination. Specifically,
they stressed that endorsement and presentation of the certificate of deposit
is indispensable to their termination. In other words, the accounts may only be
terminated upon endorsement and presentation of the certificates of
deposit. Without the requisite presentation of the certificates of deposit, BPI may not
terminate them.

BPI thus may only terminate the certificates of deposit after it has diligently
completed two steps. First, it must ensure the identity of the account holder. Second,
BPI must demand the surrender of the certificates of deposit.

This is the essence of the contract entered into by the parties which serves as an
accountability measure to other co-depositors. By requiring the presentation of
the certificates prior to termination, the other depositors may rely on the
fact that their investments in the interest-yielding accounts may not be
indiscriminately withdrawn by any of their co-depositors. This protective
mechanism likewise benefits the bank, which shields it from liability upon
showing that it released the funds in good faith to an account holder who
possesses the certificates. Without the presentation of the certificates of deposit,
BPI may not validly terminate the certificates of deposit.
With these considerations in mind, we find that BPI substantially breached its
obligations to the prejudice of Tarcila. BPI allowed the termination of the accounts
without demanding the surrender of the certificates of deposits, in the ordinary course
of business. Worse, BPI even had actual knowledge that the certificates of
deposit were in Tarcila's possession and yet it chose to release the proceeds
to Manuel on the basis of a falsified affidavit of loss, in gross violation of the
terms of the deposit agreements.

CA Agro-Industrial Development Corporation vs CA GR No. 90027. March

3, 1993

Facts:

CA Agro (through its President, Aguirre) and spouses Pugao entered into an
agreement whereby the former purchased two parcels of land for P350, 525 with a P75,
725 down payment while the balance was covered by three (3) postdated checks. Among
the terms embodied in a Memorandum of True and Actual Agreement of Sale of Land
were that titles to the lots shall be transferred to the petitioner upon full payment of the
purchase price and that the owner’s copies of the certificates of titles thereto shall be
deposited in a safety deposit box of any bank. The same could be withdrawn only upon
the joint signatures of a representative of the petitioner upon full payment of the
purchase price. They then rented Safety Deposit box of private respondent Security
Bank and Trust Company (SBTC). For this purpose, both signed a contract of lease
which contains the following conditions:

13. The bank is not a depositary of the contents of the safe and it has neither the
possession nor control of the same.

14. The bank has no interest whatsoever in said contents, except herein expressly
provided, and it assumes absolutely no liability in connection therewith.

After the execution of the contract, two (2) renter’s key were given to Aguirre, and
Pugaos. A key guard remained with the bank. The safety deposit box has two key holes
and can be opened with the use of both keys. Petitioner claims that the CTC were placed
inside the said box.

Thereafter, a certain Mrs. Ramos offered to buy from the petitioner the two (2) lots at a
price of P225 per sqm. Mrs. Ramose demanded the execution of a deed of sale which
necessarily entailed the production of the CTC. Aguirre and Pugaos then proceeded to
the bank to open the safety deposit box. However, when opened in the presence of
bank’s representative, the box yielded no certificates. Because of the delay in
reconstitution of title, Mrs. Ramos withdrew her earlier offer and as a consequence
petitioner failed to realize the expected profit of P280 , 500. Hence, the latter filed a
complaint for damages.

RTC: Dismissed the complaint

CA: Affirmed

Issue:

Whether or not the contractual relation between a commercial bank and another
party in the contract of rent of a safety deposit box is one of bailor and bailee.

Ruling:

Yes.

The contract in the case at bar is a special kind of deposit. It cannot be

characterized as an ordinary contract of lease under Article 1643 because the full and
absolute possession and control of the safety deposit box was not given to the joint
renters – the petitioner and Pugaos.

American Jurisprudence:

The prevailing rule is that the relation between a bank renting out safe-deposit
boxes and its customer with respect to the contents of the box is that of a bail or bailee,
the bailment being for hire and mutual benefit.

Our provisions on safety deposit boxes are governed by Section 72 (a) of the
General Banking Act, and this primary function is still found within the parameters of a
contract of deposit like the receiving in custody of funds, documents and other valuable
objects for safekeeping. The renting out of the safety deposit boxes is not independent
from, but related to or in conjunction with, this principal function. Thus, depositary’s
liability is governed by our civil code rules on obligation and contracts, and thus the
SBTC would be liable if, in performing its obligation, it is found guilty of fraud,
negligence, delay or contravention of the tenor of the agreement.

SIA VS CA

Contract of the use of a safety deposit box of a bank is not a deposit but a lease under
Sec 72, A of General Banking Act. Accordingly, it should have lost no time in notifying
the petitioner in order that the box could have been opened to retrieve the stamps, thus
saving the same from further deterioration and loss. The bank’s negligence
aggravated the injury or damage to the stamp collection..
Facts:

Plaintiff Luzon Sia rented a safety deposit box of Security Bank and Trust Co. (Security
Bank) at its Binondo Branch wherein he placed his collection of stamps. The said safety
deposit box leased by the plaintiff was at the bottom or at the lowest level of the safety
deposit boxes of the defendant bank. During the floods that took place in 1985 and 1986,
floodwater entered into the defendant bank’s premises, seeped into the safety deposit
box leased by the plaintiff and caused, according damage to his stamps collection.
Security Bank rejected the plaintiff’s claim for compensation for his damaged stamps
collection.

Sia, thereafter, instituted an action for damages against the defendant bank. Security
Bank contended that its contract with the Sia over safety deposit box was one of lease
and not of deposit and, therefore, governed by the lease agreement which should be the
applicable law; the destruction of the plaintiff’s stamps collection was due to a calamity
beyond obligation on its part to notify the plaintiff about the floodwaters that inundated
its premises at Binondo branch which allegedly seeped into the safety deposit box leased
to the plaintiff. The trial court rendered in favor of plaintiff Sia and ordered Sia to pay
damages.

Issue:

Whether or not the Bank is liable for negligence.

