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REPUBLIC ACT NO.

8791 May 23, 2000

AN ACT PROVIDING FOR THE REGULATION OF THE ORGANIZATION AND
OPERATIONS OF BANKS, QUASI-BANKS, TRUST ENTITIES AND FOR OTHER
PURPOSES

CHAPTER I
TITLE AND CLASSIFICATION OF BANKS

Section 1. Title. The short title of this Act shall be "The General Banking Law of 2000." (1a)

Section 2. Declaration Of Policy. - The State recognizes the vital role of banks providing an
environment conducive to the sustained development of the national economy and the
fiduciary nature of banking that requires high standards of integrity and performance. In
furtherance thereof, the State shall promote and maintain a stable and efficient banking and
financial system that is globally competitive, dynamic and responsive to the demands of a
developing economy. (n)

Section 3. Definition and Classification of Banks. -

3.1. "Banks" shall refer to entities engaged in the lending of funds obtained in the form of
deposits. (2a)

3.2. Banks shall be classified into:

(a) Universal banks;

(b) Commercial banks;

(c) Thrift banks, composed of: (i) Savings and mortgage banks, (ii) Stock savings and
loan associations, and (iii) Private development banks, as defined in the Republic Act
No. 7906 (hereafter the "Thrift Banks Act");

(d) Rural banks, as defined in Republic Act No. 7353 (hereafter the "Rural Banks
Act");

(e) Cooperative banks, as defined in Republic Act No 6938 (hereafter the
"Cooperative Code");

(f) Islamic banks as defined in Republic Act No. 6848, otherwise known as the
"Charter of Al Amanah Islamic Investment Bank of the Philippines"; and

(g) Other classifications of banks as determined by the Monetary Board of the
Bangko Sentral ng Pilipinas. (6-Aa)

CHAPTER II
AUTHORITY OF THE BANGKO SENTRAL

Section 4. Supervisory Powers. The operations and activities of banks shall be subject to
supervision of the Bangko Sentral. "Supervision" shall include the following:

4.1. The issuance of rules of, conduct or the establishment standards of operation for
uniform application to all institutions or functions covered, taking into consideration the
distinctive character of the operations of institutions and the substantive similarities of
specific functions to which such rules, modes or standards are to be applied;

4.2 The conduct of examination to determine compliance with laws and regulations if the
circumstances so warrant as determined by the Monetary Board;

4.3 Overseeing to ascertain that laws and regulations are complied with;

4.4 Regular investigation which shall not be oftener than once a year from the last date of
examination to determine whether an institution is conducting its business on a safe or
sound basis: Provided, That the deficiencies/irregularities found by or discovered by an audit
shall be immediately addressed;

4.5 Inquiring into the solvency and liquidity of the institution (2-D); or

4.6 Enforcing prompt corrective action. (n)

The Bangko Sentral shall also have supervision over the operations of and exercise
regulatory powers over quasi-banks, trust entities and other financial institutions which under
special laws are subject to Bangko Sentral supervision. (2-Ca)

For the purposes of this Act, "quasi-banks" shall refer to entities engaged in the borrowing of
funds through the issuance, endorsement or assignment with recourse or acceptance of
deposit substitutes as defined in Section 95 of Republic Act No. 7653 (hereafter the "New
Central Bank Act") for purposes of re-lending or purchasing of receivables and other
obligations. (2-Da)

Section 5. Policy Direction; Ratios, Ceilings and Limitations. - The Bangko Sentral shall
provide policy direction in the areas of money, banking and credit. (n)

For this purpose, the Monetary Board may prescribe ratios, ceilings, limitations, or other
forms of regulation on the different types of accounts and practices of banks and quasi-
banks which shall, to the extent feasible, conform to internationally accepted standards,
including of the Bank for International Settlements (BIS). The Monetary Board may exempt
particular categories of transactions from such ratios, ceilings. and limitations, but not limited
to exceptional cases or to enable a bank or quasi-bank under rehabilitation or during a
merger or consolidation to continue in business, with safety to its creditors, depositors and
the general public. (2-Ca)

Section 6. Authority to Engage in Banking and Quasi-Banking Functions. - No person or
entity shall engage in banking operations or quasi-banking functions without authority from
the Bangko Sentral: .Provided, however, That an entity authorized by the Bangko Sentral to
perform universal or commercial banking functions shall likewise have the authority to
engage in quasi-banking functions.

The determination of whether a person or entity is performing banking or quasi-banking
functions without Bangko Sentral authority shall be decided by the Monetary Board. To
resolve such issue, the Monetary Board may; through the appropriate supervising and
examining department of the Bangko Sentral, examine, inspect or investigate the books and
records of such person or entity. Upon issuance of this authority, such person or entity may
commence to engage in banking operations or quasi-banking function and shall continue to
do so unless such authority is sooner surrendered, revoked, suspended or annulled by the
Bangko Sentral in accordance with this Act or other special laws.

The department head and the examiners of the appropriate supervising and examining
department are hereby authorized to administer oaths to any such person, employee, officer,
or director of any such entity and to compel the presentation or production of such books,
documents, papers or records that are reasonably necessary to ascertain the facts relative to

the true functions and operations of such person or entity. Failure or refusal to comply with
the required presentation or production of such books, documents, papers or records within
a reasonable time shall subject the persons responsible therefore to the penal sanctions
provided under the New Central Bank Act.

Persons or entities found to be performing banking or quasi-banking functions without
authority from the Bangko Sentral shall be subject to appropriate sanctions under the New
Central Bank Act and other applicable laws. (4a)

Section 7. Examination by the Bangko Sentral. - The Bangko Sentral shall, when examining
a bank, have the authority to examine an enterprise which is wholly or majority-owned or
controlled by the bank. (2-Ba)

CHAPTER III
ORGANIZATION, MANAGEMENT AND ADMINISTRATION OF BANKS. QUASI-BANKS
AND TRUST ENTITIES

Section 8. Organization. - The Monetary Board may authorize the organization of a bank or
quasi-bank subject to the following conditions:

8.1 That the entity is a stock corporation (7);

8.2 That its funds are obtained from the public, which shall mean twenty (20) or more
persons (2-Da); and

8.3 That the minimum capital requirements prescribed by the Monetary Board for each
category of banks are satisfied. (n)

No new commercial bank shall be established within three (3) years from the effectivity of
this Act. In the exercise of the authority granted herein, the Monetary Board shall take into
consideration their capability in terms of their financial resources and technical expertise and
integrity. The bank licensing process shall incorporate an assessment of the bank's
ownership structure, directors and senior management, its operating plan and internal
controls as well as its projected financial condition and capital base.

Section 9. Issuance of Stocks. - The Monetary Board may prescribe rules and regulations
on the types of stock a bank may issue, including the terms thereof and rights appurtenant
thereto to determine compliance with laws and regulations governing capital and equity
structure of banks; Provided, That banks shall issue par value stocks only.

Section 10. Treasury Stocks. - No bank shall purchase or acquire shares of its own capital
stock or accept its own shares as a security for a loan, except when authorized by the
Monetary Board: Provided, That in every case the stock so purchased or acquired shall,
within six (6) months from the time of its purchase or acquisition, be sold or disposed of at a
public or private sale. (24a)

Section 11. Foreign Stockholdings. - Foreign individuals and non-bank corporations may
own or control up to forty percent (40%) of the voting stock of a domestic bank. This rule
shall apply to Filipinos and domestic non-bank corporations. (12a; 12-Aa) The percentage of
foreign-owned voting stocks in a bank shall be determined by the citizenship of the individual
stockholders in that bank. The citizenship of the corporation which is a stockholder in a bank
shall follow the citizenship of the controlling stockholders of the corporation, irrespective of
the place of incorporation. (n)

Section 12. Stockholdings of Family Groups of Related Interests. - Stockholdings of
individuals related to each other within the fourth degree of consanguinity or affinity,

legitimate or common-law, shall be considered family groups or related interests and must be
fully disclosed in all transactions by such corporations or related groups of persons with the
bank. (12-Ba)

Section 13. Corporate Stockholdings. - Two or more corporations owned or controlled by the
same family group or same group of persons shall be considered related interests and must
be fully disclosed in all transactions by such corporations or related group of persons with
the bank. (12-Ba)

Section 14. Certificate of Authority to Register. - The Securities and Exchange Commission
shall no register the articles of incorporation of any bank, or any amendment thereto, unless
accompanied by a certificate of authority issued by the Monetary Board, under it seal. Such
certificate shall not be issued unless the Monetary Board is satisfied from the evidence
submitted to it:

14.1 That all requirements of existing laws and regulations to engage in the business for
which the applicant is proposed to be incorporated have been complied with;

14.2 That the public interest and economic conditions, both general and local, justify the
authorization; and

14.3 That the amount of capital, the financing, organization, direction and administration, as
well as the integrity and responsibility of the organizers and administrators reasonably
assure the safety of deposits and the public interest. (9)

The Securities and Exchange Commission shall not register the by-laws of any bank, or any
amendment thereto, unless accompanied by a certificate of authority from the Bangko
Sentral. (10)

Section 15. Board of Directors. - The provisions of the Corporation Code to the contrary
notwithstanding, there shall be at least five (5), and a maximum of fifteen (15) members of
the board or directors of a bank, two (2) of whom shall be independent directors. An
"independent director" shall mean a person other than an officer or employee of the bank, its
subsidiaries or affiliates or related interests. (n) Non-Filipino citizens may become members
of the board of directors of a bank to the extent of the foreign participation in the equity of
said bank. (Sec. 7, RA 7721) The meetings of the board of directors may be conducted
through modern technologies such as, but not limited to, teleconferencing and video-
conferencing. (n)

Section 16. Fit and Proper Rule. - To maintain the quality of bank management and afford
better protection to depositors and the public in general the Monetary Board shall prescribe,
pass upon and review the qualifications and disqualifications of individuals elected or
appointed bank directors or officers and disqualify those found unfit. After due notice to the
board of directors of the bank, the Monetary Board may disqualify, suspend or remove any
bank director or officer who commits or omits an act which render him unfit for the position.
In determining whether an individual is fit and proper to hold the position of a director or
officer of a bank, regard shall be given to his integrity, experience, education, training, and
competence. (9-Aa)

Section 17. Directors of Merged or Consolidated Banks. - In the case of a bank merger or
consolidation, the number of directors shall not exceed twenty-one (21). (l3a)

Section 18. Compensation and Other Benefits of Directors and Officers. To protect the finds
of depositors and creditors the Monetary Board may regulate the payment by the bark to its
directors and officers of compensation, allowance, fees, bonuses, stock options, profit

sharing and fringe benefits only in exceptional cases and when the circumstances warrant,
such as but not limited to the following:

18.1. When a bank is under comptrollership or conservatorship; or

18.2. When a bank is found by the Monetary Board to be conducting business in an unsafe
or unsound manner; or

18.3. When a bank is found by the Monetary Board to be in an unsatisfactory financial
condition. (n)

Section 19. Prohibition on Public Officials. - Except as otherwise provided in the Rural
Banks Act, no appointive or elective public official whether full-time or part-time shall at the
same time serve as officer of any private bank, save in cases where such service is incident
to financial assistance provided by the government or a government owned or controlled
corporation to the bank or unless otherwise provided under existing laws. (13)

Section 20. Bank Branches. - Universal or commercial banks may open branches or other
offices within or outside the Philippines upon prior approval of the Bangko Sentral. Branching
by all other banks shall be governed by pertinent laws.

A bank may, subject to prior approval of the Monetary Board, use any or all of its branches
as outlets for the presentation and/or sale of the financial products of its allied undertaking or
of its investment house units. A bank authorized to establish branches or other offices shall
be responsible for all business conducted in such branches and offices to the same extent
and in the same manner as though such business had all been conducted in the head office.
A bank and its branches and offices shall be treated as one unit. (6-B; 27)

Section 21. Banking Days and Hours. - Unless otherwise authorized by the Bangko Sentral
in the interest of the banking public, all banks including their branches and offices shall
transact business on all working days for at least six (6) hours a day. In addition, banks or
any of their branches or offices may open for business on Saturdays, Sundays or holidays
for at least three (3) hours a day: Provided, That banks which opt to open on days other than
working days shall report to the Bangko Sentral the additional days during which they or their
branches or offices shall transact business. For purposes of this Section, working days shall
mean Mondays to Fridays, except if such days are holidays. (6-Ca)

Section 22. Strikes and Lockouts. - The banking industry is hereby declared as
indispensable to the national interest and, notwithstanding the provisions of any law to the
contrary, any strike or lockout involving banks, if unsettled after seven (7) calendar days shall
be reported by the Bangko Sentral to the secretary of Labor who may assume jurisdiction
over the dispute or decide it or certify the sane to the National Labor Relations Commission
for compulsory arbitration. However, the President of the Philippines may at any time
intervene and assume jurisdiction over such labor dispute in order to settle or terminate the
same. (6-E)

CHAPTER IV
DEPOSITS. LOANS AND OTHER OPERATIONS

Article I
Operations Of Universal Banks

Section 23. Powers of a Universal Bank - A universal bank shall have the authority to
exercise, in addition to the powers authorized for a commercial bank in Section 29, the
powers of an investment house as provided in existing laws and the power to invest in non-

(21-B. (21-Ba) Section 25. or of its wholly or majority-owned subsidiaries. 21-Ca) Section 26. A publicly-listed universal or commercial bank may own up to one hundred percent (100%) of the voting stock of only one other universal or commercial bank. . discounting and negotiating promissory notes.A universal bank may.The equity investment of a universal bank.A commercial bank may. receiving other types of deposits and deposit substitutes. "net worth" shall mean the total of the unimpaired paid-in capital including paid-in surplus. Section 30. As used in this Act.A universal bank may own up to one hundred percent (100%) of the equity in a non-financial allied enterprise. acquiring marketable bonds and other debt securities. invest in the equities of allied and non-allied enterprises as may be determined by the Monetary Board.A universal bank can own up to one hundred percent (100%) of the equity in a thrift bank. Allied enterprises may either be financial or non-financial. Equity Investments of a Universal Bank in Financial Allied Enterprises. whether allied or non-allied. Equity Investments in Quasi-Banks.1. all such powers as may be necessary to carry on the business of commercial banking such as accepting drafts and issuing letters of credit. subject to the conditions stated in the succeeding paragraph. .A commercial bank shall have. Operations Of Commercial Banks Section 29.To promote competitive conditions in financial markets. drafts. . . Equity Investments of a Universal Bank in Non-Financial Allied Enterprises. subject to such rules as the Monetary Board may promulgate. retained earnings and undivided profit. Equity Investments of a Commercial Bank. (12-E) Article II. Except as the Monetary Board may otherwise prescribe: 24. Equity Investments of a Universal Bank. the maturities and aggregate amount of such investment. bills of exchange. buying and selling foreign exchange and gold or silver bullion. The equity investment in any one enterprise. invest only in the equities of allied enterprises as may be determined by the Monetary Board. net of valuation reserves and other adjustments as may be required by the Bangko Sentral. accepting or creating demand deposits. Equity Investments of a Universal Bank in Non-Allied Enterprises. The total investment in equities of allied and non-allied enterprises shall not exceed fifty percent (50%) of the net worth of the bank. . a rural bank or a financial allied enterprise.allied enterprises as provided in this Act. Allied enterprises may either be . The acquisition of such equity or equities is subject to the prior approval of the Monetary Board which shall promulgate appropriate guidelines to govern such investments.2. This rule shall also apply in the case of commercial banks. . and 24. subject to the conditions stated in the succeeding paragraphs. (21-B) Section 28. the Monetary Board may further limit to forty percent (40%) equity investments of universal banks in quasi-banks. and other evidences of debt. (21-B) Section 24. These rules may include the determination of bonds and other debt securities eligible for investment. . Powers of a Commercial Bank. (21-Ba) Section 27. shall not exceed twenty-five percent (25%) of the net worth of the bank. in a single non-allied enterprise shall not exceed thirty-five percent (35%) of the total equity in that enterprise nor shall it exceed thirty-five percent (35%) of the voting stock in that enterprise. in addition to the general powers incident to corporations. and extending credit.

as well as prescribe the composition and the manner of determining the net worth and total risk assets of banks and their subsidiaries: Provided. . finally. with the exception of purchases of readily marketable evidences of indebtedness of the Republic of the Philippines and of the Bangko Sentral and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines. Credit Accommodations and Guarantees . to the extent feasible conform to internationally accepted standards. (72-Aa) Section 34.2. the Monetary Board may require such ratio be determined on the basis of the net worth and risk assets of a bank and its subsidiaries. For purposes of this Section. or when a bank is under rehabilitation under a program approved by the Bangko Sentral. or constituent bank or corporations under rehabilitation from full compliance with the required capital ratio under such conditions as it may prescribe.The Monetary Board shall prescribe the minimum ratio which the net worth of a bank must bear to its total risk assets which may include contingent accounts. as amended. shall continue to be in force. That it may alter or suspend compliance with such ratio whenever necessary for a maximum period of one (1) year: Provided. Equity Investments of a Commercial Bank in Non-Financial Allied Enterprises. Equity Investments of a Commercial Bank in Financial Allied Enterprises. The equity investment in any one enterprise shall not exceed twenty-five percent (25%) of tile net worth of the bank. and 30. The total investment in equities of allied enterprises shall not exceed thirty-five percent (35%) of the net worth of the bark. In case of a bank merger or consolidation. the Monetary Board may limit or prohibit the distribution of net profits by such bank and may require that part or all of the net profits be used to increase the capital accounts of the bank until the minimum requirement has been met The Monetary Board may. In case a bank does not comply with the prescribed minimum ratio. . Risk-Based Capital. such investment shall remain a minority holding in that enterprise. A commercial bank may own up to one hundred percent (100%) of the equity in a non-financial allied enterprise. Where the equity investment of a commercial bank is in other financial allied enterprises. restrict or prohibit the acquisition of major assets and the making of new investments by the bank. (21-Aa) Article III. the Monetary Board shall.A bank other than a universal or commercial bank cannot accept or create demand deposits except upon prior approval of. until the minimum required capital ratio has been restored. including another commercial bank. Acceptance of Demand Deposits. Limit on Loans. Monetary Board may temporarily relieve the surviving bank. and subject to such conditions and rules as may be prescribed by the Monetary Board. financial or otherwise. relating to risk-based capital requirements: Provided further. Except as the Monetary Board may otherwise prescribe: 30. and all pertinent rules issued pursuant thereto. consolidated bank. 21-Ca) Section 31. 21-Ca) Section 32. Before the effectivity of rules which the Monetary Board is authorized to prescribe under this provision. That in the exercise of this authority.A commercial bank may own up to one hundred percent (100%) of the equity of a thrift bank or a rural bank.1.(2lA-a. (21-Aa. Provisions Applicable To All Banks. (22a) Section 35. furthermore. The acquisition of such equity or equities is subject to the prior approval of the Monetary Board which shall promulgate appropriate guidelines to govern such investment. That such ratio shall be applied uniformly to banks of the same category. Section 22 of the General Banking Act. Quasi-Banks. . And Trust Entities Section 33. including those of the Bank for International Settlements(BIS).financial or non-financial. Section 9 of the Thrift Banks Act.

