C.

GENERAL BANKING ACT

1. SANDEJAS v IGNACIO

FACTS: It appears from the petitioners’ evidence that Arturo [respondent] is the elder brother of Alice
[petitioner] and Rosita [petitioner], Benjamin [petitioner] and Patricia [petitioner] are Arturo’s nephew and
niece. Arturo and his wife Evelyn [respondent] are residents of the United States. In October 1993, Arturo leased
from Dr. Borja a condominium unit identified as Unit 28-C Gilmore Townhomes located at Granada St., Quezon
City. The lease was for the benefit of Benjamin who is the occupant of the unit. The rentals were paid by Ignacio.
The term of the lease is for 1 year and will expire on October 15, 1994. It appears that Arturo was intending to
renew the lease contract. As he had to leave for the U.S., Arturo drew up a check, UCPB Check No. GRH-560239
and wrote on it the name of the payee, Dr. Manuel Borja, but left blank the date and amount. He signed the
check. The check was intended as payment for the renewal of the lease. The date and the amount were left
blank because Arturo does not know when it will be renewed and the new rate of the lease. The check was left
with Arturo’s sister-in-law, who was instructed to deliver or give it to Benjamin.

The check later came to the possession of Alice who felt that Arturo cheated their sister in the amount of P3
million. She believed that Arturo and Rosita had a joint “and/or” money market placement in the amount of P3
million with the UCPB branch at Ortigas Ave., San Juan and that Ignacio pre-terminated the placement and ran
away with it, which rightfully belonged to Rosita. Alice then inquired from UCPB Greenhills branch if Arturo still
has an account with them. On getting a confirmation, she together with Rosita drew up a scheme to recover the
P3 million from Arturo. Alice filled up the date of the check with “March 17, 1995” and the amount with “three
million only.” Alice got her driver, Kudera, to stand as the payee of the check, Dr. Borja. Alice and Rosita came
to SBC2 Greenhills Branch together with a man (Kudera) whom they introduced as Dr. Borja to the then Assistant
Cashier Luis. After introducing the said man as Dr. Borja, Rosita, Alice and the man who was later identified as
Kudera opened a Joint Savings Account No. 271-410554-7. As initial deposit for the Joint Savings Account, Alice,
Rosita and Kudera deposited the check. SBC also allowed the check to be deposited without the endorsement
of the impostor Kudera. No ID was required from Kudera. SBC officials stamped on the dorsal portion of the
check “endorsement/lack of endorsement guaranteed” and sent the check for clearing to the Philippine Clearing
House Corporation.

On 21 March 1995, after the check had already been cleared by the drawer bank UCPB, Rosita withdrew P1
million from Joint Savings Account and deposited said amount to the current account of Alice with SBC
Greenhills Branch. On the same date, Alice caused the transfer of P2 million from the Joint Savings Account to
two (2) Investment Savings Account[s] in the names of Alice, Rosita and/or Patricia.

On April 4, 1995, a day after Evelyn and Atty. Sanz inquired about the identity of the persons and the
circumstances surrounding the deposit and withdrawal of the check, the three million pesos in the two
investment savings account[s] and in the current account just opened with SBC were withdrawn by Alice and
Rosita.”

On June 18, 1995, Arturo Ignacio, Jr. and Evelyn Ignacio (respondents) filed a verified complaint for recovery of
a sum of money and damages against Security Bank and Trust Company (SBTC) and its officers. The complaint
also impleaded herein petitioner Benjamin A.I. Espiritu.

On November 7, 1995, the complaint was amended by additionally impleading herein petitioners Alice A.I.
Sandejas (Alice), Rosita A.I. Cusi (Rosita) and Patricia A.I. Sandejas (Patricia) as defendants who filed their
respective answers and counterclaims.
The RTC rendered judgment in favor of plaintiffs as against defendants Security Bank and Trust Co., Rene Colin
Gray, Sonia Ortiz Luis, Alice A.I. Sandejas and Rosita A.I. Cusi, ordering them to pay jointly and severally the
plaintiffs inclusive of exemplary damages.

In turn, plaintiffs are directed to pay Benjamin A.I. Espiritu the amount of P100,000.00 as moral damages,
P50,000.00 as exemplary damages and another P50,000.00 as attorney’s fees.

ISSUE: W/N the CA erred in awarding exemplary damages

RULING: NO. The Court finds no compelling reason to disturb the modifications made by the CA on the award
of exemplary damages and attorney’s fees.

Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or
correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. In the
instant case, the award of exemplary damages in favor of respondents is in order for the purpose of deterring
those who intend to enforce their rights by taking measures or remedies which are not in accord with law and
public policy. On the part of respondent bank, the public relies on a bank’s sworn profession of diligence and
meticulousness in giving irreproachable service. Hence, the level of meticulousness must be maintained at all
times by the banking sector. In the present case the award of exemplary damages is justified by the brazen acts
of petitioners Rosita and Alice in violating the law coupled with the gross negligence committed by respondent
bank and its officers in allowing the subject check to be deposited which later paved the way for its encashment.

CASE 2 CANNOT BE FOUND

3. BANK OF AMERICA NT & SA v. PHILIPPINE RACING CLUB

G.R. No. 150228 July 30, 2009
FACTS: Plaintiff PRCI is a domestic corporation which maintains a current account with petitioner Bank of
America. Its authorized signatories are the company President and Vice-President. By virtue of a travel abroad
for these officers, they pre-signed checks to accommodate any expenses that may come up while they were
abroad for a business trip. The said pre-signed checks were left for safekeeping by PRCs accounting officer.
Unfortunately, the two (2) of said checks came into the hands of one of its employees who managed to encash
it with petitioner bank. The said check was filled in with the use of a check-writer, wherein in the blank for the
'Payee', the amount in words was written, with the word 'Cash' written above it.
Clearly there was an irregularity with the filling up of the blank checks as both showed similar infirmities and
irregularities and yet, the petitioner bank did not try to verify with the corporation and proceeded to encash
the checks.
PRC filed an action for damages against the bank. The lower court awarded actual and exemplary damages. On
appeal, the CA affirmed the lower court's decision and held that the bank was negligent. Hence this appeal.
Petitioner contends that it was merely doing its obligation under the law and contract in encashing the checks,
since the signatures in the checks are genuine.
ISSUE: W/N petitioner bank is liable.
RULING: YES. It had the last clear chance to prevent the fraudulent encashment. Hence, it is the one foremost
liable.
It is well-settled that banks are engaged in a business impressed with public interest, and it is their duty to
protect in return their many clients and depositors who transact business with them. They have the obligation
to treat their client’s account meticulously and with the highest degree of care, considering the fiduciary nature
of their relationship. The diligence required of banks, therefore, is more than that of a good father of a family.
In the case at bar, extraordinary diligence demands that petitioner should have ascertained from respondent
the authenticity of the subject checks or the accuracy of the entries therein not only because of the presence of
highly irregular entries on the face of the checks but also of the decidedly unusual circumstances surrounding
their encashment.
Perforce, we find that petitioner plainly failed to adhere to the high standard of diligence expected of it as a
banking institution.
However, we do agree with petitioner that respondent’s officers’ practice of pre-signing of blank checks should
be deemed seriously negligent behavior and a highly risky means of purportedly ensuring the efficient operation
of businesses. It should have occurred to respondent’s officers and managers that the pre-signed blank checks
could fall into the wrong hands.
Nevertheless, even if we assume that both parties were guilty of negligent acts that led to the loss, petitioner
will still emerge as the party foremost liable in this case. In instances where both parties are at fault, this Court
has consistently applied the doctrine of last clear chance in order to assign liability.
In Westmont Bank v. Ong, we ruled:
…[I]t is petitioner [bank] which had the last clear chance to stop the fraudulent encashment of the subject checks
had it exercised due diligence and followed the proper and regular banking procedures in clearing checks. As
we had earlier ruled, the one who had a last clear opportunity to avoid the impending harm but failed to do so
is chargeable with the consequences thereof.
In the case at bar, petitioner cannot evade responsibility for the loss by attributing negligence on the part of
respondent because, even if we concur that the latter was indeed negligent in pre-signing blank checks, the
former had the last clear chance to avoid the loss.
Verily, petitioner had the final opportunity to avert the injury that befell the respondent.
In the interest of fairness, however, we believe it is proper to consider respondent’s own negligence to mitigate
petitioner’s liability.
Following established jurisprudential precedents, we believe the allocation of sixty percent (60%) of the actual
damages involved in this case to petitioner is proper under the premises. Respondent should, in light of its
contributory negligence, bear forty percent (40%) of its own loss.
4. Citibank vs Dinopol

Facts:

Atty. Dinopol availed of Citibank's 'Ready Credit Checkbooks' advertised offer. After approving his
application, Citibank granted Atty. Dinopol a credit line limit of P30,000.00. For said reason, Atty. Dinopol
received from Citibank a check booklet consisting of several checks with a letter stating that the account was
'ready to use.' Later, Citibank billed Atty. Dinopol the sum of P1,545.00 representing Ready Credit Documentary
Stamp and Annual Membership Fee as reflected in his Statement of Account.

Thereafter, Citibank billed him for interest and charges as well as late payment charges as stated in his
Statement of Account. Atty. Dinopol paid said interests and charges. Atty. Dinopol issued a check using his credit
checkbook account with Citibank in the amount of P30,000.00 in favor of one Dr. Marietta M. Geonzon (Dr.
Geonzon) for investment purposes in her restaurant business. However, when the check was deposited, it was
dishonored for the reason, 'Drawn Against Insufficient Funds' or 'DAIF.' Humiliated by the dishonor and the
demand notice he received from Dr. Geonzon, Atty. Dinopol filed a civil action for damages against Citibank
before the RTC. Atty. Dinopol alleged that said bank was grossly negligent and acted in bad faith in dishonoring
his check.

The RTC rendered a decisioncralaw2 against Citibank. Defendant Citibank N.A. is hereby ordered to pay
the plaintiff Atty. Ernesto S. Dinopol:

1) P100,000.00 as and for moral damages;chanroblesvirtualawlibrary

2) P50,000.00 as and for attorney's fees; and

3) Costs of suit.

CA Affirmed the RTC decision with modification. It increased the award of moral damages from P100,000.00
to P500,000.00 and awarded exemplary damages in the amount of P50,000.00.

Issue: W/N CA WAS CORRECT IN RULING THAT PETITIONER CITIBANK, N.A. IS LIABLE TO RESPONDENT ATTY.
ERNESTO S. DINOPOL FOR DAMAGES.

Ruling:

Yes. The Court is in agreement with the CA in awarding moral and exemplary damages. However, the
Court cannot sanction the modification by the CA, under the circumstances attending the case. It is of the
considered view that the award of the RTC would suffice subject, of course, to the payment of legal interest.

The award of moral damages should be granted in reasonable amounts depending on the facts and
circumstances of the case. Moral damages are meant to compensate the claimant for any physical suffering,
mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation and similar injuries unjustly caused.

As to the award of exemplary damages, the law allows it by way of example for the public good. The business
of banking is impressed with public interest and great reliance is made on the bank’s sworn profession of
diligence and meticulousness in giving irreproachable service. Thus, the Court affirms the award as a way of
setting an example for the public good. In addition, it also provided for attorney’s fees. Both are subject to legal
interest.

In any event, Citibank should have been more cautious in dealing with its clients since its business is imbued
with public interest. Banks must always act in good faith and must win the confidence of clients and people in
general. It is irrelevant whether the client is a lawyer or not.

5. GSIS vs. Santiago

Facts:

Deceased spouses Jose Zulueta and Soledad Ramos obtained various loans from GSIS from 1956 to 1957 in the
total amount of P3,117,000.00 secured by real estate mortgages over their parcels of land.

The Zuluetas failed to pay their loans to defendant GSIS and the latter foreclosed the real estate mortgages.
On August 1974, the mortgaged properties were sold at public auction with defendant GSIS being the highest
bidder. Not all lots covered by the mortgaged titles, however, were sold. Ninety-one (91) lots were expressly
excluded from the auction since the lots were sufficient to pay for all the mortgage debts.