Held:

Contract of the use of a safety deposit box of a bank is not a deposit but a lease. Section
72 of the General Banking Act [R.A. 337, as amended] pertinently provides: In addition
to the operations specifically authorized elsewhere in this Act, banking institutions other
than building and loan associations may perform the following services (a) Receive in
custody funds, documents, and valuable objects, and rent safety deposit boxes for the
safequarding of such effects.

As correctly held by the trial court, Security Bank was guilty of negligence. The bank’s
negligenceaggravated the injury or damage to the stamp collection. SBTC was aware of
the floods of 1985 and 1986; it also knew that the floodwaters inundated the room where
the safe deposit box was located. In view thereof, it should have lost no time in notifying
the petitioner in order that the box could have been opened to retrieve the stamps, thus
saving the same from further deterioration and loss. In this respect, it failed to exercise
the reasonable care and prudence expected of a good father of a family, thereby
becoming a party to the aggravation of the injury or loss. Accordingly, the
aforementioned fourth characteristic of a fortuitous event is absent. Article 1170 of the
Civil Code, which reads “Those who in the performance of their obligation are guilty of
fraud, negligence, or delay, and those who in any manner contravene the tenor thereof,
are liable for damages” is applicable. Hence, the petition was granted.
The provisions contended by Security Bank in the lease agreement which are meant to
exempt SBTC from any liability for damage, loss or destruction of the contents of the
safety deposit box which may arise from its own agents’ fraud, negligence or delay must
be stricken down for being contrary to law and public policy.

JOSEPH GOYANKO v. UNITED COCONUT PLANTERS BANK

FACTS:

In 1995, the late Joseph Goyanko, Sr. (Goyanko) invested Two Million
Pesos (P2,000,000.00) with Philippine Asia Lending Investors, Inc.
(PALII); he died before the investment matured. Goyanko's legitimate
family, represented by the petitioner, and his illegitimate family presented
conflicting claims to PALII for the release of the investment. Pending the
investigation of the conflicting claims, PALII deposited the proceeds of the
investment with UCPB on October 29, 1996[5] under the name "Phil Asia:
ITF (In Trust For) The Heirs of Joseph Goyanko, Sr." (ACCOUNT). On
September 27, 1997, the deposit under the ACCOUNT was P1,509,318.76.

On December 11, 1997, UCPB allowed PALII to withdraw One Million Five
Hundred Thousand Pesos (P1,500,000.00) from the Account, leaving a
balance of only P9,318.76. When UCPB refused the demand to restore the
amount withdrawn plus legal interest from December 11, 1997, the
petitioner filed a complaint before the RTC. In its answer to the complaint,
UCPB admitted, among others, the opening of the ACCOUNT under the
name "ITF (In Trust For) The Heirs of Joseph Goyanko, Sr.," (ITF HEIRS)
and the withdrawal on December 11, 1997.

UCPB posits, in defense, that the ACCOUNT involves an ordinary deposit

contract between PALII and UCPB only, which created a debtor-creditor
relationship obligating UCPB to return the proceeds to the account holder-
PALII. Thus, it was not negligent in handling the ACCOUNT when it
allowed the withdrawal. The mere designation of the ACCOUNT as "ITF" is
insufficient to establish the existence of an express trust or charge it with
knowledge of the relation between PALII and the HEIRS.

UCPB also argues that the petitioner changed the theory of his case. Before
the CA, the petitioner argued that the HEIRS are the trustors-beneficiaries,
and PALII is the trustee. Here, the petitioner maintains that PALII is the
trustor, UCPB is the trustee, and the HEIRS are the beneficiaries. Contrary
to the petitioner's assertion, the records failed to show that PALII and
UCPB executed a trust agreement, and PALII's letters made it clear that
PALII, on its own, intended to turn-over the proceeds of the ACCOUNT to
its rightful owners

ISSUE:

Whether UCPB should be held liable for the amount withdrawn because a
trust agreement existed between PALII and UCPB, in favor of the HEIRS,
when PALII opened the ACCOUNT with UCPB.

RULING:

We rule in the negative.

Under these standards, we hold that no express trust was

created. First, while an ascertainable trust res and sufficiently certain
beneficiaries may exist, a competent trustor and trustee do
not. Second, UCPB, as trustee of the ACCOUNT, was never under any
equitable duty to deal with or given any power of administration over it. On
the contrary, it was PALII that undertook the duty to hold the title to the
ACCOUNT for the benefit of the HEIRS. Third, PALII, as the trustor, did
not have the right to the beneficial enjoyment of the ACCOUNT. Finally,
the terms by which UCPB is to administer the ACCOUNT was not shown
with reasonable certainty. While we agree with the petitioner that a trust's
beneficiaries need not be particularly identified for a trust to exist, the
intention to create an express trust must first be firmly
established, along with the other elements laid above; absent these, no
express trust exists.

Contrary to the petitioner's contention, PALII's letters and UCPB's records

established UCPB's participation as a mere depositary of the proceeds of
the investment. In the March 28, 1996 letter, PALII manifested its
intention to pursue an active role in and up to the turnover of those
proceeds to their rightful owners,[32] while in the November 15, 1996 letter,
PALII begged the petitioner to trust it with the safekeeping of the
investment proceeds and documents.[33] Had it been PALII's intention to
create a trust in favor of the HEIRS, it would have relinquished any right or
claim over the proceeds in UCPB's favor as the trustee. As matters stand,
PALII never did.
UCPB's records and the testimony of UCPB's witness[34] likewise lead us to
the same conclusion. While the words "ITF HEIRS" may have created the
impression that a trust account was created, a closer scrutiny reveals that it
is an ordinary savings account.[35] We give credence to UCPB's explanation
that the word "ITF" was merely used to distinguish the ACCOUNT from
PALII's other accounts with UCPB. A trust can be created without using
the word "trust" or "trustee," but the mere use of these words does not
automatically reveal an intention to create a trust.[36] If at all, these words
showed a trustee-beneficiary relationship between PALII and the HEIRS.

