Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 171628 June 13, 2011

ARMANDO V. ALANO [Deceased], Substituted by Elena Alano-Torres,* Petitioner,

"No one can give what he does not have" (Nemo dat quod non habet).

Factual Antecedents

Petitioner Armando V. Alano and his brother, the late Agapito V. Alano, Jr., inherited from their father
a parcel of land

On June 30, 1988, petitioner executed a Special Power of Attorney5 authorizing his brother to sell
their property in Manila. From the proceeds of the sale, the brothers purchased on September 22,
1988 a residential house located at No. 60 Encarnacion St., BF Homes, Quezon City. The title of the
Quezon City property, however, was not immediately transferred to them because the duplicate and
original copies of the title were destroyed by a fire that gutted the Quezon City Hall Building.

On June 27, 1990, Agapito V. Alano, Jr. died leaving behind his wife, Lydia J. Alano (Lydia), and four
legitimate children, who adjudicated to themselves the property in Quezon City. 8 Consequently, title to
the said property was reconstituted and registered solely in the names of Lydia and her four
children. This prompted petitioner to execute an Affidavit of Adverse Claim which was annotated on
TCT No. 18990. But because of the assurance of his nieces that they would put things right, petitioner
agreed to delay the filing of a case in court.

Meanwhile, Lydia filed with the Register of Deeds of Quezon City an Affidavit of Cancellation of
Adverse Claim, which caused the cancellation of the adverse claim annotated on TCT No.
18990.14 Thereafter, by virtue of a Deed of Absolute Sale15 allegedly executed by her children in her
favor, TCT No. 18990 was cancelled and a new one, TCT No. 90388, was issued solely in her
name.16

On February 8, 1994, Slumberworld, Inc., represented by its President, Melecio A. Javier, and
Treasurer, Lydia, obtained from Maunlad Savings and Loan Association, Inc. a loan of ₱2.3 million,
secured by a Real Estate Mortgage over the property covered by TCT No. 90388.18

On April 20, 1994, petitioner filed a Complaint19 against Lydia, Melecio A. Javier, Maunlad Savings
and Loan Association, Inc. and the Register of Deeds of Quezon City before the Regional Trial Court
(RTC) of Quezon City, which was raffled to Branch 92. Petitioner sought the cancellation of TCT No.
90388, the issuance of a new title in his name for his one-half share of the Quezon City property, and
the nullification of real estate mortgage insofar as his one-half share is concerned.20

Ruling of the Regional Trial Court

On September 12, 1996, the RTC rendered its Decision23 declaring petitioner the owner of one-half of
the subject property since an implied trust exists between him and the heirs of his brother. (the tct is
cancelled and a new one is issued) The RTC, however, sustained the validity of the real estate
mortgage. According to the RTC, Maunlad Savings and Loan Association, Inc. had the right to rely on
the Torrens title as there was no reason for it to doubt the mortgagor’s ownership over the subject
property.

Ruling of the Court of Appeals

The CA found Maunlad Savings and Loan Association, Inc. to be a mortgagee in good faith since it
took the necessary precautions to ascertain the status of the property sought to be mortgaged as well
as the identity of the mortgagor by conducting an ocular inspection of the property and requiring the
submission of documents, such as the latest tax receipts and tax clearance.

Petitioner’s Arguments

Petitioner insists that Maunlad Savings and Loan Association, Inc. is not a mortgagee in good faith as
it failed to exercise due diligence in inspecting and ascertaining the status of the mortgaged property.
Petitioner calls attention to the testimony of Credit Investigator Carlos S. Mañosca, who admitted that
when he inspected the mortgaged property, he only checked the finishing of the house and the
number of rooms. Hence, he failed to see petitioner’s apartment at the back portion of the
property.37 Moreover, the fact that there was an adverse claim annotated on the previous title of the
property should have alerted Maunlad Savings and Loan Association, Inc. to conduct further
investigation to verify the ownership of the mortgaged property.

Respondent’s Arguments

As to petitioner’s allegation that there was a separate apartment at the back portion of the property,
respondent claims that this was never raised during the trial or on appeal. Respondent further claims
that Maunlad Savings and Loan Association, Inc. has no obligation to look beyond the title
considering that there was no adverse claim annotated on TCT No. 90388 covering the mortgaged
property.45 And since the mortgaged property was occupied by the mortgagor Lydia, there was also no
need for Maunlad Savings and Loan Association, Inc. to verify the extent of her possessory rights. 46

Our Ruling

Maunlad Savings and Loan Association, Inc. is not a mortgagee in good faith.

The general rule that a mortgagee need not look beyond the title does not apply to banks and other
financial institutions as greater care and due diligence is required of them. 48 Imbued with public
interest, they "are expected to be more cautious than ordinary individuals."49 Thus, before approving a
loan, the standard practice for banks and other financial institutions is to conduct an ocular inspection
of the property offered to be mortgaged and verify the genuineness of the title to determine the real
owner or owners thereof.50 Failure to do so makes them mortgagees in bad faith.

while the credit investigator conducted an ocular inspection of the property as well as a "neighborhood
checking" and found the subject property occupied by the mortgagor Lydia and her children, 53 he,
however, failed to ascertain whether the property was occupied by persons other than the mortgagor.
Had he done so, he would have discovered that the subject property is co-owned by petitioner and
the heirs of his brother. Since Maunlad Savings and Loan Association, Inc. was remiss in its duty in
ascertaining the status of the property to be mortgaged and verifying the ownership thereof, it is
deemed a mortgagee in bad faith.

Consequently, the real estate mortgage executed in its favor is valid only insofar as the share of the
mortgagor Lydia in the subject property.

G.R. No. 160843 July 11, 2006

CHINA BANKING CORPORATION, petitioner,

Sometime in 1981, Jao asked for credit accommodation from petitioner for P300,000 to be secured by
a parcel of land under TCT No. T-30817 in Mariveles Street, Quezon City. The land was in the name
of Maria Lagon. Jao represented that he had a special power of attorney, which he used previously to
mortgage the same property to Metropolitan Bank and Trust Company (Metrobank). He proposed that
the proceeds of the loan be used to pay P83,496.21 to Metrobank. Petitioner paid the Metrobank loan
and the mortgage in favor of Metrobank was cancelled.

Subsequently, petitioner granted Jao a loan line of P1,000,000, secured by a mortgage on the lot
covered by TCT No. T-30817. He first borrowed P300,000. Under the same loan line, Jao availed of
four additional loans, P300,000 on June 22, 1983; P500,000 on June 22, 1983; P50,000 on
September 5, 1983; and P50,000 on December 12, 1983. The proceeds of the loan were applied to
the obligations of respondent Maria with the Rural Bank of Ilagan, Inc. and of Jao with the Vizcaya
Savings and Loan Association, Inc. The latter was secured by mortgages over the lots covered by
TCT Nos. T-56875 and T-11593, both owned by Maria.

On July 28, 1983, the property under TCT No. T-30817 was substituted with three parcels of land
covered by TCT Nos. T-56875 and T-11593 and OCT No. P-1228, the herein contested three parcels.
Jao presented two special powers of attorney to mortgage the three parcels of land.

The loans of Maria and Jao matured but were unpaid. Thus, petitioner CBC prepared petitions for
extra-judicial foreclosure of the mortgaged properties, naming Maria and Jao as defendants.
However, no foreclosure took place because the Regional Trial Court of Bayombong, Nueva Vizcaya,
Branch 27, upon filing of the Lagons, issued a temporary restraining order preventing the holding of
the auction sale.4

Meanwhile, Jao died while the cases were still on trial before Branch. Respondent Maria Lagon died
in 1995.

On April 3, 1998, Branch 27 dismissed the complaints finding that there was sufficient evidence that
the signatures were authentic. The trial court ruled as follows:

WHEREFORE, judgment is hereby rendered in favor of defendants China Banking

Corporation (CBC) and Jao Bio Tong ordering:

On appeal, the Court of Appeals on August 21, 2003, reversed and set aside the decision of the trial
court and declared the special powers of attorney and the real estate mortgages null and void. The
Court of Appeals held that Jao and petitioner failed to establish the due execution and authenticity of
the special powers of attorney because Jao admitted that these were notarized without the
personal appearance of respondent before the notary public.

Are the real estate mortgages executed by Jao valid? (no because not notarized in the presence of
maria lagon and that the bank is not considered as a mortgagee in good faith because despite having
knowledge that maria wasin US, the bank did not question the due execution of the SPA)

Moreover, according to petitioner, respondent clothed Jao with apparent authority as her agent,
hence, she cannot now be permitted to deny the authority of Jao to the prejudice of innocent third
parties. In addition, petitioner points out that respondent is estopped from questioning the validity of
the mortgages because the loans were used to pay the obligation of Maria Lagon with other banks.

Respondent's representatives counter that Atty. Pagui was a biased witness because he was hired by
petitioner as a practicing private document examiner. Significantly, they point out that respondent
Maria was in the United States at the time the SPAs were allegedly signed before the notary public in
Nueva Vizcaya. They conclude that the irregularity in the notarization shows that the SPAs were
spurious and the respondent's signatures were forgeries.