shall be subject to the limits as herein prescribed. Loans and other credit accommodations. loans. partnership. corporation or other entity shall at no time exceed twenty percent (20%) of the net worth of such bank. the total amount of loans. The basis for determining compliance with single borrower limit is the total credit commitment of the bank to the borrower. other credit accommodations and guarantees shall exclude: (a) loans and other credit accommodations secured by obligations of the Bangko Sentral or of the Philippine Government: (b) loans and other credit accommodations fully guaranteed by the government as to the payment of principal and interest. credit accommodations and acceptances under letters of credit to the extent covered by margin deposits.7. Even if a parent corporation. partnership. credit accommodations and guarantees prescribed in the preceding paragraph may be increased by an additional ten percent (10%) of the net worth of such bank provided the additional liabilities of any borrower are adequately secured by trust receipts. (c) in the case of a corporation. association or any other entity. and (d) in the case of a partnership. (b) in the case of an individual who owns or controls a majority interest in a corporation. credit accommodations and guarantees as may be defined by the Monetary Board that may be extended by a bank to any person. (b) the liabilities were incurred for the accommodation of the parent corporation or another subsidiary or of the partnership or association or entity or such individual. (c) loans and other credit accommodations covered by assignment of deposits maintained in the lending bank and held in the Philippines. partnership. entity or such individual under certain circumstances. and (e) other loans or credit accommodations which the Monetary Board may from time to time. For purposes of this Section. partnership. Officers.4. entity or individual guarantees the repayment of the liabilities.35.1 Except as the Monetary Board may otherwise prescribe for reasons of national interest. borrow from such bank nor shall he become a guarantor. association. shipping documents. whether locally or abroad. warehouse receipts or other similar documents transferring or securing title covering readily marketable. 35. association. 35.No director or officer of any bank shall. specify as non-risk items. association or other entity. association. entity or an individual who owns or controls a majority interest in such entities has no liability to the bank. 35.5. 35. 35. 35. .6. endorser or surety for loans from such bank to others. all liabilities to such bank of all subsidiaries in which such corporation owns or controls a majority interest. drawer or guarantor who obtains a loan or other credit accommodation from or discounts paper with or sells papers to such bank. association. the liabilities of the members thereof to such bank. (d) loans. Certain types of contingent accounts of borrowers may be included among those subject to these prescribed limits as may be determined by the Monetary Board. non-perishable goods which must be fully covered by insurance.(23a) Section 36.2. including but not limited to any of the following situations: (a) the parent corporation. Stockholders and Their Related Interests. Unless the Monetary Board prescribes otherwise. directly or indirectly.3 The above prescribed ceilings shall include (a) the direct liability of the maker or acceptor of paper discounted with or sold to such bank and the liability of a general endorser. for himself or as the representative or agent of others. the total amount of loans. the liabilities of said entities to such bank. or in any manner be an obligor or incur any contractual liability to the bank except with the written approval of the . the Monetary Board may prescribe the combination of the liabilities of subsidiary corporations or members of the partnership. Restriction on Bank Exposure to Directors. and usual guarantees by a bank to any other bank or non-bank entity. deposits maintained with. or (c) the subsidiaries though separate entities operate merely as departments or divisions of a single entity.

and such loans may be made to the owner of the real estate or to his assignees. but not limited to.Before granting a loan or other credit accommodation. further.majority of all the directors of the bank. credit accommodations and advances to officers in the form of fringe benefits granted in accordance with rules as may be prescribed by the Monetary Board shall not be subject to the individual limit. excluding the director concerned: Provided. . directors. directly or indirectly. patents. Grant and Purpose of Loans and Other Credit Accommodations. That loans. The required approval shall be entered upon the records of the bank and a copy of such entry shall be transmitted forthwith to the appropriate supervising and examining department of the Bangko Sentral. credit accommodations and guarantees that may be extended. a bank must ascertain that the debtor is . However. shall be limited to an amount equivalent to their respective unencumbered deposits and book value of their paid-in capital contribution in the bank: Provided. an such loans and other credit accommodation may be made to the title-holder of the chattels and intangible properties or his assignees. credit accommodations and guarantees extended by a cooperative bank to its cooperative shareholders. officers or stockholders and their related interests shall be upon terms not less favorable to the bank than those offered to others. trade names. without its approval. The Monetary Board shall define the term "related interests. it shall have the right to terminate the loan or other credit accommodation and demand immediate repayment of the obligation.A bank shall grant loans and other credit accommodations only in amounts and for the periods of time essential for the effective completion of the operations to be financed. credit accommodations and guarantees prescribed herein shall not apply to loans. stockholders and their related interests. or officers and their related interests. officers. ." The limit on loans. trademarks. loans and other credit accommodations on security of chattels and intangible properties such as. Such grant of loans and other credit accommodations shall be consistent with safe and sound banking practices. by a bank to its directors. loans and other credit accommodations against real estate shall not exceed seventy-five percent (75%) of the appraised value of the respective real estate security. officers. (77) Section 40. The Monetary Board may regulate the amount of loans. . the outstanding loans. (83a) Section 37. (75a) The purpose of all loans and other credit accommodations shall be stated in the application and in the contract between the bank and the borrower. stockholders and their related interests. Requirement for Grant Of Loans or 0ther Credit Accommodations. and copyrights shall not exceed seventy-five percent (75%) of the appraised value of the security. Loans And Other Credit Accommodations on Security of Chattels and Intangible Properties. Dealings of a bank with any of its directors. Loans and Other Credit Accommodations Against Real Estate. however.Except as the Monetary Board may otherwise prescribe. credit accommodations and guarantees secured by assets considered as non-risk by the Monetary Board shall be excluded from such limit: Provided. After due notice to the board of directors of the bank. plus sixty percent (60%) of the appraised value of the insured improvements. (78a) Section 38. That such written approval shall not be required for loans. .Except as the Monetary Board may otherwise prescribe. (78a) Section 39. the office of any bank director or officer who violates the provisions of this Section may be declared vacant and the director or officer shall be subject to the penal provisions of the New Central Bank Act. If the bank finds that the proceeds of the loan or other credit accommodation have been employed. other credit accommodations and advances granted to officers under a fringe benefit plan approved by the Bangko Sentral. as well as investments of such bank in enterprises owned or controlled by said directors. credit accommodations and guarantees which a bank may extend to each of its stockholders. That loans. for purposes other than those agreed upon with the bank.

Other Security Requirements for Bank Credits. the Board may by regulation. prescribe further security requirements to which the various types of bank credits shall be subject.A borrower may at any time prior to the agreed maturity date prepay. however. the bank may terminate any loan or other credit accommodation granted on the basis of said statements and shall have the right to demand immediate repayment or liquidation of the obligation. such as cash flow-based lending to the basic sectors that are not covered by traditional collateral. Any change by the Board in the maximum maturities. a bank may demand from its credit applicants a statement of their assets and liabilities and of their income and expenditures and such information as may be prescribed by law or by rules and regulations of the Monetary Board to enable the bank to properly evaluate the credit application which includes the corresponding financial statements submitted for taxation purposes to the Bureau of Internal Revenue. and taking into account the requirements of the economy for the effective utilization of long-term funds. .The Monetary Board. prescribe the maturities.The Monetary Board may. the schedule of loan amortization shall take into consideration the projected cash flow of the borrower and adopt this into the terms and conditions formulated by banks. the unpaid balance of any bank loan and other credit accommodation. That when the borrowed funds are to be used for purposes which do not initially produce revenues adequate for regular amortization payments therefrom. (78) Section 43. (n) Section 42. Prepayment of Loans and Other Credit Accommodations. . subject to such reasonable terms and conditions as may be agreed upon between the bank and its borrower.capable of fulfilling his commitments to the bank. may. Any change by the Board in the maximum maturities shall apply only to loans and other credit accommodations made after the date of such action. and. (78a) Section 44. but such payments must be made at least annually: Provided. as well as related terms and conditions for various types of bank loans and other credit accommodations. In case of loans and other credit accommodations with maturities of more than five (5) years. The Monetary Board shall regulate the interest imposed on micro finance borrowers by lending investors and similar lenders such as. Should such statements prove to be false or incorrect in any material detail. In formulating rules and regulations under this Section. . Toward this end. increase the maximum ratios established therein. (n) Section 45. similarly in accordance with the authority granted to it in Section 106 of the New Central Bank Act. (79a) In case of loans and other credit accommodations to micro finance sectors.The amortization schedule of bank loans and other credit accommodations shall be adapted to the nature of the operations to be financed. Amortization on Loans and Other Credit Accommodations. Unsecured Loans or Other Credit Accommodations. (76a) Section 41. but in no case shall the initial amortization date be later than five (5) years from the date on which the loan or other credit accommodation is granted. by regulation. the Monetary Board shall recognize the peculiar characteristics of micro financing. in special cases. . the unconscionable rates of interest collected on salary loans and similar credit accommodations. reduce the maximum ratios established in Sections 36 and 37 of this Act. in whole or in part. or. provisions must be made for periodic amortization payments. as well as related terms and conditions for various types of bank loans and other credit accommodations. (80a) . .The Monetary Board is hereby authorized to issue such regulations as it may deem necessary with respect to unsecured loans or other credit accommodations that may be granted by banks. but not limited to. the bank may permit the initial amortization payment to be deferred until such time as said revenues are sufficient for such purpose. Authority to Prescribe Terms and Conditions of Loans and Other Credit Accommodations. in accordance with the authority granted to it in Section 106 of the New Central Bank Act.

further. without government guarantee. a bank may acquire. Development Assistance Incentives. however. Notwithstanding Act 3135. . the mortgagor or debtor whose real property has been sold for the full or partial payment of his obligation shall have the right within one year after the sale of the real estate. . However. (81) Section 49. The Monetary Board may fix. prescribe the conditions and limitations under which a bank may grant extensions or renewals of its loans and other credit accommodations. . That the total investment in such real estate and improvements thereof including bank equipment. whichever is earlier. by regulation or by order in a specific case. . of any mortgage on real estate which is security for any loan or other credit accommodation granted. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to this provision shall be given due course only upon the filing by the petitioner of a bond in an amount fixed by the court conditioned that he will pay all the damages which the bank may suffer by the enjoining or the restraint of the foreclosure proceeding. to redeem the property by paying the amount due under the mortgage deed. other credit accommodations. Owners of property that has been sold in a foreclosure sale prior to the effectivity of this Act shall retain their redemption rights until their expiration.The Monetary Board may. . . local government units and other activities with social content. extend loans to finance educational institutions cooperatives.Section 46. hold or convey real property under the following circumstances: . advances and other assets shall be subject to regulations issued by the Monetary Board. Provisions for Losses and Write-Offs. unless otherwise provided by the Monetary Board. unless the same are welt-secured and in the process of collection shall be considered bad debts within the meaning of this Section. the Monetary Board shall establish criteria for reviewing major acquisitions of investments by a bank including corporate affiliations or structures that may expose the bank to undue risks or in any way hinder effective supervision. shall not exceed fifty percent (50%) of combined capital accounts: Provided.For the purpose or enhancing bank supervision. (84a) Section 50. juridical persons whose property is being sold pursuant to an extrajudicial foreclosure. with interest thereon at rate specified in the mortgage. shall have the right to redeem the property in accordance with this provision until. Ceiling on Investments in Certain Assets. and all the costs and expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom. Foreclosure of Real Estate Mortgage. Major Investments. but not after. the amount of reserves for bad debts or doubtful accounts or other contingencies. That the equity investment of a bank in another corporation engaged primarily in real estate shall be considered as part of the bank's total investment in real estate. Writing off of loans. the purchaser at the auction sale concerned whether in a judicial or extra-judicial foreclosure shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in accordance with law.In the event of foreclosure. Section 51. (78a) Section 48. the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure. Renewal or Extension of Loans and Other Credit Accommodations.All debts due to any bank on which interest is past due and unpaid for such period as may be determined by the Monetary Board. (25a) Section 52. whether judicially or extra-judicially. . socialized or low- cost housing. Acquisition of Real Estate by Way of Satisfaction of Claims.Notwithstanding the limitations of the preceding Section. hospitals and other medical services.Any bank may acquire real estate as shall be necessary for its own use in the conduct of its business: Provided. by regulation.The Bangko Sentral shall provide incentives to banks which. (n) Section 47.

Prohibited Transactions. 53. subject to the limitations of the preceding Section. 53. 53. 55. 52. That with respect to bank deposits.4 Upon prior approval of the Monetary Board. Make collections and payments for the account of others and perform such other services for their customers as are not incompatible with banking business.3. 53. adviser. the Monetary Board may summarily and without need for prior hearing close such banking institution and place it under receivership of the Philippine Deposit Insurance Corporation. Receive in custody funds.1. after said period.1. consultant or administrator of investment management/advisory/consultancy accounts. continue to hold the property for its own use. the provisions of existing laws shall prevail.In addition to the operations specifically authorized in this Act. officer.1. or 52. . That the bank may.5. .2. shares. corporations. The bank shall perform the services permitted under Subsections 53. evidences of indebtedness and all types of securities. Any real property acquired or held under the circumstances enumerated in the above paragraph shall be disposed of by the bank within a period of five (5) years or as may be prescribed by the Monetary Board: Provided.2. the bank or any person. Act as financial agent and buy and sell. (25a) Section 53. Accordingly. or causing damage to. documents and valuable objects. Rent out safety deposit boxes. it shall keep the funds. mortgages. decrees.3. act as managing agent. or any other entity: Provided. (72a) Section 54. (73) Section 55. Other Banking Services. however. or trust deeds held by it and such as it shall purchase to secure debts due it. employee. thereby affecting the financial interest of.A bank shall not directly engage in insurance business as the insurer.4 as depositary or as an agent. Such as shall be mortgaged to it in good faith by way of security for debts. and 53. . No director.53. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings. by order of and for the account of their customers. securities and other effects which it receives duly separate from the bank's own assets and liabilities: The Monetary Board may regulate the operations authorized by this Section in order to ensure that such operations do not endanger the interests of the depositors and other creditors of the bank. disclose to any unauthorized person any information relative to the funds or properties in the custody of the bank belonging to private individuals.1.2.52. In case a bank or quasi-bark notifies the Bangko Sentral or publicly announces a bank holiday. a bank may perform the following services: 53. Such as it shall purchase at sales under judgments.3 and 53. or agent of any bank shall - (a) Make false entries in any bank report or statement or participate in any fraudulent transaction. or in any manner suspends the payment of its deposit liabilities continuously for more than thirty (30) days. (b) Without order of a court of competent jurisdiction. Prohibition to Act as Insurer.

Section 56. 1405. 55. 56. bureau. or has given any unwarranted benefits. officer. office. liquidity or solvency of the institution. commission. (b) Furnish false or make misrepresentation or suppression of material facts for the purpose of obtaining.1 The act or omission has resulted or may result in material loss or damage. or abnormal risk or danger to the safety. officer or employee of the Bangko Sentral or of any department. (d) Overvalue or aid in overvaluing any security for the purpose of influencing in any way the actions of the bank or any bank. stockholders or to the Bangko Sentral or to the public in general. or 56. evident bad faith or gross inexcusable negligence. Consistent with the provisions of Republic Act No. the Monetary Board shall consider any of the following circumstances: 56.2. (c) Accept gifts. 55. stability. 55. may be deemed as conducting business in an unsafe or unsound manner for purposes of this Section. fee. assist or render technical assistance to any bank shall commit any of the acts enumerated in this Section or aid in the commission of the same. renewing. rule or regulation affecting banks.4 The act or omission involves entering into any contract or transaction manifestly and . or commissions or any other form of remuneration in connection with the approval of a loan or other credit accommodation from said bank. or (e) Outsource inherent banking functions. which is not otherwise prohibited by any law. (c) Attempt to defraud the said bank in the event of a court action to recover a loan or other credit accommodation.4.In determining whether a particular act or omission. No borrower of a bank shall - (a) Fraudulently overvalue property offered as security for a loan or other credit accommodation from the bank. investors. advantage or preference to the bank or any party in the discharge by the director or officer of his duties and responsibilities through manifest partiality. or (d) Offer any director. Conducting Business in an Unsafe or Unsound Manner .3 No examiner. or any other form of compensation in order to influence such persons into approving a loan or other credit accommodation application. branch or agency of the Government that is assigned to supervise. or increasing a loan or other credit accommodation or extending the period thereof. 56. quasi-banks or trust entities.2 The act or omission has resulted or may result in material loss or damage or abnormal risk to the institution's depositors. employee or agent of a bank any gift. (87-Aa) The making of false reports or misrepresentation or suppression of material facts by personnel of the Bangko Sental ng Pilipinas shall be subject to the administrative and criminal sanctions provided under the New Central Bank Act. examine.3 The act or omission has caused any undue injury. fees. no bank shall employ casual or non regular personnel or too lengthy probationary personnel in the conduct of its business involving bank deposits. otherwise known as the Banks Secrecy Law. creditors.