DOMINADOR M. APIQUE v. EVANGELINE APIQUE FAHNENSTICH, GR

No. 205705, 2015-08-05

Facts:

Dominador and Evangeline are siblings

Evangeline left for Germany to work sometime in 1979.

Evangeline executed General... and Special Powers of Attorney... constituting

Dominador as her attorney-in-fact to purchase real property for her, and to manage or
supervise her business affairs in the Philippines.

she opened a joint savings account... with Dominador at

Philippine Commercial International Bank... which later became Equitable PCI Bank
(EPCIB)

Dominador withdrew the amount of P980,000.00 from the subject account and,
thereafter, deposited the money to his own savings account with the same bank

Evangeline learned of... such withdrawal

Evangeline demanded the return of the amount withdrawn from the joint account, but
to no avail. Hence, she filed a complaint

Evangeline claimed to be the sole owner of the money deposited in the subject account,
and that Dominador has no authority to withdraw the same.

Dominador asserted,... , that he was authorized to withdraw funds from the subject
account to answer for the expenses of Evangeline's projects,

Issues:
whether or not Evangeline is entitled to the return of the amount of P980,000.00
Dominador withdrew from their joint savings account with EPCIB

Ruling:

A joint account is one that is held jointly by two or more natural persons, or by two or
more juridical persons or entities.

Under such setup, the depositors are joint owners or co-owners of the said account,...
and their share in... the deposits shall be presumed equal, unless the contrary is proved,
pursuant to Article 485 of the Civil Code, which provides:

Art. 485. The share of the co-owners, in the benefits as well as in the charges, shall be
proportional to their respective interests. Any stipulation in a contract to the contrary
shall be void.

The portions belonging to the co-owners in the co-ownership shall be presumed equal,
unless the contrary is proved.

The common banking practice is that regardless of who puts the money into the
account, each of the named account holder has an undivided right to the entire
balance,... and any of them may deposit and/or withdraw, partially or wholly, the funds
without the... need or consent of the other,... during their lifetime.

Nevertheless, as between the account holders, their right against each other may depend
on what they have agreed upon, and the purpose for which the account was opened
and... how it will be operated.

In this case,... It is... admitted... that: (a) the account was opened for a specific purpose,
i.e., to facilitate... the transfer of needed funds for Evangeline's business projects;... and
(b) Dominador may withdraw funds therefrom "if"... there is a need to meet
Evangeline's financial obligations arising from said... projects.

Hence, while Dominador is a co-owner of the subject account as far as the bank is
concerned — and may, thus, validly deposit and/or withdraw funds without the consent
of his co-depositor, Evangeline — as between him and

Evangeline, his authority to withdraw, as well as the amount to be withdrawn, is

circumscribed by the purpose for which the subject account was opened.

Dominador's right to obtain funds... was, thus, conditioned on the necessity of funds for
Evangeline's projects.

Admittedly, at the time he withdrew the amount of P980,000.00 from the subject
account, there was no project... being undertaken for Evangeline.
 Vitug v. CA

G.R. No. 82027, March 29, 1990

Spouses Dolores and Romarico Vitug entered into a survivorship agreement with the
Bank of American National Trust and Savings Association. The said agreement
contained the following stipulations:

(1) All money deposited and to be deposited with the Bank in their joint savings
current account shall be both their property and shall be payable to and collectible or
withdrawable by either or any of them during their lifetime; and

(2) After the death of one of them, the same shall belong to and be the sole property of
the surviving spouse and payable to and collectible or withdrawable by such survivor

Dolores died naming Rowena Corona in her wills as executrix. Romarico later filed a
motion asking authority to sell certain shares of stock and real property belonging to the
estate to cover his advances to the estate which he claimed were personal funds
withdrawn from their savings account. Rowena opposed on the ground that the same
funds withdrawn from the savings account were conjugal partnership properties and
part of the estate. Hence, there should be no reimbursement. On the other hand,
Romarico insists that the same are his exclusive property acquired through the
survivorship agreement.

ISSUE: Whether or not the funds of the savings account subject of the survivorship
agreement were conjugal partnership properties and part of the estate

No. The Court ruled that a Survivorship Agreement is neither a donation

mortis causanor a donation inter vivos. It is in the nature of an aleatory contract
whereby one or both of the parties reciprocally bind themselves to give or to do
something in consideration of what the other shall give or do upon the happening of an
event which is to occur at an indeterminate time or is uncertain, such as death. The
Court further ruled that a survivorship agreement is per se not contrary to law and thus
is valid unless its operation or effect may be violative of a law such as in the following
instances: (1) it is used as a mere cloak to hide an inofficious donation; (2) it is used to
transfer property in fraud of creditors; or (3) it is used to defeat the legitime of a
compulsory heir. In the instant case, none of the foregoing instances were present.
Consequently, the Court upheld the validity of the survivorship agreement entered into
by the spouses Vitug. As such, Romarico, being the surviving spouse, acquired a vested
right over the amounts under the savings account, which became his exclusive property
upon the death of his wife pursuant to the survivorship agreement. Thus, the funds of
the savings account are not conjugal partnership properties and not part of the estate of
the deceased Dolores.

ALLIED BANKING CORPORATION vs. COURT OF APPEALS , HON. JOSE C.

DE GUZMAN, OSCAR D. TAN-QUECO, LUCIA D. TANQUECO-MATIAS,
RUBEN D. TANQUECO and NESTOR D. TANQUECO.
FACTS:

Petitioner Allied Banking Corporation (ALLIED) leased a property owned by Spouses

Filemon and Lucia Tanqueco. The lease contract states that, “the term of the lease shall
be fourteen (14) years commencing from April 1, 1978 and may be renewed for a like
term at the option of the lessee.”

In 1988, the Tanqueco spouses executed a deed of donation over the subject property in
favor of their four (4) children.