A Certificate of Sale was issued later on and an Affidavit of Consolidation of Ownership was executed by
defendant GSIS over Zulueta’s lots, including the lots, which as earlier stated, were already excluded from the
foreclosure. On March 1980, GSIS sold the foreclosed properties to Yorkstown Development Corporation which
sale was disapproved by the Office of the President. The sold properties were returned to GSIS and the land
titles issued in favour of Yorkstown were subsequently cancelled.

Thereafter, GSIS began disposing the foreclosed lots including the excluded ones.

On April 7, 1990, Representative Eduardo Santiago and then plaintiff Antonio Vic Zulueta executed an
agreement whereby Zulueta transferred all his rights and interests over the excluded lots. Plaintiff Santiago’s
lawyer wrote a demand letter dated May 11, 1989 to defendant GSIS asking for the return of the eighty-one
(81) excluded lots.

On May 7, 1990, Antonio Vic Zulueta, represented by Eduardo M. Santiago, filed with the Regional Trial Court
(RTC) of Pasig City, Branch 71, and a complaint for reconveyance of real estate against the GSIS. Spouses Alfeo
and Nenita Escasa, Manuel III and Sylvia G. Urbano, and Marciana P. Gonzales and the heirs of Mamerto
Gonzales moved to be included as intervenors and filed their respective answers in intervention. Subsequently,
the petitioner, as defendant therein, filed its answer alleging inter alia that the action was barred by the statute
of limitations and/or laches and that the complaint stated no cause of action. Subsequently, Zulueta was
substituted by Santiago as the plaintiff in the complaint a quo. Upon the death of Santiago in 1996, he was
substituted by his widow as the plaintiff. After due trial, the RTC rendered judgment against the petitioner
ordering it to reconvey to the respondent, Rosario Enriquez Vda. De Santiago, in substitution of her deceased
husband Eduardo, the seventy-eight lots excluded from the foreclosure sale.

Issues:
1. Whether or not the petitioner acted in bad faith in consolidating ownership and causing the issuance
of titles in its name over the subject lots, notwithstanding that these were expressly excluded from the
foreclosure sale.
2. Whether or not Petitioner’s defense on prescription is tenable.

Held:

1. YES

The acts of defendant-appellant GSIS in concealing from the Zuluetas the existence of these excluded lots, in
failing to notify or apprise the spouses Zulueta about the excluded lots from the time it consolidated its titles on
their foreclosed properties, in failing to inform them when it entered into a contract of sale of the foreclosed
properties to Yorkstown as well as when the said sale was revoked by then President during the same year,
demonstrated a clear effort on its part to defraud the spouses Zulueta and appropriate for itself the subject
properties.

Even if titles over the lots had been issued in the name of the defendant-appellant, still it could not legally claim
ownership and absolute dominion over them because indefeasibility of title under the Torrens system does not
attach to titles secured by fraud or misrepresentation. The fraud committed by defendant-appellant in the form
of concealment of the existence of said lots and failure to return the same to the real owners after their
exclusion from the foreclosure sale made defendant-appellant holders in bad faith. It is well-settled that a
holder in bad faith of a certificate of title is not entitled to the protection of the law for the law cannot be used
as a shield for fraud.

2. NO!

On the issue of prescription, generally, an action for reconveyance of real property based on fraud prescribes in
four years from the discovery of fraud; such discovery is deemed to have taken place upon the issuance of the
certificate of title over the property. Registration of real property is a constructive notice to all persons and,
thus, the four-year period shall be counted therefrom. On the other hand, Article 1456 of the Civil Code
provides:

Art. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered
a trustee of an implied trust for the benefit of the person from whom the property comes.

An action for reconveyance based on implied or constructive trust prescribes in ten years from the alleged
fraudulent registration or date of issuance of the certificate of title over the property.

The petitioner’s defense of prescription is untenable. As held by the CA, the general rule that the discovery of
fraud is deemed to have taken place upon the registration of real property because it is “considered a
constructive notice to all persons” does not apply in this case.
Contrary to its claim, the petitioner unarguably had the legal duty to return the subject lots to the Zuluetas. The
petitioner’s attempts to justify its omission by insisting that it had no such duty under the mortgage contract is
obviously clutching at straw. Article 22 of the Civil Code explicitly provides that “every person who, through an
act of performance by another, or any other means, acquires or comes into possession of something at the
expense of the latter without just or legal ground, shall return the same to him.”

6. BPI vs Casa Montessori

FACTS: CASA Montessori International opened a current account with BPI with CASAs President Ms. Ma. Carina
C. Lebron as one of its authorized signatories. In 1991, after conducting an investigation, plaintiff discovered
that nine (9) of its checks had been encashed by a certain Sonny D. Santos since 1990 in the total amount of
P782,000.00. It turned out that Sonny D. Santos with account at BPIs Greenbelt Branch [was] a fictitious name
used by third party defendant Leonardo T. Yabut who worked as external auditor of CASA. Yambut admitted
that he forged the signature of Ms. Lebron and encashed the checks.

The PNP Crime Laboratory conducted an examination of the nine (9) checks and concluded that the
handwritings thereon compared to the standard signature of Ms. Lebron were not written by the latter.

On March 4, 1991, plaintiff filed the herein Complaint for Collection with Damages against defendant bank
praying that the latter be ordered to reinstate the amount of P782,500.00 in the current and savings accounts
of the plaintiff with interest at 6% per annum.

RTC rendered decision in favor of CASA. CA modified decision holding CASA as contributory negligent hence
ordered Yabut to reimburse BPI half the total amount claimed and CASA, the other half. It also disallowed
attorney’s fees and moral and exemplary damages.

ISSUE: W/N BPI is liable as the drawee bank for allowing payment on the checks to a wrongful and fictitious
payee?

RULING: YES. BPI -- the drawee bank -- becomes liable to its depositor-drawer for allowing payment on the
checks to a wrongful and fictitious payee. Negligence is attributable to BPI alone. A banking business is
impressed with public interest, of paramount importance thereto is the trust and confidence of the public in
general. Consequently, the highest degree of diligence is expected, and high standards of integrity and
performance are even required, of it. BPI, despite claims of following its signature verification procedure, still
failed to detect the eight instances of forgery. Its negligence consisted in the omission of that degree of diligence
required of a bank. It cannot now feign ignorance, for very early on we have already ruled that a bank is bound
to know the signatures of its customers. and if it pays a forged check, it must be considered as making the
payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor
whose name was forged.

CASE 7 MISSING

8. PNB vs Norman Pike G.R. No. 157845 September 20, 2005

FACTS:
Complainant Pike often traveled to and from Japan as a gay entertainer in said country. Sometime in
1991, he opened U.S. Dollar Savings Account No. 0265-704591-0 with herein petitioner PNB Buendia branch for
which he was issued a corresponding passbook. The complaint alleged in substance that before complainant
Pike left for Japan on 18 March 1993, he kept the aforementioned passbook inside a cabinet under lock and key,
in his home; that on 19 April 1993, a few hours after he arrived from Japan, he discovered that some of his
valuables were missing including the passbook; that he immediately reported the incident to the police which
led to the arrest and prosecution of a certain Mr. Joy Manuel Davasol (talent manager); that complainant Pike
also discovered that Davasol made two (2) unauthorized withdrawals from his U.S. Dollar Savings Account No.
0265-704591-0, both times at the PNB Buendia branch on the following dates March 31 and April 5, 1993 (3.5k
and 4.5k) for $7.5k. That on several occasions, complainant Pike went to defendant PNB’s Buendia branch and
verbally protested the unauthorized withdrawals and likewise demanded the return of the total withdrawn
amount of U.S. $7,500.00, on the ground that he never authorized anybody to withdraw from his account as
the signatures appearing on the subject withdrawal slips were clearly forgeries; that defendant PNB refused to
credit said amount back to complainant’s U.S. Dollar Savings Account without justifiable reason, and instead,
defendant bank wrote him that it exercised due diligence in the handling of said account; and that on 06 May
1993, complainant Pike wrote defendant PNB simply to request that the hold-account be lifted so that he may
withdraw the remaining balance left in his U.S.$ Savings Account and nothing else. PNB denied all allegations
claiming that it exercised the diligence of a good father of a family with said transactions.

ISSUE: WON PNB is liable for refund for being negligent in said transactions?

HELD:
YES. Finding no other alternative but to affirm their finding that petitioner PNB negligently allowed the
unauthorized withdrawals subject of the case at bar, the instant petition for review must necessarily fail. At this
juncture, it bears emphasizing that negligence of banking institutions should never be countenanced. The
negligence here lies in the lackadaisical attitude exhibited by employees of petitioner PNB in their treatment of
respondent Pike’s US Dollar Savings Account that resulted in the unauthorized withdrawal of $7,500.00.
Nevertheless, though its employees may be the ones negligent, a bank’s liability as an obligor is not merely
vicarious but primary, as banks are expected to exercise the highest degree of diligence in the selection and
supervision of their employees, and having such obligation, this Court cannot ignore the circumstances
surrounding the case at bar – how the employees of petitioner PNB turned their heads, nay, closed their eyes
to the suspicious circumstances enfolding the two withdrawals subject of the case at bar. It may even be said
that they went out of their ways to disregard standard operating procedures formulated to ensure the security
of each and every account that they are handling. Petitioner PNB does not deny that the withdrawal slips used
were in breach of standard operating procedures of banks in the ordinary and usual course of banking
operations as testified to by one of its witnesses, Mr. Lorenzo T. Bal, Assistant Vice President of Petitioner PNB’s
Buendia branch, on cross-examination.

From the foregoing, petitioner PNB’s witness was utterly remiss in protecting the bank’s client, as well
as the bank itself, when he allowed an account holder to make it appear as if he was the one actually
withdrawing from an account and actually receiving the withdrawn amount. Ordinarily, banks allow withdrawal
by someone who is not the account holder so long as the account holder authorizes his representative to
withdraw and receive from his account by signing on the space provided particularly for such transactions,
usually found at the back of withdrawal slips. As fittingly found by the courts a quo, if indeed, respondent Pike
signed the withdrawal slips in the presence of Mr. Lorenzo Bal, petitioner PNB’s AVP at its Buendia branch, why
did he not call respondent Pike’s attention and refer him to the space provided for authorizing representatives
to withdraw from and receive the proceeds of such withdrawal? Or, at the very least, sign or initial the same so
that he could identify the pre-signed withdrawal slips made by Mr. Pike? By his own testimony, the witness
negated the very reason for the bank’s bizarre "accommodation" of the alleged verbal request of respondent
Pike – that he was a "valued client." From the aforequoted, it appears that the witness, Lorenzo Bal, was not
even reasonably familiar with respondent Pike, yet, he was ready, willing and able to accommodate
the verbal request of said depositor. Worse still, the witness still approved the withdrawal transaction without
asking for any proof of identification for the reason that: 1) Davasol was in possession of a pre-signed withdrawal
slip; and 2) the witness "recognized" the signature of respondent Pike – even after admitting that he did not
bother to counter check the signature on the slip with the specimen signature card of respondent Pike and that
he met respondent Pike just once so that he cannot seem to recall what the latter looks like. The ensuing quoted
testimony of the same witness will justify a finding of negligence amounting to bad faith.

Having admitted that pre-signed withdrawal slips do not constitute the normal procedure with respect
to withdrawals by representatives should have already put petitioner PNB’s employees on guard. Rather than
readily validating and permitting said withdrawals, they should have proceeded more cautiously. Clearly,
petitioner bank’s employee, Lorenzo T. Bal, an Assistant Vice President at that, was exceedingly careless in his
treatment of respondent Pike’s savings account. From the foregoing, the evidence clearly showed that the
petitioner bank did not exercise the degree of diligence that it ought to have exercised in dealing with their
clients. With banks, the degree of diligence required, contrary to the position of petitioner PNB, is more
than that of a good father of a family considering that the business of banking is imbued with public interest
due to the nature of their functions. The stability of banks largely depends on the confidence of the people in
the honesty and efficiency of banks. Thus, the law imposes on banks a high degree of obligation to treat the
accounts of its depositors with meticulous care, always having in mind the fiduciary nature of banking. Section
2 of Republic Act No. 8791,25 which took effect on 13 June 2000, makes a categorical declaration that the State
recognizes the "fiduciary nature of banking that requires high standards of integrity and performance."