The Monetary Board may also direct the board of directors of a bank. . storing and transmitting information or data in connection with the operations of a bank. shall publish a statement of its financial condition. to conduct. Publication of Financial Statements.1 Its clearing account with the Bangko Sentral is overdrawn. or 57. quasi-bank. in such terms understandable to the layman and in such frequency as may be prescribed Bangko Sentral. quasi-bank or trust entity. trusty entity and/or the individual members thereof. the provisions of law to the contrary notwithstanding. or 57. The term of the engagement shall be as prescribed by the Monetary Board which may either be on a continuing basis where the auditor shall act as resident examiner.Every bank. such as computers. quasi-bank or trust entity concerned from a list of certified public accountants acceptable to the Monetary Board. (6-Da) Section 59. (n) Section 57. either personally or by a committee created by the board. whether or not the director or officer profited or will profit thereby. Whenever a bank. which shall be as of a specific date designated by the Bangko Sentral. . quasi-bank or trust entity. . at least once every quarter in a newspaper of general circulation in the city or province where the principal office. Independent Auditor. shall show thee actual financial condition of the institution submitting the statement. Financial Statements.No bank or quasi-bank shall declare dividends. quasi-bank or trust entity persists in conducting its business in an unsafe or unsound manner. and shall contain such information as may be required in Bangko Sentral regulations. in English or Filipino. but in any case. including the delivery of services and products to customers by such entity.2 It is deficient in the required liquidity floor for government deposits for five (5) or more consecutive days. or 57. (n) Section 61. quasi-bank or trust entity. Prohibition on Dividend Declaration. . quasi-bank or trust entity to engage the services of an independent auditor to be chosen by the bank. quasi-bank's or trust entity's board of directors. Authority to Regulate Electronic Transactions. including the results of its operations. without prejudice to the administrative sanctions provided in Section 37 of the New Central Bank Act. if at the time of declaration: 57.3 It does not comply with the liquidity standards/ratios prescribed by the Bangko Sentral for purposes of determining funds available for dividend declaration. take action under Section 30 of the same Act and/or immediately exclude the erring bank from clearing. in the case of a domestic institution or the principal branch or office in the case of a foreign bank. (n) Section 60. quasi-bank or trust entity and to submit a report of such audit. the independent auditor shall be responsible to the bank's.grossly disadvantageous to the bank.The Bangko Sentral shall have full authority to regulate the use of electronic devices. quasi-bank or trust entity to review the internal audit and control system of the bank.The Monetary Board may require a bank. A copy of the report shall be furnished to the Monetary Board. is located. . and processes for recording.4 It has committed a major violation as may be determined by the Bangko Sentral (84a) Section 58.Every bank. quasi-bank or trust entity shall submit to the appropriate supervising and examining department of the Bangko Sentral financial statements in such form and frequency as may be prescribed by the Bangko Sentral. and of its branches. an annual balance sheet audit of the bank. subsidiaries and affiliates. Such statements. or on the basis of special engagements. the Monetary Board may. . offices. including those of its subsidiaries and affiliates.

the Monetary Board may also suspend or remove such director or officer. . If the offender is a director or officer of a bank. Additionally. or other banking laws.but if no newspaper is published in the same province. commissions or fees. corporation or association. shall advertise or hold itself out as being engaged in the business of such bank. then in a newspaper published in Metro Manila or in the nearest city or province. trust entity. quasi-bank.A bank. . association. "banking". the Monetary Board. and shall form part of the publication. Penalty for Violation of this Act. definitely assigned to such branch. or of the bank in its entirety without indicating at the same time and with equal prominence the amount of the capital. banks shall make available to the public in such form and manner as the Bangko Sentral may prescribe the complete set of its audited financial statements as well as such other relevant information including those on enterprises majority-owned or controlled by the bank.The Bangko Sentral may charge equitable rates. quasi-bank or trust entity in public places it may determine. the Bangko Sentral shall be consulted by other government agencies or instrumentalities in actions or proceedings initiated by or brought before them involving controversies in banks. if any.Unless otherwise herein provided. in special cases and upon application of the bank. Unauthorized Advertisement or Business Representation. as well as disputes between any or all of them and the bank. quasi-bank or trust entity to defer for a stated period of time the publication of the statement of financial condition required herein. (6) Section 65. quasi-banks or trust entities arising out of and involving relations between and among their directors. that will inform the public of the true financial condition of a bank as of any given time. lieu of the publication required in the preceding paragraph. (n) Section 62. (n) Section 66. (82) Section 63. .The provisions of any law to the contrary notwithstanding. Publication of Capital Stock. as may be prescribed by the Monetary Board for supervision. the amount of its capital actually paid up. or corporation unless duly authorized to engage in the business of a bank.No person. The Bangko Sentral may by regulation prescribe the newspaper where the statements prescribed herein shall be published. quasi-bank or trust entity. No branch of any foreign bank doing business in the Philippines shall in any way announce the amount of the capital and surplus of its head office. the word or words "bank". 35. examination and other services which it renders under this Act. (n) Section 64. . "trust corporation". officers or stockholders. "trust company" or words of similar import or transact in any manner the business of any such bank. In periods of national and/or local emergency or of imminent panic which directly threaten monetary and banking stability. "quasi-bank". If the violation is committed by a corporation. quasi-bank or trust entity of which they are directors. Settlement of Disputes. by a vote of at least five (5) of its members. The Monetary Board may allow the posting of the financial statements of a bank. "quasi-banking". quasi-bank. or savings and loan association as defined in this Act. "savings and loan association". the violation of any of the provisions of this Act shall be subject to Sections 34. . quasi-bank or trust entity incorporated under the laws of the Philippines shall not publish the amount of its authorized or subscribed capital stock without indicating at the same time and with equal prominence. quasi-bank or trust entity. or use in connection with its business title. or association. "quasi-banker". 36 and 37 of the New Central Bank Act. "banker". may allow such bank. Service Fees. officers or stockholders. when warranted by the circumstances. trust entity. such corporation may be dissolved by quo warranto proceedings instituted by the Solicitor General. (87) CHAPTER V PLACEMENT UNDER CONSERVATORSHIP . such fact shall be stated in.

(n) Section 70. powers. rural banks and cooperative banks shall be governed by the provisions of the Thrift Banks Act. . or who receives or permits or causes to be received in said bank any deposit. supervision and general conduct of business of Islamic banks shall be governed by special laws. rural banks. The conduct of offshore banking business in the Philippines shall be governed by the provisions of the Presidential Decree No.The organization. (n) CHAPTER VI CESSATION OF BANKING BUSINESS Section 68. or who appropriates for himself for another party or destroys or causes the misappropriation and destruction of the bank's assets. however.The grounds and procedures for placing a bank under receivership or liquidation. written notice of such liquidation shall be sent to the Monetary Board before such liquidation shall be sent to the Monetary Board before such liquidation is undertaken. or of any branch or office in the Philippines of a foreign bank. (86) Section 69. the Rural Banks Act. collection of loans and/or receivables. 32. the powers and duties of the conservator appointed for the bank shall be governed by the provisions of Section 29 and the last two paragraphs of Section 30 of the New Central Bank Act: Provided. and cooperative banks. However. . That the petitioner or plaintiff files with the clerk or judge of the court in which the action is pending a bond. insofar as they are not in conflict with the provisions of the Thrift Banks Act. as well as. That this Section shall also apply to conservatorship proceedings of quasi-banks.Any director or officer of any bank declared insolvent or placed under receivership by the Monetary Board who refuses to turn over the bank's records and assets to the designated receivers.Section 67. the provisions of Section 33 of this Act shall govern. The organization. ownership and capital requirements.The grounds and procedures for placing a bank under conservatorship. .In case of voluntary liquidation of any bank organized under the laws of the Philippines. executed in favor of the Bangko Sentral. Receivership and Involuntary Liquidation. in an amount to be fixed by the court. This Section shall also apply to the extent possible to the receivership and liquidation proceedings of quasi-banks. . . the ownership and capital requirements. or who pays out or permits or causes to be transferred any securities or property of said bank shall be subject to the penal provisions of the New Central Bank Act. and the Cooperative Code shall likewise apply to thrift banks. and the Monetary Board shall have the right to intervene and take such steps as may be necessary to protect the interests of creditors. . Conservatorship. respectively. Voluntary Liquidation. respectively. the Rural Banks Act. (n) CHAPTER VIII FOREIGN BANKS Section 72. as well as the powers and duties of the receiver or liquidator appointed for the bank shall be governed by the provisions of Sections 30. . The provisions of this Act. Transacting Business in the Philippines.The entry of foreign banks in the Philippines through the establishment of branches shall be governed by the provisions of the Foreign Banks Liberalization Act. (85a) CHAPTER VII LAWS GOVERNING OTHER TYPES OF BANKS Section 71. 31. Penalty for Transactions After a Bank Becomes Insolvent. for purposes of prescribing the minimum ratio which the net worth of a thrift bank must bear to its total risk assets. 1034. Other Banking Laws. and the Cooperative Code. and 33 of the New Central Bank Act: Provided. powers. supervision and general conduct of business of thrift banks. or who tampers with banks records.

Within the same period.In the case of a foreign bank which has more than one (1) branch in the Philippines. Summons and Legal Process. process. All costs necessarily incurred by the said Deputy Governor for the making and mailing and sending of a copy of the summons. duly certified by him. the head office of such branches shall fully guarantee the prompt payment of all liabilities of its Philippine branch. and to file with the Securities and Exchange Commission a duly authenticated nomination of such agent. Head Office Guarantee. .In order to provide effective protection of the interests of the depositors and other creditors of Philippine branches of a foreign bank.Within seven (7) years from the effectivity of this act and subject to guidelines issued pursuant to the Foreign Banks Liberalization Act. processes and all legal notices may be made. Acquisition of Voting Stock in a Domestic Bank. privilege or incentive granted to a foreign bank under this Section shall be equally enjoyed by and extended under the same conditions to banks organized under the laws of the Republic of the Philippines. or notice shall be a necessary part of the services and shall complete the service. (19) Section 76. . to further acquire voting shares such bank to the extent necessary for it to own one hundred percent (100%) of the voting stock thereof. the Monetary Board may authorize any foreign bank. or should such agent or head become mentally incompetent or otherwise unable to accept service while exercising such authority. In the exercise of the authority. process. . The sending of such copy of the summons. and all references to the Philippine branches of foreign banks shall be held to refer to such units. it shall be the duty of the bank to name and designate promptly another agent or head upon whom service of summons and processes in legal proceedings against the bank and of notices affecting the bank may be made.Summons and legal process served upon the Philippine agent or head of any foreign bank designated to accept service thereof shall give jurisdiction to the courts over such bank. the Monetary Board may authorize a foreign bank to acquire up to one hundred percent (100%) of the voting stock of only one (1) bank organized under the laws of the Republic of the Philippines. the Monetary Board shall adopt measures as may be necessary to ensure that at all times the control of seventy percent (70%) of the resources or assets of the entire banking system is held by banks which are at least majority-owned by Filipinos. or notice to the president or the secretary of the bank at its head or . processes and legal notices may be made upon the Bangko Sentral Deputy Governor In-Charge of the supervising and examining departments and such service shall be as effective as if made upon the bank or its duly authorized agent or head." (14a) Section 73. process or notice. 2 and 3. Should the authority of such agent or head to accept service of summons and legal processes for the bank or notice to it be revoked. Any right. service of summons. RA 7721 Section 74. . Local Branches of Foreign Banks. of the summons. (69) Residents and citizens of the Philippines who are creditors of a branch in the Philippines of a foreign bank shall have preferential rights to the assets of such branch in accordance with the existing laws. process. the said deputy Governor shill register and transmit by mail to the president or the secretary of the bank at its head or principal office a copy. In case of service for the bank upon the Bangko Sentral Deputy Governor In-charge of the supervising and examining departments.otherwise known as the "Offshore Banking System Decree. which prior to the effectivity of this Act availed itself of the privilege to acquire up to sixty percent (60%) of the voting stock of a bank under the Foreign Banks Liberalization Act and the Thrift Banks Act. and service of notices on such agent or head shall be as binding upon the bank which he represents as if made upon the bank itself. The registry receipt of mailing shall be prima facie evidence of the transmission of the summons. (68) Section 75. or notice. In the absence of the agent or head or should there be no person authorized by the bank upon whom service of summons. (Secs. all such branches shall be treated as one (1) unit for the purpose of this Act.

of such directors.In all matters not specifically covered by special provisions applicable only to a foreign bank or its branches and other offices in the Philippines any foreign bank licensed to do business in the Philippines shall be bound by the provisions of this Act. Authority to Engage in Trust Business. formation. . directors or officers of corporations to each other or to the corporation.A trust entity. stockholders. liabilities. Minimum Capitalization. officers and stockholders. shall comply with the minimum paid-in capital requirement which will be determined by the Monetary Board. (56a. The Monetary Board shall promulgate such rules and regulations as may be necessary to prevent circumvention of this prohibition or the evasion of the responsibility herein imposed on a trust entity. before it can engage in trust or other fiduciary business. . for the account of the trustor or the beneficiary of the trust. No trust entity shall. members. unless the transaction is specifically authorized by the trustor and the relationship of the trustee and the other party involved in the transaction is fully disclosed to the trustor of beneficiary of the trust prior to the transaction. After the revocation of such license. or purchase debt instruments of. or lend money or property to.principal office shall be paid in advance by the party at whose instance the service is made. all other laws. or duties of stockholders. . it shall be unlawful for any such foreign banks to transact business in the Philippines unless its license is renewed or reissued. responsibilities. Conduct of Trust Business. any of the departments.A trust entity. transfer. unless accompanied by a certificate of authority issued by the Bangko Sentral.Only a stock corporation or a person duly authorized by the Monetary Board to engage in trust business shall act as a trustee or administer any trust or hold property in trust or on deposit for the use. relatives within the first degree of consanguinity or affinity. . For purposes of this Act. 57a) Section 80. Revocation of License of a Foreign Bank . assign. (n) Section 82. officers. of any trust entity. Registration of Articles of Incorporation and By-Laws of a Trust Entity. or behoof of others. (17) Section 77. . The provisions of the New Central Bank Act on sanctions and penalties shall likewise be applicable. or the related interests. (18) Section 78. or employees of the trust entity.The Monetary Board may revoke the license to transact business in the Philippines of. Laws Applicable. shall have the power to: . in addition to the general powers incident to corporations. the Bangko Sentral shall take the necessary action to protect the creditors of such foreign bank and the public. such a corporation shall be referred to as a trust entity. or sell. organization or dissolution of corporations or for the fixing of the relations. rules and regulations applicable to banks organized under the laws of the Philippines of the same class.The Securities and Exchange Commission shall not register the articles of incorporation and by- laws or any amendment thereto. (n) Section 83. directors. (56) Section 81. (16) CHAPTER IX TRUST OPERATIONS Section 79. if it finds that the foreign bank is insolvent or in imminent danger thereof or that its continuance in business will involve probable loss to those transacting business with it. purchase or acquire property from.A trust entity shall administer the funds or property under its custody with the diligence that a prudent man would exercise in the conduct of an enterprise of a like character and with similar aims. . benefit. Powers of a Trust Entity. except those that provide for the creation. any foreign bank. After the revocation of its license.

(59) .5. and as receiver and depositary of any moneys paid into court by parties to any legal proceedings and of property of any kind which may be brought under the jurisdiction of the court. The Monetary Board may not permit the cash or securities deposited in accordance with the provisions of this Section to be reduced below the prescribed minimum amount until the depositing entity shall discontinue its trust business and shall satisfy the Monetary Board that it has complied with all its obligations in connection with such business. however.Before transacting trust business. order that the subject matter of the trust or any part. to exchange the securities for others.000.Before an executor. . That the Monetary Board shall require every trust entity to increase the amount of its cash or securities on deposit with the Bangko Sentral in accordance with the provisions of this paragraph. and 83. Bond of Certain Persons for the Faithful Performance of Duties. Should the capital and surplus fall below said amount. trustee. he shall. the court may order that the bond given by such persons for the faithful performance of their duties be reduced to such sums as it may deem proper: Provided. receiver or depositary appointed by the court enters upon the execution of his duties. guardian. every trust entity shall deposit with the Bangko Sentral. 83. Upon presentation of proof to the court that the subject matter of the trust has been deposited with a trust entity. administrator. Upon presentation of proof to the court that the subject matter of the trust has been deposited with a trust entity.1 Act as trustee on any mortgage or bond issued by any municipality. the Bangko Sentral shall retain such interest on the securities deposited with it for the benefit of rightful claimants. management. real or personal. trustee. 83. as security for the faithful performance of its trust duties. issues and profits thereof.3. or any body politic and to accept and execute any trust consistent with law. thereof be deposited with a trust entity.00) or such higher amount as may fixed by the Monetary Board: Provided. receiver. after notice and hearing. 83. Accept and execute any trust for the holding. the Monetary Board shall have the same authority as that granted to it under the provisions of the fifth paragraph of Section 34 of this Act. trustee. Property deposited with any trust entity in conformity with this Section shall be held by such entity under the orders and direction of the court. Deposit for the Faithful Performance of Trust Duties.83. and the rents. or depositary of the estate of any minor or other incompetent person. with the approval of the Bangko Sentral.6. administrator. and administration of any estate. Act as the executor of any will when it is named the executor thereof. depositary or any other person in interest. 83. from time to time. receiver. Section 84. Al claims rising out of the trust business of a trust entity shall have priority over all other claims as regards the cash or securities deposited as above provided. cash or securities approved by the Monetary Board in an amount equal to or not less than Five hundred thousand pesos (P500. or as administrator of the estate of any deceased person when there is no will. however. A trust entity so long as it shall continue to be solvent and comply with laws or regulations shall have the right to collect the interest earned on such securities deposited with the Bangko Sentral and. Upon the application of any executor.4 Act as administrator of the estate of any deceased person. the court may. guardian. Establish and manage common trust funds. If the trust entity fails to comply with any law or regulation.2 Act under the order or appointment of any court as guardian. upon order of the court. file a bond in such sum as the court may direct. corporation. That the reduced bond shall be sufficient to secure adequately the proper administration and care of any property remaining under the control of such persons and the proper accounting for such property. (65a) Section 85. subject to such rules and regulations as may be prescribed by the Monetary Board. with the will annexed. .

(64) Section 91. . .The ordinary business of a trust entity shall be transacted at the place of business specified in its articles of incorporation.Section 86. guardian.No bond or other security shall be required by the court from a trust entry for the faithful performance of its duties as court-appointed trustee.The investment of funds other than trust funds of a trust entity which is a bank. receiver. and assets of such trust entity. Investment of Non-Trust Funds. shall likewise be governed by the relevant provisions of Section 52 of this Act. (59) Section 87. receiver or depositary of the estate of any minor or other incompetent person shall be limited to loans or investments as may be prescribed by law. administrator. the trust entity and its branches shall be treated as one unit. require the trust entity to post a bond or other security for the protection of funds or property confided to such entity. Investment Limitations of a Trust Entity. or depositary shall be kept separate and distinct from the general business including all other funds.The trust business and all funds. (64a) Section 90. or securities shall likewise be kept separate and distinct from the accounts of the general business of the trust entity. Until otherwise provided bylaw1 building and loan associations shall continue to be governed by Sections 39 to 55. (67) CHAPTER X FINAL PROVISIONS Section 94. Sanctions and Penalties. (61) Section 88. as amended. executor. . . real estate acquired by a trust entity in whatever manner and for whatever purposes. trustee. Real Estate Acquired by a Trust Entity. Such trust entity may. administrator. receiver. the lending and investment of funds and other assets acquired by a trust entity as executor. shall be subject to the sanctions and penalties provided tinder Section 66 of this Act as well as Sections 36 and 37 of the New Central Bank Act.Unless otherwise directed by the instrument creating the trust. .No assets held by a trust entity in its capacity as trustee shall be subject to any claims other than those of the parties interested in the specific trusts. guardian. Exemption of Trust Assets from Claims. . . financing company or an investment house shall be governed by the relevant provisions of this Act and other applicable laws. Phase Out of Bangko Sentral Powers Over Building and Loan Associations. administrator.A trust entity or any of its officers and directors found to have willfully violated any pertinent provisions of this Act. or depositary. For the purpose of this Act. with prior approval of the Monetary Board. properties. (63a) Section 89.Unless otherwise specifically directed by the trustor or the nature of the trust. the Monetary Board or any court of competent jurisdiction. (65) Section 93. Separation of Trust Business from General Business. Exemption of Trust Entity from Bond Requirement. guardian. . properties. the court may. Chapter VI of the General Banking Act. properties or securities received by any trust entity as executor. establish branches in the Philippines and the said entity shall be responsible for all business conducted in such branches to the same extent and in the same manner as though such business had all been conducted in the head office. . the Bangko Sentral shall phase out and transfer its supervising and regulatory powers over building and loan associations to the Home Insurance and Guaranty Corporation which shall assume the same. upon proper application with it showing special cause therefore. The accounts of all such funds. Section 92. Establishment of Branches of a Trust Entity. trustee. - Within a period of three (3) years from the effectivity of this Act. However.