In 1991, a year before the expiration of the contract of lease, the heirs of Tanquecos
notified petitioner ALLIED that they were no longer interested in renewing the lease.

ALLIED, on the other hand, replied that it was exercising its option to renew their lease
under the same terms as was agreed with the original lease of contract with additional
proposals, however, petitioner rejected the proposal. When the lease contract expired in
1992, the heirs demanded that ALLIED vacate the premises. An action for ejectment was
commenced before the MeTC of Quezon City.

ISSUE:

Whether a stipulation in a contract of lease stating “may be renewed for a like term at
the option of the lessee” is violative of the principle of mutuality of contract.

HELD:

No, the lease contract was mutually agreed upon hence valid and binding on both
parties, and the exercise by petitioner of its option to renew the contract was part of
their agreement and in pursuance thereof.

The principle of mutuality of contracts provides that “the contract must bind both the
contracting parties; its validity or compliance cannot be left to the will of one of them.”
This binding effect of a contract on both parties is based on the principle that the
obligations arising from the contracts have the force of law between the contracting
parties, and there must be mutuality between them based essentially on their equality
under which it is repugnant to have one party bound by the contract while leaving the
other free therefrom. The ultimate purpose is to render void a contract containing a
condition which makes its fulfillment dependent solely upon the uncontrolled will of
one of the contracting parties.

PI EXPRESS CARD CORPORATION,* PETITIONER, VS. MA. ANTONIA R.

ARMOVIT, RESPONDENT.

FACTS
Armovit, then a depositor of the Bank of the Philippine Islands at its Cubao
Branch, was issued by BPI Express Credit a pre-approved BPI Express
Credit Card (credit card) in 1989 with a credit limit of P20,000.00 that was
to expire at the end of March 1993.[3] On November 21, 1992, she treated
her British friends from Hong Kong to lunch at Mario's Restaurant in the
Ortigas Center in Pasig. As the host, she handed to the waiter her credit
card to settle the bill, but the waiter soon returned to inform her that her
credit card had been cancelled upon verification with BPI Express Credit
and would not be honored. Inasmuch as she was relying on her credit card
because she did not then carry enough cash that day, her guests were made
to share the bill to her extreme embarrassment.

Outraged, Armovit called BPI Express Credit to verify the status of her
credit card. She learned that her credit card had been summarily cancelled
for failure to pay her outstanding obligations. She vehemently denied
having defaulted on her payments. Thus, by letter dated February 3,
1993,[4] she demanded compensation for the shame, embarrassment and
humiliation she had suffered in the amount of P2,000,000.00.

In its reply letter dated February 5, 1993,[5] BPI Express Credit claimed that
it had sent Armovit a telegraphic message on March 19, 1992 requesting her
to pay her arrears for three consecutive months, and that she did not
comply with the request, causing it to temporarily suspend her credit card
effective March 31, 1992.[6] It further claimed that she had been notified of
the suspension and cautioned to refrain from using the credit card to avoid
inconvenience or embarrassment;[7] and that while the obligation was
settled by April, 1992, she failed to submit the required application form in
order to reactivate her credit card privileges. Thus, BPI Express Credit
countered that her demand for monetary compensation had no basis in fact
and in law.

On March 12, 1993, Armovit received a telegraphic message from BPI

Express Credit apologizing for its error of inadvertently including her credit
card in Caution List No. 225 dated March 11, 1993 sent to its affiliated
merchants.[8]

As a result, Armovit sued BPI Express Credit for damages in the RTC,
insisting that she had been a credit card holder in good standing, and that
she did not have any unpaid bills at the time of the incident.
In its answer with counterclaim,[9] BPI Express Credit raised the defense of
lack of cause of action, and maintained that Armovit had defaulted in her
obligations for three consecutive months, thereby causing the temporary
suspension of her credit card in accordance with the terms and conditions
of the credit card.[10] It pointed out that Armovit had been duly notified of
the suspension; that for her failure to comply with the requirement for the
submission of the application form and other documents as directed in its
letter dated April 8, 1992,[11] her credit card had not been reactivated and
had remained in the list of suspended cards at the time she used it on
November 21, 1992; and that the telegraphic message of March 11, 1993,
which was intended for another client whose credit card had been
erroneously included in the caution list, was mistakenly sent to her

ISSUE

The sole issue is whether or not the CA erred in sustaining the award of
moral and exemplary damages in favor of Armovit.

RULING

The relationship between the credit card issuer and the credit card holder is
a contractual one that is governed by the terms and conditions found in the
card membership agreement.[16] Such terms and conditions constitute the
law between the parties. In case of their breach, moral damages may be
recovered where the defendant is shown to have acted fraudulently or in
bad faith.[17] Malice or bad faith implies a conscious and intentional design
to do a wrongful act for a dishonest purpose or moral
obliquity.[18] However, a conscious or intentional design need not always be
present because negligence may occasionally be so gross as to amount to
malice or bad faith.[19] Hence, bad faith in the context of Article 2220 of
the Civil Code includes gross negligence

PEOPLE VS SORIANO

The rule on DOSRI transactions covers loans by a bank director or officer which are
made either: (1) directly, (2) indirectly, (3) for himself, (4) or as the representative or
agent of others. The bank officer’s act of indirectly securing a fraudulent loan
application by using the name of an unsuspecting person and without prior compliance
with the requirements of the law would make the officer liable not only for violation of
the law on DOSRI transactions but also for estafa through falsification of commercial
documents
GO VS CA

FACTS:

On August 20, 1999, an Information6 for violation of Section 83 of Republic Act No. 337
(RA 337) or the General Banking Act, as amended by Presidential Decree No. 1795, was
filed against Go before the RTC. The charge reads:

“That on or about and during the period comprised between June 27, 1996 and
September 15, 1997, inclusive, in the City of Manila, Philippines, the said accused, being
then the Director and the President and Chief Executive Officer of the Orient
Commercial Banking Corporation (Orient Bank), a commercial banking institution
created, organized and existing under Philippines laws, with its main branch located at
C.M. Recto Avenue, this City, and taking advantage of his position as such
officer/director of the said bank, did then and there wilfully, unlawfully and knowingly
borrow, either directly or indirectly, for himself or as the representative of his other
related companies, the deposits or funds of the said banking institution and/or become
a guarantor, indorser or obligor for loans from the said bank to others, by then and there
using said borrowed deposits/funds of the said bank in facilitating and granting and/or
caused the facilitating and granting of credit lines/loans and, among others, to the New
Zealand Accounts loans in the total amount of TWO BILLION AND SEVEN HUNDRED
FIFTY-FOUR MILLION NINE HUNDRED FIVE THOUSAND AND EIGHT HUNDRED
FIFTY-SEVEN AND 0/100 PESOS, Philippine Currency, said accused knowing fully well
that the same has been done Go vs. Bangko Sentral ng Pilipinas, 604 SCRA 322, G.R.
No. 178429 October 23, 2009

RULING:

Mercantile Law; Banks and Banking; Banks were not created for the benefit of their
directors and officers; they cannot use the assets of the bank for their own benefit,
except as may be permitted by law. Congress has thus deemed it essential to impose
restrictions on borrowings by bank directors and officers in order to protect the public,
especially the depositors.—The language of the law is broad enough to encompass either
act of borrowing or guaranteeing, or both. While the first paragraph of Section 83 is
penal in nature, and by principle should be strictly construed in favor of the accused, the
Court is unwilling to adopt a liberal construction that would defeat the legislature’s
intent in enacting the statute. The objective of the law should allow for a reasonable
flexibility in its construction. Section 83 of RA 337, as well as other banking laws
adopting the same prohibition, was enacted to ensure that loans by banks and similar
financial institutions to their own directors, officers, and stockholders are above board.
Banks were not created for the benefit of their directors and officers; they cannot use the
assets of the bank for their own benefit, except as may be permitted by law. Congress
has thus deemed it essential to impose restrictions on borrowings by bank directors and
officers in order to protect the public, especially the depositors. Hence, when the law
prohibits directors and officers of banking institutions from becoming in any manner an
obligor of the bank (unless with the approval of the board), the terms of the prohibition
shall be the standards to be applied to directors’ transactions such as those involved in
the present case. Go vs. Bangko Sentral ng Pilipinas, 604 SCRA 322, G.R. No. 178429
October 23, 2009

REDEMPTION GOLDENWAY

BANCO FILIPINO VS YVAEZ

Spouses Bautista vs Pilar Devt Corp 312 SCRA 611

Fact:

In 1978, Petitioner spouses Bautista purchased a house and lot in Pilar Village, Las
Pinas, Metro Manila. To partially finance the purchase, they obtained from the Apex
Mortgage and Loan Corp a loan in the amout of 100,180.00php. They executed a
promissory note obligating themselves, jointly and severally to pay the principal sum
with interest rate of 12% for 240 months or 2years. In the same promissory note,
petitioners authorized Apex to "increase the rate of interest and/or service charge"
without notice to them in the event a law, Presidential Decree or any Central Bank
regulation should be enacted increasing the lawful rate of interest.

Petitioner spouses failed to pay several installments. On September 20, 1982, they
executed another promissory note in favor of Apex. This time there was an increased
interest rate of 21% per annum with penalty of 11/2 for late payment payable for 196
months. Petitioners retained the authorization to increase/decrease the rate of interest.

In November 1983, petitioners again failed to pay installments. On June 06, 1984, Apex
assigned the second promissory note to respondent Pilar Development Corporation, a
successor-in-interest. The latter then instituted against petitioner spouses before the
RTC collection for the unpaid balance as of November 23, 1983 including the internal
rate of 21%. RTC rendered judgment ordering petitioners to pay balance with interest of
12%. CA reversed the trial court by applying 21% per annum amounting to
142,346.42php. However, it was reversed to 140,515.11, initial decision of RTC, after the
denial for motion to reconsider.
RULING

Circular No. 905 removed the ceiling on interest rates for secured and unsecured loans
regardless of maturity.–On December 1, 1979, the Monetary Board of the Central Bank
of the Philippines issued Circular No. 705 which fixed the effective rate of interest on
loan transactions with maturities of more than 730 days to twenty-one per cent (21%)
per annum for both secured and unsecured loans. On January 28, 1980, The Monetary
Board issued Circular No. 712 reiterating the effective interest rate of 21% on said loan
transactions. On January 1, 1983, CB Circular No. 905, series of 1982, took effect. This
Circular declared that the rate of interest on any loan or forbearance of any money,
goods or credits, regardless of maturity and whether secured or unsecured, “shall not be
subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.– In
short, Circular No. 905 removed the ceiling on interest rates for secured and unsecured
loans, regardless of maturity. Bautista vs. Pilar Development Corporation, 312 SCRA
611, G.R. No. 135046 August 17, 1999

EASTERN SHIPPING LINES VS CA

Eastern Shipping vs CA

GR No. 97412, 12 July 1994

234 SCRA 78

FACTS

Two fiber drums were shipped owned by Eastern Shipping from Japan. The
shipment as insured with a marine policy. Upon arrival in Manila unto the custody of
metro Port Service, which excepted to one drum, said to be in bad order and which
damage was unknown the Mercantile Insurance Company. Allied Brokerage
Corporation received the shipment from Metro, one drum opened and without seal.
Allied delivered the shipment to the consignee’s warehouse. The latter excepted to one
drum which contained spillages while the rest of the contents was adulterated/fake. As
consequence of the loss, the insurance company paid the consignee, so that it became
subrogated to all the rights of action of consignee against the defendants Eastern
Shipping, Metro Port and Allied Brokerage. The insurance company filed before the trial
court. The trial court ruled in favor of plaintiff an ordered defendants to pay the former
with present legal interest of 12% per annum from the date of the filing of the complaint.
On appeal by defendants, the appellate court denied the same and affirmed in toto the
decision of the trial court.