Respondent's representatives also add that contrary to the claim that Maria benefited from the loan,
Maria's estate ended up more heavily burdened since only a small portion of the loan obtained by Jao
were applied to Maria's obligations. Therefore, Maria's representatives should not be estopped from
questioning the mortgages.

In his testimony, Jao admitted that the SPAs were not signed in the presence of the notary public, but
pre-signed by respondent in the United States. Likewise, respondent neither appeared personally
before the notary public nor acknowledged to him that the instrument was her own free and voluntary
act and deed, contrary to what appears in the SPAs' acknowledgement. Patently then, the
notarization was irregular and could not be given probative value.

In this case, resort to handwriting experts would not benefit either of the parties, considering the
conflicting testimonies of the expert witnesses and as earlier mentioned the fact that the notarial
requirements had not been met.

We are also not persuaded by petitioner's argument that respondent benefited from the loan.
Assuming that indeed part of the loan was used to pay for Maria's own loan, still the incontrovertible
fact remains that the SPAs were spurious and the mortgage unauthorized.

Moreover, petitioner could not be considered a mortgagee in good faith. It had knowledge that
respondent was in the United States at the time the SPAs were allegedly executed, yet, it did not
question their due execution. Though petitioner is not expected to conduct an exhaustive investigation
on the history of the mortgagor's title, it cannot be excused from the duty of exercising the due
diligence required of a banking institution.14 Banks are expected to exercise more care and prudence
than private individuals in their dealings, even those that involve registered lands, for their business is
affected with public interest.15

SPOUSES EMILIANO L. JALBAY, SR. AND MAMERTA C. JALBAY, Petitioners, v. PHILIPPINE

NATIONAL BANK, Respondent.

The subject property is a 257-square-meter lot at Del-Nacia Ville No. 4, Sauyo Road, Novaliches,
Quezon City registered under the names of the Spouses Jalbay. On June 11, 1988, the Transfer
Certificate of Title (TCT) covering said property was destroyed when the Office of the Quezon City
Register of Deeds was gutted by fire. Upon reconstitution, the title was issued in the name of
“Emiliano Jalbay, married to Mamerta C. Jalbay,” (sps jalbay) and because the Spouses Jalbay were
then working and residing abroad, the title was released to their daughter, Virginia Agus.

Sometime in 1993, Virginia and her husband, Danilo Agus (the Spouses Agus), applied for a loan with
PNB, Ermita Branch, in order to acquire additional funds for their garments business operating under
the name of VJA Garments. As a security, the Spouses Agus constituted a real estate mortgage over
the subject lot, which they represented as being owned by siblings Emiliano Jalbay, Jr., and Teresita
Jalbay-Cinco. The aforesaid borrowers, however, failed to settle their loan obligation. As a result,
PNB foreclosed the mortgage over the property. It likewise emerged as the highest bidder at the
public auction.

Subsequently, during a short vacation in the country, the Spouses Jalbay learned about the mortgage
and foreclosure of their property. Contending that the real estate mortgage and the proceedings for
its foreclosure were invalid for lack of consent of the real registered owners, the Spouses Jalbay filed
a complaint against PNB before the Quezon City RTC.

On April 3, 2003, the RTC declared the assailed real estate mortgage as null and void and the
foreclosure proceedings without force and effect.

Aggrieved, PNB and the Spouses Agus appealed the case before the CA for the reversal of the RTC
ruling. the appellate court reversed and set aside the decision of the RTC

The Spouses Jalbay thus filed a Motion for Reconsideration but the same was denied. Hence, the
instant petition.
The Spouses Jalbay mainly posit that PNB did not act with the requisite diligence when it approved
the loan application of the Spouses Agus. They claim that the RTC was correct in finding that PNB
was not a mortgagee in good faith, making the mortgage constituted on the subject lot null and void.

The petition lacks merit.

PNB exerted the necessary diligence in granting the loan and entering into the assailed real estate
mortgage. Not only did it require Emiliano, Jr., Cinco, and the Spouses Agus to submit their biodata,
duly accomplished loan application and the TCT covering the mortgaged lot, it likewise caused the
subject property to be inspected and appraised, and conducted a thorough credit investigation on the
persons of the borrowers.

True, banks, in handling real estate transactions, are required to exert a higher degree of diligence,
care, and prudence than individuals. Unlike private individuals, it is expected to exercise greater care
and prudence in its dealings, including those involving registered lands. A banking institution is
expected to exercise due diligence before entering into a mortgage contract. Indeed, there is a
situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his
title being fraudulent, the mortgage contract and any foreclosure sale arising therefrom are given
effect by reason of public policy.

This is the doctrine of "the mortgagee in good faith," wherein buyers or mortgagees dealing with
property covered by a Torrens Certificate of Title are no longer required to go beyond what appears
on the face of the title. However, the rule that persons dealing with registered lands can rely solely on
the certificate of title is not applicable to banks. Thus, before approving a loan application, it is a
standard operating practice for these institutions to conduct an ocular inspection of the property
offered for mortgage and to verify the veracity of the title to determine its real owners. An ocular
inspection is necessary to protect the true owner of the property as well as innocent third parties with
a right, interest or claim thereon from a usurper who may have acquired a fraudulent certificate of title.

Here, the Court finds that PNB has complied with the required degree of diligence, prudence, and
care in dealing with the mortgagor. There was also no sign or circumstance which could have
possibly triggered suspicion on the bank’s part. Aside from the fact that the certificate of title to the
subject lot is authentic and issued in the name of Emiliano Jalbay, he also appeared to have been the
one occupying said property. Hence, there is no compelling reason to depart from the assailed
rulings of the appellate court.

G.R. No. 146918 May 2, 2006

CITIBANK, N.A., Petitioner,

The factual background of the case is as follows:

spouses Luis and Carmelita Cabamongan opened a joint "and/or" foreign currency time deposit in trust for
their sons Luis, Jr. and Lito at the Citibank in the amount of $55,216.69 for a term of 182 days. Prior to
maturity, a person claiming to be Carmelita went to the Makati branch and pre-terminated the said foreign
currency time deposit by presenting a passport, a Bank of America Versatele Card, an ATM card and a
Mabuhay Credit Card. She was casually interviewed by San Pedro about her personal circumstances and
investment plans. Since the said person failed to surrender the original Certificate of Deposit, she had to
execute a notarized release and waiver document in favor of Citibank, pursuant to Citibank's internal
procedure, before the money was released to her. The release and waiver document was not notarized on
that same day but the money was nonetheless given to the person withdrawing. The transaction lasted for
about 40 minutes.

After said person left, San Pedro realized that she left behind an identification card. Thus, San Pedro called up
Carmelita's listed address on the same day to have the card picked up. Marites, the wife of Lito, received San
Pedro's call. Marites made an overseas call to Carmelita to inform her about what happened. The Cabamongan
spouses were shocked at the news. It seems that sometime between June 10 and 16, 1993, an unidentified
person broke in at the couple's residence at California. Initially, they reported that only Carmelita's jewelry box
was missing, but later on, they discovered that other items, such as their passports, bank deposit certificates,
including the subject foreign currency deposit, and identification cards were also missing. It was only then that
the Cabamongan spouses realized that their passports and bank deposit certificates were lost.

the Cabamongan spouses, through counsel, made a formal demand upon Citibank for payment of their
preterminated deposit in the amount of $55,216.69 with legal interests.

Citibank, through counsel, refused the Cabamongan spouses' demand for payment, asserting that the subject
deposit was released to Carmelita upon proper identification and verification.

the Cabamongan spouses filed a complaint against Citibank before the Regional Trial Court

In its Answer dated April 20, 1995, Citibank insists that it was not negligent of its duties since the subject
deposit was released to Carmelita only upon proper identification and verification.

The Cabamongan spouses, in essence, testified that Carmelita could not have preterminated the deposit
account since she was in California at the time of the incident. Negre testified that an examination of the
questioned signature and the samples of the standard signatures of Carmelita submitted in the RTC showed a
significant divergence. She concluded that they were not written by one and the same person.

For the respondent, Citibank presented San Pedro and Cris Cabalatungan, Vice-President and In-Charge of
Security and Management Division. Both San Pedro and Cabalatungan testified that proper bank procedure
was followed and the deposit was released to Carmelita only upon proper identification and verification.

RTC rendered a decision in favor of the Cabamongan spouses

The RTC reasoned that:

The forgery of the signatures of plaintiff Carmelita Cabamongan on the questioned documents has been
categorically established by the handwriting expert. xxx Defendant bank was clearly remiss in its duty and
obligations to treat plaintiff's account with the highest degree of care, considering the nature of their
relationship. Banks are under the obligation to treat the accounts of their depositors with meticulous care.