BALATBAT. Republic Act No. Resuello Director & Secretary-Treasurer Ricardo D. Office of the Solicitor General Arturo A. PABLO TANJUTCO. Natalio M. E. (n) Section 95. BIENVENIDO V. CONCEPCION. No. namely: NAME POSITION Rosendo T. Salazar. as amended. JOSE SEBASTIAN and VITO TANJUTCO JR. . . (n) Section 97. RESUELLO. respectively.J. in addition to said corporation. Salva for petitioner. and the provisions of any other law. respondents. Evangelista for the receiver. PILAR G. Balatbat Director & Auditor .R. the General Banking Act. Named as respondents in the petition are. Sycip. initiated by the Solicitor General. 1967 REPUBLIC OF THE PHILIPPINES. as amended by republic Act No. Upon assumption by the Home Insurance and Guaranty Corporation of supervising and regulatory powers over building and loan associations. rule or regulation issued pursuant to said General Banking Act. Alafriz and Solicitor E. Repealing Clause. or parts thereof. the other provisions or sections of this Act. RUBEN BELTRAN.including such rules and regulations issued pursuant thereto. as amended. the following. Zapa Director & Vice-President Pilar G. RESUELLO. (90a) Section 96. The provisions of paragraph 8. (91) G.If any provision or section of this Act or the application thereof to any person or circumstance is held invalid. vs. special charters. petitioner. 3591. Effectivity Clause . 7400. Balboa and F.. as amended. Manalo & Feliciano for respondents. Separability Clause. ROSENDO T. SECURITY CREDIT AND ACCEPTANCE CORPORATION. C. ZAPA. to the Bangko Sentral and the Monetary Board shall be deemed to refer to the Home Insurance and Guaranty Corporation and its board of directors. Resuello President & Chairman of the Board Pablo Tanjutco Director Arturo Soriano Director Ruben Beltran Director Bienvenido V. Luna. ARTURO SORIANO. a references in Sections 39 to 55 of the General Banking Act. 337). as alleged members of its Board of Directors and/or Executive Officers. to dissolve the Security and Acceptance Corporation for allegedly engaging in banking operations without the authority required therefor by the General Banking Act (Republic Act No. RICARDO D. Section 8. are likewise repealed. and the application of such provision or section to other persons or circumstances shall not be affected thereby. L-20583 January 23.: This is an original quo warranto proceeding. which may be inconsistent with the provisions of this Act are hereby repealed. M.This Act shall take effect fifteen (15) days following its publication in the Official Gazette or in two (2) national newspapers of general circulation.Except as may be provided for in Sections 34 and 94 of this Act.

acting upon this request. upon examination and evaluation of said documents and records. to the said Board. 337. Rosendo T. Jose R. the Commission advised the corporation on December 5. commercial and industrial projects. 1962. 1962. the seized documents and records were. Sebastian Director & Legal Counsel Vito Tanjutco Jr. within the purview of Republic Act No. A-1019. gave the former a copy of the above-mentioned opinion. which reconsideration was denied on March 16. That being a private credit and financial institution. which. Resuello. 139 and 140 of Republic Act 265 and Secs. that. Director & Personnel Manager The record shows that the Articles of Incorporation of defendant corporation 1 were registered with the Securities and Exchange Commission on March 27. and secondarily. the Board of Directors of the corporation adopted a set of by-laws. on October 11. that in a letter. Soliciting subscriptions to the corporate shares of stock and accepting deposits on account thereof. 1961. to the Acting Deputy Governor thereof. with the authority of the court. 1961. by virtue of the transfer of the authority. the corporation through its president. the intelligence division of the Central Bank submitted. addressed to said Superintendent of Banks. consequently such acts are ultra-vires: 3. Performing banking functions. that the next day. power. that. without requisite certificate of authority from the Monetary Board of the Central Bank. members of the intelligence division of the Central Bank and of the Manila Police Department searched the premises of the corporation and seized documents and records thereof relative to its business operations. upon the return of said warrant. in that it is soliciting and accepting deposit from the public and lending out the funds so received. 1962. to comply with the requirements of the General Banking Act. pursuant thereto. that. on May 18. and 4. 88 and 89 of Republic Act 337. Soliciting and accepting savings deposits from the general public when the company's articles of incorporation authorize it only to engage primarily in financing agricultural. finding that the corporation is: 1. pursuant to Secs. stating inter alia. the Municipal Court of Manila issued Search Warrant No. a memorandum dated September 10. in turn. 1961. sought a reconsideration of the aforementioned opinion. in violation of the Securities Act. 2. prior thereto. Bank Commissioner and the defunct Bureau of Banking. in violation of Secs. the Superintendent of Banks of the Central Bank of the Philippines asked its legal counsel an opinion on whether or not said corporation is a banking institution. that on September 19. or on March 9. 1961. 1961. 1962. in buying and selling stocks and bonds of any corporation. 2 and 6 of Republic Act 337. submitted to the Monetary Board of the Central Bank a memorandum dated August 28. the Commission referred it to the Central Bank. dated January 15. 1961. upon application of members of the Manila Police Department and an agent of the Central Bank. the corporation had applied with the Securities and Exchange Commission for the registration and licensing of its securities under the Securities Act. that. thereby exceeding the scope of its powers and authority as granted under its charter. that. that. placed under the custody of the Central Bank of the Philippines. without prior registration and/or licensing of such shares or securing exemption therefor. in line with which. the Superintendent of Banks." (Emphasis Supplied. as well as of other documents and pertinent pipers obtained elsewhere. that. one of defendants herein. duties and functions of the Secretary of Finance. before acting on this application.) that upon examination and evaluation of the same records of the corporation. it should come under the supervision of the Monetary Board of the Central Bank. . said legal counsel rendered an opinion resolving the query in the affirmative. 1962.2 which were filed with said Commission on April 5.

or obligations of any kind and all entities regularly conducting operations shall be considered as banking institutions and shall be subject to the provisions of this Act. seized by the combined MPD-CB team was conducted by this Department.11.. (Emphasis supplied. Intelligence Division. 2. the examination disclosed that the Security Credit and Acceptance Corporation isregularly lending funds obtained from the receipt of deposits and/or the sale of securities. 1962 and in accordance with the written instructions of Governor Castillo dated May 31. Premises considered. Inc. Sale of its shares of stock or subscriptions to its capital stock are offered to the public as part of its regular operations. it is recommended that the Monetary Board decide and declare: 1. the Security Credit and Acceptance Corporation. That out of the funds obtained from the public through the receipt of deposits and/or the sale of securities. Such deposits are treated in the Corporation's financial statements as conditional subscription to capital stock. Accumulated deposits of P5. b. securities.. Recommendations: In view of all the foregoing. That this case be referred to the Special Assistant to the Governor (Legal Counsel) for whatever legal actions are warranted. The examination disclosed the following findings: a. A copy of the Memorandum Report dated July 30. if warranted criminal action against the Persons criminally liable and/or quo warranto proceedings with preliminary injunction against the Corporation for its dissolution. defines the term.. of the Central Bank Act. without having first complied with the provisions of said Act. 1962. 13. including.receives deposits from the public regularly. 337. The Corporation therefore is performing 'banking functions' as contemplated in Republic Act No. 1962 of the examination made by Examiners of this Department of the seized books and records of the Corporation is attached hereto. Only duly authorized persons and entities may engage in the lending of funds obtained from the public through the receipts of deposits or the sale of bonds.000 of an individual depositor may be converted into stock subscription to the capital stock of the Security Credit and Acceptance Corporation at the option of the depositor. otherwise known as the General Banking Act. contained in his Memorandum to the Governor dated May 23. Pursuant to the request for assistance by the Chief. in violation of Sections 2 and 6 thereof. "banking institution" as follows: Sec. an examination of the books and records of the Security Credit and Loans Organizations. . Considering the extent of its operations. and 2. 337. 337.) . and of other pertinent laws. 12. otherwise known as the General Banking Act. loans are made regularly to any person by the Security Credit and Acceptance Corporation. That the Security Credit and Acceptance Corporation is performing banking functions without having first complied with the provisions of Republic Act No. Inc. Section 2 of Republic Act No.

as well as the members of its Board of Directors and the officers of the corporation. in less than one (1) year. Upon joint motion of both parties. Beltran. that during the period from March 27. and Pablo Tanjutco had subsequently withdrawn from the proposed mortgage and savings bank. 1962 — or before the commencement of the present proceedings — the corporation and defendants Rosendo T. that on November 29. meanwhile. Accordingly. acting upon said memorandum of the Superintendent of Banks.136. By way of affirmative allegations. the same had managed to induce the public to open 59. said officer assumed his functions as such receiver on September 16. In their answer. both with a par value of P5. that said additional officers had never assumed their respective offices because of the pendency of the approval of said application for conversion. Beltran and Sebastian as proposed directors. vice-president. to P3.689. or of Search Warrant No. 1962.29.000 preferred shares of stock. that defendants Soriano. Resuello. that. 1963. Aquilino L. Tanjutco (Pablo and Vito. defendants admitted practically all of the allegations of fact made in the petition. as well as its officers and agents. Resuello. Pilar G. during the year 1961. 1962. in addition to the defendants first named above. the corporation was advised of the aforementioned resolution. secretary- treasurer. Illera and Pilar G. declaring that the corporation is performing banking operations. that through a systematic and vigorous campaign undertaken by the corporation. as of July 7. 1962. the corporation had established 74 branches in principal cities and towns throughout the Philippines. divided into 20. 1961 to May 18. 1962. with defendants Rosendo T. 1961. 337. as well as the validity of the opinion. a loss of P96. without having first complied with the provisions of Sections 2 and 6 of Republic Act No. defendants averred that.98 and suffered. in consequence of the foregoing deposits with the corporation.273.685.000. A-1019 of the Municipal Court of Manila. Vito Tanjutco Jr. Beltran. are directors of the corporation. as of December 31. auditor and legal counsel. both of which had a par value of P5. its original capital stock of P500. Jr. this notwithstanding. rendered. with a prayer that.000 founders' shares and 470. 1095. the Solicitor General commenced this quo warranto proceedings for the dissolution of the corporation. on September 14. the corporation had filed with the Superintendent of Banks an application for conversion into a Security Savings and Mortgage Bank. Resuello and Pilar G. with defendants Zapa.00 each.265. a writ of preliminary injunction be issued ex parte. They. that on July 11. have been and still are performing the functions and activities which had been declared to constitute illegal banking operations. the Monetary Board promulgated its Resolution No. Soriano. the Superintendent of Banks of the Central Bank of the Philippines was appointed by this Court receiver pendente lite of defendant corporation.00 each. or in Resolution No. and upon the filing of the requisite bond. Balatbat and Sebastian.000 preferred shares.). denied that defendants Tanjutco (Pablo and Vito. and that a receiver be appointed pendente lite.000. the corporation. the Board of Directors of the corporation was composed of defendants Rosendo T. Soriano. but. 1961. enjoining the corporation and its branches. from performing the banking operations complained of.463 savings deposit accounts with an aggregate deposit of P1. the Securities and Exchange Commission. that. evaluation and conclusions. Resuello had instituted Civil Case No. and that. 1963. according to its statement of assets and liabilities. on August 20.). respectively.3 that on September 25. made and/or reached by the legal counsel and the intelligence division of the Central Bank. ruling. was increased. Sebastian. 1962. Balatbat and Sebastian as proposed president. 1095 of the Monetary Board. Jr.000 founders' shares of stock and 80. the corporation had a capital stock aggregating P1.000 divided into 130. and the Superintendent of Banks of the Philippines.74. Zapa. Resullo. Resuello. Balatbat. Zapa. and of the search and seizure made thereunder. on December 6. however. 52342 of the Court of First Instance of Manila against Purificacion Santos and other members of the savings plan of the corporation and the City Fiscal for a declaratory .

A-1019 been contested as provided by law. and credits (State vs. 1962. that the failure of the corporation to honor the demands for withdrawal of its depositors or members of its savings plan and its former employees was due. and that the withdrawal of deposits of members of the savings plan of the corporation was understood to be subject... as the term is used in Section 2 of the General Banking Act. despite its increased capitalization of P3. defendants deny that its transactions partake of the nature of banking operations.W.000 and its deposits amounting to not less than P1. on December 6. Sebastian and Vito Tanjutco Jr.74. as to time and amounts. 347. 577) and to deal. Moreover.relief and an injunction. to the corporation to stop soliciting and receiving deposits. It is clear that these transactions partake of the nature of banking. that. It is conceded. 210. 1962. which has been lent out to such persons as the corporation deemed suitable therefor. Ct. 52342 of the Court of First Instance of Manila. Arturo Soriano. Bienvenido V. that. are officers and/or directors thereof. 139 Iowa 338). Cornings Sav. it has been held that: .Y. in notes. the issues therein have already been joined. Although. to the financial condition of the corporation as an investment firm. the defendants having already committed infractions and violations of the law justifying the dissolution of the corporation.136. a bank has been defined as: . attached to said pleading. 52342 and their representatives or agents to refrain from prosecuting the plaintiff spouses and other officers of the corporation by reason of or in connection with the acceptance by the same of deposits under its savings plan. ) 328. that this is confirmed by the minutes of a meeting of stockholders of the corporation. Judge Gaudencio Cloribel of said court issued a writ directing the defendants in said case No.136. Kansas City Title & Trust Co. held on September 27. by the suspension by debtors of the corporation of the payment of their debts thereto and by an order of the Securities and Exchange Commission dated September 26. that acting upon a petition filed by plaintiffs in said case No. the Intelligence Division.000. (Banks & Banking. 348] founded to facilitate the borrowing. 65 L. Ed. Ruben Beltran. lending and safe-keeping of money (Smith vs. 52342. in consequence of a propaganda campaign therefor. In its reply. bills of exchange. Bank.. said Ramirez qualified as such receiver. 1.000. by Zellmann Vol. Jose R. for a declaratory relief is now highly improper. 255 U. with an aggregate deposit of P1. of the anniversary publication of defendant corporation showed that defendants Pablo Tanjutco. on December 12. of the Securities and Exchange Commission. and that the aforementioned petition of the corporation. Balatbat.463 savings account deposits have been made by the public with the corporation and its 74 branches. the Court of First Instance of Manila had appointed Jose Ma. that the views of the legal counsel of the Central Bank. not to mismanagement or misappropriation of corporate funds. except as to one of the defendants in said case No. Ricardo D. showing that said defendants had been elected officers thereof. and its office equipment and appliances. 52342. admittedly. 41 S.689.74. that neither has the validity of Search Warrant No. 1962. 115 N. that on December 3. but to an abnormal situation created by the mass demand for withdrawal of deposits. (3 Seld. a total of 59. 180. Indeed. plaintiff alleged that a photostat copy.S. the Superintendent of Banks and the Monetary Board above referred to have been expressed in the lawful performance of their respective duties and have not been assailed or impugned in accordance with law. Ramirez as receiver of the corporation. defendant corporation has not secured the requisite authority to engage in banking. Pell 7 N. 1962. 243. 1962. however. after filing the requisite bond. 937. p.689. that the only assets of the corporation now consist of accounts receivable amounting approximately to P500. 46). a moneyed institute [Talmage vs. Zapa. by the attachment of property of the corporation by its creditors. that. in Civil Case No.

577. 266). 55. G. directed to administer the properties. (Western Investment Banking Co. and courts of first instance are. The main issue here is one of law. DIZON CONSTRUCTION. 30.R.50 at 14% interest per annum in addition to . (MacLaren vs. 124 N. as it is hereby granted and defendant corporation is. (57 Phil.) Accordingly. that this case should be remanded to the Court of First Instance of Manila upon the authority of Veraguth vs. In the case at bar. DECISION BELLOSILLO.463 times. and that its continuance inflicts injury upon the public. The appointment of receiver herein issued pendente lite is hereby made permanent. accordingly. and other assets of defendant corporation and wind up the affairs thereof conformably to Rules 59 and 66 of the Rules of Court.. although but one of these functions is exercised. defendant corporation has violated the law by engaging in banking without securing the administrative authority required in Republic Act No. there is. G. it should be noted that this Court is vested with original jurisdiction. 18 Ann.W. S. is not in point. however.. 52342.S. An investment company which loans out the money of its customers. deposits.J. It is urged. G. in support of the second alternative. or of circulation is doing a banking business. No. The Veraguth case cited by herein defendants. For this reason.1 substituted by INTERNATIONAL CORPORATE BANK now known as UNION BANK OF THE PHILIPPINES.R. and CENEN DIZON. 6 Ariz 215. is a bank. to hear and decide quo warranto cases and. 667. 728. 337. that it is willful and has been repeated 59. Isabela Sugar Co.*C. owing to the number of persons affected thereby. and CENEN DIZON in this petition for review seek the reversal of the 24 July 1996 Decision of the Court of Appeals dismissing their appeal for lack of merit and affirming in toto the decision of the trial court holding them liable to Asia Pacific Finance Corporation in the amount of P87. 56 P. vs. 730. ASIA PACIFIC FINANCE CORPORATION. 128703 October 18. it is discretionary for us to entertain the present case or to require that the issues therein be taken up in said Civil Case No. concurrently with courts of first instance. It is so ordered.637. State. we have deemed it best to determine the merits thereof. however.. DIZON CONSTRUCTION INC. the writ prayed for should be. vs. In this connection. 135 Am. namely. ordered dissolved. Wherefore. the legal nature of said facts or of the aforementioned acts of the corporation. 826. That the illegal transactions thus undertaken by defendant corporation warrant its dissolution is apparent from the fact that the foregoing misuser of the corporate funds and franchise affects the essence of its business. INC. Murray. and because public interest demands an early disposition of the case. of discount. in general. no dispute as to the principal facts or acts performed by the corporation in the conduct of its business. consequently.) . petitioners.: C. collects the interest and charges a commission to both lender and borrower. 731. 9 C. Cas. any person engaged in the business carried on by banks of deposit. 141 Wis. J. that. respondent. accordingly. better equipped than appellate courts for the taking of testimony and the determination of questions of fact. because in said case there were issues of fact which required the presentation of evidence. and the receiver is. 2000 TEODORO BAÑAS.