ISSUE

(1) Whether the applicable rate of legal interest is 12% or 6%.

(2) Whether the payment of legal interest on the award for loss or damage is to be
computed from the time the complaint is filed from the date the decision appealed from
is rendered.

HELD

(1) The Court held that the legal interest is 6% computed from the decision of the
court a quo. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damaes awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty.

When the judgment of the court awarding a sum of money becomes final and executor,
the rate of legal interest shall be 12% per annum from such finality until satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of money.

The interest due shall be 12% PA to be computed fro default, J or EJD.

(2) From the date the judgment is made. Where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or EJ but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shll begin to run only from the date of judgment of the
court is made.

(3) The Court held that it should be computed from the decision rendered by the court
a quo.

DARIO NACAR VS GALLERY FRAMES

Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey, Jr.
Nacar alleged that he was dismissed without cause by Gallery Frames on January 24,
1997. On October 15, 1998, the Labor Arbiter (LA) found Gallery Frames guilty of illegal
dismissal hence the Arbiter awarded Nacar P158,919.92 in damages consisting of
backwages and separation pay.

Gallery Frames appealed all the way to the Supreme Court (SC). The Supreme Court
affirmed the decision of the Labor Arbiter and the decision became final on May 27,
2002.

After the finality of the SC decision, Nacar filed a motion before the LA for
recomputation as he alleged that his backwages should be computed from the time of
his illegal dismissal (January 24, 1997) until the finality of the SC decision (May 27,
2002) with interest. The LA denied the motion as he ruled that the reckoning point of
the computation should only be from the time Nacar was illegally dismissed (January
24, 1997) until the decision of the LA (October 15, 1998). The LA reasoned that the said
date should be the reckoning point because Nacar did not appeal hence as to him, that
decision became final and executory.

ISSUE: Whether or not the Labor Arbiter is correct.

HELD: No. There are two parts of a decision when it comes to illegal dismissal cases
(referring to cases where the dismissed employee wins, or loses but wins on appeal). The
first part is the ruling that the employee was illegally dismissed. This is immediately
final even if the employer appeals – but will be reversed if employer wins on appeal. The
second part is the ruling on the award of backwages and/or separation pay. For
backwages, it will be computed from the date of illegal dismissal until the date of the
decision of the Labor Arbiter. But if the employer appeals, then the end date shall be
extended until the day when the appellate court’s decision shall become final. Hence, as
a consequence, the liability of the employer, if he loses on appeal, will increase – this is
just but a risk that the employer cannot avoid when it continued to seek recourses
against the Labor Arbiter’s decision. This is also in accordance with Article 279 of the
Labor Code.

Anent the issue of award of interest in the form of actual or compensatory damages, the
Supreme Court ruled that the old case of Eastern Shipping Lines vs CA is already
modified by the promulgation of the Bangko Sentral ng Pilipinas Monetary Board
Resolution No. 796 which lowered the legal rate of interest from 12% to 6%. Specifically,
the rules on interest are now as follows:

1. Monetary Obligations ex. Loans:

a. If stipulated in writing:

a.1. shall run from date of judicial demand (filing of the case)

a.2. rate of interest shall be that amount stipulated

b. If not stipulated in writing

b.1. shall run from date of default (either failure to pay upon extra-judicial demand or
upon judicial demand whichever is appropriate and subject to the provisions of Article
1169 of the Civil Code)

b.2. rate of interest shall be 6% per annum

2. Non-Monetary Obligations (such as the case at bar)

a. If already liquidated, rate of interest shall be 6% per annum, demandable from date of
judicial or extra-judicial demand (Art. 1169, Civil Code)

b. If unliquidated, no interest
Except: When later on established with certainty. Interest shall still be 6% per annum
demandable from the date of judgment because such on such date, it is already deemed
that the amount of damages is already ascertained.

3. Compounded Interest

– This is applicable to both monetary and non-monetary obligations

– 6% per annum computed against award of damages (interest) granted by the court. To
be computed from the date when the court’s decision becomes final and executory until
the award is fully satisfied by the losing party.

4. The 6% per annum rate of legal interest shall be applied prospectively:

– Final and executory judgments awarding damages prior to July 1, 2013 shall apply the
12% rate;

– Final and executory judgments awarding damages on or after July 1, 2013 shall apply
the 12% rate for unpaid obligations until June 30, 2013; unpaid obligations with respect
to said judgments on or after July 1, 2013 shall still incur the 6% rate.

RUIZ VS CA

FACTS

Petitioner Corazon G. Ruiz is engaged in the business of buying and selling

jewelry.[4] She obtained loans from private respondent Consuelo Torres on different
occasions, in the following amounts: P100,000.00; P200,000.00; P300,000.00;
and P150,000.00.[5] Prior to their maturity, the loans were consolidated under one (1)
promissory note dated March 22, 1995

The consolidated loan of P750,000.00 was secured by a real estate mortgage on a 240-
square meter lot in New Haven Village, Novaliches, Quezon City, covered by Transfer
Certificate of Title (TCT) No. RT-96686, and registered in the name of petitioner.[7] The
mortgage was signed by Corazon Ruiz for herself and as attorney-in-fact of her husband
Rogelio. It was executed on 20 March 1995, or two (2) days before the execution of the
subject promissory note.[8]

Thereafter, petitioner obtained three (3) more loans from private respondent, under the
following promissory notes: (1) promissory note dated 21 April 1995, in the amount
of P100,000.00;[9] (2) promissory note dated May 23, 1995, in the amount
of P100,000.00;[10] and (3) promissory note dated December 21, 1995, in the amount
of P100,000.00.[11] These combined loans of P300,000.00 were secured by P571,000.00
worth of jewelry pledged by petitioner to private respondent.[12]
From April 1995 to March 1996, petitioner paid the stipulated 3% monthly interest on
the P750,000.00 loan,[13] amounting to P270,000.00.[14] After March 1996, petitioner
was unable to make interest payments as she had difficulties collecting from her clients
in her jewelry business.[15]