Despite the favorable decision, the Cabamongan spouses filed on October 1, 1997 a motion to partially
reconsider the decision by praying for an increase of the amount of the damages awarded. Citibank opposed
the motion.27 On November 19, 1997, the RTC granted the motion for partial reconsideration
Dissatisfied, Citibank filed an appeal with the CA. The CA rendered a decision sustaining the finding of the RTC
that Citibank was negligent, ratiocinating in this wise:

In the instant case, it is beyond dispute that the subject foreign currency deposit was pre-terminated while
cabamongan was in the U.S.

Defendant Citibank, N.A., however, insists that Carmelita was the one who pre-terminated the deposit despite
claims to the contrary. Its basis for saying so is the fact that the person who made the transaction on the
incident mentioned presented a valid passport and three (3) other identification cards. The attending account
officer examined these documents and even interviewed said person. She was satisfied that the person
presenting the documents was indeed Carmelita Cabamongan. However, such conclusion is belied by these
following circumstances.

First, the said person did not present the certificate of deposit issued to Carmelita Cabamongan. This would
not have been an insurmountable obstacle as the bank, in the absence of such certificate, allows the
termination of the deposit for as long as the depositor executes a notarized release and waiver document in
favor of the bank. However, this simple procedure was not followed by the bank, as it terminated the deposit
and actually delivered the money to the impostor without having the said document notarized on the flimsy
excuse that another department of the bank was in charge of notarization.

Second, in the internal memorandum of Account Officer Yeye San Pedro regarding the incident, she reported
that upon comparing the authentic signatures of Carmelita Cabamongan on file with the bank with the
signatures made by the person claiming to be Cabamongan on the documents required for the termination of
the deposit, she noticed that one letter in the latter [sic] signatures was different from that in the standard
signatures. Again, the bank's negligence is patent. San Pedro was able to detect discrepancies in the signatures
but she did not exercise additional precautions to ascertain the identity of the person she was dealing with. In
fact, the entire transaction took only 40 minutes to complete despite the anomalous situation.

Third, as the bank had on file pictures of its depositors, it is inconceivable how bank employees could have
been duped by an impostor. San Pedro admitted in her testimony that the woman she dealt with did not
resemble the pictures appearing on the identification cards presented but San Pedro still went on with the
sensitive transaction. She did not mind such disturbing anomaly because she was convinced of the validity of
the passport. She also considered as decisive the fact that the impostor had a mole on her face in the same
way that the person in the pictures on the identification cards had a mole.

Citibank poses the following errors for resolution:

1. THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND GRAVELY ABUSED ITS DISCRETION IN
UPHOLDING THE LOWER COURT'S DECISION WHICH IS NOT BASED ON CLEAR EVIDENCE BUT ON GRAVE
MISAPPREHENSION OF FACTS.

Anent the first ground, Citibank contends that the CA erred in affirming the RTC's finding that it was
negligent since the said courts failed to appreciate the extra diligence of a good father of a family exercised
by Citibank thru San Pedro.

Subsequently, Citibank, thru a new counsel, submitted a Supplemental Memorandum,38 wherein it posits
that, assuming that it was negligent, the Cabamongan spouses were guilty of contributory negligence since
they failed to notify Citibank that they had migrated to the United States and were residents thereat and after
having been victims of a burglary, they should have immediately assessed their loss and informed Citibank of
the disappearance of the bank certificate, their passports and other identification cards, then the fraud would
not have been perpetuated and the losses avoided. It further argues that since the Cabamongan spouses are
guilty of contributory negligence, the doctrine of last clear chance is inapplicable.

Citibank's assertion that the Cabamongan spouses are guilty of contributory negligence and non-application of
the doctrine of last clear chance cannot pass muster since these contentions were raised for the first time only
in their Supplemental Memorandum.

The Court has repeatedly emphasized that, since the banking business is impressed with public interest, of
paramount importance thereto is the trust and confidence of the public in general. Consequently, the
highest degree of diligence is expected, and high standards of integrity and performance are even required, of
it. By the nature of its functions, a bank is "under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship."

In this case, it has been sufficiently shown that the signatures of Carmelita in the forms for pretermination of
deposits are forgeries. Its negligence consisted in the omission of that degree of diligence required of banks.
The Court has held that a bank is "bound to know the signatures of its customers; and if it pays a forged check,
it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount
so paid to the account of the depositor whose name was forged." Such principle equally applies here.

Citibank cannot label its negligence as mere mistake or human error. Banks handle daily transactions involving
millions of pesos. By the very nature of their works the degree of responsibility, care and trustworthiness
expected of their employees and officials is far greater than those of ordinary clerks and employees. Banks are
expected to exercise the highest degree of diligence in the selection and supervision of their employees.

For not observing the degree of diligence required of banking institutions, whose business is impressed with
public interest, Citibank is liable for damages.

BPI FAMILY SAVINGS BANK, INC., petitioner,

The facts as found by the trial court and affirmed by the Court of Appeals are as follows:

FMIC, an investment, through its Executive Vice President Antonio Ong, opened current account and deposited
a check amounting to ₱100 million with BPI Family Bank* (BPI FB). Ong made the deposit upon request of his
friend, Ador de Asis, a close acquaintance of Jaime Sebastian, then Branch Manager of BPI FB San Francisco del
Monte Branch. Sebastian’s aim was to increase the deposit level in his Branch.

BPI FB, through Sebastian, guaranteed the payment of ₱14,667,687.01 representing 17% per annum interest
of ₱100 million deposited by FMIC. The latter, in turn, assured BPI FB that it will maintain its deposit of ₱100
million for a period of one year on condition that the interest of 17% per annum is paid in advance.

Subsequently, BPI FB paid FMIC 17% interest or ₱14,667,687.01 upon clearance of the latter’s check deposit.

However, on August 29, 1989, on the basis of an Authority to Debit signed by Ong and Ma. Theresa David,
Senior Manager of FMIC, BPI FB transferred ₱80 million from FMIC’s current account to the savings account of
Tevesteco Arrastre – Stevedoring, Inc. (Tevesteco).
FMIC denied having authorized the transfer of its funds to Tevesteco, claiming that the signatures of Ong and
David were falsified. In order to recover immediately its deposit, FMCI issued a check payable to itself and
drawn on its deposit but was dishonored upon upon presentation for payment. (DAIF)

Consequently, FMIC filed with the Regional Trial Court against BPI to recover his deposit plus interest

"Premises considered, judgment is rendered in favor of plaintiff, ordering defendant to pay:

a. the amount of ₱80 million with interest at the legal rate from the time this complaint was filed less
₱14,667,678.01;

On appeal by both parties, the Court of Appeals rendered a Decision affirming the assailed Decision with
modification, thus: (It only modified which means BPI still has to pay, therefore it appealed the decision even if
the amount to be paid was lowered by the CA)

Issue: Whether petitioner was remiss in its fiduciary duty.

Yes

Going back to the unauthorized transfer of respondent’s funds to Tevesteco, in its attempt to evade any
liability therefor, petitioner now impugns the validity of the subject agreement on the ground that its Branch
Manager, Jaime Sebastian, overstepped the limits of his authority in accepting respondent’s deposit with 17%
interest per annum. We have held that if a corporation knowingly permits its officer, or any other agent, to
perform acts within the scope of an apparent authority, holding him out to the public as possessing power to
do those acts, the corporation will, as against any person who has dealt in good faith with the corporation
through such agent, be estopped from denying such authority.5 We reiterated this doctrine in Prudential Bank
vs. Court of Appeals,6 thus:

"A bank holding out its officers and agent as worthy of confidence will not be permitted to profit by the frauds
they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to
shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom. Accordingly,
a banking corporation is liable to innocent third persons where the representation is made in the course of its
business by an agent acting within the general scope of his authority even though the agent is secretly abusing
his authority and attempting to perpetrate a fraud upon his principal or some other person for his own
ultimate benefit."

Petitioner maintains that respondent should have first inquired whether the deposit of ₱100 Million and the
fixing of the interest rate were pursuant to its (petitioner’s) internal procedures. Petitioner’s stance is a futile
attempt to evade an obligation clearly established by the intent of the parties. What transpires in the
corporate board room is entirely an internal matter. Hence, petitioner may not impute negligence on the part
of respondent’s representative in failing to find out the scope of authority of petitioner’s Branch Manager.
Indeed, the public has the right to rely on the trustworthiness of bank managers and their acts. Obviously,
confidence in the banking system, which necessarily includes reliance on bank managers, is vital in the
economic life of our society.

Petitioner failed to exercise that degree of diligence required by the nature of its obligations to its depositors.
A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such account
consists only of a few hundred pesos or of million of pesos. Here, petitioner cannot claim it exercised such a
degree of care required of it and must, therefore, bear the consequence.

VICENTE GO, Petitioner,

vs.

METROPOLITAN BANK AND TRUST CO., Respondent.

In both cases, petitioner alleged that he was doing business under the name "Hope Pharmacy" which sells
medicine and other pharmaceutical products in the City of Cebu. Petitioner had in his employ Chua as his
pharmacist and trustee or caretaker of the business; Tabañag, on the other hand, took care of the receipts and
invoices and assisted Chua in making deposits for petitioner’s accounts in the business operations of Hope
Pharmacy.