9. Far East Bank vs. Chante

Facts:
Robert Mar Chante, also known as Robert Mar G. Chan (Chan), was a current account depositor of petitioner
Far East Bank & Trust Co. (FEBTC) at its Ongpin Branch (Current Account No. 5012-00340-3). FEBTC issued to
him Far East Card No. 05-01120-5-0 with July 1993 as the expiry date. The card, known as a "Do-It-All" card to
handle credit card and ATM transactions, was tagged in his current account. As a security feature, a personal
identification number (PIN), known only to Chan as the depositor, was required in order to gain access to the
account. Upon the card’s issuance, FEBTC required him as the depositor to key in the six-digit PIN. Thus, with
the use of his card and the PIN, he could then deposit and withdraw funds from his current account from any
FEBTC ATM facility, including the MEGALINK facilities of other member banks that included the Philippine
National Bank (PNB).
Civil Case No. 92-61706 sprang from the complaint brought by petitioner Far East Bank & Trust Co. (FEBTC) on
July 1, 1992 in the RTC,3 to recover from Chan the principal sum of ₱770,488.30 representing the unpaid balance
of the amount fraudulently withdrawn from Chan’s Current Account No. 5012-00340-3 with the use of Far East
Card No. 05-01120-5-0.
FEBTC alleged that between 8:52 p.m. of May 4, 1992 and 4:06 a.m. of May 5, 1992, Chan had used Far East
Card No. 05-01120-5-0 to withdraw funds totaling ₱967,000.00 from the PNB-MEGALINK ATM facility at the
Manila Pavilion Hotel in Manila; that the withdrawals were done in a series of 242 transactions with the use of
the same machine, at ₱4,000.00/withdrawal.
FEBTC added that at the time of the ATM withdrawal transactions, there was an error in its computer system
known as "system bug" whose nature had allowed Chan to successfully withdraw funds in excess of his current
credit balance of ₱198,511.70; and that Chan had taken advantage of the system bug to do the withdrawal
transactions. The CA ruled against petitioner.
Issue: Whether or not FEBTC could recover against Robert Chante?
Ruling:
No. To start with, Edgar Munarriz, FEBTC’s very own Systems Analyst, admitted that the bug infecting the bank’s
computer system had facilitated the fraudulent withdrawals. This admission impelled the CA to thoroughly
dissect the situation in order to determine the consequences of the intervention of the system bug in FEBTC’s
computer system.
The program bug occurred because of the simultaneous presence of three conditions that allowed it to happen:
(1) the withdrawal transactions involved a current account; (2) the current account was with a branch that at
that time was off-line; and (3) the transaction originated from MEGALINK (i.e., through MEGALINK through a
member bank other than FEBTC). Because of the bug, Chan’s account was not accessed at the time of the
transactions so that withdrawals in excess of what the account contained were allowed. Additionally, FEBTC’s
rule that only a maximum withdrawable amount per day (in the present case ₱50,000.00 per day) can be made
from an ATM account, was by-passed. Thus, 242 withdrawals were made over an eight hour period, in the total
amount of ₱967,000.00.22

Secondly, the RTC’s deductions on the cause of the withdrawals were faulty. In holding against Chan, the RTC
chiefly relied on inferences drawn from his acts subsequent to the series of withdrawals, specifically his attempt
to withdraw funds from his account at an FEBTC ATM facility in Ermita, Manila barely two days after the
questioned withdrawals; his issuance of a check for ₱190,000.00 immediately after the capture of his ATM card
by the ATM facility; his failure to immediately report the capture of his ATM card to FEBTC; and his going to
FEBTC only after the dishonor of the check he had issued following the freezing of his account. The inferences
were not warranted, however, because the subsequent acts would not persuasively establish his actual
participation in the withdrawals due to their being actually susceptible of other interpretations consistent with
his innocence.
Fourthly, and perhaps the most damaging lapse, was that FEBTC failed to establish that the PNB-MEGALINK’s
ATM facility at the Manila Pavilion Hotel had actually dispensed cash in the very significantly large amount
alleged during the series of questioned withdrawals. For sure, FEBTC should have proved the actual dispensing
of funds from the ATM facility as the factual basis for its claim against Chan. It did require PNB to furnish a
validated showing of the exact level of cash then carried by the latter’s ATM facility in the Manila Pavilion Hotel
on May 4, 1992.26 Yet, when PNB employee Erwin Arellano stood as a witness for FEBTC, he confirmed the
authenticity of the journal tapes that had recorded Chan’s May 4 and May 5, 1992 supposed ATM transactions
but did not categorically state how much funds PNB-MEGALINK’s ATM facility at the Manila Pavilion Hotel had
exactly carried at the time of the withdrawals, particularly the amounts immediately preceding and immediately
following the series of withdrawals. The omission left a yawning gap in the evidence against Chan.
10. REYES VS. COURT OF APPEALS

The degree of extraordinary diligence applies only to cases where banks act under their fiduciary capacity,
that is, as depositary of the deposits of their depositors. But the same higher degree of diligence is not
expected to be exerted by banks in commercial transactions that do not involve their fiduciary relationship
with their depositors.
Facts: Godofredo, Cashier of the Philippine Racing Club (PCRI), went to Far East Bank and Trust Company, to
apply for a demand draft in the amount AU$1,610.00 payable to the order of the 20 th Asian Racing Conference
Secretariat of Sydney, Australia. He was attended to by respondent bank’s assistant cashier, Mr. Yasis, who at
first denied the application for the reason that respondent bank did not have an Australian dollar account in any
bank in Sydney. Godofredo asked if there could be a way for respondent bank to accommodate PRCI’s urgent
need to remit Australian dollars to Sydney. Yasis of respondent bank then informed Godofredo of a roundabout
way of effecting the requested remittance to Sydney thus: the respondent bank would draw a demand draft
against Westpac Bank in Sydney, Australia (Westpac-Sydney) and have the latter reimburse itself from the U.S.
dollar account of the respondent in Westpac Bank in New York, U.S.A. (Westpac-New York).
However, upon due presentment of the foreign exchange demand draft, the same was dishonored, with
the notice of dishonor stating that there is “No account held with Westpac.” Meanwhile, Wespac-New York sent
a cable to respondent bank informing the latter that its dollar account in the sum of AU$ 1,610.00 was debited.
In response to PRCI’s complaint about the dishonor of the said foreign exchange demand draft, respondent bank
informed Westpac-Sydney of the issuance of the said demand draft, drawn against the Wespac-Sydney and
informing the latter to be reimbursed from the respondent bank’s dollar account in Westpac-New York. The
respondent bank on the same day likewise informed Wespac-New York requesting the latter to honor the
reimbursement claim of Wespac-Sydney. Upon its second presentment for payment, the demand draft was
again dishonored by Westpac-Sydney for the same reason, that is, that the respondent bank has no deposit
dollar account with the drawee Wespac-Sydney. Gregorio Reyes and Consuelo Puyat-Reyes arrived in Sydney
on a separate date and both were humiliated and embarrassed in the presence of international audience after
being denied registration of the conference secretariat since the foreign exchange draft was dishonored.
Petitioners were only able to attend the conference after promising to pay in cash instead which they fulfilled

Issue: Whether or not respondent bank is liable for damages due to the dishonor of the foreign exchange
demand drafts.

Held: Yes. The evidence also shows that the respondent bank exercised that degree of diligence expected of
an ordinary prudent person under the circumstances obtaining; the respondent bank advised Westpac-New
York to honor the reimbursement claim of Westpac-Sydney and to debit the dollar accountof respondent bank
with the former. The degree of diligence required of banks, is more than that of a good father of a family where
the fiduciary nature of their relationship with their depositors is concerned. In other words banks are duty bound
to treat the deposit accounts of their depositors with the highest degree of care. But the said ruling applies only
to cases where banks act under their fiduciary capacity, that is, as depositary of the deposits of their depositors.
But the same higher degree of diligence is not expected to be exerted by banks in commercial transactions that
do not involve their fiduciary relationship with their depositors. The case at bar does not involve the handling
of petitioners’ deposit, if any, with the respondent bank. Instead, the relationship involved was that of a buyer
and seller.

11. FIRST PLANTERS PAWNSHOP VS. CIR

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: Whether petitioner in this case is liable for VAT and. DST
HELD: NO for VAT and yes for DST. 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.
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.

12. Nacar vs. Gallery Frames, 703 SCRA 439 (2013)

Facts: Nacar filed a complaint for constructive dismissal before NLRC against Resp. Gallery. NLRC rendered
decision in favor of petitioner and found that he was dismissed from employment without a valid or just cause.
Thus, he was awarded backwages and separation pay amounting to P 158,919.92. An Entry of Judgment was
later issued certifying that the resolution became final and executory on May 27, 2002. Petitioner filed a
Manifestation and Motion praying for the re-computation of the monetary award to include the appropriate
interests. On May 10, 2005, the Labor Arbiter issued an Order granting the motion, but only up to the amount
of P11,459.73. The Labor Arbiter reasoned that it is the October 15, 1998 Decision that should be enforced
considering that it was the one that became final and executory. However, the Labor Arbiter reasoned that since
the decision states that the separation pay and backwages are computed only up to the promulgation of the
said decision, it is the amount ofP158,919.92 that should be executed. Thus, since petitioner already
receivedP147,560.19, he is only entitled to the balance ofP11,459.73. Further, petitioner posits that he is also
entitled to the payment of interest from the finality of the decision until full payment by the respondents
Issue: Whether petitioner is entitled payment of legal interest
Held: Yes.
In Eastern Shipping Lines vs. CA:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest
due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount
of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty,
the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest
shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.
However, under BSP-MB Circular No. 799 which modified Eastern Shipping Lines vs CA ruling, in the absence of
an express stipulation as to the rate of interest that would govern the parties, the rate of legal interest for loans
or forbearance of any money, goods or credits and the rate allowed in judgments shall no longer be twelve
percent (12%) per annum - as reflected in the case of Eastern Shipping Lines - but will now be six percent (6%)
per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate could only be applied
prospectively and not retroactively. Consequently, the twelve percent (12%) per annum legal interest shall apply
only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing
rate of interest when applicable.
Nonetheless, with regard to those judgments that have become final and executory prior to July 1, 2013, said
judgments shall not be disturbed and shall continue to be implemented applying the rate of interest fixed
therein.
Decision of SC as to legal interest awarded to petitioner:
interest of twelve percent (12%) per annum of the total monetary awards, computed from May 27, 2002 to June
30, 2013 and six percent (6%) per annum from July 1, 2013 until their full satisfaction. The Labor Arbiter is hereby
ORDERED to make another recomputation of the total monetary benefits awarded and due to petitioner in
accordance with this Decision

13. BUSUEGO VS CA

Facts: The 16th regular examination of the books and records of PAL Employees Savings and Loan Association
(PESALA) was conducted by a team of CB Examiners. Several irregularities were found to have been committed
by the PESALA officers. Hence, CB sent a letter to petitioners for them to be present at a meeting specifically
for the purpose of investigating said anomalies. Petitioners did not respond. Hence, the Monetary Board
adopted a resolution including the names of the officers of PESALA in the watchlist to prevent them from holding
responsible positions in any institution under CB supervision.

Petitioners filed a petition for injunction against the MB in order to prevent their names from being added in
the said watchlist. RTC issued the TRO. The MB appealed to the CA which reversed RTC. Hence, this petition
for certiorari with the SC.

Petitioners contend that the MB resolution was null and void for being violative of their right to due process by
imposing administrative sanctions where the MB is not vested with authority to disqualify persons from
occupying positions in institutions under the supervision of CB.

Issue: Whether or not the MB resolution was null and void.

Held: NO. The CB, CENTRAL BANK, through the MB, is the government agency charged with the responsibility
of administering the monetary, banking and credit system of the country and is granted the power of supervision
and examination over banks and non-bank financial institutions performing quasi-banking functions of which
savings and loan associations, such as PESALA, form part of.