Dizon Construction defaulted in the payment of the remaining installments. Cenen Dizon would provide sufficient collateral to answer for the loan in case of default in payment and execute a continuing guaranty to assure continuous and prompt payment of the loan. Vice President and Treasurer. or a total of P130. which he flatly refused to pay for being usurious. valid and binding but a mere subterfuge to conceal the loan ofP390. As the demand was unheeded. executed a Deed of Chattel Mortgage covering three (3) heavy equipment units of Caterpillar Bulldozer Crawler Tractors with Model Nos. While defendants (herein petitioners) admitted the genuineness and due execution of the Promissory Note.500. Defendants claimed that since ASIA PACIFIC could not directly engage in banking business. C. service handling charges.185. Defendants also alleged that out of the loan of P390. D8-2U and D8H in favor of ASIA PACIFIC. C. prompting ASIA PACIFIC to send a Statement of Account to Cenen Dizon for the unpaid balance of P267.5 In compliance with the provisions of the Promissory Note.00. G. Cenen Dizon executed on 25 August 1980 a Continuing Undertaking wherein he bound himself to pay the obligation jointly and severally with C. G. D8-14A.38 representing attorney's fees. Dizon Construction and Cenen Dizon. 1980 up to August 25. ASIA PACIFIC sued Teodoro Bañas. and to secure payment thereof. Thereafter. as well as its 21 March 1997 Resolution denying reconsideration thereof. lastly. C. however.00 after ASIA PACIFIC deducted the discounted interest.000. Dizon. Cenen Dizon. P32. Dizon Construction whereby for value received he promised to pay to the order of C. G. and. Sometime in August 1980 Teodoro Bañas executed a Promissory Note in favor of C. and Juliette B. Dizon Construction.000.2 On 20 March 1981 Asia Pacific Finance Corporation (ASIA PACIFIC for short) filed a complaint for a sum of money with prayer for a writ of replevin against Teodoro Bañas. Dizon Construction and Cenen Dizon. second.4Moreover."3 Later.500.50 inclusive of interests and charges. theDeed of Chattel Mortgage and the Continuing Undertaking.attorney's fees and costs of suit. C. President.00 in installments of "P32. G.500. Cenen Dizon made good his promise and tendered payment to ASIA PACIFIC in an amount equivalent to two (2) monthly amortizations.000. G. G.00 on 27 October 1980 and P65. through its corporate officers. registration and notarial fees.00 with usurious interests.00 discounted and collected in advance by ASIA PACIFIC. Cenen Dizon would secure a promissory note from Teodoro Bañas with a face value of P390. Dizon Construction endorsed with recourse the Promissory Note to ASIA PACIFIC.00 on 25 September 1980.000.000.00 every 25th day of the month starting from September 25. and P66. Dizon Construction the sum of P390.000. it proposed to them a scheme wherein plaintiff ASIA PACIFIC could extend a loan to them without violating banking laws: first.00 payable in installments. Dizon Construction made the following installment payments to ASIA PACIFIC: P32. C.909. ASIA PACIFIC would then make it appear that the promissory note was sold to it by Cenen Dizon with the 14% usurious interest on the loan or P54. insurance premium.00 defendants actually received only P329. they nevertheless maintained that these documents were never intended by the parties to be legal. C. Dizon Construction. Sometime in October 1980 Cenen Dizon informed ASIA PACIFIC that he would be delayed in meeting his monthly amortization on account of business reverses and promised to pay instead in February 1981. G. 1981. But ASIA PACIFIC attempted to impose a 3% interest for every month of delay.737. G. G.00 on 27 February 1981.000. .

00 both to ASIA PACIFIC as the highest bidder. D8-14A was sold for P120. Why should they now be allowed to take advantage of their own knavery to escape the liabilities that their own chicanery created? Defendant-appellants also want us to believe their story that there was an agreement between them and the plaintiff-appellee that if the former would deliver their 2 bulldozer crawler tractors to the latter. . and having succeeded to all the rights and interests of International Corporate Bank in this case. Of the three (3) bulldozer crawler tractors. hence. ASIA PACIFIC was substituted as party plaintiff by International Corporate Bank after the disputed Promissory Note was assigned and/or transferred by ASIA PACIFIC to International Corporate Bank. and (b) Whether the surrender of the bulldozer crawler tractors to respondent resulted in the extinguishment of petitioners' obligation. the defendant-appellants' obligation would fully be extinguished. and attorney's fees equivalent to 25% of the monetary award. the latter would treat the former's account as closed and the loan fully paid. Cenen Dizon supposedly agreed and accepted the offer.50 at 14% interest per annum.00 and D8-2U for P60. petitioners insist that ASIA PACIFIC was organized as an investment house which could not engage in the lending of funds obtained from the public through receipt of deposits. on 21 April 1981 the trial court issued a writ of replevin against defendant C. Again. G.000. International Corporate Bank merged with Union Bank of the Philippines. On the first issue. Later.which units were subsequently foreclosed by ASIA PACIFIC to satisfy the obligation. Deed of Chattel Mortgage and Continuing Undertaking were not intended to be valid and binding on the parties as they were merely devices to conceal their real intention which was to enter into a contract of loan in violation of banking laws.7 On 24 July 1996 the Court of Appeals affirmed in toto the decision of the trial court thus - Defendant-appellants' contention that the instruments were executed merely as a subterfuge to skirt banking laws is an untenable defense. the trial court dismissed the case against him.D8-14A and D8-2U . null and void.637. Dizon Construction for the surrender of the bulldozer crawler tractors subject of the Deed of Chattel Mortgage. only two (2) were actually turned over by defendants .000. On the other hand. Dizon and the other officers of the appellant corporation would deliver the bulldozers without a receipt of acquittance from the plaintiff-appellee x x x x In our book. The disputed Promissory Note. During the pendency of the case. As the surviving entity after the merger. nothing but the word that comes out between the teeth supports such story. in turn. that is not credible. defendant Teodoro Bañas passed away. The pivotal issues raised are: (a) Whether the disputed transaction between petitioners and ASIA PACIFIC violated banking laws. If that were so then they too were parties to the illegal scheme. Defendants averred that the value of the bulldozer crawler tractors was more than adequate to cover their obligation to ASIA PACIFIC. Why did they not write down such an important agreement? Is it believable that seasoned businessmen such as the defendant-appellant Cenen G. ASIA PACIFIC allegedly made a verbal proposal to Cenen Dizon to surrender to it the ownership of the two (2) bulldozer crawler tractors and. and on motion of the remaining defendants. Meanwhile. Union Bank of the Philippines was substituted as a party in lieu of International Corporate Bank.Afterwards.6 On 25 September 1992 the Regional Trial Court ruled in favor of ASIA PACIFIC holding the defendants jointly and severally liable for the unpaid balance of the obligation under the Promissory Note in the amount of P87.

which is a function of banking institutions. irrespective of maturity.9 securities "shall include x x x x commercial papers evidencing indebtedness of any person. sold. We quote the pertinent portions of the Promissory Note - FOR VALUE RECEIVED. Sec. I/We agree that if any of the said installments is not paid as and when it respectively falls due. the sum of THREE HUNDRED NINETY THOUSAND ONLY (P390. Philippine Currency in the following manner: P32. 2 of the General Banking Act provides in part - Sec. all the installments covered hereby and not paid as yet shall forthwith become due and payable at the option of the holder of this note with interest at the rate of 14% per annum on each unpaid installment until fully paid. I/We. 2. we find the terms and conditions of the instrument clear. well within the purview of "investing. (Sgd) Teodoro Bañas ENDORSED TO ASIA PACIFIC FINANCE CORPORATION WITH RECOURSE. transferred or in any manner conveyed to another with or without recourse. free from any ambiguity. of the Revised Securities Act. is authorized to perform and does not constitute a violation of the General Banking Act. Only entities duly authorized by the Monetary Board of the Central Bank may engage in the lending of funds obtained from the public through the receipt of deposits of any kind. An investment company refers to any issuer which is or holds itself out as being engaged or proposes to engage primarily in the business of investing. On the contrary. the funds supposedly "lent" to petitioners have not been shown to have been obtained from the public by way of deposits. hence. in case no action is filed.000. a sum equivalent to TEN PERCENT (10%) thereof as Attorney's fees. the sum will be equivalent to TWENTY FIVE (25%) of the said principal amount and interest due x x x x Makati. of the Central Bank Act.10 Moreover. the transaction between petitioners and respondent was one involving not a loan but purchase ofreceivables at a discount.00). 1980 up to August 25. like ASIA PACIFIC. But here. August 25. 1980. 1981. and of other pertinent laws (underscoring supplied). (a). par. 2. otherwise. Dizon . If any amount due on this note is not paid at its maturity and this note is placed in the hands of an attorney for collection. financial or non-financial entity. C.500. what is prohibited by law is for investment companies to lend funds obtained from the public through receipts of deposit.) Cenen Dizon (Sgd. By: (Sgd. such as promissory notes x x x x" Clearly. INC.) Juliette B. Indubitably. the inapplicability of banking laws.8 As defined in Sec. issued. and expressive of the real intent and agreement of the parties. endorsed. DIZON CONSTRUCTION.G. hereby promise to pay to the order of C. Metro Manila.We reject the argument.00 due every 25th of the month starting from September 25. On petitioners' submission that the true intention of the parties was to enter into a contract of loan. reinvesting or trading in securities. we have examined the Promissory Note and failed to discern anything therein that would support such theory. Dizon Construction. reinvesting or trading in securities" which an investment company.G. and all entities regularly conducting such operations shall be considered as banking institutions and shall be subject to the provisions of this Act. I/We agree to pay in addition to the aggregate of the principal amount and interest due. Inc.

Oral evidence certainly cannot prevail over the written agreements of the parties. In the instant case. So I voluntarily surrendered. the records are bereft of any evidence of the supposed agreement. We have ruled often enough that it is not the function of this Court to analyze and weigh the evidence all over again. Atty.e. as such.13 . through their respective counsel. have pursued this case for nineteen (19) years. and not on any other independent evidence. I pulled them from the job site and returned them to APCOR x x x x Q: You mentioned a certain Atty. who is he? A: He was the former legal counsel of APCOR. hence. His testimony is not only unconvincing. the records do not show even a preponderance of evidence in favor of petitioners' claim that the Deed of Chattel Mortgage and Continuing Undertaking were never intended by the parties to be legal. Petitioners contend that the parties already had a verbal understanding wherein ASIA PACIFIC actually agreed to consider petitioners' account closed and the principal obligation fully paid in exchange for the ownership of the two (2) bulldozer crawler tractors. We are not persuaded. have in their favor the presumption of regularity. Indeed. To contradict them there must be clear. I talked 1âwphi1 with Atty. we did so just the same in this case if only to satisfy petitioners that we have carefully studied and evaluated the case. The courts need only rely on the faces of the written contracts to determine their true intention on the principle that when the parties have reduced their agreements in writing. Deed of Chattel Mortgage and Continuing Undertaking. as found by the trial court and the Court of Appeals. a seasoned businessman. Carag. but also self-defeating in light of the documents presented by respondent. Carag. even the testimony of petitioner Cenen Dizon himself negates the supposed verbal understanding between the parties - Q: You said and is it not a fact that you surrendered the bulldozers to APCOR by virtue of the seizure order? A: There was no seizure order. As correctly observed by the Court of Appeals. In fact. we have a verbal agreement if I surrender the equipment it might suffice to pay off the debt so I did just that (underscoring ours). the Deed of Chattel Mortgage and Continuing Undertaking were duly acknowledged before a notary public and. Promissory Note. The second issue deals with a question of fact. the accuracy. its jurisdiction being limited to reviewing errors of law that might have been committed by the lower court. Again. it is presumed that they have made the writings the only repositories and memorials of their true agreement. not required as a rule to look into the factual bases of the assailed decision of the Court of Appeals. it is unbelievable that the parties entirely neglected to write down such an important agreement. while we are not a trier of facts. They were handling cases. 12 At any rate. we might finally close a deal if the equipment would come up to the balance of the loan.. i. Notarial documents are evidence of the facts in clear and unequivocal manner therein expressed. 11 Interestingly. correctness and due execution of which were admitted by petitioners. valid and binding. petitioners' assertions were based mainly on the self-serving testimony of Cenen Dizon. Carag during that time said if I surrender the two equipment. Equally incredulous is the fact that petitioner Cenen Dizon. readily consented to deliver the bulldozers to respondent without a corresponding receipt of acquittance. all too mindful of the tenacity and vigor with which the parties. convincing and more than merely preponderant evidence.President VP/Treasurer Likewise. other than the bare allegations of petitioners.

petitioners C. and Cenen Dizon are ordered jointly and severally to pay respondent Asia Pacific Finance Corporation. Finally. petitioners are still liable for the deficiency.14 which was not enough to cover the unpaid balance of P267. morals and public order.50 accrued interests and charges as of 20 March 1981. all in a bona fide effort to settle their indebtedness in full. Barring therefore a showing that the findings complained of are totally devoid of support in the records. Rather.637. Costs against petitioners.637. . Construction Inc. Furthermore.637.000. we cannot close our eyes to the overriding considerations of the law on obligations and contracts which must be upheld and honored at all times. Article 1229 of the New Civil Code specifically empowers the judge to equitably reduce the civil penalty when the principal obligation has been partly or irregularly complied with.00 proceeds realized from the sale of the bulldozer crawler tractors at public auction. And since the bulldozer crawler tractors were sold at the foreclosure sale for only P180.00.In other words. to which must be added P7. Petitioners in fact paid a total of P130. it is strictly binding upon the obligor. Accordingly. and even went to the extent of voluntarily turning over to respondent their heavy equipment consisting of two (2) bulldozer crawler tractors. P87. with interest at fourteen percent (14%) per annum computed from 20 March 1981 until fully paid. depending on whether the value of the tractors to be surrendered would equal the balance of the loan plus interests.000.50. but due to financial distress occasioned by legitimate business reverses.15 Nevertheless.00 in three (3) installments. substituted by International Corporate Bank (now known as Union Bank of the Philippines).637. but only a conditional one. it appears that petitioners' failure to fully comply with their part of the bargain was not motivated by ill will or malice. we hold that the reduction of the attorney's fees from 25% to 15% of the unpaid principal plus interests is in order.00 leaves a balance of P80. not the counsel. or that they are so glaringly erroneous as to constitute serious abuse of discretion. Petitioners have undoubtedly benefited from the transaction. the attorney's fees recoverable as between the attorney and his client regulated by the Rules of Court. its assailed Decision of 24 July 1996 and its Resolution of 21 March 1997 are AFFIRMED. they cannot now be allowed to impugn its validity and legality to escape the fulfillment of a valid and binding obligation. or a total unpaid balance of P87. no reversible error having been committed by the Court of Appeals. It has been said that so long as such stipulation does not contravene the law. and fifteen percent (15%) of the principal obligation and interests due by way of attorney's fees. WHEREFORE.G. strictly speaking. the records show that petitioners actually paid to respondent a total sum of P130. It is the litigant.00 in addition to the P180. we see no valid reason to discard them.50 for which petitioners are jointly and severally liable. With regard to the computation of petitioners' liability. computed from 20 March 1981 until fully paid.000.000. Deducting these amounts from the principal obligation of P390. the unpaid balance should earn 14% interest per annum as stipulated in the Promissory Note. More so in this case where the findings of both the trial court and the appellate court coincide with each other on the matter.000. Upon the foregoing premise.000. it is not. there was no binding and perfected contract between petitioners and respondent regarding the settlement of the obligation. On the amount of attorney's fees which under the Promissory Note is equivalent to 25% of the principal obligation and interests due. a mere conjecture in fact. who is the judgment creditor entitled to enforce the judgment by execution. while we empathize with petitioners. the attorney's fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause.00.50 representing the unpaid balance on the Promissory Note.

Eastern obtained a loan of P73. 5 The note was signed by Lim both in his own capacity and as President and General Manager of Eastern.G.44 which represents the outstanding balance of their account with the plaintiff. COURT OF APPEALS. entitled Bank of the Philippine Islands (successor-in-interest of Commercial Bank and Trust Company) versus Eastern Plywood Corporation and Benigno D.000. For this loan. Ceferino Jimenez. and BENIGNO D. a joint checking account ("and" account) with Lim in the amount of P120. Velasco died on 7 April 1977. 104612 May 10. on 18 August 1978.. (CBTC). J. 87-42967. . CV No. the box with the printed word "UNSECURED" was marked with "X" — meaning unsecured." evidenced by the "Disclosure Statement on Loan/Credit Transaction" (Disclosure Statement) signed by CBTC through its branch manager.: The petitioner urges us to review and set aside the amended Decision 1 of 6 March 1992 of respondent Court of Appeals in CA.87.00 payable on demand to the order of CBTC with interest at 14% per annum. HON. the following facts were duly established: Private respondents Eastern Plywood Corporation (Eastern) and Benigno D. Sometime in March 1975.R. Various amounts were later deposited or withdrawn from the joint account of Velasco and Lim.000.522. respondents.). On 5 May 1977. The Court of Appeals had affirmed the dismissal of the complaint but had granted the defendants' counterclaim for P331.00 was opened by Mariano Velasco with funds withdrawn from the account of Eastern and/or Lim. 4 The loan was payable on demand with interest at 14% per annum. 2 one-half of this amount was provisionally released and transferred to one of the bank accounts of Eastern with CBTC. Ancheta for private respondents. EASTERN PLYWOOD CORP. Leonen. No. No reference to any security for the loan appears on the note. Eastern issued on the same day a negotiable promissory note for P73.R. 1994 BANK OF THE PHILIPPINE ISLANDS (successor-in. the outstanding balance of the account stood at P662. DAVIDE. As culled from the records and the pleadings of the parties. Constante A. Ramirez & Associates for petitioner.000. petitioner. 3 Thereafter. vs. held at least one joint bank account ("and/or" account) with the Commercial Bank and Trust Co. Lim. G.SO ORDERED. Lim (Lim). 25739 which modified the Decision of 15 November 1990 of Branch 19 of the Regional Trial Court (RTC) of Manila in Civil Case No.261. the predecessor-in-interest of petitioner Bank of the Philippine Islands (BPI). and Eastern. through Lim.interest of COMMERCIAL AND TRUST CO.00 from CBTC as "Additional Working Capital. In the Disclosure Statement. as its President and General Manager. JR. by virtue of an Indemnity Undertaking executed by Lim for himself and as President and General Manager of Eastern. The money therein was placed in the money market. At the time of his death. an officer and stockholder of Eastern. LIM.