1st case: petitioner claimed that there were unauthorized deposits and encashments made by Chua and
Tabañag in the total amount of One Hundred Nine Thousand Four Hundred Thirty-three Pesos and Thirty
Centavos (₱109,433.30). He questioned particularly the following:

2 Deposits were made in the metrobank account of chua and 1 encashment by tabanag.

2nd case: petitioner averred that there were thirty-two (32) checks with Hope Pharmacy as payee, for varying
sums, amounting to One Million Four Hundred Ninety-Two Thousand Five Hundred Ninety-Five Pesos and Six
Centavos (₱1,492,595.06), that were not endorsed by him but were deposited under the personal account of
Chua with respondent bank

Petitioner claimed that the said checks were crossed checks payable to Hope Pharmacy only; and that without
the participation and connivance of respondent bank, the checks could not have been accepted for deposit to
any other account, except petitioner’s account.

Petitioner filed two separate cases before the Regional Trial Court

Against (Chua) and (Tabañag) for a sum of money with preliminary attachment.

While another case was filed by petitioner for a sum of money with damages against herein respondent
Metropolitan Bank and Trust Company (Metrobank) and Chua.

the RTC rendered a Joint Decision where it dismissed the claim against chua and tabanag

it however declared respondent bank liable for being negligent in allowing the deposit of crossed checks
without the proper indorsement. (moral damages)

In striking down the complaint of the petitioner against Chua and Tabañag in CEB-9713, the RTC made the
following findings:

(1) FEBTC Check No. 251111, dated April 29, 1990, in the amount of ₱22,635.00 payable to cash, was drawn by
Loy Libron in payment of her purchases of medicines and other drugs which Ma. Teresa Chua was selling side
by side with the medicines and drugs of the Hope Pharmacy, for which she (Maritess) was granted permission
by its owner, Mr. Vicente Chua. These medicines and drugs from Thailand were Maritess’ sideline, and were
segregated from the stocks of Hope Pharmacy; x x x.

(2) RCBC Check Nos. 294519 and 330958 were checks belonging to plaintiff Vicente Go payable to cash x x x;
these checks were replacements of the sums earlier advanced by Ma. Teresa Chua, but which were deposited
in the account of Vicente Go with RCBC, as shown by the deposit slips x x x, and confirmed by the statement of
account of Vicente Go with RCBC.

(3) Check No. PCIB 005374 drawn by Elizabeth Enriquez payable to Hope Pharmacy/Cash in the amount of
₱6,798.30 dated September 6, 1990, was admittedly encashed by the defendant, Glyndah Tabañag. As per
instruction by Vicente Go, Glyndah requested the drawer to insert the word "Cash," so that she could encash
the same with PCIB, to meet the Hope Pharmacy’s overdraft.

Petitioner filed an appeal before the CA.

the decision of the lower court is hereby AFFIRMED.

The Issue

Petitioner presented this sole issue for resolution:

The Court of Appeals Erred In Not Holding Metrobank Liable For Allowing The Deposit, Of Crossed Checks
Which Were Issued In Favor Of And Payable To Petitioner And Without Being Indorsed By The Petitioner, To
The Account Of Maria Teresa Chua.

The Ruling of the Court

A check is a bill of exchange drawn on a bank payable on demand.17 There are different kinds of checks. In this
case, crossed checks are the subject of the controversy. A crossed check is one where two parallel lines are
drawn across its face or across the corner thereof. It may be crossed generally or specially.18

A check is crossed specially when the name of a particular banker or a company is written between the parallel
lines drawn. It is crossed generally when only the words "and company" are written or nothing is written at all
between the parallel lines, as in this case. It may be issued so that presentment can be made only by a bank.

In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check
has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may
be negotiated only once — to one who has an account with a bank; and (c) the act of crossing the check serves
as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has
received the check pursuant to that purpose, otherwise, he is not a holder in due course.

The Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper left
hand corner means that it could only be deposited and not converted into cash.

In the instant case, there is no dispute that the subject 32 checks with the total amount of ₱1,492,595.06 were
crossed checks with petitioner as the named payee.

It is the submission of petitioner that respondent bank should be held accountable for the entire amount of
the checks because it accepted the checks for deposit under Chua’s account despite the fact that the checks
were crossed and that the payee named therein was not Chua.

In its defense, respondent bank countered that petitioner is not entitled to reimbursement of the total sum of
₱1,492,595.06 from either Maria Teresa Chua or respondent bank because petitioner was not damaged
thereby.
Respondent bank’s contention is meritorious. Respondent bank should not be held liable for the entire
amount of the checks considering that, as found by the RTC and affirmed by the CA, the checks were actually
given to Chua as payments by petitioner for loans obtained from the parents of Chua. Furthermore,
petitioner’s non-inclusion of Chua and Tabañag in the petition before this Court is, in effect, an admission by
the petitioner that Chua, in representation of her parents, had rightful claim to the proceeds of the checks, as
payments by petitioner for money he borrowed from the parents of Chua. Therefore, petitioner suffered no
pecuniary loss in the deposit of the checks to the account of Chua. (no loss because the same was used to
pay for petitioner’s liabilities)

However, we affirm the finding of the RTC that respondent bank was negligent in permitting the deposit and
encashment of the crossed checks without the proper indorsement. An indorsement is necessary for the
proper negotiation of checks specially if the payee named therein or holder thereof is not the one depositing
or encashing it. Knowing fully well that the subject checks were crossed, that the payee was not the holder and
that the checks contained no indorsement, respondent bank should have taken reasonable steps in order to
determine the validity of the representations made by Chua. Respondent bank was amiss in its duty as an
agent of the payee. Prudence dictates that respondent bank should not have merely relied on the assurances
given by Chua.

Negligence was committed by respondent bank in accepting for deposit the crossed checks without
indorsement and in not verifying the authenticity of the negotiation of the checks. The law imposes a duty of
extraordinary diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of
determining their genuineness and regularity. As a business affected with public interest and because of the
nature of its functions, the banks are under obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of the relationship. The fact that this arrangement had been
practiced for three years without Mr. Go/Hope Pharmacy raising any objection does not detract from the duty
of the bank to exercise extraordinary diligence. Thus, the Decision of the RTC, as affirmed by the CA, holding
respondent bank liable for moral damages is sufficient to remind it of its responsibility to exercise
extraordinary diligence in the course of its business which is imbued with public interest.

G.R. No. 121413 January 29, 2001

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND AMERICA), petitioner,

The stipulated facts submitted by the parties as accepted by the Court of Appeals are as follows:

"On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check in the amount of P4,746,114.41, in
favor of the Commissioner of Internal Revenue as payment of plaintiff;s percentage or manufacturer's sales
taxes for the third quarter of 1977.

The aforesaid check was deposited with the defendant IBAA (now PCIBank) and was subsequently cleared at
the Central Bank. Upon presentment with the defendant Citibank, the proceeds of the check was paid to IBAA
as collecting or depository bank.

The proceeds of the same Citibank check of the plaintiff was never paid to or received by the payee thereof,
the Commissioner of Internal Revenue.

As a consequence, upon demand of the Bureau and/or Commissioner of Internal Revenue, the plaintiff was
compelled to make a second payment to the Bureau of Internal Revenue of its percentage/manufacturers'
sales taxes for the third quarter of 1977 and that said second payment of plaintiff in the amount of
P4,746,114.41 was duly received by the Bureau of Internal Revenue.

It is further admitted by defendant Citibank that during the time of the transactions in question, plaintiff had
been maintaining a checking account with defendant Citibank; that Citibank Check No. SN-04867 which was
drawn and issued by the plaintiff in favor of the Commissioner of Internal Revenue was a crossed check in that,
on its face were two parallel lines and written in between said lines was the phrase "Payee's Account Only";
and that defendant Citibank paid the full face value of the check in the amount of P4,746,114.41 to the
defendant IBAA.

Upon verification, plaintiff discovered that its Citibank Check No. SN-04867 in the amount of P4,746,114.41
was not paid to the Commissioner of Internal Revenue. Hence, in separate letters addressed to the
defendants, the plaintiff notified the latter that in case it will be re-assessed by the BIR for the payment of the
taxes covered by the said checks, then plaintiff shall hold the defendants liable for reimbursement of the face
value of the same. Both defendants denied liability and refused to pay.

In a letter dated February 28, 1980 by the Acting Commissioner of Internal Revenue addressed to the plaintiff -
supposed to be Exhibit "D", the latter was officially informed, among others, that its check in the amount of
P4, 746,114.41 was not paid to the government or its authorized agent and instead encashed by unauthorized
persons, hence, plaintiff has to pay the said amount within fifteen days from receipt of the letter. Upon advice
of the plaintiff's lawyers, plaintiff on March 11, 1982, paid to the Bureau of Internal Revenue, the amount of
P4,746,114.41, representing payment of plaintiff's percentage tax for the third quarter of 1977.