The special law governing savings and loan associations is R.A. 3779, the Savings and Loan Association Act,
authorizes the MB to conduct regular yearly examinations of the books and records of savings and loan
associations, to suspend a savings and loan association for violation of law, to decide any controversy over the
obligations and duties of directors and officers, and to take remedial measures. Hence, the CB, through the MB,
is empowered to conduct investigations and examine the records of savings and loan associations. If any
irregularity is discovered in the process, the MB may impose appropriate sanctions, such as suspending the
offender from holding office or from being employed with the CB, or placing the names of the offenders in a
watchlist.
14. PCIB vs. Cabrera

Facts: This case stemmed from two anomalous withdrawals totalling ₱202,000 against the savings account of
one Philip Inocencio, a depositor of the petitioner Philippine Commercial Industrial Bank. Such anomaly was
imputed on respondent Pedro L. Cabrera, the Assistant Manager-Service Head of that Branch. The anomaly was
discovered on 4 April 1998 when Inocencio went to the Branch to have his passbook updated. The branch
personnel discovered that there was a discrepancy between his account balance as appearing on the bank’s
computer and that appearing on his passbook. The computer reported a balance of only ₱99,061.71, while the
passbook reflected a balance of ₱301,841.43.

Inocencio was referred to Customer Service Support (CSS) Alcelino Gregorio, who made a verification of the
unposted transactions on the passbook. In the process of verification, Gregorio noticed that the Daily Trial
Balance and Transaction Register (DTBTR) print-out and debit supporting documents were missing. Thereafter,
Gregorio reported about the missing pages to Cabrera and requested the latter’s assistance. Cabrera then
undertook to personally look into the matter. Cabrera informed the bank’s Area Operations Officer that he was
successful in locating a withdrawal slip for ₱202,000 dated 21 March 1998. The petitioner created a Fact- Finding
Committee to investigate the anomaly. Pending investigation, Cabrera was placed under preventive suspension.

The investigation allegedly revealed that a week before the incident, the respondent verbally requested a one-
day leave of absence on 21 March 1998 to attend his eldest daughter’s graduation. On the same day, a balance
inquiry, last transaction inquiry, and passbook updating on Inocencio’s account were made on respondent’s
computer terminal. On 21 March 1998, despite the fact that he was supposed to be on the official leave, the
respondent reported for work in the morning. However, in the afternoon, he was seen getting in and out of the
Branch a number of times.

When the Electronic Journal of Advincula was retrieved from her computer terminal on 17 April 1998, it was
discovered that on 21 March 1998, at 1:39 p.m. and 1:40 p.m., two unauthorized withdrawals amounting to
₱22,000 and ₱180,000, respectively, were made against the account of Inocencio. Advincula categorically stated
that she did not process the said transactions. The corresponding amount of ₱202,000 was taken from her
unlocked drawer while she was in the Ladies’ Room. According to her, as a matter of practice, she would not
secure her cash and other valuables in lockable areas or sign off her terminal whenever she would leave her
counter. The Teller’s Electronic Journals, Error Correction Summary Report, and DTBTR print-out also allegedly
showed that the respondent approved or overrode transactions using his password or supervisor’s code #15
between 1:22 p.m. and 3:51 p.m. and that he delivered coin requisitions to the tellers and received cash
deliveries from them between 1:28 p.m. and 3:02 p.m. of 21 March 1998. After conducting an investigation and
evaluating the evidence gathered, including the written explanations of Cabrera and the other personnel
assigned to the Branch, the Fact-Finding Committee concluded that Cabrera was culpable. Cabrera appealed to
the National Labor Relations Commission but it was dismissed. Respondent Cabrera moved for the
reconsideration of the dismissal of his appeal. Such motion, however, was denied by the NLRC in its Resolution
of 16 May 2001. Hence, Cabrera filed with the Court of Appeals a petition for certiorari.

Issue: Whether or not the Court of Appeals is correct in finding that the dismissal from employment of Cabrera
is illegal.

Ruling: Yes. The bases for such finding were allegedly the Teller’s Electronic Journal, Error Correction Summary
Report, and DBTR print-out, but these were not presented at all. Neither is there any testimony or affidavit of
the tellers concerned stating that, indeed, said transactions were done by Cabrera. In any event, far from serving
to pin down the respondent, these transactions could even show his innocence. If he were the culprit he would
not have dared participate in these transactions which would not anyway facilitate the fraudulent withdrawals,
since these transactions would leave a paper trail and establish his presence at the time the withdrawals were
made.

The presentation by Cabrera of the missing forged withdrawal slip bolsters his innocence rather than his guilt.
It must be recalled that Gregorio turned to the respondent for assistance in threshing out the problem on
Inocencio’s account. The respondent then undertook to personally look into the matter. As pointed out by the
Court of Appeals, with the years of training and experience behind the respondent, he need not be told on how
and what to look for in order to resolve the problem; it was not surprising that he would come up with the
withdrawal slip. If he was the culprit, he would not have presented said withdrawal slip at all. Being an Assistant
Manager- Service Head, Cabrera must not have been so stupid as to produce a document that would incriminate
him if he, indeed, was the guilty person.

Considering the dearth of evidence that would prove the guilt of Cabrera, the termination of his employment
cannot be sustained.

15. PHILIPPINE NATIONAL BANK, vs. RAMON BRIGIDO L. VELASCO

FACTS:
Respondent, a PNB audit officer, and his wife, Belen maintained a Dollar Savings Account at PNB Escolta Branch.
While on official business at the Legazpi Branch, he went to the PNB Ligao, Albay Branch and withdrew
US$15,000.00 from the dollar savings account. The Ligao Branch is an off-line branch, i.e., one with no
network connection or computer linkage with other PNB branches and the head office. The transaction was
evidenced by an Interoffice Savings Account Withdrawal Slip. PNB Escolta Branch received the slip covering the
withdrawal. It was included among the proofsheet entries but was not posted in the computer of the Escolta
Branch when it received said advice. This means that the withdrawal was not recorded. Thus, the account of
Velasco had an overstatement of US$15,000.00.

While Velasco was on a provincial audit, he claimed calling through phone a kin in Manila who just arrived
from abroad. This kin allegedly told him that his New York-based brother, sent him checks through his kin
totaling US$15,000.00 and that the checks would just be deposited in time in Velasco's account. He was allegedly
satisfied with the updated balance, as he thought that the US$15,000.00 in his account was given by his brother.

In the course of an audit at PNB Escolta Branch, it was discovered that the inter-branch withdrawal made
by Respondent was not posted; and no deposit of said amount had been credited to the dollar savings account.
Respondent submitted his sworn letter-explanation. He described the inter-branch withdrawal at PNB Ligao,
Albay Branch as "no-book," i.e., without the corresponding presentation to the bank teller of the savings
passbook. He stated that his withdrawal was accommodated as the statement of account showed a balance of
US$15,486.01.
PNB formally charged Velasco with "Dishonesty, Grave Misconduct, and/or Conduct Grossly Prejudicial to the
Best Interest of the Service for the irregular handling of Dollar Savings Account. The administrative charge
alleged that: (1) he transacted a no-book withdrawal against his Dollar Savings Account in violation of
the Manual of Regulations for Banks; (2) in transacting the no-book withdrawal, he failed to present any letter
of introduction as required under General Circular 3-72/92; (3) the irregular inter-branch withdrawal was
aggravated by the failure of Escolta Branch to post/enter the withdrawal into the computer upon receipt of the
slip, resulting in the overstatement of the account; and (4) since he was presumed to be fully aware that neither
the deposit nor withdrawal was reflected on the passbook, he was able to appropriate the amount for his
personal benefit, free of interest, to the damage and prejudice of PNB.

Velasco submitted his sworn Answer to the administrative charge. Unlike his previous answer, he here claimed
that his withdrawal was "with passbook." He attached a copy of his passbook bearing the withdrawal entry.
Explaining the inconsistency with his sworn letter-explanation, he said he was unable to find his passbook
which was then kept by his wife who could not be contacted at that moment.
ISSUE: W/N Respondent committed serious misconduct.
RULING: YES
Ordinary misconduct would not justify the termination of the services of an employee. The law is explicit that
the misconduct should be serious. It is settled that in order for misconduct to be serious, “it must be of such
grave and aggravated character and not merely trivial or unimportant.” As amplified by jurisprudence, the
misconduct must (1) be serious; (2) relate to the performance of the employee’s duties; and (3) show that the
employee has become unfit to continue working for the employer.
The misconduct is serious. Velasco violated bank rules when he transacted a “no-book” withdrawal by
his failure to present his passbook to the PNB Ligao, Albay Branch. Section 1216 of the Manual of Regulations
for Banks and Other Financial Intermediaries state that “[b]anks are prohibited from issuing/accepting
‘withdrawal authority slips’ or any other similar instruments designed to effect withdrawals of savings deposits
without following the usual practice of requiring the depositors concerned to present their passbooks and
accomplishing the necessary withdrawal slips.” Further, he failed to present any letter of introduction as
mandated under General Circular 3-72-92 which requires that “[b]efore going out-of-town, the Depositor
secures a Letter of Introduction from the branch/office where his Peso Savings Account is maintained.”
A strict reading of General Circular 3-72-92 would lead one to conclude that only persons with peso
savings account are required to secure a letter of introduction. However, simple logic dictates that those
maintaining dollar savings account are also included. No cogent reason would be served by the rule if only
persons with peso savings account are required to get a letter of introduction. Otherwise, there can be a
circumvention of the rule. Nemo potest facere per alium qud non potest facere per directum. No one is allowed
to do indirectly what he is prohibited to do directly.
As an audit officer, Velasco should be the first to ensure that banking laws, policies, rules and regulations,
are strictly observed and applied by its officers in the day-to-day transactions. The banking system is an
indispensable institution in the modern world. It plays a vital role in the economic life of every civilized nation.
Whether banks act as mere passive entities for the safekeeping and saving of money, or as active instruments
of business and commerce, they have become an ubiquitous presence among the citizenry, who have come to
regard them with respect and even gratitude and, most of all, confidence. His silence as to the overstatement
show his intent to gain at PNB’s expense.

16. Dycoco, Jr. vs Equitable PCI Bank

Facts: In February 1997, petitioner was hired by respondent bank as Assistant Manager and/or OIC Branch Head
of its Legazpi City Branch, Region V (Legazpi branch). In 2000, petitioner became Branch Head and in September
2003, respondent bank underwent an internal reorganization. Pursuant thereto, petitioner became the
Personal Banking Manager (PBM) of the Legazpi branch. In June 2005, several clients of the Legazpi branch filed
complaints for alleged unauthorized abstractions of various trust funds, treasury placements and deposits.
Respondent bank promptly commenced an investigation. Consequently, "show cause" letters were issued to
the officers of the Legazpi branch. It was found that the fraudulent withdrawal was not detected/prevented
exposing the Bank to financial loss of P100K.

In August 2006, respondent bank issued a second "show cause" letter to petitioner charging him with
involvement in alleged dollar-trading activities. Petitioner was preventively suspended from September 20,
2006 to October 20, 2006. He filed a complaint in the NLRC alleging constructive dismissal and illegal suspension.
Respondent bank rendered a decision, finding petitioner guilty of several articles of the bank's Code of Conduct,
and Article 282 (b) of the Labor Code. The penalty of dismissal was imposed on him. On July 24, 2007, the labor
arbiter held that petitioner was illegally dismissed. He ordered respondent bank to pay separation pay,
backwages, etc. in the total amount of P1,147,216.00. On appeal, the NLRC reversed the labor arbiter's
decision. The CA subsequently affirmed the NLRC. Petitioner insists that he was illegally dismissed.

Issue: WON petitioner was illegally dismissed.