On 9 September 1986." also dated 18 August 1978. Defendants Lim and Eastern. and CBTC signed another document entitled "Holdout Agreement. In addition. 2310-011-42 in the joint names of Lim and Velasco] to the full extent of their alleged interests therein as these may appear as a result of final and definitive judicial action or a settlement between and among the contesting parties thereto. recognizing the fact that the entire amount in question had been withdrawn by Velasco's heirs pursuant to the order of the intestate court in Sp. 9 On 2 December 1987. the whole balance of P331. BPI filed with the RTC of Manila a complaint against Lim and Eastern demanding payment of the promissory note for P73. The complaint was docketed as Civil Case No. Eastern and Lim. Furthermore.44." which refers to the joint account of Velasco and Lim with a balance of P331.261. 87. Lim hereby confer upon Comtrust [CBTC].00. Proc. In the said case. Proc. it ruled that "the promissory note in question is subject to the 'hold-out' agreement.while the line with the words "this loan is wholly/partly secured by" is followed by the typewritten words "Hold-Out on a 1:1 on C/A No. filed a counterclaim against BPI for the return of the balance in the disputed account subject of the Holdout Agreement and the interests thereon after deducting the amount due on the promissory note.000. In the meantime." 7 Paragraph 02 of the Agreement provides as follows: Eastply [Eastern] and Mr. 2310-001-42. 6 wherein it was stated that "as security for the Loan [Lim and Eastern] have offered [CBTC] and the latter accepts a holdout on said [Current Account No. the trial court. Polo. when and if their alleged interests in the Account Balance shall have been established with finality. CBTC was merged with BPI. After due proceedings. 12 . a case for the settlement of Velasco's estate was filed with Branch 152 of the RTC of Pasig." and docketed as Sp. ample and sufficient power as shall be necessary to retain said Account Balance and enable Comtrust to apply the Account Balance for the purpose of liquidating the Loan in respect of principal and/or accrued interest." 10 and that based on this agreement." 11 As to the defendants' counterclaim.42967 and was raffled to Branch 19 of the said court. denied it because the "said claim cannot be awarded without disturbing the resolution" of the intestate court. 8959. 8 Sometime in 1980. nor shall the existence hereof and the non-resolution of the dispute between the contending parties in respect of entitlement to the Account Balance. And paragraph 05 thereof reads: The acceptance of this holdout shall not impair the right of Comtrust to declare the loan payable on demand at any time. No. Lim in the event the Loan is declared due and payable and Eastply and/or Mr. the trial court rendered its decision on 15 November 1990 dismissing the complaint because BPI failed to make out its case. the intestate court granted the urgent motion of the heirs of Velasco to withdraw the deposit under the joint account of Lim and Velasco and authorized the heirs to divide among themselves the amount withdrawn. preclude Comtrust from instituting an action for recovery against Eastply and/or Mr. Lim shall default in payment of all obligations and liabilities thereunder. 8959. No.261. entitled "In re Intestate Estate of Mariano Velasco. "it was the duty of plaintiff Bank [BPI] to debit the account of the defendants under the promissory note to set off the loan even though the same has no fixed maturity. then presided over by Judge Wenceslao M.44 in the aforesaid joint account of Velasco and Lim was being claimed as part of Velasco's estate. in turn.

therefore." 14 On 22 April 1992.261. the note is an unconditional promise to pay the said amount. We gave due course to the petition and required the parties to submit simultaneously their memoranda. the petitioner can only hold the amount of P73. the suspensive condition does not find any application in this case and the bank had the duty to set off this deposit with the loan. that the "P331.000.R. The collection suit of BPI is based on the promissory note for P73.Both parties appealed from the said decision to the Court of Appeals. 25739.. Proc." 15 Hence. are the latter's creditors. and as stated by the respondent Court of Appeals. It then ordered BPI "to pay defendants the amount of P331. They interpret the findings of both the trial and appellate courts that the money deposited in the joint account of Velasco and Lim came from Eastern and Lim's own account as a finding that the money deposited in the joint account of Lim and Velasco "rightfully belong[ed] to Eastern Plywood Corporation and/or Benigno Lim. the Court of Appeals promulgated on 6 March 1992 an Amended Decision 13 wherein it ruled that the settlement of Velasco's estate had nothing to do with the claim of the defendants for the return of the balance of their account with CBTC/BPI as they were not privy to that case." 17 It further correctly ruled that BPI was not a holder in due course because the note was not indorsed to BPI by the payee.44 shall become a security for respondent Lim's promissory note only if respondents' Lim and Eastern Plywood Corporation's interests to that amount are established as a result of a final and definitive judicial action or a settlement between and among the contesting parties thereto.00. viz. the Court of Appeals rendered a decision affirming the decision of the trial court. as depositors of CBTC/BPI. . hence. CBTC. and that the defendants. hence.44 representing the outstanding balance in the bank account of defendants. The private respondents filed a Rejoinder thereto.00 covered by the promissory note.000. No. It. BPI asserts. On 23 January 1991.00 despite the existence of the Holdout Agreement and whether BPI is still liable to the private respondents on the account subject of the Holdout Agreement after its withdrawal by the heirs of Velasco.000. "[t]here is no question that the promissory note is a negotiable instrument.261. 8959 when the said account was claimed by Velasco's estate.000. They add that the ruling of the lower court that they own the disputed amount is the final and definitive judicial action required by the Holdout Agreement. 16 The petitioner filed a Reply to the aforesaid Comment. CV No. It acquired the note from CBTC by the contract of merger or sale between the two banks. took the note subject to the Holdout Agreement. CBTC/BPI should have protected the defendants' interest in Sp. however." And because the latter are the rightful owners of the money in question. Upon their motion for reconsideration. On its face. the Court of Appeals erred in affirming the trial court's decision dismissing the complaint on the ground that it was the duty of CBTC to debit the account of the defendants to set off the amount of P73. Only a negotiation by indorsement could have operated as a valid transfer to make BPI a holder in due course. BPI filed the instant petition alleging therein that the Holdout Agreement in question was subject to a suspensive condition stated therein. Private respondents Eastern and Lim dispute the "suspensive condition" argument of the petitioner.00 representing the security required for the note and must return the rest. Their appeal was docketed as CA-G. The key issues in this case are whether BPI can demand payment of the loan of P73. failed to rule on the defendants' (private respondents') partial appeal from the trial court's denial of their counterclaim. BPI.

Proc. not an exclusive. savings. with the Court of Appeals in its interpretation of the Holdout Agreement. a bank is under no duty or obligation to make the application. the determination by a probate court of whether that property is included in the estate of a deceased is merely provisional in character and cannot be the subject of execution. The Court of Appeals also erred in affirming such dismissal. What it provides is an alternative.44 20 was equivalent to a demand that they be allowed to withdraw their deposit with the bank. however. CBTC was notified by the Corporate Secretary of Eastern that the deposit in the joint account of Velasco and Lim was being claimed by them and that one-half was being claimed by the heirs of Velasco. BPI. Eastern has the right to withdraw it or to demand payment thereof.261.00. BPI had opted not to exercise its right to apply part of the deposit subject of the Holdout Agreement to the payment of the promissory note for P73. CBTC was not in any way precluded from demanding payment from Eastern and from instituting an action to recover payment of the loan. The payment of the money deposited with BPI that will extinguish its obligation to the creditor-depositor is . The "suspensive condition" theory of the petitioner is. therefore. it was payable on demand of the depositor. BPI was not specifically ordered to release the account to the said heirs. 24 Because the ownership of the deposit remained undetermined. 18 To apply the deposit to the payment of a loan is a privilege. What the agreement conferred on CBTC was a power. The Court of Appeals correctly decided on the counterclaim. paragraph 05 of the Holdout Agreement itself states that notwithstanding the agreement. We have ruled that when the ownership of a particular property is disputed.We disagree. had every right to demand that Eastern and Lim settle their liability under the promissory note. It is clear from paragraph 02 thereof that CBTC. method of enforcing its claim on the note. Its suit for the enforcement of the note was then in order and it was error for the trial court to dismiss it on the theory that it was set off by an equivalent portion in C/A No. Generally. Central Bank of the Philippines. The counterclaim of Eastern and Lim for the return of the P331. they are really loans because they earn interest. 2310-001-42 which BPI should have debited." In Serrano vs. had no right to pay to persons other than those in whose favor the obligation was constituted or whose right or authority to receive payment is indisputable. hence.000. The relationship then between a depositor and a bank is one of creditor and debtor. As early as 12 May 1979. When it demanded payment of the debt directly from Eastern and Lim. it was under no judicial compulsion to do so. 21 we held that bank deposits are in the nature of irregular deposits. As the real creditor of the bank. a right of set-off which the bank has the option to exercise. 8959 merely authorized the heirs of Velasco to withdraw the account. not a duty. 23 Moreover. as the debtor with respect thereto. The authorization given to the heirs of Velasco cannot be construed as a final determination or adjudication that the account belonged to Velasco. The petitioner should not have allowed such withdrawal because it had admitted in the Holdout Agreement the questioned ownership of the money deposited in the account. 22 The account was proved and established to belong to Eastern even if it was deposited in the names of Lim and Velasco. untenable. BPI cannot be relieved of its duty to pay Eastern simply because it already allowed the heirs of Velasco to withdraw the whole balance of the account. or BPI as its successor-in- interest. and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. 19 Also. It cannot be compelled to retain and apply the deposit in Lim and Velasco's joint account to the payment of the note. the order of the court in Sp. No. The deposit under the questioned account was an ordinary bank deposit. hence. Article 1980 of the Civil Code expressly provides that "[f]ixed.

Josefina G. EMERITO M. 25735 is hereby MODIFIED. No pronouncement as to costs. Eastern. did not extinguish its obligation to the true depositor. Salonga for all other respondents. The award on the counterclaim is sustained subject to a modification of the interest. JR.R.264. Tumale. OVERSEAS BANK OF MANILA. 26 The payment then by BPI to the heirs of Velasco. CV No. RAMOS. 25 Payment made by the debtor to the wrong party does not extinguish the obligation as to the creditor who is without fault or negligence. Rene Diokno for petitioner. or through error induced by fraud of a third person. J. the instant petition is partly GRANTED. RAMOS. SUSANA B. CENTRAL BANK OF THE PHILIPPINES. and TEOFILO TANJUATCO. JOSEFA RAMOS DELA RAMA. F. ANTONIO B.R. computed from 18 August 1978 until payment.44 in favor of the private respondents shall bear interest at the rate of 12% per annum computed from the filing of the counterclaim. Orsolino for respondent Central Bank of the Philippines.E. the dismissal of the petitioner's complaint is reversed and set aside. RAMOS.00 with interest at: (a) 14% per annum on the principal. computed from that date until payment pursuant to Article 2212 of the Civil Code. (b) 12% per annum on the interest which had accrued up to the date of the filing of the complaint. WHEREFORE. VICTORIA RAMOS TANJUATCO. SO ORDERED. SERRANO. vs. JR. RAMOS. Feliciano C..payment to the person of the creditor or to one authorized by him or by the law to receive it. EMERITO B. 1980 MANUEL M. Evangelista & Glecerio T. G. Periquet for respondent Overseas Bank of Manila. In the light of the above findings.000. As modified: (1) Private respondents are ordered to pay the petitioner the promissory note for P73. Torres and Antonio B. L-30511 February 14. Pacifico T. HORACIO DELA RAMA. even if done in good faith.. even if the debtor acted in utmost good faith and by mistake as to the person of the creditor. petitioner.: Petition for mandamus and prohibition. FILOMENA RAMOS LEDESMA. (2) The award of P331. The challenged amended decision in CA-G. CONCEPCION. RODOLFO LEDESMA. that seeks the . with preliminary injunction. respondents. No.

1966. 29352. petitioner made a time deposit. 8 Respondent Central Bank likewise denied that a constructive trust was created in favor of . 1966 and December 12. of One Hundred Fifty Thousand Pesos (P150." into a trust fund in favor of petitioner and all other depositors of respondent Overseas Bank of Manila. on the ground that respondent Central Bank failed in its duty to exercise strict supervision over respondent Overseas Bank of Manila to protect depositors and the general public. was only on a limited degree of banking operations since the Monetary Board decided in its Resolution No. there were no findings to declare the respondent Overseas Bank of Manila as insolvent. for one year with 6-½% interest. assigned and conveyed to petitioner Manuel M. entitled "Emerita M. Central Bank of the Philippines. No.00) with the respondent Overseas Bank of Manila.000. It is also prayed that the respondents be prohibited permanently from honoring. 1965. but denies the petitioner's allegation that the Central Bank has the duty to exercise a most rigid and stringent supervision of banks. implying that respondent Central Bank has to watch every move or activity of all banks. for one year with 6% interest. Concepcion Maneja. the Overseas Bank of Manila. 1 Petitioner also prays that both respondent banks be ordered to execute the proper and necessary documents to constitute all properties fisted in Annex "7" of the Answer of respondent Central Bank of the Philippines in G. her time deposit of P200. 1967. to prohibit the Overseas Bank of Manila from making new loans and investments in view of its chronic reserve deficiencies against its deposit liabilities.R. 5 Notwithstanding series of demands for encashment of the aforementioned time deposits from the respondent Overseas Bank of Manila. Serrano. L-29352. 1965. married to Felixberto M. 7 Respondent Central Bank also denied that it is guarantor of the permanent solvency of any banking institution as claimed by petitioner. against respondent Central Bank of the Philippines and Overseas Bank of Manila and its stockholders. or doing any act predicated upon the validity or efficacy of the deeds of mortgage. Ramos. 4 On August 31. and/or conveyance or transfer of whatever nature of the properties listed in Annex "7" of the Answer of respondent Central Bank in G. This limited operation of respondent Overseas Bank of Manila continued up to 1968. 2 A sought for ex-parte preliminary injunction against both respondent banks was not given by this Court. dated March 12. 1967 up to March 4. 1968.00 with respondent Overseas Bank of Manila. of Two Hundred Thousand Pesos (P200. 322. with interest.000.establishment of joint and solidary liability to the amount of Three Hundred Fifty Thousand Pesos. et al vs.00) with the same respondent Overseas Bank of Manila. including respondent Overseas Bank of Manila. Respondent Central Bank claims that as of March 12.R. In the years 1966-1967. implementing. on March 6. 3 Concepcion Maneja also made a time deposit. Undisputed pertinent facts are: On October 13. Serrano.000. on the alleged failure of the Overseas Bank of Manila to return the time deposits made by petitioner and assigned to him. It claims that neither the law nor sound banking supervision requires respondent Central Bank to advertise or represent to the public any remedial measures it may impose upon chronic delinquent banks as such action may inevitably result to panic or bank "runs". not a single one of the time deposit certificates was honored by respondent Overseas Bank of Manila. while operating. 6 Respondent Central Bank admits that it is charged with the duty of administering the banking system of the Republic and it exercises supervision over all doing business in the Philippines. dating from December 6. assignment. 1968. No.

Ramos. 1290 and 1333 (that prohibit the Overseas Bank of Manila to participate in clearing. with the dispositive portion to wit: WHEREFORE. No. No. Central Bank of the Philippines. 13 By the very nature of the claims and causes of action against respondents. wherein respondent Overseas Bank of Manila sought to prevent respondent Central Bank from closing. 1971. Claims of these nature are not proper in actions for mandamus and prohibition as there is no shown clear abuse of .R. Petitioner Manuel Serrano in this case.000 time deposit made with the latter bank. Respondent Central Bank in G. L-29352." a case was filed by the petitioner Ramos. which became final and executory on March 3. 12 Because of the above decision. motion to intervene. et al. These claims shoud be ventilated in the Court of First Instance of proper jurisdiction as We already pointed out when this Court denied petitioner's motion to intervene in G.R.R. said collaterals allegedly acquired through the use of depositors money. In the resolution dated October 4. The contents of said motion to intervene are substantially the same as those of the present petition. vs. petitioner in this case filed a motion for judgment in this case. L-29352. with all interests due therein. 1968. direct the suspension of its operation.petitioner and his predecessor in interest Concepcion Maneja when their time deposits were made in 1966 and 1967 with the respondent Overseas Bank of Manila as during that time the latter was not an insolvent bank and its operation as a banking institution was being salvaged by the respondent Central Bank. filed on September 6. on the ground that his claim as depositor of the Overseas Bank of Manila should properly be ventilated in the Court of First Instance. and ordering the liquidation of said bank) are hereby annulled and set aside. on the ground that Serrano had a real and legal interest as depositor of the Overseas Bank of Manila in the matter in litigation in that case. and declaring all assets assigned or mortgaged by the respondents Overseas Bank of Manila and the Ramos groups in favor of the Central Bank as trust funds for the benefit of petitioner and other depositors. declaring the former insolvent. No. No. 1263. L-29362. the writs prayed for in the petition are hereby granted and respondent Central Bank's resolution Nos. and said respondent Central Bank of the Philippines is directed to comply with its obligations under the Voting Trust Agreement. 10 In G. praying for a decision on the merits. and if this Court were to allow Serrano to intervene as depositor in G.R. and recovery of damages against respondent Central Bank for its alleged failure to strictly supervise the acts of the other respondent Bank and protect the interests of its depositors by virtue of the constructive trust created when respondent Central Bank required the other respondent to increase its collaterals for its overdrafts said emergency loans. including that of the petitioner and Concepcion Maneja. L-29352. this Court denied Serrano's. L-29352 opposed petitioner Manuel Serrano's motion to intervene in that case. L-29352 on October 4.R. No.R. 9 Respondent Central Bank avers no knowledge of petitioner's claim that the properties given by respondent Overseas Bank of Manila as additional collaterals to respondent Central Bank of the Philippines for the former's overdrafts and emergency loans were acquired through the use of depositors' money. and to desist from taking action in violation therefor. No. 1972. 1968. Costs against respondent Central Bank of the Philippines. they in reality are recovery of time deposits plus interest from respondent Overseas Bank of Manila. favorable to the respondent Overseas Bank of Manila. thousands of other depositors would follow and thus cause an avalanche of cases in this Court. entitled "Emerita M. a motion to intervene in G. 11 This Court rendered decision in G. and liquidating its assets. adjudging respondent Central Bank jointly and severally liable with respondent Overseas Bank of Manila to the petitioner for the P350.

discretion by the Central Bank in its exercise of supervision over the other respondent Overseas Bank of Manila. payable to "cash" in the amount of Two Thousand Five Hundred Dollars ($2. CV No. with the understanding that as soon as the check is cleared. G. and if there was. the petition is dismissed for lack of merit. Continental Bank Manager's Check No. J. All kinds of bank deposits. as it did in G. NAPIZA. 112392 February 29. Jr. Using the blank withdrawal slip given by private respondent to Chan. savings. and agreed to deliver to Chan a signed blank withdrawal slip. The petitioner here in making time deposits that earn interests with respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. On September 3. whether fixed. They are really loans because they earn interest. Failure of he respondent Bank to honor the time deposit is failure to pay s obligation as a debtor and not a breach of trust arising from depositary's failure to return the subject matter of the deposit WHEREFORE. respondents. on October 23. The respondent Bank was in turn a debtor of petitioner. 1984. 028-1873 which he maintained in petitioner bank's Buendia Avenue Extension Branch. 2 which dismissed the complaint filed by petitioner Bank of the Philippine Islands against private respondent Benjamin C.500. since the questioned acts of the respondent Central Bank (the acts of dissolving and liquidating the Overseas Bank of Manila). Napiza for sum of money. with costs against petitioner.R. vs. SO ORDERED. Neither is there anything to prohibit in this case. both parties overlooked one fundamental principle in the nature of bank deposits when the petitioner claimed that there should be created a constructive trust in his favor when the respondent Overseas Bank of Manila increased its collaterals in favor of respondent Central Bank for the former's overdrafts and emergency loans. petitioner here is not the proper party to raise that question.R.541.R. 00014757 4 dated August 17. YNARES-SANTIAGO.67 from FCDU Savings . 2000 BANK OF THE PHILIPPINE ISLANDS. or current are to be treated as loans and are to be covered by the law on loans. since these collaterals were acquired by the use of depositors' money. Bank deposits are in the nature of irregular deposits. No. 1984. but rather the Overseas Bank of Manila. L-29352. 14 Current and savings deposit are loans to a bank because it can use the same.: This is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G. private respondent deposited in Foreign Currency Deposit Unit (FCDU) Savings Account No. both of them would go to the bank to withdraw the amount of the check upon private respondent's presentation to the bank of his passbook. had been accomplished a long time ago. petitioner.00) and duly endorsed by private respondent on its dorsal side. 1987. was able to withdraw the amount of $2. Branch 139. No. Private respondent acceded. COURT OF APPEALS and BENJAMIN C. one Ruben Gayon. 5 It appears that the check belonged to a certain Henry who went to the office of private respondent and requested him to deposit the check in his dollar account by way of accommodation and for the purpose of clearing the same. which petitioner here intends to use as his basis for claims of damages against respondent Central Bank. Furthermore. 37392 affirming in toto that of the Regional Trial Court of Makati.