As a consequence of defendant's refusal to reimburse plaintiff of the payment it had made for the second time
to the BIR of its percentage taxes, plaintiff filed on January 20, 1983 its original complaint before this Court.

On December 24, 1985, defendant IBAA was merged with the Philippine Commercial International Bank (PCI
Bank) with the latter as the surviving entity.

Defendant Citibank maintains that; the payment it made of plaintiff's Citibank Check No. SN-04867 in the
amount of P4,746,114.41 "was in due course"; it merely relied on the clearing stamp of the
depository/collecting bank, the defendant IBAA that "all prior indorsements and/or lack of indorsements
guaranteed"; and the proximate cause of plaintiff's injury is the gross negligence of defendant IBAA in
indorsing the plaintiff's Citibank check in question.

On June 15, 1989, the trial court rendered its decision, as follows:

"Premises considered, judgment is hereby rendered as follows:

"1. Ordering the defendants Citibank and IBAA (now PCI Bank), jointly and severally, to pay the plaintiff the
amount of P4,746,114.41

the appellate court issued its judgment as follows:

the court AFFIRMS the appealed decision with modifications.

The court hereby renderes judgment:

1. Dismissing the complaint in Civil Case No. 49287 insofar as defendant Citibank N.A. is concerned;

2. Ordering the defendant IBAA now PCI Bank to pay the plaintiff the amount of P4,746,114.41

PCIBank seeks the reversal of the decision and resolution of the Twelfth Division of the Court of Appeals
contending that it merely acted on the instruction of Ford and such casue of action had already prescribed.
Whether Defendant PCIBank clearly failed to observe the diligence required in the selection and supervision of
its officers and employees.

II. PCI Bank is liable to petitioner Ford considering that: (with respect to PCI bank)

1. There were no instructions from petitioner Ford to deliver the proceeds of the subject check to a person
other than the payee named therein, the Commissioner of the Bureau of Internal Revenue; thus, PCIBank's
only obligation is to deliver the proceeds to the Commissioner of the Bureau of Internal Revenue.

2. PCIBank which affixed its indorsement on the subject check ("All prior indorsement and/or lack of
indorsement guaranteed"), is liable as collecting bank.

II. G.R. No. 128604

The same sysndicate apparently embezzled the proceeds of checks intended, this time, to settle Ford's
percentage taxes appertaining to the second quarter of 1978 and the first quarter of 1979.

The main issue presented for our consideration by these petitions could be simplified as follows: Has petitioner
Ford the right to recover from the collecting bank (PCIBank) and the drawee bank (Citibank) the value of the
checks intended as payment to the Commissioner of Internal Revenue?

In this case, we note that the direct perpetrators of the offense, namely the embezzlers belonging to a
syndicate, are now fugitives from justice. They have, even if temporarily, escaped liability for the
embezzlement of millions of pesos. We are thus left only with the task of determining who of the present
parties before us must bear the burden of loss of these millions. It all boils down to the question of liability
based on the degree of negligence among the parties concerned.

Foremost, we must resolve whether the injured party, Ford, is guilty of the "imputed contributory negligence"
that would defeat its claim for reimbursement, bearing in mind that its employees, Godofredo Rivera and
Alexis Marindo, were among the members of the syndicate.

Citibank points out that Ford allowed its very own employee, Godofredo Rivera, to negotiate the checks to his
co-conspirators, instead of delivering them to the designated authorized collecting bank (Metrobank-Alabang)
of the payee, CIR. Citibank bewails the fact that Ford was remiss in the supervision and control of its own
employees, inasmuch as it only discovered the syndicate's activities through the information given by the
payee of the checks after an unreasonable period of time.

PCIBank also blames Ford of negligence when it allegedly authorized Godofredo Rivera to divert the proceeds
of Citibank Check No. SN-04867, instead of using it to pay the BIR. As to the subsequent run-around of unds of
Citibank Check Nos. SN-10597 and 16508, PCIBank claims that the proximate cause of the damge to Ford lies
in its own officers and employees who carried out the fradulent schemes and the transactions. These
circumstances were not checked by other officers of the company including its comptroller or internal auditor.
PCIBank contends that the inaction of Ford despite the enormity of the amount involved was a sheer
negligence and stated that, as between two innocent persons, one of whom must suffer the consequences of a
breach of trust, the one who made it possible, by his act of negligence, must bear the loss.

It appears that although the employees of Ford initiated the transactions attributable to an organized
syndicate, in our view, their actions were not the proximate cause of encashing the checks payable to the
CIR. The degree of Ford's negligence, if any, could not be characterized as the proximate cause of the injury
to the parties.
Indeed, the crossing of the check with the phrase "Payee's Account Only," is a warning that the check should
be deposited only in the account of the CIR. Thus, it is the duty of the collecting bank PCIBank to ascertain that
the check be deposited in payee's account only. Therefore, it is the collecting bank (PCIBank) which is bound to
scruninize the check and to know its depositors before it could make the clearing indorsement "all prior
indorsements and/or lack of indorsement

The evidence on record shows that Citibank as drawee bank was likewise negligent in the performance of its
duties. Citibank failed to establish that its payment of Ford's checks were made in due course and legally in
order.

Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying the amount of
the proceeds thereof to the collecting bank of the BIR. One thing is clear from the record: the clearing
stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not bear any initials. Citibank failed to
notice and verify the absence of the clearing stamps. Had this been duly examined, the switching of the
worthless checks to Citibank Check Nos. 10597 and 16508 would have been discovered in time. For this
reason, Citibank had indeed failed to perform what was incumbent upon it, which is to ensure that the amount
of the checks should be paid only to its designated payee.

A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds
these officers or agents were enabled to perpetrate in the apparent course of their employment; nor will t be
permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom.
For the general rule is that a bank is liable for the fraudulent acts or representations of an officer or agent
acting within the course and apparent scope of his employment or authority.29 And if an officer or employee
of a bank, in his official capacity, receives money to satisfy an evidence of indebetedness lodged with his bank
for collection, the bank is liable for his misappropriation of such sum.30

Thus, invoking the doctrine of comparative negligence, we are of the view that both PCIBank and Citibank
failed in their respective obligations and both were negligent in the selection and supervision of their
employees resulting in the encashment of Citibank Check Nos. SN 10597 AND 16508. Thus, we are constrained
to hold them equally liable for the loss of the proceeds of said checks issued by Ford in favor of the CIR.

Time and again, we have stressed that banking business is so impressed with public interest where the trust
and confidence of the public in general is of paramount importance such that the appropriate standard of
diligence must be very high, if not the highest, degree of diligence.34 A bank's liability as obligor is not
merely vicarious but primary, wherein the defense of exercise of due diligence in the selection and
supervision of its employees is of no moment.

Banks handle daily transactions involving millions of pesos. By the very nature of their work the degree of
responsibility, care and trustworthiness expected of their employees and officials is far greater than those of
ordinary clerks and employees. Banks are expected to exercise the highest degree of diligence in the selection
and supervision of their employees.

FIRESTONE TIRE & RUBBER COMPANY OF THE PHILIPPINES, petitioner,

. . . [D]efendant (Luzon development bank) is a banking corporation. Said defendant had as one of its client-
depositors the Fojas-Arca Enterprises Company ("Fojas-Arca" for brevity). Fojas-Arca maintaining a special
savings account with the defendant, the latter authorized and allowed withdrawals of funds therefrom
through the medium of special withdrawal slips.
In January 1978, plaintiff and Fojas-Arca entered into a "Franchised Dealership Agreement"

. Pursuant to the aforesaid Agreement, Fojas-Arca purchased on credit Firestone products from plaintiff with a
total amount of P4,896,000.00. In payment of these purchases, Fojas-Arca delivered to plaintiff six (6) special
withdrawal slips drawn upon the defendant. In turn, these were deposited by the plaintiff with its current
account with the Citibank. All of them were honored and paid by the defendant. This singular circumstance
made plaintiff believe [sic] and relied [sic] on the fact that the succeeding special withdrawal slips drawn upon
the defendant would be equally sufficiently funded. Relying on such confidence and belief and as a direct
consequence thereof, plaintiff extended to Fojas-Arca other purchases on credit of its products.

Another credit transaction was again made and withdrawal slips were delivered to firestone. Out of these four
(4) withdrawal slips only withdrawal slip No. 42130 in the amount of P981,500.00 was honored and paid by the
defendant in October 1978. Because of the absence for a long period coupled with the fact that defendant
honored and paid withdrawal slips No. 42128 dated July 15, 1978, in the amount of P981,500.00 plaintiff's
belief was all the more strengthened that the other withdrawal slips were likewise sufficiently funded, and
that it had received full value and payment of Fojas-Arca's credit purchased then outstanding at the time. On
this basis, plaintiff was induced to continue extending to Fojas-Arca further purchase on credit of its products
as per agreement

However, on December 14, 1978, plaintiff was informed by Citibank that special withdrawal slips No. 42127
dated June 15, 1978 for P1,198,092.80 and No. 42129 dated August 15, 1978 for P880,000.00 were dishonored
and not paid for the reason 'NO ARRANGEMENT.' As a consequence, the Citibank debited plaintiff's account
for the total sum of P2,078,092.80 representing the aggregate amount of the above-two special withdrawal
slips. Under such situation, plaintiff averred that the pecuniary losses it suffered is caused by and directly
attributable to defendant's gross negligence.