Ruling: No. Jurisprudence has repeatedly outlined how diligence in the banking industry should be observed: By
its very nature, the business of the petitioner bank is so impressed with public trust; banks are mandated to
exercise a higher degree of diligence in the handling of its affairs than that expected of an ordinary business
enterprise. Banks handle transactions involving millions of pesos and properties worth considerable sums of
money. The banking business will thrive only as long as it maintains the trust and confidence of its
customers/clients. Indeed, by the very nature of their work, the degree of responsibility, care and
trustworthiness expected of officials and employees of the bank is far greater than those of ordinary officers
and employees in the other business firms. Hence, no effort must be spared by banks and their officers and
employees to ensure and preserve the trust and confidence of the general public and its customers/clients as
well as the integrity of its records and the safety and well-being of its customers/clients while in its premises.
As the banking industry is impressed with public interest, all bank personnel are burdened with a high level of
responsibility insofar as care and diligence in the custody and management of funds are concerned. Petitioner
miserably failed to discharge this burden.

Petitioner violated his duties and responsibilities as PBM when he signed and approved the subject transactions
without the necessary signatures of the concerned clients. As PBM, it was his obligation to ensure "that all
documentary requirements (were) complied with by clients being handled and that the bank's interest (was) at
all times protected." It was incumbent on him to enforce "strict compliance with bank policies and internal
control procedures while maintaining the highest level of service quality." Petitioner did not even deny that it
was he who signed, approved and facilitated the subject transactions relating to the various abstractions
committed by a bank employee. It was an implied admission that he was the one who opened the door for the
commission of the unlawful abstractions by failing to ensure that all requirements for the opening of accounts
were complied with. This constituted gross negligence.

17. Union Bank of the Philippines vs. Court of Appeals

Facts; On March 2, 1990, respondents-spouses Gonzalo and Trinidad Vincoy mortgaged their residence in favor
of petitioner to secure the payment of a loan to Delco Industries (Phils.), Incorporated 1 in the amount of
P2,000,000.00. For failure of the respondents to pay the loan maturity date, petitioner extrajudicially foreclosed
the mortgage and scheduled the foreclosure sale on April 10, 1991. The petitioner submitted the highest bid of
P3,290,000at the foreclosure sale. A certificate of sale was issued to petitioner and duly annotated at the back
of the Transfer Certificate of Title covering the property on May 8, 1991. Prior to the expiration of the
redemption period on May 8, 1992, the respondents filed a complaint for annulment of mortgage with the lower
court. In their complaint, respondents alleged that the subject property mortgaged to petitioner had in fact
been constituted as a family home as early as October 27, 1989. Among the beneficiaries of the said family home
are the sisters of respondent Trinidad Vincoy, namely Apolonia and Luciana De Jesus Gregorio whose consent
to the mortgage was not obtained. On the other hand, petitioner maintained that the mortgaged property of
respondents could not be legally constituted as a family home because its actual value exceeded Three
P300,000.00, the maximum value for a family home in urban areas as stipulated in Article 157 of the Family
Code. Petitioner also contends that the respondents had already lost their right to redeem the foreclosed
property when they failed to exercise their right of redemption by paying the redemption price within the period
provided for by law. In the event, however, that the Court upholds the right of the respondents to redeem the
said property, the petitioner claims that it is not Section 30, Rule 39 of the Rules of Court that applies in
determining the amount sufficient for redemption but Section 78 of the General Banking Act as amended by
Presidential Decree No. 182816 which provides: In the event of foreclosure, whether judicially or extrajudicially,
of any mortgage on real estate which is security for any loan granted before the passage of this Act or under the
provisions of this Act, the mortgagor or debtor whose real property has been sold at public auction, judicially or
extrajudicially, for the full or partial payment of an obligation to any bank, banking or credit institution, within
the purview of this Act shall have the right, within one year after the sale of the real estate as a result of the
foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by the court in the
order of execution, or the amount due under the mortgage deed, as the case may be, with interest thereon at
the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred by the bank or
institution concerned by reason of the execution and sale and as a result of the custody of the said property less
the income received from the property.”
Issue: Whether or not the petitioner’s claim that Sec. 78 of the General Banking Act shall govern is meritorious.
Held: Yes. In Ponce de Leon v. Rehabilitation Finance Corporation, this Court had occasion to rule that Section
78 of the General Banking Act had the effect of amending Section 6 of Act No. 3135 insofar as the redemption
price is concerned when the mortgagee is a bank, as in this case, or a banking or credit institution. The apparent
conflict between the provisions of Act No. 3135 and the General Banking Act was, therefore, resolved in favor
of the latter, being a special and subsequent legislation. This pronouncement was reiterated in the case of Sy v.
Court of Appeals where we held that the amount at which the foreclosed property is redeemable is the amount
due under the mortgage deed, or the outstanding obligation of the mortgagor plus interest and expenses in
accordance with Section 78 of the General Banking Act. It was therefore manifest error on the part of the Court
of Appeals to apply in the case at bar the provisions of Section 30 Rule 39 of the Rules of Court in fixing the
redemption price of the subject foreclosed property.

18. PDIC v Citibank 669 SCRA 991

Facts: Petitioner Philippine Deposit Insurance Corporation (PDIC) is a government instrumentality
created by virtue of Republic Act (R.A.) No. 3591, as amended by R.A. No. 9302.
Respondent Citibank, N.A. (Citibank) is a banking corporation while respondent Bank of America, S.T. &
N.A. (BA) is a national banking association, both of which is duly organized 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.
In 1977, PDIC conducted an examination of the books of account of Citibank. It discovered that in the
course of its business, received from its head office and other foreign branches a total of ₱11,923,163,908.00 in
dollars, covered by Certificates of Dollar Time Deposit that were interest-bearing with corresponding maturity
dates. Similarly, sometime in 1979, PDIC examined the books of accounts of BA which revealed that, BA received
from its head office and its other foreign branches a total of ₱629,311,869.10 in dollars, covered by Certificates
of Dollar Time Deposit that were interest-bearing with corresponding maturity dates. Both were not reported
in their respective deposit liabilities, so both banks were assessed deficiency premiums for dollar deposits in the
amounts of ₱1,595,081.96 and ₱109,264.83, respectively.
In their petitions, Citibank and BA sought a declaratory judgment stating that the money placements
were not deposits and did not give rise to insurable deposit liabilities under Sections 3 and 4 of R.A. No. 3591.
RTC promulgated its Decision in favor of Citibank and BA, because said placements were deposits made outside
of the Philippines and, under Section 3.05(b) of the PDIC Rules and Regulations, such deposits are excluded from
the computation of deposit liabilities. 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.
Rather, they were considered inter-branch deposits which were excluded from the assessment base, in
accordance with the practice of the United States Federal Deposit Insurance Corporation (FDIC) after which PDIC
was patterned. CA affirmed RTC.
Issue:
Whether the funds placed in the Philippine branch by the head office and foreign branches of Citibank
and BA are insurable deposits under the PDIC Charter and, as such, are subject to assessment for insurance
premiums.
Ruling:
No. This Court is of the opinion that the key to the resolution of this controversy is the relationship of
the Philippine branches of Citibank and BA to their respective head offices and their other foreign branches.
Philippine banking laws support the conclusion that the head office of a foreign bank and its branches
are considered as one legal entity. Section 75 of R.A. No. 8791 (The General Banking Law of 2000) and Section
5 of R.A. No. 7221 (An Act Liberalizing the Entry of Foreign Banks) both require the head office of a foreign bank
to guarantee the prompt payment of all the liabilities of its Philippine branch.
Where a bank maintains branches, each branch becomes a separate business entity with separate books
of account. Nevertheless, when considered with relation to the parent bank they are not independent agencies;
they are, what their name imports, merely branches, and are subject to the supervision and control of the parent
bank. Deposit insurance is superfluous and entirely unnecessary when, as in this case, the institution holding
the funds and the one which made the placements are one and the same legal entity.

19. PCI Bank v. CA [269 SCRA 695, Mar. 14, 1997]

FACTS: Philippine Bank of Commerce (PBC) was absorbed by PCIB. Rommel’s Marketing Corporation (RMC)
sought to recover from PBC the sum of P304,979.74 representing various deposits it had made in its current
account with said bank but which were not credited to its account, and were instead deposited to the account
of one Bienvenido Cotas, allegedly due to the gross and inexcusable negligence of the petitioner bank. RMC
maintained 2 separate current accounts, Current Account Nos. 53-01980-3 and 53-01748-7, with PBC Pasig in
connection with selling appliances.

In the ordinary and usual course of banking operations, current account deposits are accepted by the bank on
the basis of deposit slips prepared and signed by the depositor, or the latter's agent or representative, who
indicates therein the current account number to which the deposit is to be credited, the name of the depositor
or current account holder, the date of the deposit, and the amount of the deposit either in cash or checks. The
deposit slip has an upper portion or stub, which is detached and given to the depositor or his agent; the lower
portion is retained by the bank. In some instances, however, the deposit slips are prepared in duplicate by the
depositor. The original of the deposit slip is retained by the bank, while the duplicate copy is returned or given
to the depositor.

Romeo Lipana (Gen. Mgr. of RMC) entrusted the RMC funds (P304k) to Irene Yabut, his secretary, for her to
deposit to the bank. But these funds were deposited to the Bienvenido Cotas’ account: 53-01734-7. PBC had
been regularly furnishing RMC with monthly statements showing its current accounts balances. Unfortunately,
it had never been the practice of Romeo Lipana to check these monthly statements of account reposing
complete trust and confidence on petitioner bank.

Yabut's(wife of Cotas) modus operandi is far from complicated. She would accomplish two (2) copies of the
deposit slip, an original and a duplicate. The original showed the name of her husband as depositor and his
current account number. On the duplicate copy was written the account number of her husband but the name
of the account holder was left blank. PBC's teller, Azucena Mabayad, would, however, validate and stamp both
the original and the duplicate of these deposit slips retaining only the original copy despite the lack of
information on the duplicate slip. The second copy was kept by Irene Yabut allegedly for record purposes. After
validation, Yabut would then fill up the name of RMC in the space left blank in the duplicate copy and change
the account number written thereon, which is that of her husband's, and make it appear to be RMC's account
number.

Upon discovery of the loss of its funds, RMC demanded from petitioner bank the return of its money, but as its
demand went unheeded, it filed a collection suit before the RTC Pasig. Trial Court found bank to be negligent.
CA affirmed. Hence in this petition, PCIB alleged that RMC and Lipana was negligent for entrusting the funds to
a dishonest employee.

ISSUE: WON bank’s negligence was the proximate cause of the loss.

HELD: Yes. Negligence is the omission to do something which a reasonable man, guided by those considerations
which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent
and reasonable man would do. In the case at bar, the bank's teller, Ms. Azucena Mabayad, was negligent in
validating, officially stamping and signing all the deposit slips prepared and presented by Ms. Yabut, despite
the glaring fact that the duplicate copy was not completely accomplished contrary to the self-imposed
procedure of the bank with respect to the proper validation of deposit slips, original or duplicate, as testified
to by Ms. Mabayad herself.

Negligence here lies not only on the part of Ms. Mabayad but also on the part of the bank itself in its lackadaisical
selection and supervision of Ms. Mabayad. This was exemplified in the testimony of Mr. Romeo Bonifacio, then
Manager of the Pasig Branch of the petitioner bank and now its Vice-President, to the effect that, while he
ordered the investigation of the incident, he never came to know that blank deposit slips were validated in
total disregard of the bank's validation procedures. It was this negligence of Ms. Azucena Mabayad, coupled
by the negligence of the petitioner bank in the selection and supervision of its bank teller, which was the
proximate cause of the loss suffered by the private respondent, and not the latter's act of entrusting cash to a
dishonest employee, as insisted by the petitioners.

Notes:

**Doctrine of last clear chance: Under this doctrine, a negligent plaintiff can nonetheless recover if he is able
to show that the defendant had the last opportunity to avoid the accident.

Assuming that private respondent RMC was negligent in entrusting cash to a dishonest employee, thus providing
the latter with the opportunity to defraud the company, as advanced by the petitioner, yet it cannot be denied
that the petitioner bank, thru its teller, had the last clear opportunity to avert the injury incurred by its client,
simply by faithfully observing their self-imposed validation procedure.

>Bank must observe highest degree of care.