6 On November 20. and litigation and/or costs of suit. who is private respondent's son. it may not be amiss to mention here that I merely signed an authority to withdraw said deposit subject to its clearing.500. 1986. de Guzman and was duly initialed by the branch assistant manager.67 from his dollar savings account through collusion with one of petitioner's employees. Napiza IV. private respondent wrote petitioner's counsel on April 20. In turn. He added: Further. I did not receive its proceeds as may be gleaned from the withdrawal slip under the captioned signature of recipient. 1984. Benjamin D. Private respondent filed his answer. it had allegedly admitted having paid the . 028-187. He also said that upon learning of the dishonor of the check. Besides.00 or the prevailing peso equivalent plus legal interest from date of demand to date of full payment.nêt If at all.00. which (sic) I have been and is (sic) still exerting utmost and maximum efforts to collect from Mr. 9 Reyes himself sent a telegram to private respondent regarding the dishonor of the check. Reyes reminded private respondent of his son's promise and warned that should he fail to return that amount within seven (7) days. 1984. de Guzman and/or Agnes C. admitting that he indeed signed a "blank" withdrawal slip with the understanding that the amount deposited would be withdrawn only after the check in question has been cleared. praying for the return of the amount of $2. petitioner filed a complaint against private respondent. On December 18. his father immediately tried to contact Chan but the latter was out of town.500. 1985 13 stating that he deposited the check "for clearing purposes" only to accommodate Chan. please take notice that said check was deposited on September 3. Private respondent added that he had "given the Plaintiff fifty one (51) days with which to clear the bank draft in question. instructed one of its employees.Account No.1âwphi1. 1984. to inform his father that the check bounced. Also. Teresita Lindo. He likewise alleged that he instructed the party to whom he issued the signed blank withdrawal slip to return it to him after the bank draft's clearance so that he could lend that party his passbook for the purpose of withdrawing the amount of $2." Petitioner should have disallowed the withdrawal because his passbook was not presented. petitioner received communication from the Wells Fargo Bank International of New York that the said check deposited by private respondent was a counterfeit check7 because it was "not of the type or style of checks issued by Continental Bank International. Ariel Reyes. 1985 demanding the return of the $2. xxx xxx xxx On August 12. said party was able to withdraw the amount of $2. Mr. 11 This was followed by a letter of the bank's lawyer dated April 8. a sum equivalent to 20% of the total amount due as attorney's fees. my obligation on the transaction is moral in nature.10 Private respondent's son undertook to return the amount of $2.541. private respondent's son wrote to Reyes stating that the check been assigned "for encashment" to Ramon A. without his knowledge. the manager of petitioner's Buendia Avenue Extension Branch. He claimed that petitioner had no one to blame except itself "for being grossly negligent. or a total period of fifty (50) days had elapsed at the time of withdrawal.00 to petitioner bank. the reason why the transaction is not reflected in the passbook of the account. the withdrawal slip shows that the amount was payable to Ramon A.500.500." in fact."8 Consequently.00. 12 In reply. de Guzman after it shall have been cleared upon instruction of Chan. de Guzman and Agnes C. 1984 and withdrawn on October 23. However. Notably. Henry Chan who is directly liable under the circumstances. the matter would be referred to the bank's lawyers for appropriate action to protect the bank's interest.

The Court of Appeals cited the case of Roman Catholic Bishop of Malolos. "if not altogether due to collusion and/or bad faith on the part of (its) employees. to withdraw the money without presenting private respondent's passbook and. Jr. 1987 directing private respondent to actively participate in locating Chan. Petitioner filed a comment on the motion for leave of court to admit the third party complaint. exemplary damages of P50. 1991.00 per appearance in court. these requirements are designed to protect the bank from deception or fraud. the trial court." Charging petitioner with "apparent ignorance of routine bank procedures. petitioner should suffer the resultant loss. and held . On appeal. The check still had to be cleared and its proceeds can only be withdrawn upon presentation of a passbook in accordance with the bank's rules and regulations." Having admitted that it committed a "mistake" in not waiting for the clearance of the check before authorizing the withdrawal of its value or proceeds. the trial court issued orders on August 25. Meanwhile. whenever it asserted that per paragraph 2 of the Rules and Regulations governing BPI savings accounts. To so hold him liable "would render inutile the requirement of "clearance" from the drawee bank before the value of a particular foreign check or draft can be credited to the account of a depositor making such deposit. a decision was rendered dismissing the complaint. v.amount in the check "by mistake" . Private respondent replied that for the parties to obtain complete relief and to avoid multiplicity of suits. . 1987 and October 28. The appellate court held that petitioner committed "clears gross negligence" in allowing Ruben Gayon. Likewise. IAC. private respondent prayed that third party defendant Chan be made to refund to him the amount withdrawn and to pay attorney's fees of P5." The lower court further held that "it was incumbent upon the petitioner to credit the value of the check in question to the account of the private respondent only upon receipt of the notice of final payment and should not have authorized the withdrawal from the latter's account of the value or proceeds of the check.000.00 plus P300. Inc. Furthermore. Petitioner prayed for the denial of the said motion so as not to unduly delay the disposition of the main case asserting that private respondent's claim could be ventilated in another case.000. The lower court held that petitioner could not hold private respondent liable based on the check's face value alone.000. He alleged that "thru strategem and/or manipulation." It contended that private respondent was estopped from disclaiming liability because he himself authorized the withdrawal of the amount by signing the withdrawal slip. Thus. After private respondent failed to comply.00 honorarium per appearance. 1988. the motion to admit third party complaint should be granted." Chan was able to withdraw the amount of $2. before the check was cleared and in crediting the amount indicated therein in private respondent's account. After all. . On November 4.500.00.14 where this Court stated that a personal check is not legal tender or money. dismissed the third party complaint without prejudice.00 even without private respondent's passbook. petitioner's contention that private respondent warranted the check's genuineness by endorsing it is untenable for it would render useless the clearance requirement." by way of counterclaim. Private respondent also filed a motion for admission of a third party complaint against Chan. the Court of Appeals affirmed the lower court's decision. private respondent prayed for moral damages of P100. It stressed that the mere deposit of a check in private respondent's account did not mean that the check was already private respondent's property. the requirement of presentation of a passbook to ascertain the propriety of the accounting reflected would be a meaningless exercise.00 and attorney's fees of 30% of whatever amount that would be awarded to him plus an honorarium of P500. private respondent alone was liable "for the value of the credit given on account of the draft or check deposited. on May 18.

Sec.. and that if it be dishonored. or any subsequent indorser who may be compelled to pay it. 2031): Sec. 2. according to its tenor. she is under the law "liable on the instrument to a holder for value. Liability of general indorser. or both. a person "who has signed the instrument as maker. or indorser.15 In People v. as the case may be. 66. 3. Under the law. i. Without filing a motion for the reconsideration of the Court of Appeals' Decision.that the check deposited in this case must be cleared before its value could be properly transferred to private respondent's account. * * (the instrument) shall be accepted or paid. warrants to all subsequent holders in due course — (a) The matters and things mentioned in subdivisions (a). it shall be accepted or paid. he will pay the amount thereof to the holder. in addition. And. — Every indorser who indorses without qualification. without receiving value thereof. should be liable for the amount stated therein in accordance with the following provision of the Negotiable Instruments Law (Act No. WHETHER OR NOT A CONTRACT OF AGENCY WAS CREATED BETWEEN RESPONDENT NAPIZA AND RUBEN GAYON." As such. or both. Maniego. and (c) of the next preceding section. and the necessary proceedings on dishonor be duly taken.16 this Court described the liabilities of an indorser as follows: Appellant's contention that as mere indorser. "a person placing his signature upon an instrument otherwise than as a maker. petitioner filed this petition for review on certiorari." inter alia "engages that on due presentment. WHETHER OR NOT RESPONDENT NAPIZA IS LIABLE UNDER HIS WARRANTIES AS A GENERAL INDORSER. drawer. valid and subsisting." Is an indorser of the instrument. she may not be liable on account of the dishonor of the checks indorsed by her. and the necessary proceedings on dishonor be duly taken. i. or to any subsequent indorser who may be compelled to pay it. notwithstanding such holder at the time of taking the instrument knew * * (her) . as the case may be. provides for the following warranties of a person negotiating an instrument by delivery or by qualified indorsement: (a) that the instrument is genuine and in all respects what it purports to be." Maniego may also be deemed an "accommodation party" in the light of the facts. (b) that he has a good title to it. the holder or last indorsee of a negotiable instrument has the right "to enforce payment of the instrument for the full amount thereof against all parties liable thereon. according to its tenor.. he engages that on due presentment. acceptor. 65. on the other hand. and (c) that all prior parties had capacity to contract. Among the "parties liable thereon. (b). is likewise untenable." Such an indorser "who indorses without qualification. and that if it be dishonored. WHETHER OR NOT PETITIONER WAS GROSSLY NEGLIGENT IN ALLOWING THE WITHDRAWAL. drawer or acceptor * * unless he clearly indicated by appropriate words his intention to be bound in some other capacity. he will pay the amount thereof to the holder. and (b) That the instrument is at the time of his indorsement.e. and for the purpose of lending his name to some other person.e. Petitioner claims that private respondent. raising the following issues: 1. having affixed his signature at the dorsal side of the check.

"18 We hold. that the propriety of the withdrawal should be gauged by compliance with the rules thereon that both petitioner bank and its depositors are duty-bound to observe. Withdrawals must be made by the depositor personally but in some exceptional circumstances. transmission and other charges related to such withdrawals shall be for the account of the depositor and shall be paid by him/her upon demand. 5. Withdrawals in the form of notes/bills are allowed subject however. Withdrawals may also be made in the form of travellers checks and in pesos. Jr. to be able to withdraw from the savings account deposit under the Philippine foreign currency deposit system. 6. after paying the holder. could not have withdrawn any amount. naming his authorized agent). and may be withdrawal only in the manner above provided. the personality of private respondent's son and the lapse of more than fifty (50) days from date of deposit of the Continental Bank draft. the amount to be withdrawn and the place where such withdrawal should be made. It is thus clear that ordinarily private respondent may be held liable as an indorser of the check or even as an accommodation party.e." Petitioner relied "on the genuine signature on the withdrawal slip.17 However. to be only an accommodation party. In the passbook that petitioner issued to private respondent. and (b) the depositor's passbook. however. Withdrawals may be made by draft. in which the amount deposited withdrawn shall be entered only by the Bank. the following rules on withdrawal of deposits appear: 4. Petitioner contends that "(I)n failing to do so (i. 6 requiring that the request for withdrawal must name the payee." although she has the right. Such request must indicate the name of the payee/s. Petitioner asserts that by signing the withdrawal slip. private respondent "presented the opportunity for the withdrawal of the amount in question. Private respondent admits he signed a blank withdrawal slip ostensibly in violation of Rule No. Deposits shall not be subject to withdrawal by check. upon presentation of the depositor's savings passbook and with the withdrawal form supplied by the Bank at the counter. mail or telegraphic transfer in currency of the account at the request of the depositor in writing on the withdrawal slip or by authenticated cable. the Bank may allow withdrawal by another upon the depositor's written authority duly authenticated. he practically authorized any possessor thereof to write any amount and to collect the same.19 Under these rules. "since the relation between them is in effect that of principal and surety. That the withdrawal slip was in fact a blank one with only private respondent's two signatures affixed on the proper spaces is buttressed by petitioner's allegation in the instant petition that had private respondent indicated therein the person authorized to receive the money. amount and the place where the funds are to be paid. Any stamp.. to their (availability). to obtain reimbursement from the party accommodated. then Ruben Gayon. The interest of justice thus demands looking into the events that led to the encashment of the check. the accommodation party being the surety. and neither a deposit nor a withdrawal will be permitted except upon the presentation of the depositor's savings passbook."20 . to hold private respondent liable for the amount of the check he deposited by the strict application of the law and without considering the attending circumstances in the case would result in an injustice and in the erosion of the public trust in the banking system. without the same being returned yet. two requisites must be presented to petitioner bank by the person withdrawing an amount: (a) a duly filled-up withdrawal slip.

after receiving the deposit. (Emphasis and underlining supplied.23 As such. Collection charges by the Bank's foreign correspondent in effecting such collection shall be for the account of the depositor. However. drafts." The requirement of presentation of the passbook when withdrawing an amount cannot be given mere lip service even though the person making the withdrawal is authorized by the depositor to do so. the provisional entry therefor made by the Bank in the savings passbook and its records shall be deemed automatically cancelled regardless of the time that has elapsed. Moreover. under its own rules. Otherwise.00. petitioner's personnel should have been duly warned that Gayon. Thus: 2. 22 In allowing the withdrawal. the collection shall be debited by the Bank against the account. whether a manager's check or ordinary check. there could not have been a principal-agent relationship between private respondent and Gayon so as to render the former liable for the amount withdrawn. . Private respondent does not deny having signed such authority. If. private respondent was. the date he deposited the controversial check in the amount of $2. If the account has sufficient balance. such as a check. All deposits will be received as current funds and will be repaid in the same manner. This is clear from Rule No. and the Bank is hereby authorized to execute immediately the necessary corrections. at the dorsal side of the withdrawal slip is an "authority to withdraw" naming Gayon the person who can withdraw the amount indicated in the check. by depositing the check with petitioner. de Guzman &/or Agnes C.) As correctly held by the Court of Appeals. will be accented as subject to collection only and credited to the account only upon receipt of the notice of final payment." Such being the case. petitioner likewise overlooked another rule that is printed in the passbook.. merely designating petitioner as the collecting bank. for any reason.Such contention would have been valid if not for the fact that the withdrawal slip itself indicates a special instruction that the amount is payable to "Ramon A. who was also employed in petitioner's Buendia Ave. the unavoidable conclusion is that the typewritten name of "Ruben C. the proceeds of the deposited checks. as well as on the savings passbook at the first opportunity to reflect such cancellation. is not legal tender. considering petitioner's clear admission that the withdrawal slip was a blank one except for private respondent's signature. Jr. 6 set out by petitioner so that. petitioner shall credit the amount in private respondent's account or infuse value thereon only after the drawee bank shall have paid the amount of the check or the check has been cleared for deposit. the withdrawal slip contains a boxed warning that states: "This receipt must be signed and presented with the corresponding foreign currency savings passbook by the depositor in person." was intercalated and thereafter it was signed by Gayon or whoever was allowed by petitioner to withdraw the amount. 1984. in a way. Extension branch. provided. depositor should accomplish the authority at the back. de Guzman. etc. Under these facts. however. and whether or not the defective items can be returned to the depositor. money orders. Under the above rule. checks. that deposits of drafts. money orders. Of course. etc. cannot be collected or if the Bank is required to return such proceeds. Gayon. This is in consonance with the rule that a negotiable instrument. either Ramon or Agnes de Guzman should have issued another authority to Gayon for such withdrawal. For withdrawals thru a representative. in depositing the check in his name. the withdrawal shall be entered in the depositor's passbook. private respondent did not become the outright owner of the amount stated therein. The fact that private respondent's passbook was not presented during the withdrawal is evidenced by the entries therein showing that the last transaction that he made with the bank was on September 3. for the protection of the bank's interest and as a reminder to the depositor.500. amendments or changes in its record.21 was not the proper payee of the proceeds of the check.

a commercial bank in Madrid.640. 1984. Auditor General. then he is guilty of negligence.00 on September 3.00.00. As this Court once said on this matter: Negligence is the omission to do something which a reasonable man. blameworthy.250. 30 Upon private respondent's deposit of $2. petitioner's personnel negligently handled private respondent's account to petitioner's detriment. the amount of $600.00. this is in accordance with ordinary banking practices and with this Court's pronouncement that "the collecting bank or last endorser generally suffers the loss because has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. on account of the "special treatment" that Boncan received from the personnel of Banco Atlantico's foreign department. a bank is under obligation to treat the accounts of its depositors "with meticulous care. . Said ruling brings to light the fact that the banking business is affected with public interest. paid the amounts represented in three (3) checks to Virginia Boncan. By the nature of its functions. On September 30. 1984.00 and the additional charges of $10. the Court approved the Auditor General's denial of Banco Atlantico's claim for payment of the value of the checks that was withdrawn by Boncan. provides that test by which to determine the existence of negligence in a particular case which may be stated as follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not. Spain.26 Banco Atlantico. The bank's ledger on private respondent's account shows that before he deposited $2. The bank did so without previously clearing the checks with the drawee bank. a bank should exercise its functions not only with the diligence of a good father of a family but it should do so with the highest degree of care.25 In Banco Atlantico v.500. Smith. petitioner.28 In the case at bar. case of Picart v. always having in mind the fiduciary nature of their relationship. The seventy-eight (78)-year-old. failed to exercise the diligence of a good father of a family." 24 The rule finds more meaning in this case where the check involved is drawn on a foreign bank and therefore collection is more difficult than when the drawee bank is a local one even though the check in question is a manager's check. 29 Petitioner violated its own rules by allowing the withdrawal of an amount that is definitely over and above the aggregate amount of private respondent's dollar deposits that had yet to be cleared. The law here in effect adopts the standard supposed to be supplied by the imaginary conduct of the discreet pater-familias of the Roman law."27 As such. or negligent in the man of ordinary intelligence and prudence and determines liability by that. The existence of negligence in a given case is not determined by reference to the personal judgment of the actor in the situation before him." Accordingly. would do.Again. private respondent had a balance of only $750.500. in allowing the withdrawal of private respondent's deposit. 31 On September 10. In total disregard of its own rules. guided by those considerations which ordinarily regulate the conduct of human affairs. the finance officer of the Philippine Embassy in Madrid. The Court held that the encashment of the checks without prior clearance is "contrary to normal or ordinary banking practice specially so where the drawee bank is a foreign bank and the amounts involved were large. or the doing of something which a prudent and reasonable man would do. the Philippine National Bank in New York. that amount was credited in his ledger as a deposit resulting in the corresponding total balance of $3. The law considers what would be reckless. yet still relevant. in dealing with its depositors.00.00 were indicated therein as withdrawn thereby leaving a balance $2.

HERMOSISIMA.. Reyes' contention that after the lapse of the 35-day period the amount of a deposited check could be withdrawn even in the absence of a clearance thereon. November 20.1984. the petition for review on certiorari is DENIED. produces the injury. banks that were deposited with petitioner.R. The Decision of the Court of Appeals in CA-G. is "that cause. 37392 is AFFIRMED.92." The case stemmed from a complaint filed by the private respondent Rommel's Marketing . now absorbed by Philippine Commercial and Industrial Bank. which is determined by a mixed consideration of logic.: Challenged in this petition for review is the Decision dated February 28.67 was entered as withdrawn with a balance of $109. represented by ROMEO LIPANA.34 According to Reyes. petitioner assumed the risk of incurring a loss on account of a forged or counterfeit foreign check and hence.00 although they had not yet received notice from the clearing bank in the United States on whether or not the check was funded. 1984. DIGNA DE LEON. now absorbed by PHILIPPINE COMMERCIAL INTERNATIONAL BANK.R. but petitioner's Buendia Ave.S. ROGELIO LACSON.92. No. in natural and continuous sequence. Pasig City. the amount of $2.59 was reflected in the ledger and on October 23. which.36 is untenable. respondents.00 on petitioner's part was its personnel's negligence in allowing such withdrawal in disregard of its own rules and the clearing requirement in the banking system. otherwise it could take a long time before a depositor could make a withdrawal. unbroken by any efficient intervening cause. ROMMEL'S MARKETING CORP. an interest of $11. J. In so doing. Philippine Bank of Commerce.35 From these facts on record. 97626 March 14. was informed unofficially of the fact that the check deposited was a counterfeit.1âwphi1. 27288 entitled "Rommel's Marketing Corporation. petitioner's branch manager. it is at once apparent that petitioner's personnel allowed the withdrawal of an amount bigger than the original deposit of $750. etc. 1997 PHILIPPINE BANK OF COMMERCE..32 On November 19. Extension Branch received a copy of the communication thereon from Wells Fargo Bank International in New York the following day. vs.33 That must have been the time when Reyes. petitioners. common sense.."37 The proximate cause of the withdrawal and eventual loss of the amount of $2.541. While it is true that private respondent's having signed a blank withdrawal slip set in motion the events that resulted in the withdrawal and encashment of the counterfeit check. its President & General Manager. Said practice amounts to a disregard of the clearance requirement of the banking system. v. 1991 1 rendered by public respondent Court of Appeals which affirmed the Decision dated November 15. SO ORDERED. CV No. 1985 of the Regional Trial Court.500. THE COURT OF APPEALS. et al. it should suffer the resulting damage.00 and the value of the check deposited in the amount of $2. G. MARIA ANGELITA PASCUAL. JR. the negligence of petitioner's personnel was the proximate cause of the loss that petitioner sustained.500. National Capital Judicial Region. Wells Fargo Bank International handled the clearing of checks drawn against U. Branch CLX (160). in Civil Case No. 1984 the word "hold" was written beside the balance of $109. policy and precedent. 1984. Proximate cause.nêt WHEREFORE. and without which the result would not have occurred.