On September 25, 1979, counsel of plaintiff served a written demand upon the defendant for the satisfaction
of the damages suffered by it. And due to defendant's refusal to pay plaintiff's claim, plaintiff has been
constrained to file this complaint

defendant asserted, inter alia that the transactions mentioned by plaintiff are that of plaintiff and Fojas-Arca
only, [in] which defendant is not involved; Vehemently, it was denied by defendant that the special withdrawal
slips were honored and treated as if it were checks, the truth being that when the special withdrawal slips
were received by defendant, it only verified whether or not the signatures therein were authentic, and
whether or not the deposit level in the passbook concurred with the savings ledger, and whether or not the
deposit is sufficient to cover the withdrawal; if plaintiff treated the special withdrawal slips paid by Fojas-Arca
as checks then plaintiff has to blame itself for being grossly negligent in treating the withdrawal slips as check
when it is clearly stated therein that the withdrawal slips are non-negotiable; that defendant is not a privy to
any of the transactions between Fojas-Arca and plaintiff for which reason defendant is not duty bound to
notify nor give notice of anything to plaintiff. If at first defendant had given notice to plaintiff it is merely an
extension of usual bank courtesy to a prospective client; that defendant is only dealing with its depositor
Fojas-Arca and not the plaintiff. In summation, defendant categorically stated that plaintiff has no cause of
action against it

Petitioner's complaint for a sum of money and damages with the Regional Trial Court, dismissed

Petitioner appealed the decision to the Court of Appeals. On December 29, 1993, the Court of Appeals
promulgated its assailed decision. It denied the appeal and affirmed the judgment of the trial court

Hence, the instant petition, alleging the following assignment of error:

The issue for our consideration is whether or not respondent bank should be held liable for damages suffered
by petitioner, due to its allegedly belated notice of non-payment of the subject withdrawal slips.

The initial transaction in this case was between petitioner and Fojas-Arca, whereby the latter purchased tires
from the former with special withdrawal slips drawn upon Fojas-Arca's special savings account with
respondent bank. Petitioner in turn deposited these withdrawal slips with Citibank. The latter credited the
same to petitioner's current account, then presented the slips for payment to respondent bank. It was at this
point that the bone of contention arose.

On December 14, 1978, Citibank informed petitioner that special withdrawal slips Nos. 42127 and 42129 dated
June 15, 1978 and August 15, 1978, respectively, were refused payment by respondent bank due to
insufficiency of Fojas-Arca's funds on deposit.

At the outset, we note that petitioner admits that the withdrawal slips in question were non-negotiable.
Hence, the rules governing the giving of immediate notice of dishonor of negotiable instruments do not apply
in this case. Petitioner itself concedes this point. Thus, respondent bank was under no obligation to give
immediate notice that it would not make payment on the subject withdrawal slips. Citibank should have
known that withdrawal slips were not negotiable instruments. It could not expect these slips to be treated as
checks by other entities. Payment or notice of dishonor from respondent bank could not be expected
immediately, in contrast to the situation involving checks. (but the withdrawal slips were not treated as checks
by the defendant)

In the case at bar, it appears that Citibank, with the knowledge that respondent Luzon Development Bank, had
honored and paid the previous withdrawal slips, automatically credited petitioner's current account with the
amount of the subject withdrawal slips, then merely waited for the same to be honored and paid by
respondent bank. It presumed that the withdrawal slips were "good."

It bears stressing that Citibank could not have missed the non-negotiable nature of the withdrawal slips. The
essence of negotiability which characterizes a negotiable paper as a credit instrument lies in its freedom to
circulate freely as a substitute for money. The withdrawal slips in question lacked this character.

A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such account
consists only of a few hundred pesos or of millions of pesos. The fact that the other withdrawal slips were
honored and paid by respondent bank was no license for Citibank to presume that subsequent slips would be
honored and paid immediately. By doing so, it failed in its fiduciary duty to treat the accounts of its clients with
the highest degree of care.

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 29546 is
AFFIRMED. Costs against petitioner.

G.R. No. 173134

BANK OF THE PHILIPPINE ISLANDS, Petitioner

The Factual Antecedents

In 1991, Tarcila together with her husband, Manuel and their children Monique Fernandez and Marco
Fernandez, opened 4 AND/OR deposit accounts with the petitioner BPI

The deposits were subject to the following conditions:

2. Pre-termination of deposits prior to maturity shall be subject to discretion of [BPI] and if pre-termination is
allowed, it is subject to an interest penalty to be determined on the date of pre-termination;

3. Endorsement and presentation of the Certificate of Deposit is necessary for the renewal or termination of
the deposit"

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

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

Two days after, Manuel returned to BPI, Shaw Blvd. Branch to pre-terminate the joint AND/OR accounts. He
was accompanied by Atty. Hector Rodriguez, the respondent Dalmiro Sian (Sian), and two (2) alleged National
Bureau of Investigation (NBI) agents.

In place of the actual certificates of deposit, Manuel submitted BPI's pro-forma affidavit of loss that he
previously accomplished and an Indemnity Agreement that he and Sian executed on the same day. The
Indemnity Agreement discharged BPI from any liability in connection with the pre-termination.

On the same day, the proceeds released to Manuel were funneled to Sian's newly opened account with BPI.
Immediately thereafter, Capistrano requested Sian to sign blank withdrawal slips, which Manuel used to
withdraw the funds from Sian's newly opened account. Sian's account, after its use, was closed on the same
day.

Tarcila never received her proportionate share of the pre-terminated deposits,16 prompting her to demand
from BPI the amounts due her as a co-depositor in the joint AND/OR accounts. When her demands remained
unheeded, Tarcila initiated a complaint for damages with the Regional Trial Court

In her complaint, Tarcila alleged that BPI's payments to Manuel of the pre-terminated deposits were invalid
with respect to her share. She argued that BPI was in bad faith for allowing the pre-termination of the time
deposits based on Manuel's affidavit of loss when the bank had actual knowledge that the certificates of
deposit were in her possession.

In its answer, BPI alleged that tarcila suffered no damage as the proceeds of the joint and/or account formed
part of the conjugal partnership of gains. BPI further denied refusing Tarcila's request for pre-termination as it
processed her request but she left the branch before BPI could even contact Manuel.

BPI likewise filed a third-party complaint against Sian and Manuel on the basis of the Indemnity Agreement
they had previously executed.

After trial on the merits, the RTC ruled in favor of Tarcila

In its decision. Since Tarcila made the first demand upon BPI, payments should have been made to her

The RTC did not find merit either in BPI's third-party complaint against Sian on the ground that he was merely
coerced into signing the Indemnity Agreement. BPI appealed the RTC ruling with the CA.

CA Ruling

On July 14, 2005, the CA denied BPI’s appeal through the decision that BPI now challenges before this Court.
The CA also found that BPI had acted in bad faith in allowing Manuel to pre-terminate the certificates of
deposits and in facilitating the swift funneling of the funds to Sian's account

The CA likewise upheld the RTC's dismissal of BPFs third-party complaint against Sian. It affirmed the factual
finding that intimidation and undue influence vitiated Sian's consent in signing the Indemnity Agreement.28

THE COURT'S RULING

We deny the petition for lack of merit.

BPI breached its obligation under the certificates of deposit.

With these considerations in mind, we find that BPI substantially breached its obligations to the prejudice of
Tarcila. BPI allowed the termination of the accounts without demanding the surrender of the certificates of
deposits, in the ordinary course of business. Worse, BPI even had actual knowledge that the certificates of
deposit were in Tarcila's possession and yet it chose to release the proceeds to Manuel on the basis of a
falsified affidavit of loss, in gross violation of the terms of the deposit agreements.

BPI tried to muddle the issue by claiming that the funds subject of the deposits were conjugal in character. This
contention, however, is misleading. The principal issue involved in the present case is BPFs breach of its
obligations under the express terms of the certificates of deposit and the consequent damage that Tarcila
suffered as a co-depositor because of BPI's acts.

Notably, BPI effectively deprived Tarcila and the other co-depositors of their share in the proceeds of the
certificates of deposits. As the CA noted in the assailed Decision, the series of transactions were accomplished
in one sitting for the purpose of misleading anyone who would try to trace the proceeds of [Manuel]'s deposit
accounts.

It appears that BPI connived with Manuel to allow him to divest his co-depositors of their share in proceeds.
Worse, it cooperated with Manuel in trying to conceal this fraudulent conduct by making it appear that the
funds were withdrawn from another account.

The CA correctly ruled that BPI is guilty of bad faith.