20. PCI Bank vs Court of Appeals, 350 SCRA 446 (2001)
FACTS:
The actions were instituted by Ford Philippines to recover from the drawee bank (Citibank) and collecting bank
(Philippine Commercial International Bank) the value of several checks payable to the Commissioner of Internal
Revenue, which were embezzled allegedly by an organized syndicate. What prompted the action was the
drawing of a check by Ford, which it deposited to PCIB as payment and was debited from their Citibank account.
It later on found out that the payment was not received by the Commissioner. Meanwhile, according to the NBI
report, one of the checks issued by petitioner was withdrawn from PCIB for alleged mistake in the amount to
be paid. This was replaced with manager’s check by PCIB, which were allegedly stolen by the syndicate and
deposited in their own account. The trial court ruled in favor of Ford.
ISSUE: WN Ford has the right to recover the value of the checks intended as payment to CIR.
RULING:
The checks were drawn against the drawee bank but the title of the person negotiating the same was allegedly
defective because the instrument was obtained by fraud and unlawful means, and the proceeds of the check
were not remitted to the payee. It was established that instead of paying the CIR, the checks were diverted and
encashed for the eventual distribution among members of the syndicate.
Pursuant to this, it is vital to show that the negotiation is made by the perpetrator I breach of faith amounting
to fraud. The person negotiating the checks must have gone beyond the authority given by his principal. If the
principal could prove that there was no negligence in the performance of his duties, he may set up the personal
defense to escape liability and recover from other parties who, through their own negligence, allowed the
commission of the crime.
It should be resolved if Ford is guilty of the imputed contributory negligence that would defeat its claim for
reimbursement, bearing in mind that its employees were among the members of the syndicate. It appears
although the employees of Ford initiated the transactions attributable to the organized syndicate, their actions
were not the proximate cause of encashing the checks payable to CIR. The degree of Ford’s negligence could
not be characterized as the proximate cause of injury to parties. The bank is not entitled to shift the loss to the
drawer-payor in the absence of some circumstance raising estoppel against the drawer. Citibank is also
responsible for negligence and not only PCIB. It was negligent in the performance of its duties as a drawee bank.
It failed to established its payment of Ford’s checks were made in due course and legally in order.
21. Consolidated Bank V. CA

Facts: L.C. Diaz opened a savings account with Solidbank, L.C. Diaz through its cashier, Mercedes Macaraya
(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 (Calapre), to deposit the money with Solidbank. Calapre
went to Solidbank The teller acknowledged receipt of the deposit by returning to Calapre the duplicate copies
of the two deposit slips. 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 reported the incident to Macaraya. When
Macaraya asked for the passbook, Teller No. 6 told Macaraya that someone got 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. Failing to get back the passbook, Macaraya went back to her office and reported the matter to the
Personnel Manager of L.C. Diaz, Emmanuel Alvarez. Luis C. Diaz (Diaz), called up Solidbank to stop any
transaction using the same passbook until L.C. Diaz could open a new account. On the same day, Diaz formally
wrote Solidbank to make the same request. It was also on the same day that L.C. Diaz learned of the
unauthorized withdrawal the day before, 14 August 1991, of P300,000 from its savings account. The withdrawal
slip for the P300,000. A certain Noel Tamayo received the P300,000., L.C. Diaz through its counsel demanded
from Solidbank the return of its money. Solidbank refused. L.C. Diaz filed a Complaint for Recovery of a Sum of
Money against After trial, the trial court rendered a decision absolving Solidbank and dismissing the complaint.
L.C. Diaz then appealed.

Issue: W/N Solidbank should be liable for the recovery of the sum of money

Ruling: Yes. Petitioner Solidbank Corporation shall pay private L.C. Diaz and Company, CPA’s only 60% of the
actual damages awarded by the CA. The remaining 40% of the actual damages shall be borne by private
respondent L.C. Diaz and Company, CPA’s. Solidbank is liable for breach of contract due to negligence, or culpa
contractual contract between the bank and its depositor is governed by the provisions of the Civil Code on
simple loan.

Section 2 of RA 8791 effected on June 13 2000, declares that the State recognizes the “fiduciary nature of
banking that requires high standards of integrity and performance. 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. Solidbank is bound by the negligence of its employees under the principle of respondeat
superioror 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 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 - not applicable.

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

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.

SCRA: 1. 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.

2. The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act
No. 8791 (“RA 8791”), which took effect on 13 June 2000, declares that the State recognizes the “fiduciary
nature of banking that requires high standards of integrity and performance.” This new provision in the general
banking law, introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990
case of Simex International v. Court of Appeals, holding that “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.”

3. 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. Although RA 8791 took effect almost nine years after the
unauthorized withdrawal of the P300,000 from L.C. Diaz’s savings account, jurisprudence at the time of the
withdrawal already imposed on banks the same high standard of diligence required under RA No. 8791.
22. Philippine Banking Corp vs. CA

Facts: Leonilo Marcos filed in court a complaint for sum of money with damages against Phil. Banking
Corporation (PBC). Marcos allegedly made a time deposit in 2 occasions the amt. of P664,897.67
and P764,897.67 through the persuasion of his friend Pagsaligan, one of the bank’s officials. The bank issued
receipt for the first deposit while a letter-certification was issued for his second deposit by Pagsaligan.
Pagsaligan kept the various time deposit certificates. When Marcos wanted to withdraw his time deposit and
its accumulated interest Pagsaligan encouraged him to open a letter of credit to the bank by executing 3 trust
receipts agreement. He signed blank forms for domestic letter of credits, trust receipts agreements and
promissory notes. He was required to deposit 30% of the total amount of credit and his time deposit will secure
the remaining 70% of the letters of credit.
He is now accusing the bank for unjustly collecting payment without deducting the 30% of his down payment
and charging him with accumulating interests since his time deposit serves as collateral for his remaining
obligation. He further denied making a loan of P500,000 with 25% interest per annum covered by a promissory
note produced by the bank. The bank explained that the promissory notes he executed are distinct from the
trust receipt agreement and denied falsifying the promissory note covering for the loan of P500,000. The
evidence presented on the promissory note however is merely a machine copy of the document. The said loan
was already paid by offsetting it from his time deposit.

Issue:
Whether or not the bank failed to take a proper account on Marcos’ deposits and payment of his loans.

Ruling: Yes. The court held that the bank is liable for offsetting the time deposit of Marcos to the fictitious
promissory note for the 500,000 loan. The court upheld the findings of the lower court on the discrepancies
shown by the machine copy of the duplicate of the promissory note and the suspicious claim of the bank that it
could not produce the original copy thereof. The mere machine copy of the document has no evidentiary value
before the court. The court held that the bank did not forge the promissory note. Pagsaligan did to cover up his
failure to give the proper account of Marcos’ time deposits. This however does not excuse the bank to return to
Marcos the correct amount of his time deposit with interest. Bank has the fiduciary duty before its clients. Its
duty is to observe the highest standards of integrity and performance. Assuming Pagsaligan is responsible for
the spurious promissory note the court held that a bank is liable for the wrongful acts of its officers. The court
made the proper account of the total amount due to Marcos ordering the bank to give to him the same plus
moral and exemplary damages.
CASE 23 MISSING

24. Associated bank v Tan

Facts:

"Vicente Henry Tan (hereafter TAN) is a businessman and a regular depositor-creditor of the Associated
Bank (hereinafter referred to as the BANK). Sometime in September 1990, he deposited a postdated UCPB check
with the said BANK in the amount of P101,000.00 issued to him by a certain Willy Cheng from Tarlac. The check
was duly entered in his bank record thereby making his balance in the amount of P297,000.00, as of October 1,
1990, from his original deposit of P196,000.00. Allegedly, upon advice and instruction of the BANK that
the P101,000.00 check was already cleared and backed up by sufficient funds, TAN, on the same date, withdrew
the sum of P240,000.00, leaving a balance of P57,793.45. A day after, TAN deposited the amount of P50,000.00
making his existing balance in the amount of P107,793.45, because he has issued several checks to his business
partners. "However, his suppliers and business partners went back to him alleging that the checks he issued
bounced for insufficiency of funds. Thereafter, TAN, thru his lawyer, informed the BANK to take positive steps
regarding the matter for he has adequate and sufficient funds to pay the amount of the subject checks.
Nonetheless, the BANK did not bother nor offer any apology regarding the incident. Consequently, TAN, as
plaintiff, filed a Complaint for Damages with RTC of Cabanatuan because his suppliers decreased in number for
lack of trust.

BANK on March 20, 1991 filed its Answer denying, among others, the allegations of [respondent] and
alleged that no banking institution would give an assurance to any of its client/depositor that the check
deposited by him had already been cleared and backed up by sufficient funds. For its part, [petitioner] alleged
that on October 2, 1990, it gave notice to the [respondent] as to the return of his UCPB check deposit in the
amount of P101,000.00. "By way of affirmative defense, [petitioner] averred that [respondent] had no cause of
action against it and argued that it has all the right to debit the account of the [respondent] by reason of the
dishonor of the check deposited by the [respondent] which was withdrawn by him prior to its clearing.

RTC favored respondent, it was shown that [respondent] was not officially informed about the debiting
of the P101,000.00 [from] his existing balance and that the BANK merely allowed the [respondent] to use the
fund prior to clearing merely for accommodation because the BANK considered him as one of its valued clients.
The trial court ruled that the bank manager was negligent in handling the particular checking account of the
[respondent] stating that such lapses caused all the inconveniences to the [respondent]. The CA opined that,
had the P101,000 not been debited, respondent would have had sufficient funds for the postdated checks he
had issued. Thus, the supposed accommodation accorded by petitioner to him is the proximate cause of his
business woes and shame, for which it is liable for damages.

Issue: whether the bank properly exercised its right of set off

Ruling:

No. A bank generally has a right of setoff over the deposits therein for the payment of any withdrawals
on the part of a depositor. The right of a collecting bank to debit a client’s account for the value of a dishonored
check that has previously been credited has fairly been established by jurisprudence. Nonetheless, the real issue
here is not so much the right of petitioner to debit respondent’s account but, rather, the manner in which it
exercised such right.
Obligation as depository bank

In BPI v. Casa Montessori,14 the Court has emphasized that the banking business is impressed with
public interest. "Consequently, the highest degree of diligence is expected, and high standards of integrity and
performance are even required of it. By the nature of its functions, a bank is under obligation to treat the
accounts of its depositors with meticulous care. Even if the deposit is in hundred or millions. The fiduciary nature
of banking, previously imposed by case law, is now enshrined in Republic Act No. 8791 or the General Banking
Law of 2000. Section 2 of the law specifically says that the State recognizes the "fiduciary nature of banking that
requires high standards of integrity and performance."

In the case petitioner did not treat respondent’s account with the highest degree of care because
petitioner allowed the withdrawal of the face value of the deposited check prior to its clearing. That act certainly
disregarded the clearance requirement of the banking system. Such a practice is unusual, because a check is not
legal tender or money; and its value can properly be transferred to a depositor’s account only after the check
has been cleared by the drawee bank. Under ordinary banking practice, after receiving a check deposit, a
bank either immediately credit the amount to a depositor’s account; or infuse value to that account only after
the drawee bank shall have paid such amount. Before the check shall have been cleared for deposit, the
collecting bank can only "assume" at its own risk -- as herein petitioner did -- that the check would be cleared
and paid out. Reasonable business practice and prudence, moreover, dictated that petitioner should not have
authorized the withdrawal by respondent of P240,000 on October 1, 1990, as this amount was over and above
his outstanding cleared balance of P196,793.45. Hence, the lower courts correctly appreciated the evidence in
his favor.