Due to petitioners failure to pay the principal loan of P750,000.00, as well as the
interest payment for April 1996, private respondent demanded payment not only of
the P750,000.00 loan, but also of the P300,000.00 loan.[16] When petitioner failed to
pay, private respondent sought the extra-judicial foreclosure of the aforementioned real
estate mortgage.[17]

On September 5, 1996, Acting Clerk of Court and Ex-Officio Sheriff Perlita V. Ele,
Deputy Sheriff In-Charge Rolando G. Acal and Supervising Sheriff Silverio P. Bernas
issued a Notice of Sheriffs Sale of subject lot. The public auction was scheduled on
October 8, 1996.[18]

On October 7, 1996, one (1) day before the scheduled auction sale, petitioner filed a
complaint with the RTC of Quezon City docketed as Civil Case No. Q-96-29024, with a
prayer for the issuance of a Temporary Restraining Order to enjoin the sheriff from
proceeding with the foreclosure sale and to fix her indebtedness to private respondent
to P706,000.00. The computed amount of P706,000.00 was based on the aggregate
loan of P750,000.00, covered by the March 22, 1995 promissory note, plus the other
loans of P300,000.00, covered by separate promissory notes, plus interest,
minus P571,000.00 representing the amount of jewelry pledged in favor of private
respondent.[19]

The trial court granted the prayer for the issuance of a Temporary Restraining
Order,[20] and on 29 October 1996, issued a writ of preliminary injunction.[21] In its
Decision dated May 19, 1997, it ordered the Clerk of Court and Ex-Officio Sheriff to
desist with the foreclosure sale of the subject property, and it made permanent the writ
of preliminary injunction. It held that the real estate mortgage is unenforceable because
of the lack of the participation and signature of petitioners husband. It noted that
although the subject real estate mortgage stated that petitioner was attorney-in-fact for
herself and her husband, the Special Power of Attorney was never presented in court
during the trial.[22]

The trial court further held that the promissory note in question is a unilateral contract
of adhesion drafted by private respondent. It struck down the contract as repugnant to
public policy because it was imposed by a dominant bargaining party (private
respondent) on a weaker party (petitioner).[23] Nevertheless, it held that petitioner still
has an obligation to pay the private respondent. Private respondent was further barred
from imposing on petitioner the obligation to pay the surcharge of one percent (1%) per
month from March 1996 onwards, and interest of ten percent (10%) a month,
compounded monthly from September 1996 to January 1997. Petitioner was thus
ordered to pay the amount of P750,000.00 plus three percent (3%) interest per month,
or a total of P885,000.00, plus legal interest from date of [receipt of] the decision until
the total amount of P885,000.00 is paid
RULING

The consolidated loan of P750,000.00 was secured by a real estate mortgage on a 240-
square meter lot in New Haven Village, Novaliches, Quezon City, covered by Transfer
Certificate of Title (TCT) No. RT-96686, and registered in the name of petitioner.[7] The
mortgage was signed by Corazon Ruiz for herself and as attorney-in-fact of her husband
Rogelio. It was executed on 20 March 1995, or two (2) days before the execution of the
subject promissory note.[8]

Thereafter, petitioner obtained three (3) more loans from private respondent, under the
following promissory notes: (1) promissory note dated 21 April 1995, in the amount of
P100,000.00;[9] (2) promissory note dated May 23, 1995, in the amount of
P100,000.00;[10] and (3) promissory note dated December 21, 1995, in the amount of
P100,000.00.[11] These combined loans of P300,000.00 were secured by P571,000.00
worth of jewelry pledged by petitioner to private respondent.[12]

From April 1995 to March 1996, petitioner paid the stipulated 3% monthly interest on
the P750,000.00 loan,[13] amounting to P270,000.00.[14] After March 1996, petitioner
was unable to make interest payments as she had difficulties collecting from her clients
in her jewelry business.[15]

Due to petitioners failure to pay the principal loan of P750,000.00, as well as the
interest payment for April 1996, private respondent demanded payment not only of the
P750,000.00 loan, but also of the P300,000.00 loan.[16] When petitioner failed to pay,
private respondent sought the extra-judicial foreclosure of the aforementioned real
estate mortgage.[17]

On September 5, 1996, Acting Clerk of Court and Ex-Officio Sheriff Perlita V. Ele,
Deputy Sheriff In-Charge Rolando G. Acal and Supervising Sheriff Silverio P. Bernas
issued a Notice of Sheriffs Sale of subject lot. The public auction was scheduled on
October 8, 1996.[18]

On October 7, 1996, one (1) day before the scheduled auction sale, petitioner filed a
complaint with the RTC of Quezon City docketed as Civil Case No. Q-96-29024, with a
prayer for the issuance of a Temporary Restraining Order to enjoin the sheriff from
proceeding with the foreclosure sale and to fix her indebtedness to private respondent to
P706,000.00. The computed amount of P706,000.00 was based on the aggregate loan
of P750,000.00, covered by the March 22, 1995 promissory note, plus the other loans of
P300,000.00, covered by separate promissory notes, plus interest, minus P571,000.00
representing the amount of jewelry pledged in favor of private respondent.[19]

The trial court granted the prayer for the issuance of a Temporary Restraining
Order,[20] and on 29 October 1996, issued a writ of preliminary injunction.[21] In its
Decision dated May 19, 1997, it ordered the Clerk of Court and Ex-Officio Sheriff to
desist with the foreclosure sale of the subject property, and it made permanent the writ
of preliminary injunction. It held that the real estate mortgage is unenforceable because
of the lack of the participation and signature of petitioners husband. It noted that
although the subject real estate mortgage stated that petitioner was attorney-in-fact for
herself and her husband, the Special Power of Attorney was never presented in court
during the trial.[22]