We affirm the CA and the trial court's findings that BPI was guilty of bad faith in these transactions. Bad faith
imports a dishonest purpose and conscious wrongdoing. It means a breach of a known duty through some
motive or interest or ill will.

"The bias and bad faith on the part of [BPI]'s officers become readily apparent in the face of the fact that
[BPI]'s officers did not require the presentation of the certificates of deposit from [Manuel] but even assisted
and facilitated the pre-termination transaction by the latter on the basis of a mere pro-forma and defective
affidavit of loss, which the bank itself supplied, despite the fact that [BPI]'s officers were fully aware that the
certificates were not lost but in the possession of [Tarcila]. Moreover, given the fact that said affidavit of loss
was executed by [Manuel] just a few minutes after [Tarcila] had presented the certificates of deposit to [BPI], it
taxes one's credulity to say that [BPI] believed in good faith that the certificates were indeed lost."

The records thus abound with evidence that BPI clearly favored Manuel. BPI considered Manuel as the primary
depositor despite the clear import of the nature of their AND/OR account, which permits either or any of the
co-depositors to transact with BPI, upon the surrender of the certificates of deposit. Worse, BPI facilitated
the scheme in order to allow Manuel to obtain the proceeds and conceal any evidence of wrongdoing.

BPI did not only fail to exercise that degree of diligence required by the nature of its business, it also exercised
its functions with bad faith and manifest partiality against Tarcila. The bank even recognized an affidavit of loss
whose allegations, the bank knew, were false. This aspect of the transactions opens up other issues that we do
not here decide because they are outside the scope of the case before us.

BPI is sternly reminded that the business of banks is impressed with public interest. The fiduciary nature of
their relationship with their depositors requires it to treat the accounts of its clients with the highest degree of
integrity, care and respect. In the present case, the manner by which BPI treated Tarcila also transgresses the
general banking law and Article 19 of the Civil Code, which directs every person, in the exercise of his rights,
"to give everyone his due, and observe honesty and good faith."

BPI could not invoke the Indemnity Agreement.

This notwithstanding, we hold that BPI may still not invoke the provisions of the Indemnity Agreement on the
basis of in pari delicto - it was equally at fault. In pari delicto is a legal doctrine resting on the theory that
courts will not aid parties who base their cause of action on their own immoral or illegal acts. When two
parties, acting together, commit an illegal or wrongful act, the party held responsible for the act cannot
recover from the other, because both have been equally culpable and the damage resulted from their joint
offense.

G.R. No. L-43191 November 13, 1935

PAULINO GULLAS, plaintiff-appellant,

vs.

THE PHILIPPINE NATIONAL BANK, defendant-appellant.

It appears from the record that on August 2, 1933, the Treasurer of the United States for the United States
Veterans Bureau issued a Warrant in the amount of $361, payable to the order of Francisco Bacos. Paulino
Gullas and Pedro Lopez signed as endorsers of this check. Thereupon it was cashed by the Philippine National
Bank. Subsequently the treasury warrant was dishonored by the Insular Treasurer.

On August 20, 1933, Attorney Gullas left his residence for Manila.

The bank on learning of the dishonor of the treasury warrant sent notices by mail to Mr. Gullas which could
not be delivered to him at that time because he was in Manila. PNB then sent notices to petitioner which could
not be delivered to him at the time because he was in Manila. PNB in the letter informed the petitioner the
outstanding balance on his account was applied to the part payment of the dishonored check

On the return of Attorney Gullas to Cebu on August 31, 1933, notice of dishonor was received and the unpaid
balance of the United States Treasury warrant was immediately paid by him.
As a consequence of these happenings, two occurrences transpired which inconvenienced Attorney Gullas. In
the first place, as above indicated, checks including one for his insurance were not paid because of the lack of
funds standing to his credit in the bank. In the second place, periodicals in the vicinity gave prominence to the
news to the great mortification of Gullas.

Gullas filed for damages.

A variety of incidental questions have been suggested on the record which it can be taken for granted as
having been adversely disposed of in this opinion. The main issues are two, namely, (1) as to the right of
Philippine National Bank, and to apply a deposit to the debt of depositor to the bank and (2) as to the amount
damages, if any, which should be awarded Gullas.

As a general rule, a bank has a right of set off of the deposits in its hands for the payment of any indebtedness
to it on the part of a depositor.

Starting, therefore, from the premise that the Philippine National Bank had with respect to the deposit of
Gullas a right of set off, we next consider if that remedy was enforced properly. The fact we believe is
undeniable that prior to the mailing of notice of dishonor, and without waiting for any action by Gullas, the
bank made use of the money standing in his account to make good for the treasury warrant. At this point recall
that Gullas was merely an indorser and had issued in good faith.

The decision cited represents the minority doctrine, for on principle it would seem that notice is not necessary
to a maker because the right is based on the doctrine that the relationship is that of creditor and debtor.
However this may be, as to an indorser the situation is different, and notice should actually have been given
him in order that he might protect his interests.

We accordingly are of the opinion that the action of the bank was prejudicial to Gullas. But to follow up that
statement with others proving exact damages is not so easy. For instance, for alleged libelous articles the bank
would not be primarily liable. The same remark could be made relative to the loss of business which Gullas
claims but which could not be traced definitely to this occurrence. Also Gullas having eventually been
reimbursed lost little through the actual levy by the bank on his funds. On the other hand, it was not agreeable
for one to draw checks in all good faith, then, leave for Manila, and on return find that those checks had not
been cashed because of the action taken by the bank. That caused a disturbance in Gullas' finances, especially
with reference to his insurance, which was injurious to him. All facts and circumstances considered, we are of
the opinion that Gullas should be awarded nominal damages because of the premature action of the bank
against which Gullas had no means of protection, and have finally determined that the amount should be
P250.

Agreeable to the foregoing, the errors assigned by the parties will in the main be overruled, with the result
that the judgment of the trial court will be modified by sentencing the defendant to pay the plaintiff the sum
of P250, and the costs of both instances.

G.R. No. 159794 December 19, 2006

MACLARING M. LUCMAN, in his capacity as the Manager of the LAND BANK OF THE PHILIPPINES

LBP was selected as the government depository bank for the IRAs of various barangays in the Municipality of
Pagayawan, Lanao del Sur. Being a new government depositary bank for the IRA funds, the authorized public
officials had to open new accounts in behalf of their government units with the proper LBP branch from which
they could withdraw the IRAs.
After the failed 12 May 1997 elections, respondents attempted to open their respective barangays' IRA bank
accounts but were refused by petitioner because respondents needed to show their individual certifications
showing their right to continue serving as Barangay Chairmen

In any event, all respondents were not allowed to withdraw the IRA funds from the opened accounts, owing to
the absence of the requisite Accountant's Advice.

Then on 4 August 1997, five (5) other persons presented themselves before petitioner as the newly proclaimed
Punong Barangays of the five barangays concerned, each of them presenting a certification of his election as
Punong Barangay issued by the provincial director of the DILG-ARMM and another Certification issued by the
Local Government Operations Officer attesting, among others, to the revocation of the certification previously
issued to respondents. Without verifying the authenticity of the certifications presented by these third
persons, petitioner proceeded to release the IRA funds for the 2nd and 3rd quarters of 1997 to them.

Respondents thus filed a special civil action for Mandamus with Application for Preliminary Mandatory
Injunction, to compel petitioner to allow them to open and maintain deposit accounts covering the IRAs
(internal revenue allotment) of their respective barangays and to withdraw therefrom.

Respondents claimed that despite presenting the required documents, they were refused to open their
account while subsequent 5 other persons was allowed by LBP and released the IRA funds to the latter.

Thereafter, the RTC rendered a Decision commanding petitioner to pay respondents the IRAs of their
respective barangays "even without the Accountant's Advice."

The RTC gave no credence to petitioner's assertion of payment to the rightful barangay officers

The Court of Appeals affirmed the RTC's Decision in toto.

Hence, this petition. (ISSUE SHOULD BE:WHETHER THE PETITION FOR MANDAMUS IS A REMEDY AVAILABLE TO
THE BARANGAY?)

Petitioner also asserts that the LBP Marawi Branch had already released the contested IRAs to the Barangay
Treasurers who were acting in conjunction with the duly recognized Punong Barangays, thereby making the
petition for mandamus moot and academic. These are factual issues that are generally beyond the review of
this Court.

Petitioner adds that respondents have no legal personality to institute the petition for mandamus in their own
names since the IRAs rightfully belong to the respective barangays and not to them and that their respective
barangays already received the claimed IRAs in this instant case.