Obligation as Collecting agent

It is indeed arguable that “in signing the deposit slip which has a reservation which says that “the bank
assumes no responsibility beyond carefulness in selecting correspondents“, the depositor does so only to
identify himself and not to agree to the conditions set forth at the back of the deposit slip”.—This reservation is
not enough to insulate the bank from any liability. In the past, we have expressed doubt about the binding force
of such conditions unilaterally imposed by a bank without the consent of the depositor

As a general rule, a bank is liable for the wrongful or tortuous acts and declarations of its officers or
agents within the course and scope of their employment when the negligent or wrongful act of the former
proximately results in an injury to a third person, in this case, the depositor.The manager of the bank’s
Cabanatuan branch, Consorcia Santiago, categorically admitted that she and the employees under her control
had breached bank policies. They admittedly breached those policies when, without clearance from the drawee
bank in Baguio, they allowed respondent to withdraw on October 1, 1990, the amount of the check deposited.
Santiago testified that respondent "was not officially informed about the debiting of the P101,000 from his
existing balance of P170,000 on October 2, 1990 x x x

Under the provisions of the Negotiable Instruments Law regarding the liability of a general indorser and the
procedure for a notice of dishonor, it was incumbent on the bank to give proper notice to respondent. petitioner
failed to show that it had immediately and duly informed respondent of the debiting of his account.
25. Cagungun v. Planters Development Corp., 473 SCRA 259

Facts: COUNTRY had opened an extension office in Olongapo City, and among their first customers were the
Cagungun spouses who had diverse business interests in the locality. They opened some accounts, and for two
(2) of which they were issued Savings Passbook No. 12241-16 in the name of Puring's Dry Goods and Savings
Passbook No. 38470-29 in the names of V/L Cagungun.

It was claimed by the Cagungun spouses and testified to by them and their daughter-in-law Sarah Cagungun,
that because of the exigencies of their businesses that required daily deposits of the proceeds and of the trust
that they have reposed with COUNTRY and its personnel, they entrusted and left with them their said savings
pass books. At least once a day the Branch manager Ruperto Reyes or a certain Bong and Ding would come to
get their funds and with the agreement that these would be rounded off and deposited to their account while
the odd remainder would be applied to their loan. The arrangement apparently went well, until March 1981
when the Cagungun spouses received a letter from COUNTRY telling them that their loan is past due and
payment was demanded . . . or else. This prompted them to investigate, but this was tedious and difficult
because of lack of cooperation and even resistance from COUNTRY. But with the help of friends in high places
the Cagungun spouses were able to access and pry information that in the year 1979 on the dates of October 8,
18, 20 and 31 and November 15, and December 4 and 8, with the use of withdrawal slips a total of P220,000.00
was withdrawn from their Savings Passbook No. 12241-16. These withdrawals were invalid for no such
withdrawal was authorized, made or received by the depositors, and the signatures of Vicente Cagungun on the
slips were forgeries. This was confirmed by Arcadio Ramos, Chief of the Questioned Documents Division of the
NBI when these were subjected to examination.

Issue: WON the bank is liable for payment of damages.

Ruling:

Yes.

For not applying the savings of petitioners in Savings Account No. 38470-29 as payment to their loan, thereby
causing the threatened foreclosure of the real estate mortgage over their house and lot, and for allowing the
unauthorized withdrawals from Savings Account No. 12241-16 through falsified withdrawal slips, the lower
court held respondent liable to pay moral damages. For ignoring the two (2) demand letters of petitioners, the
demand letter of petitioners' counsel and the representations made by Pampanga Gov. Estelito Mendoza and
Central Bank Governor Jaime Laya, and for the attempt to cover up the misdeeds of its employees constituting
malice and bad faith, respondent was also ordered to pay exemplary damages as an example to others. On
account of these acts, respondent was also ordered to pay attorney's fees and the cost of suit.

26. Prudential Bank v Chonney Lim GR No. 136371, November 11, 2005

Facts: Respondent allegedly made 2 deposits in the amount of P34,000 each on the 14th and 15th of March 1988
in his savings account. He availed of the petitioner bank’s automatic transfer system where his savings deposit
may be automatically transferred in his checking account in case the latter has insufficient fund to pay for his
issued checks. Apparently, respondent received a letter of dishonor for his checks due to insufficient fund. He
wrote a letter to the bank opposing their claim that he has an insufficient fund while asserting to have made
two separate deposits in the amount of P34,000 to his savings account. The bank denied receiving two separate
deposits and verified only that respondent made a deposit only on the 14 th of March and that the deposit slip
dated March 15 presented by the respondent is merely a copy of the former. Upon presentation of evidence, it
was clear that the two separate deposit slips have the same amount but with different denominations stated
therein. This was further attested by the bank teller who admitted to have stamped both deposit slips. The
lower court decided in favor of the respondent. Upon appeal by the petitioner, the court of appeals affirmed
the lower court decision with some modification on the award of damages hence this petition to the Supreme
Court.

Issue: Whether or not there was negligence on the part of the bank to record the second deposit made on
March 15 by the respondent.

Ruling: The court held that respondent presented substantial evidence to prove that two deposits were made
in his account of the same amount on March 14 and 15, 1988. The failure of the bank to credit the deposit made
by the respondent on March 15 to his savings account resulting to his dishonored checks constitutes a breach
of duty of the bank to its client that equates to negligence. By the nature of the bank functions, they are
mandated to observe highest degree of diligence in treating the accounts of their depositors. The banking
industry is impressed with public interest and by virtue of their fiduciary duty to their clients banks are mandated
to treat with meticulous care and fidelity all undertakings pertaining to their depositor’s accounts. The court
finds the imposition of award for damages are in order. The wrongful act of the bank constitutes injury to the
respondent because the financial credit of a businessman is a valuable asset and any adverse reflection of his
credit would result to material loss to him.

27. CADIZ v CA

FACTS: Petitioners Romeo Cadiz (“Cadiz”), Carlito Bongkingki (“Bongkingki”) (HAHAHAHHAHA naaliw lang ako
sa surname) and Prisco Gloria IV (“Gloria”) were employed as signature verifier, bookkeeper, and foreign
currency denomination clerk/bookkeeper-reliever, respectively, in the main office branch (MOB) of Philippine
Commercial International Bank (respondent bank).

The anomalies in question arose when Rosalina B. Alqueza (Alqueza) filed a complaint with PCIB for the alleged
non-receipt of a Six Hundred Dollar ($600.00) demand draft drawn against it which was purchased by her
husband from Hongkong and Shanghai Banking Corporation. Upon verification, it was uncovered that the
demand draft was deposited on 10 June 1988 with FCDU Savings Account (S/A) No. 1083-4, an account under
the name of Sonia Alfiscar (Alfiscar). Further investigation revealed that the demand draft, together with four
(4) other checks, was made to appear as only one deposit covered by HSBC Check No. 979120 for One Thousand
Two Hundred Thirty-two Dollars (US$1,232.00).

The Branch Manager, Ismael R. Sandig, then presided over a series of meetings, wherein Cadiz, Bongkingki and
Gloria allegedly verbally admitted their participation in a scheme to divert funds intended for other accounts
using the Savings Account of Alfiscar.

Respondent bank in memoranda all dismissed petitioners from employment. Petitioners lodged a complaint
before the labor arbiter for illegal dismissal. Labor Arbiter adjudged that petitioners were illegally dismissed and
ordered their reinstatement and payment of backwages. This conclusion was based on the notices of dismissal,
which, to the mind of the labor arbiter, was couched in general terms and without explaining how the rules
were violated. However, NLRC reversed the Labor Arbiter’s decsision. CA affirmed NLRC’s decision.

ISSUE: W/N CA erred in upholding the decision of the NLRC

RULING: NO. It would simply be reckless for the Court to reinstate the bank employees who have clearly engaged
in anomalous banking practices. The particular fiduciary responsibilities reposed on banks and its employees
cannot be emphasized enough. The fiduciary nature of banking is enshrined in Republic Act No. 8791 or the
General Banking Law of 2000. Section 2 of the law specifically says that the State recognizes the “fiduciary nature
of banking that requires high standards of integrity and performance.” The bank must not only exercise “high
standards of integrity and performance,” it must also ensure that its employees do likewise because this is the
only way to ensure that the bank will comply with its fiduciary duty. All given, we affirm the conclusion that
petitioners were dismissed for just cause. Loss of trust and confidence is one of the just causes for termination
by employer under Article 282 of the Labor Code. The breach of trust must be willful, meaning it must be done
intentionally, knowingly, and purposely, without justifiable excuse. Ideally, loss of confidence applies only to
cases involving employees occupying positions of trust and confidence or to those situations where the
employee is routinely charged with the care and custody of the employer’s money or property. Utmost trust
and confidence are deemed to have been reposed on petitioners by virtue of the nature of their work.
28. PNB vs. Rodriguez

Facts: Spouses Rodriguez maintained a savings and demand/checking accounts with petitioners Philippines
National Bank (PNB). They were engaged in the informal lending business and had a discounting arrangement
with the Philnabank Employees Savings and Loan Association (PEMSLA), an association of PNB employees, which
likewise maintained current and savings accounts with petitioner bank. PEMSLA regularly granted loans to its
members. Spouses Rodriguez would rediscount the postdated checks issued to members whenever the
association was short of funds. As was customary, the spouses would replace the postdated checks with their
own checks issued in the name of the members.

It was PEMSLA’s policy not to approve applications for loans of members with outstanding debts. To subvert
this policy, some PEMSLA officers devised a scheme to obtain additional loans despite their outstanding loan
accounts. They took out loans in the names of unknowing members, without the knowledge or consent of the
latter. The PEMSLA checks issued for these loans were then given to the spouses for rediscounting. The officers
carried this out by forging the indorsement of the named payees in the checks. In return, the spouses issued
their personal checks (Rodriguez checks) in the name of the members and delivered the checks to an officer of
PEMSLA. The PEMSLA checks, on the other hand, were deposited by the spouses to their account. Meanwhile,
the Rodriguez checks were deposited directly by PEMSLA to its savings account without any indorsement from
the named payees. This usual irregular procedure is made possible through the facilitation of Edmundo Palermo,
Jr., treasurer of PEMSLA and bank teller in the PNB Branch.

The spouses issued 69 checks, in the total amount of P2,345,804.00, payable to 47 members of PEMSLA. After
finding out such fraudulent act, PNB closed the current account of PEMSLA. As a result, the PEMSLA checks
deposited by the spouses were returned or dishonored for the reason “Account Closed.” The corresponding
Rodriguez checks, however, were deposited as usual to the PEMSLA savings account. The amounts were duly
debited from the Rodriguez account. Thus, because the PEMSLA checks given as payment were returned,
spouses Rodriguez incurred losses from the rediscounting transactions. Spouses Rodriguez sued PEMSLA and
PNB. They contended that because PNB credited the checks to the PEMSLA account even without indorsements,
PNB violated its contractual obligation to them as depositors. PNB paid the wrong payees, hence, it should bear
the loss. Trial court ruled in favor of spouses and ordered PNB to pay. CA affirmed the decision. Hence this
petition

Issue: Whether or not PNB can be made liable to pay the amount of checks which were deposited to the
PEMSLA savings account.

Held: Yes. A bank that regularly processes checks that are neither payable to the customer nor duly indorsed
by the payee is apparently grossly negligent in its operations. This Court has recognized the unique public
interest possessed by the banking industry and the need for the people to have full trust and confidence in their
banks. For this reason, banks are minded to treat their customer’s accounts with utmost care, confidence, and
honesty. In a checking transaction, the drawee bank has the duty to verify the genuineness of the signature of
the drawer and to pay the check strictly in accordance with the drawer’s instructions, i.e., to the named payee
in the check. It should charge to the drawer’s accounts only the payables authorized by the latter. Otherwise,
the drawee will be violating the instructions of the drawer and it shall be liable for the amount charged to the
drawer’s account. Rodriguez checks are payable to order since the bank failed to prove that the named payees
therein are fictitious. Hence, the fictitious-payee rule which will make the instrument payable to bearer does
not apply. PNB accepted the 69 checks for deposit to the PEMSLA account even without any indorsement from
the named payees. It bears stressing that order instruments can only be negotiated with a valid indorsement.
29. City Trust Bank v. Cruz
G.R. No. 157049 August 11, 2010
Facts: Respondent Carlos Romulo Cruz, an architect and a businessman, maintained both current and savings
account with the petitioner bank in their Loyola Heights Branch. Due to an oversight by its bank employee, the
savings account of respondent was closed. This resulted to extreme embarrassment of the respondent when
checks he issued could not be honored despite the fact that his savings account has sufficient funds.
Unmoved by the apologies and adjustments made by the bank, respondent filed a complaint for damages before
the RTC wherein the said court awarded exemplary damages (P100,000) and moral damages (P20,000) plus
attorneys fees. The bank appealed to the CA, but CA affirmed the lower court's decision. The Court of Appeals
said that the erroneous closure of the respondent's account would not have occurred if the bacnk had not been
careless in supervising its employees. Moreover, the CA explained that the negligence of the bank's personnel
was the proximate cause of the damage to the respondent. The CA also denied the bank's motion for
reconsideration. Hence, this appeal.
Petitioner contends that there were decisive situation facts showing excusable negligence and good faith that
did not justify the award of damages.