Upon discovery of the loss of its funds. i. On the duplicate copy was written the account number of her husband but the name of the account holder was left blank. in truth and in fact. and were instead deposited to the account of one Bienvenido Cotas. would. After validation. From May 5. 1976. allegedly due to the gross and inexcusable negligence of the petitioner bank. 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. In some instances. The second copy was kept by Irene Yabut allegedly for record purposes. Azucena Mabayad. She would accomplish two (2) copies of the deposit slip. 53-01980-3. The deposit slip has an upper portion or stub. the lower portion is retained by the bank. With the daily remittance records also prepared by Ms. however. Irene Yabut. it filed a collection suit before the Regional Trial Court of Pasig. No. on all occasions. however. but as its demand went unheeded.A. RMC maintained two (2) separate current accounts. it had never been the practice of Romeo Lipana to check these monthly statements of account reposing complete trust and confidence on petitioner bank. Bienvenido Cotas who likewise maintains an account with the same bank. and make it appear to be RMC's account number. 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. she made her company believe that all the while the amounts she deposited were being credited to its account when. to recover from the former Philippine Bank of Commerce (PBC for brevity). Irene Yabut's modus operandi is far from complicated. the deposit slips are prepared in duplicate by the depositor. current account deposits are accepted by the bank on the basis of deposit slips prepared and signed by the depositor.74 representing various deposits it had made in its current account with said bank but which were not credited to its account. while the duplicate copy is returned or given to the depositor. represented by its President and General Manager Romeo Lipana. Branch 160. 53-01734-7 of Yabut's husband.74 to his secretary. which is detached and given to the depositor or his agent. now absorbed by the Philippine Commercial International Bank. This went on in a span of more than one (1) year without private respondent's knowledge. During this period. an original and a duplicate. and the amount of the deposit either in cash or checks.e. the date of the deposit. The original showed the name of her husband as depositor and his current account number. however. petitioner Romeo Lipana claims to have entrusted RMC funds in the form of cash totalling P304. for the purpose of depositing said funds in the current accounts of RMC with PBC. been regularly furnishing private respondent with monthly statements showing its current accounts balances. which is that of her husband's.. PBC's teller. that these deposits. they were being deposited by her and credited by the petitioner bank in the account of Cotas. C. The trial court found petitioner bank negligent and ruled as follows: . RMC demanded from petitioner bank the return of its money. It turned out. the sum of P304. were not credited to RMC's account but were instead deposited to Account No. who indicates therein the current account number to which the deposit is to be credited. 53-01980-3 and 53-01748-7. Unfortunately.979.979. The original of the deposit slip is retained by the bank. petitioner bank had. or the latter's agent or representative. with the Pasig Branch of PBC in connection with its business of selling appliances.Corporation (RMC for brevity). Yabut and submitted to private respondent RMC together with the validated duplicate slips with the latter's name and account number. In the ordinary and usual course of banking operations. however. 1975 to July 16. the name of the depositor or current account holder. Current Account Nos.

3.979. Costs.979. 4 The petition has no merit. P25. now absorbed by defendant Philippine Commercial & Industrial Bank.000. the main issue posited before us is: What is the proximate cause of the loss. the decision appealed from herein is MODIFIED in the sense that the awards of exemplary damages and attorney's fees specified therein are eliminated and instead. and defendant Azucena Mabayad to pay the plaintiff. The sum of P304. representing plaintiffs lost deposit. as and for attorney's fees.979. Simply put. 5 According to them. 2) The failure of respondent Rommel Marketing Corporation to cross-check the bank's statements of account with its own records during the entire period of more than one (1) year is the proximate cause of the commission of subsequent frauds and misappropriation committed by Ms. in addition to the principal sum of P304. 2. this petition anchored on the following grounds: 1) The proximate cause of the loss is the negligence of respondent Rommel Marketing Corporation and Romeo Lipana in entrusting cash to a dishonest employee. Irene Yabut.00 attorney's fees and costs in the lower court as well as in this Court. and not as records of deposits she made with the bank. jointly and severally. Irene Yabut. as exemplary damages. and without prejudice to any criminal action which may be instituted if found warranted: 1. 3) The duplicate copies of the deposit slips presented by respondent Rommel Marketing Corporation are falsified and are not proof that the amounts appearing thereon were deposited to respondent Rommel Marketing Corporation's account with the bank. 4) The duplicate copies of the deposit slips were used by Ms.74 representing plaintiff's lost deposit plus legal interest thereon from the filing of the complaint. A sum equivalent to 14% thereof. 2 On appeal.74. viz: WHEREFORE. plus interest thereon at the legal rate from the filing of the complaint. A sum equivalent to 25% of the total amount due. suffered by the private respondent RMC — petitioner bank's negligence or that of private respondent's? Petitioners submit that the proximate cause of the loss is the negligence of respondent RMC and Romeo Lipana in entrusting cash to a dishonest employee in the person of Ms. 3 Hence. it was impossible for the bank to know that the money deposited .72. and 4. the appellate court affirmed the foregoing decision with modifications. to the tune of P304. Irene Yabut to cover up her fraudulent acts against respondent Rommel Marketing Corporation. appellants are ordered to pay plaintiff. WHEREFORE. judgment is hereby rendered sentencing defendant Philippine Bank of Commerce. Defendants' counterclaim is hereby dismissed for lack of merit.

Negligence is the omission to do something which a reasonable man. (b) fault or negligence of the defendant. original or duplicate. neither was the bank forewarned by RMC that Yabut will be depositing cash to its account. Irene Yabut the opportunity to defraud RMC.74. notwithstanding the fact that one of the deposit slips was not completely accomplished. Ms. as testified to by Ms. The law considers what would be reckless. Yabut. Thus.by Ms. The seventy-eight (78)-year- old. For the bank to inquire into the ownership of the cash deposited by Ms. was negligent in validating. will you please tell us Mrs. is obliged to pay for the damage done. There are three elements of a quasi-delict: (a) damages suffered by the plaintiff. it appears that the bank's teller. officially stamping and signing all the deposit slips prepared and presented by Ms. as teller of PCIB. is called a quasi-delict and is governed by the provisions of this Chapter. We sustain the private respondent. both original and duplicate.979. It is in ascribing fault or negligence which caused the damage where the parties point to each other as the culprit. 2176. 7 In the case at bench. or the doing of something which a prudent and reasonable man would do. also maintained an account with the bank. Azucena Mabayad. guided by those considerations which ordinarily regulate the conduct of human affairs. 8 provides the test by which to determine the existence of negligence in a particular case which may be stated as follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not. Irene Yabut belong to RMC. Our law on quasi-delicts states: Art. thru its teller Ms. or some other person for whose acts he must respond. there being fault or negligence. then he is guilty of negligence. Azucena Mabayad. presented by Ms. Pasig Branch. in validating the deposit slips. case of Picart v. The existence of negligence in a given case is not determined by reference to the personal judgment of the actor in the situation before him. Mabayad your important duties and functions? . would do. it was impossible for the bank to know the fraudulent design of Yabut considering that her husband. Mabayad. if there is no pre-existing contractual relation between the parties. or negligent in the man of ordinary intelligence and prudence and determines liability by that. The law here in effect adopts the standard supposed to be supplied by the imaginary conduct of the discreet paterfamilias of the Roman law. 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. yet still relevant. Applying the above test. 6 Private respondent. Whoever by act or omission causes damage to another. maintains that the proximate cause of the loss was the negligent act of the bank. Bienvenido Cotas. Otherwise stated. Yabut to Ms. thus: Q: Now. Irene Yabut would be irregular. there is no dispute as to the damage suffered by the private respondent (plaintiff in the trial court) RMC in the amount of P304. blameworthy. on the other hand. Mabayad herself. Such fault or negligence. Smith. it was RMC's negligence in entrusting cash to a dishonest employee which provided Ms. and (c) the connection of cause and effect between the fault or negligence of the defendant and the damages incurred by the plaintiff.

Q: Now is the depositor's stub which you issued to your clients validated? A: Yes. In a deposit slip. and you can detach the bank's copy from the depositor's stub by tearing it sir. Q: Now in the handling of current account deposits of bank clients. The odd circumstance alone that such duplicate copy lacked one vital information — that of the name of the account holder — should have already put Ms. Q: And who prepares the deposit slip? A: The depositor or the authorized representative sir? Q: Where does the depositor's stub comes (sic) from Mrs. Q: Now in accomplishing current account deposits from your clients. the amount and then he signs the deposit slip. and the check number. sir. the account number. how many deposit slips do you normally require in accomplishing current account deposit. Mabayad? A: The bank requires only one copy of the deposit although some of our clients prepare the deposit slip in duplicate. is it with the deposit slip? A: The depositor's stub is connected with the deposit slip or the bank's copy. A: I accept current and savings deposits from depositors and encashments. Rather than readily validating the incomplete duplicate copy. Q: Now what do you do upon presentment of the deposit slip by the depositor or the depositor's authorized representative? A: We see to it that the deposit slip 9 is properly accomplished and then we count the money and then we tally it with the deposit slip sir. Q: Now. 10 [Emphasis ours] Clearly. if it is deposited for cash. Mabayad on guard. she should have proceeded more . the cash breakdown. the upper portion is the depositor's stub and the lower portion is the bank's copy. Mrs. Mabayad. what do you issue to the depositor to evidence the deposit made? A: We issue or we give to the clients the depositor's stub as a receipt of the deposit. could you tell us the procedure you follow? A: The client or depositor or the authorized representative prepares a deposit slip by filling up the deposit slip with the name. The fact that the duplicate slip was not compulsorily required by the bank in accepting deposits should not relieve the petitioner bank of responsibility. Mabayad failed to observe this very important procedure. the date. Ms.

Negligence here lies not only on the part of Ms. . Azucena Mabayad. as insisted by the petitioners. 11 A "reasonable man of ordinary prudence" 12would not have given credence to such explanation and would have insisted that the space left blank be filled up as a condition for validation. coupled by the negligence of the petitioner bank in the selection and supervision of its bank teller. Q: You did not know that any one in the bank tellers or cashiers validated the blank deposit slip? A: I am not aware of that. this is gross. This was exemplified in the testimony of Mr. 1983. Q: It is only now that you are aware of that? A: Yes. 1975 to July. Mabayad but also on the part of the bank itself in its lackadaisical selection and supervision of Ms. line and sinker the too shallow excuse of Ms. 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. he never came to know that blank deposit slips were validated in total disregard of the bank's validation procedures. Q: The teller validated the blank deposit slip? A: No it was not reported. then Manager of the Pasig Branch of the petitioner bank and now its Vice-President. Undoubtedly. Proximate cause is determined on the facts of each case upon mixed considerations of logic. sir. Irene Yabut to the effect that since the duplicate copy was only for her personal record. the fact that those deposit slips were unfilled up. to the effect that. wanton. 14 It was this negligence of Ms. Unfortunately. She should not have been so naive in accepting hook. Mabayad. this was not how bank teller Mabayad proceeded thus resulting in huge losses to the private respondent. is there any report similar to that? A: No. and inexcusable negligence in the appellant bank's supervision of its employees. or after the lapse of more than seven (7) years counted from the period when the funds in question were deposited in plaintiff's accounts (May. viz: Q: Did he ever tell you that one of your cashiers affixed the stamp mark of the bank on the deposit slips and they validated the same with the machine. cautiously by being more probing as to the true reason why the name of the account holder in the duplicate slip was left blank while that in the original was filled up. public respondent Court of Appeals aptly observed: xxx xxx xxx It was in fact only when he testified in this case in February. Romeo Bonifacio. it was not the cashier but the teller. 1976) that bank manager Bonifacio admittedly became aware of the practice of his teller Mabayad of validating blank deposit slips. she would simply fill up the blank space later on. 13 Prescinding from the above. while he ordered the investigation of the incident.

Mabayad in negligently validating the incomplete duplicate copy of the deposit slip. states that where both parties are negligent. as advanced by the petitioner. immediate and efficient cause that brought about the loss claimed by plaintiff in this case. Ms. thus providing the latter with the opportunity to defraud the company." In this case. The New Civil Code provides: Art. policy and precedent. had the last clear opportunity to avert the injury incurred by its client. Even if Yabut had the fraudulent intention to misappropriate the funds entrusted to her by plaintiff. thru its teller. The latter's negligence was thus the proximate. Islands v.common sense. 17 defines proximate cause as "that cause. petitioner bank was indeed the culpable party. once again. who had the last fair chance. . 15 Vda. . . Considering the fiduciary nature of their relationship with their depositors. Medina. the degree of diligence required is more than that of a good father of a family. in essence. at times as "supervening negligence" or as "discovered peril"). under the doctrine of "last clear chance" (also referred to. 20Here. could have avoided the impending harm by the exercise of due diligence. that which is expected of a good father of a family shall be required. if the latter. . . Apropos. to wit: . . When negligence shows bad faith. is the pronouncement made by the respondent appellate court. . the provisions of articles 1171 and 2201. 1173. however. in natural and continuous sequence. de Bataclan v. assuming that private respondent RMC was negligent in entrusting cash to a dishonest employee. 19Stated differently. the rule would also mean that an antecedent negligence of a person does not preclude the recovery of damages for the supervening negligence of. 18 Furthermore. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons. and then make plaintiff believe that it was in the latter's accounts wherein she had deposited them. produces the injury. unbroken by any efficient intervening cause. and without which the result would not have occurred. Court of Appeals. paragraph 2. the one who had the last clear opportunity to avoid the impending harm and failed to do so is chargeable with the consequences thereof. which. 16 reiterated in the case of Bank of the Phil. and the failure of plaintiff to discover the same soon enough by failing to scrutinize the monthly statements of account being sent to it by appellant bank could not have prevented the fraud and misappropriation which Irene Yabut had already completed when she deposited plaintiff's money to the account of her husband instead of to the latter's accounts. absent the act of Ms. At this juncture. she would not have been able to deposit those funds in her husband's current account. of the time and of the place. had it not been for bank teller Mabayad's aforesaid gross and reckless negligence. simply by faithfully observing their self-imposed validation procedure. but the negligent act of one is appreciably later in time than that of the other. (1104a) In the case of banks. shall apply. or when it is impossible to determine whose fault or negligence should be attributed to the incident. This doctrine. or bar a defense against liability sought by another. yet it cannot be denied that the petitioner bank. it is worth to discuss the degree of diligence ought to be exercised by banks in dealing with their clients. If the law or contract does not state the diligence which is to be observed in the performance. Irene Yabut would not have the facility with which to perpetrate her fraudulent scheme with impunity.

indeed.000. . The foregoing notwithstanding. Ms. always having in mind the fiduciary nature of their relationship. Mabayad was negligent in the performance of her duties as bank teller nonetheless. Thus. the loss would not have occurred. such as the failure to duly credit him his deposits as soon as they are made. it is apparent that the petitioner bank was remiss in that duty and violated that relationship. had exercised even a little vigilance in their financial affairs. but the courts shall mitigate the damages to be awarded. In view of this. only the balance of 60% needs to be paid by the . Irene Yabut. Had it done so. the latter would have discovered the loss early on. the plaintiff may recover damages. particularly Romeo Lipana. While it is true that had private respondent checked the monthly statements of account sent by the petitioner bank to RMC. 40% of the damage awarded by the respondent appellate court. however. Yabut and bank teller Mabayad. When the plaintiff's own negligence was the immediate and proximate cause of his injury. The damage would definitely not have ballooned to such an amount if only RMC. . the immediate and proximate cause of the injury being the defendant's lack of due care. 22 in every case. to wit: . This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose as he sees fit. v.00 attorney's fees. private respondent was likewise negligent in not checking its monthly statements of account. Court of Appeals.banks are duty bound to treat the accounts of their clients with the highest degree of care. This omission by RMC amounts to contributory negligence which shall mitigate the damages that may be awarded to the private respondent 23 under Article 2179 of the New Civil Code. Inc. he cannot recover damages. Irene Yabut. The bank must record every single transaction accurately. The point is that as a business affected with public interest and because of the nature of its functions. Considering. A blunder on the part of the bank. confident that the bank will deliver it as and to whomever he directs. Petitioners nevertheless aver that the failure of respondent RMC to cross-check the bank's statements of account with its own records during the entire period of more than one (1) year is the proximate cause of the commission of subsequent frauds and misappropriation committed by Ms. the bank is under obligation to treat the accounts of its depositors with meticulous care. can cause the depositor not a little embarrassment if not financial loss and perhaps even civil and criminal litigation. that the fraud was committed in a span of more than one (1) year covering various deposits. shall be borne by private respondent RMC. except the award of P25. whether such account consists only of a few hundred pesos or of millions. down to the last centavo. we believe that the demands of substantial justice are satisfied by allocating the damage on a 60-40 ratio. it cannot be denied that. the petitioners are entitled to claim reimbursement from her for whatever they shall be ordered to pay in this case. In the case before us. This omission on the part of the private respondent does not change the fact that were it not for the wanton and reckless negligence of the petitioners' employee in validating the incomplete duplicate deposit slips presented by Ms. We do not agree. such cannot be used by the petitioners to escape liability. the company would have been alerted to the series of frauds being committed against RMC by its secretary. But if his negligence was only contributory. common human experience dictates that the same would not have been possible without any form of collusion between Ms. 21 As elucidated in Simex International (Manila). and as promptly as possible. the depositor expects the bank to treat his account with the utmost fidelity. Thus.

Irene Yabut. the appellate court's decision is AFFIRMED. In all other respects. Petitioners may recover from Ms. the decision of the respondent Court of Appeals is modified by reducing the amount of actual damages private respondent is entitled to by 40%. WHEREFORE. Azucena Mabayad the amount they would pay the private respondent. SO ORDERED. petitioners. The award of attorney's fees shall be borne exclusively by the petitioners. Proportionate costs. . Private respondent shall have recourse against Ms.