The trial court further held that the promissory note in question is a unilateral contract
of adhesion drafted by private respondent. It struck down the contract as repugnant to
public policy because it was imposed by a dominant bargaining party (private
respondent) on a weaker party (petitioner).[23] Nevertheless, it held that petitioner still
has an obligation to pay the private respondent. Private respondent was further barred
from imposing on petitioner the obligation to pay the surcharge of one percent (1%) per
month from March 1996 onwards, and interest of ten percent (10%) a month,
compounded monthly from September 1996 to January 1997. Petitioner was thus
ordered to pay the amount of P750,000.00 plus three percent (3%) interest per month,
or a total of P885,000.00, plus legal interest from date of [receipt of] the decision until
the total amount of P885,000.00 is paid

PNB vs. CA et al

G.R. No. 121597

June 29, 2001

FACTS: The spouses Chua were the owners of a parcel of land covered by a TCT and
registered in their names. Upon the husband’s death, the probate court appointed his
son, private respondent Allan as special administrator of the deceased’s intestate estate.
The court also authorized Allan to obtain a loan accommodation from PNB to be secured
by a real estate mortgage over the above-mentioned parcel of land, which Allan did
for P450,000.00 with interest.

For failure to pay the loan in full, the bank extrajudicially foreclosed the real estate
mortgage. During the auction, PNB was the highest bidder. However, the loan having a
payable balance, to claim this deficiency, PNB instituted an action with the RTC,
Balayan, Batangas, against both Mrs. Chua and Allan.

The RTC rendered its decision, ordering the dismissal of PNB’s complaint. On appeal,
the CA affirmed the RTC decision by dismissing PNB’s appeal for lack of merit.

Hence, the present petition for review on certiorari under Rule 45 of the Rules of Court.

ISSUE: The WON it was error for the CA to rule that petitioner may no longer pursue
by civil action the recovery of the balance of indebtedness after having foreclosed the
property securing the same.

HELD: petition is DENIED. The assailed decision of the CA is AFFIRMED.

No

Petitioner relies on Prudential Bank v. Martinez, 189 SCRA 612, 615 (1990),holding that
in extrajudicial foreclosure of mortgage, when the proceeds of the sale are insufficient to
pay the debt, the mortgagee has the right to recover the deficiency from the mortgagor.

However, it must be pointed out that petitioner’s cited cases involve ordinary debts
secured by a mortgage. The case at bar, we must stress, involves a foreclosure of
mortgage arising out of a settlement of estate, wherein the administrator mortgaged a
property belonging to the estate of the decedent, pursuant to an authority given by the
probate court. As the CA correctly stated, the Rules of Court on Special Proceedings
comes into play decisively. The applicable rule is Section 7 of Rule 86 of the Revised
Rules of Court ( which PNB contends is not.)

In the present case it is undisputed that the conditions under the aforecited rule have
been complied with [see notes]. It follows that we must consider Sec. 7 of Rule 86,
appropriately applicable to the controversy at hand, which in summary [and case law as
well] grants to the mortgagee three distinct, independent and mutually
exclusive remedies that can be alternatively pursued by the mortgage creditor for
the satisfaction of his credit in case the mortgagor dies, among them:

(1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as
an ordinary claim;

(2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim;
and

(3) to rely on the mortgage exclusively, foreclosing the same at any time
before it is barred by prescription without right to file a claim for any
deficiency.

Clearly petitioner herein has chosen the mortgage-creditor’s option

of extrajudicially foreclosing the mortgaged property of the Chuas. This choice now
bars any subsequent deficiency claim against the estate of the deceased. Petitioner may
no longer avail of the complaint for the recovery of the balance of indebtedness against
said estate, after petitioner foreclosed the property securing the mortgage in its favor. It
follows that in this case no further liability remains on the part of respondents and the
deceased’s estate.

NOTES:

Section 7, Rule 86 of the Rules of Court, which states that:

Sec. 7. Rule 86. Mortgage debt due from estate. — A creditor holding a claim against the
deceased secured by mortgage or other collateral security, may abandon the security and
prosecute his claim in the manner provided in this rule, and share in the general
distribution of the assets of the estate; or he may foreclose his mortgage or realize upon
his security, by action in court, making the executor or administrator a party defendant,
and if there is a judgment for a deficiency, after the sale of the mortgaged premises, or
the property pledged, in the foreclosure or other proceeding to realize upon the security,
he may claim his deficiency judgment in the manner provided in the preceding section;
or he may rely upon his mortgage or other security alone and foreclose the same at any
time within the period of the statute of limitations, and in that event he shall not be
admitted as a creditor, and shall receive no share in the distribution of the other assets
of the estate; but nothing herein contained shall prohibit the executor or administrator
from redeeming the property mortgaged or pledged by paying the debt for which it is
hold as security, under the direction of the court if the court shall adjudge it to be for the
interest of the estate that such redemption shall be made.

To begin with, it is clear from the text of Section 7, Rule 89, that once the deed of real
estate mortgage is recorded in the proper Registry of Deeds, together with
the corresponding court order authorizing the administrator to mortgage the property,
said deed shall be valid as if it has been executed by the deceased himself. Section 7
provides in part:

Sec. 7. Rule 89. Regulations for granting authority to sell, mortgage, or otherwise
encumber estate – The court having jurisdiction of the estate of the deceased may
authorize the executor or administrator to sell personal estate, or to sell, mortgage, or
otherwise encumber real estate, in cases provided by these rules when it appears
necessary or beneficial under the following regulations:

xxx

(f) There shall be recorded in the registry of deeds of the province in which the real
estate thus sold, mortgaged, or otherwise encumbered is situated, a certified copy of the
order of the court, together with the deed of the executor or administrator for such real
estate, which shall be valid as if the deed had been executed by the deceased in his
lifetime.

PNB VS MANALO

LOTTO RESTAURANT CORP VS BPI FAMILY BANK CASE DIGEST

VITUG vs CA

CABANTOG VS BPI FAMILY SAVINGS

SINGSON VS CALTEX