ISSUE: Whether or not the bank is liable for the damages caused to the respondent.
RULING: YES. The petitioner as a banking institution has the direct obligation to supervise closely its employees
handling its depositors' account. It should always be mindful of the fiduciary nature of its relationship with the
depositors which require it and its employees to record accurately every single transaction, considering that the
depositor's account should always reflect the amounts of money the depositors could dispose of as they saw
fit. If the bank fell short of this obligation, it should bear the responsibility for the consequences to the
depositors, who, like the herein respondent, suffered embarrassment due to the negligence in the handling of
his account.
Moreover, in several court decisions, banks are made liable for negligence even without sufficient proof of
malice or bad faith and awarded damages each time to the suing depositors in proper consideration of their
reputation and social standing.
Finally, it is never overemphasized that the public always relies on a bank's profession of diligence and
meticulousness in rendering service. Its failure to exercise such warrants its liability for exemplary damages and
reasonable attorney's fees.

MISSING CASE 30
31. BPI Employees Union-Davao City-FUBU vs Bank of the Philippines (BPI)

Facts:

BPI Operations Management Corporation (BOMC) , which was created pursuant to Central Bank Circular No.
1388 and primarily engaged in providing and/or handling support services for banks and other financial
institutions, is a subsidiary of the Bank of Philippine Islands (BPI) operating and functioning as an entirely
separate and distinct entity. BOMC undertook to provide services such as check clearing, delivery of bank
statements, fund transfers, card production, operations accounting and control, and cash servicing, conformably
with BSP Circular No. 1388.

A merger between BPI and Far East Bank and Trust Company (FEBTC) took effect on April 10, 2000 with
BPI as the surviving corporation. Thereafter, BPI’s cashiering function and FEBTC’s cashiering, distribution and
bookkeeping functions were handled by BOMC. Consequently, twelve (12) former FEBTC employees were
transferred to BOMC to complete the latter’s service complement.

The Union objected to the transfer of the functions and the twelve (12) personnel to BOMC contending
that the functions rightfully belonged to the BPI employees and that the Union was deprived of membership of
former FEBTC personnel who, by virtue of the merger, would have formed part of the bargaining unit
represented by the Union pursuant to its union shop provision in the CBA.

BPI invoked management prerogative stating that the creation of the BOMC was to preserve more jobs
and to designate it as an agency to place employees where they were most needed. On the other hand, the
Union charged that BOMC undermined the existence of the union since it reduced or divided the bargaining
unit. While BOMC employees perform BPI functions, they were beyond the bargaining unit’s coverage. In
contracting out FEBTC functions to BOMC, BPI effectively deprived the union of the membership of employees
handling said functions as well as curtailed the right of those employees to join the union.

The NLRC came out with a resolution upholding the validity of the service agreement between BPI and
BOMC. It ruled that the engagement by BPI of BOMC to undertake some of its activities was clearly a valid
exercise of its management prerogative. It further stated that the spinning off by BPI to BOMC of certain services
and functions did not interfere with, restrain or coerce employees in the exercise of their right to self-
organization. The Union did not present even an iota of evidence showing that BPI had terminated employees,
who were its members. In fact, BPI exerted utmost diligence, care and effort to see to it that no union member
was terminated. The NLRC also stressed that Department Order (D.O.) No. 10 series of 1997, strongly relied
upon by the Union, did not apply in this case as BSP Circular No. 1388, series of 1993, was the applicable rule.

Issue:

Whether or not the act of BPI to outsource the cashiering, distribution and bookkeeping functions to BOMC is
in conformity with the law and the existing CBA.

Held:
Yes.

There is no conflict between D.O. No. 10 and CBP Circular No. 1388. In fact, they complement each other.
While the Central Bank regulates banking, the Labor Code and its implementing rules regulate the employment
relationship. Since banking institutions are specialized industries, the competence in determining which banking
functions may or may not be outsourced lies with the BSP. This does not mean that banks can simply outsource
banking functions allowed by the BSP through its circulars, without giving regard to the guidelines set forth
under D.O. No. 10 issued by the DOLE. The Distributing, Clearing and Bookkeeping functions appear to be not in
any way directly related to the core activities of banks. They are functions in a processing center of BPI which
does not handle or manage deposit transactions. Clearly, the functions outsourced are not inherent banking
functions, and, thus, are well within the permissible services under the circular because they are ancillary to the
business of the bank. Hence, they can be outsourced.

The Court held that it is management prerogative to farm out any of its activities, regardless of whether
such activity is peripheral or core in nature. What is of primordial importance is that the service agreement does
not violate the employee’s right to security of tenure and payment of benefits to which he is entitled under the
law. Furthermore, the outsourcing must not squarely fall under labor-only contracting where the contractor or
sub-contractor merely recruits, supplies or places workers to perform a job, work or service for a principal or if
any of the following elements are present: i) The contractor or subcontractor does not have substantial capital
or investment which relates to the job, work or service to be performed and the employees recruited, supplied
or placed by such contractor or subcontractor are performing activities which are directly related to the main
business of the principal; or ii) The contractor does not exercise the right to control over the performance of the
work of the contractual employee.

32. Far East Bank and Trust Co v Queremit G.R. No. 148582 January 16, 2002

Facts : Respondent Estrella O. Querimit worked as internal auditor of the Philippine Savings Bank (PSB) for 19
years, from 1963 to 1992. On November 24, 1986, she opened a dollar savings account in petitioner's Harrison
Plaza branch, for which she was issued four (4) Certificates of Deposit. The certificates were to mature in 60
days, 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.

In 1989, respondent accompanied her husband to the US for medical treatment. In 1993, her husband died and
Estrella Querimit returned to the Philippines. She went to petitioner FEBTC to withdraw her deposit but she was
told that her husband had withdrawn the money in deposit. Respondent demanded payment including interests
earned. Respondent filed a complaint upon refusal of petitioner to pay. The trial court rendered its judgment in
favor of respondent. Petitioner appealed but the CA affirmed the trial court’s decision. It ruled that FEBTC failed
to prove that the certificates of deposit had been paid out of its funds.

Issue: Whether or not petitioner bank is liable in paying the certificates of deposit without the production of
such certificates.

Held: Yes. A certificate of deposit is defined as a written acknowledgement 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 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.

In this case, the certificates of deposit were clearly marked payable to “bearer”, which means – to the “person
in possession of an instrument, document of title or security payable to bearer or indorsed in blank”.

Petitioner should not have paid respondent’s husband or any third party without requiring the surrender of the
certificates of deposit. The subject certificates of deposit until now remain unendorsed, undelivered and
unwithdrawn by respondent Estrella Querimit. Petitioner FEBTC thus failed to exercise that degree of diligence
required by the nature of its business.Because the business of banks is impressed with public interest, the
degree of diligence required of banks is more than that of a good father of the family or of an ordinary business
firm. The fiduciary nature of their relationship with their depositors requires them to treat the accounts of their
clients with the highest degree of care.[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.

33. Philippine Banking Corporation (Now: Global Business Bank, Inc.) vs. Commissioner of BIR.

G.R. No. 170574. January 30, 2009

FACTS: The Philippine Banking Corporation, now, Global Business Bank, Inc., (petitioner) filed this Petition for
Review to reverse the Court of Tax Appeals’ Decision dated 23 November 2005 in CTA EB No. 63 (C.T.A. Case No.
6395). In the assailed decision, the Court of Tax Appeals En Banc ordered petitioner to pay P17,595,488.75 and
P47,767,756.24 as deficiency documentary stamp taxes for the taxable years 1996 and 1997, respectively, on
its bank product called “Special/Super Savings Deposit Account” (SSDA). Petitioner is a domestic corporation
duly licensed as a banking institution. For the taxable years 1996 and 1997, petitioner offered its SSDA to its
depositors. The SSDA is a form of a savings deposit evidenced by a passbook and earning a higher interest
rate than a regular savings account. Petitioner believes that the SSDA is not subject to Documentary Stamp Tax
(DST) under Section 180 of the 1977 National Internal Revenue Code (NIRC), as amended. Respondent, through
the Office of the Solicitor General, contends that the SSDA is substantially the same and identical to that of a
time deposit account because in order to avail of the SSDA, one has to deposit a minimum of P50,000 and this
amount must be maintained for a required period of time to earn higher interest rates. In a time deposit account,
the minimum deposit requirement is P20,000 and this amount must be maintained for the agreed period to
earn the agreed interest rate. If a time deposit is pre-terminated, a penalty will be imposed resulting in a lower
interest income. In a regular savings account, the interest rate is fixed and there is no penalty imposed for as
long as the required minimum balance is maintained. Thus, respondent asserts that the SSDA is a time deposit
account, albeit in the guise of a regular savings account evidenced by a passbook. The CTA ruled that a deposit
account with the same features as a time deposit, i.e., a fixed term in order to earn a higher interest rate, is
subject to DST imposed in Section 180 of the 1977 NIRC. The CTA pointed out that this Court neither referred to
a particular form of deposit nor limited the coverage to time deposits only. This Court used the term “written
acknowledgment” which means that for as long as there is some written memorandum of the fact that the bank
accepted a deposit of a sum of money from a depositor, the writing constitutes a certificate of deposit. The CTA
held that a passbook representing an interest-earning deposit account issued by a bank qualifies as a certificate
of deposit drawing interest. Hence, this petition.

ISSUE: Whether of not the petitioner’s product called Special/Super Savings Account is subject to DST under
Section 180 of the 1977 NIRC prior to the passage of RA 9243 in 2004.

RULING: YES. In Far East Bank and Trust Company v. Querimit, 373 SCRA 665 (2002), the Court defined a
certificate of deposit 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.” A certificate of deposit is also defined as “a receipt issued by a bank for an interest-bearing time
deposit coming due at a specified future date.” The deposit operations of a bank as listed in the Bangko Sentral
ng Pilipinas Manual of Regulations for Banks consist of the following: 1. Demand Deposits – are deposits, subject
to withdrawal either by check or thru the automated tellering machines which are otherwise known as current
or checking accounts. The Bank may or may not pay interest on these accounts. 2. Savings Deposits – are
interest-bearing deposits which are withdrawable either upon presentation of a properly accomplished
withdrawal slip together with the corresponding passbook or thru the automated tellering machines. 3.
Negotiable Order of Withdrawal Accounts – are interest-bearing savings deposit which are withdrawable by
means of Negotiable Orders of Withdrawal. 4. Time Deposits – are interest-bearing deposits with specific
maturity dates and evidenced by certificates issued by the bank.

Hence, in imposing the DST, the Court considers not only the document but also the nature and character of the
transaction. Based on the definition and comparison, it is clear that a certificate of deposit drawing interest as
used in Section 180 of the 1977 NIRC refers to a time deposit account. As the Bureau of Internal Revenue (BIR)
explained in Revenue Memorandum Circular No. 16-2003, the distinct features of a certificate of deposit from
a technical point of view are as follows: a. Minimum deposit requirement; b. Stated maturity period; c. Interest
rate is higher than the ordinary savings account; d. Not payable on sight or demand, but upon maturity or in
case of pre-termination, prior notice is required; and e. Early withdrawal penalty in the form of partial loss or
total loss of interest in case of pre-termination. The SSDA is for depositors who maintain savings deposits with
substantial average daily balance and which earn higher interest rates. The holding period of an SSDA floats at
the option of the depositor at 30, 60, 90, 120 days or more and for maintaining a longer holding period, the
depositor earns higher interest rates. There is no pre-termination of accounts in an SSDA because the account
is simply reverted to an ordinary savings status in case of early or partial withdrawal or if the required holding
period is not met. Based on the foregoing, the SSDA has all of the distinct features of a certificate of deposit.