Although the pleading filed before the lower court was denominated as a Petition for Mandamus With Prayer
For Writ of Preliminary Injunction, the allegations thereof indicate that it is an action for specific performance,
particularly to compel petitioner to allow withdrawal of funds from the accounts of the barangays headed by
respondents with the LBP, Marawi Branch. Thus, the Petition alleged:

By virtue of the deposits, there exists between the barangays as depositors and LBP a creditor-debtor
relationship. Fixed, savings, and current deposits of money in banks and similar institutions are governed by
the provisions concerning simple loan. In other words, the barangays are the lenders while the bank is the
borrower.
Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds
of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law
on loans (Art. 1980, Civil Code; Gullas v. Phil. National Bank, 62 Phil. 519). Current and savings deposits are
loans to a bank because it can use the same. The petitioner here in making time deposits that earn interest
with respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor.
The respondent Bank was in turn a debtor of petitioner. Failure of the respondent Bank to honor the time
deposit is failure to pay its obligation as a debtor and not a breach of trust arising from a depository's failure to
return the subject matter of the deposit.

The relationship being contractual in nature, mandamus is therefore not an available remedy since mandamus
does not lie to enforce the performance of contractual obligations.

WHEREFORE, premises considered, the petition is GRANTED. The assailed Decisions of the Court of Appeals
and the Regional Trial Court are REVERSED and SET ASIDE. The Petition for Mandamus filed before the
Regional Trial Court is ordered DISMISSED.

MANUEL M. SERRANO, petitioner

Undisputed pertinent facts are:

On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one year with 6% interest, of
One Hundred Fifty Thousand Pesos (P150,000.00) with the respondent Overseas Bank of Manila. Concepcion
Maneja also made a time deposit, for one year with 6-½% interest, on March 6, 1967, of Two Hundred
Thousand Pesos (P200,000.00) with the same respondent Overseas Bank of Manila.

On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and conveyed to
petitioner Manuel M. Serrano, her time deposit of P200,000.00 with respondent Overseas Bank of Manila.

Notwithstanding series of demands for encashment of the aforementioned time deposits from the respondent
Overseas Bank of Manila, dating from December 6, 1967 up to March 4, 1968, not a single one of the time
deposit certificates was honored by respondent Overseas Bank of Manila.

The Petitioner filed a petition for mandamus and prohibition, with preliminary injunction, that seeks the
establishment of joint and solidary liability to the amount of Three Hundred Fifty Thousand Pesos, with
interest, against the respondents, on the alleged failure of the Overseas Bank of Manila to return the time
deposits made by petitioner.

Respondent Central Bank admits that it is charged with the duty of administering the banking system of the
Republic and it exercises supervision over all doing business in the Philippines, but denies the petitioner's
allegation that the Central Bank has the duty to exercise a most rigid and stringent supervision of banks,
implying that respondent Central Bank has to watch every move or activity of all banks, including respondent
Overseas Bank of Manila. Respondent Central Bank claims that as of March 12, 1965, the Overseas Bank of
Manila, while operating, was only on a limited degree of banking operations since the Monetary Board decided
in its Resolution No. 322, dated March 12, 1965, to prohibit the Overseas Bank of Manila from making new
loans and investments in view of its chronic reserve deficiencies against its deposit liabilities. This limited
operation of respondent Overseas Bank of Manila continued up to 1968.7

Respondent Central Bank likewise denied that a constructive trust was created in favor of 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.
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, including that
of the petitioner and Concepcion Maneja. 10

In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the Philippines," a case was filed by
the petitioner Ramos, wherein respondent Overseas Bank of Manila sought to prevent respondent Central
Bank from closing, declaring the former insolvent, and liquidating its assets. Petitioner Manuel Serrano in this
case, filed on September 6, 1968, a motion to intervene in G.R. No. L-29352, 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.
Respondent Central Bank in G.R. No. L-29352 opposed petitioner Manuel Serrano's motion to intervene in that
case, 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 if this Court were to allow Serrano to intervene as depositor in G.R. No. L-
29352, thousands of other depositors would follow and thus cause an avalanche of cases in this Court. In the
resolution dated October 4, 1968, this Court denied Serrano's, motion to intervene. The contents of said
motion to intervene are substantially the same as those of the present petition.

This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became final and executory on
March 3, 1972, favorable to the respondent Overseas Bank of Manila, with the dispositive portion to wit:

WHEREFORE, the writs prayed for in the petition are hereby granted and respondent Central Bank's resolution
Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of Manila to participate in clearing, direct the
suspension of its operation, and ordering the liquidation of said bank) are hereby annulled and set aside;

Because of the above decision, petitioner in this case filed a motion for judgment in this case, praying for a
decision on the merits, adjudging respondent Central Bank jointly and severally liable with respondent
Overseas Bank of Manila to the petitioner for the P350,000 time deposit made with the latter bank, with all
interests due therein; 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.

By the very nature of the claims and causes of action against respondents, they in reality are recovery of time
deposits plus interest from respondent Overseas Bank of Manila, 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, said collaterals
allegedly acquired through the use of depositors money.

Furthermore, both parties overlooked one fundamental principle in the nature of bank deposits when the
petitioner claimed that there should be created a constructive trust in his favor when the respondent Overseas
Bank of Manila increased its collaterals in favor of respondent Central Bank for the former's overdrafts and
emergency loans, since these collaterals were acquired by the use of depositors' money.

Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds
of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law
on loans. 14 Current and savings deposit are loans to a bank because it can use the same. The petitioner here
in making time deposits that earn interests with respondent Overseas Bank of Manila was in reality a creditor
of the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of
the respondent Bank to honor the time deposit is failure to pay s obligation as a debtor and not a breach of
trust arising from depositary's failure to return the subject matter of the deposit

WHEREFORE, the petition is dismissed for lack of merit, with costs against petitioner.

G.R. No. L-60033 April 4, 1984

TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS, petitioners,

David charged the petitioners for estafa and for violation central bank regulations:

"From March 20, 1979 to March, 1981, David invested with the Nation Savings and Loan Association,
(hereinafter called NSLA) the sum of P1,145,546.20 on nine deposits, (jointly with his sister, Denise Kuhne and
that David was induced into making the aforestated investments by Robert Marshall an Australian national
who was allegedly a close associate of petitioner Guingona Jr., NSLA was placed under receivership by the
Central Bank, so that David filed claims therewith for his investments and those of his sister; that on July 22,
1981 David received a report from the Central Bank that only P305,821.92 of those investments were entered
in the records of NSLA; that, therefore, the respondents in I.S. No. 81-31938 misappropriated the balance of
the investments, at the same time violating Central Bank Circular No. 364 and related Central Bank regulations
on foreign exchange transactions; that after demands, petitioner Guingona Jr. paid only P200,000.00, thereby
reducing the amounts misappropriated to P959,078.14 and US$75,000.00."

Petitioners, Martin and Santos, filed a joint counter-affidavit (Petition, Annex' B') in which they stated the
following.

that after NSLA was placed under receivership, Martin executed a promissory note in David's favor and caused
the transfer to him of a nine and on behalf (9 1/2) carat diamond ring with a net value of P510,000.00; and,
that the liabilities of NSLA to David were civil in nature."

At the inception of the preliminary investigation before respondent Lota, petitioners moved to dismiss the
charges against them for lack of jurisdiction because David's claims allegedly comprised a purely civil obligation
which was itself novated. Fiscal Lota denied the motion to dismiss

But, after the presentation of David's principal witness, petitioners filed the instant petition because: (a) the
production of the Promisory Notes, Banker's Acceptance, Certificates of Time Deposits and Savings Account
allegedly showed that the transactions between David and NSLA were simple loans, i.e., civil obligations on
the part of NSLA which were novated when Guingona, Jr. and Martin assumed them;
As correctly pointed out by the Solicitor General, the sole issue for resolution is whether public respondents
acted without jurisdiction when they investigated the charges (estafa and violation of CB Circular No. 364 and
related regulations regarding foreign exchange transactions)

There is merit in the contention of the petitioners that their liability is civil in nature and therefore, public
respondents have no jurisdiction over the charge of estafa.

A casual perusal of the December 23, 1981 affidavit. private respondent David, together with his sister, Denise
Kuhne, invested with the Nation Savings and Loan Association the sum of P1,145,546.20 on time deposits
covered by Bankers Acceptances and Certificates of Time Deposits and the sum of P13,531.94 on savings
account deposits covered by passbook nos. 6-632 and 29-742, or a total of P1,159,078.14 (pp. 15-16, roc.). It
appears further that private respondent David, together with his sister, made investments in the aforesaid
bank in the amount of US$75,000.00

Moreover, the records reveal that when the aforesaid bank was placed under receivership on March 21, 1981,
petitioners Guingona and Martin, upon the request of private respondent David, assumed the obligation of the
bank to private respondent David by executing on June 17, 1981 a joint promissory note in favor of private
respondent acknowledging an indebtedness of Pl,336,614.02 and US$75,000.00 (p. 80, rec.).

The aforesaid promissory notes were executed as a result of deposits made by Clement David and Denise
Kuhne with the Nation Savings and Loan Association.

Furthermore, the various pleadings and documents filed by private respondent David, before this Court
indisputably show that he has indeed invested his money on time and savings deposits with the Nation Savings
and Loan Association.

It must be pointed out that when private respondent David invested his money on time and savings deposits
with the aforesaid bank, the contract that was perfected was a contract of simple loan or mutuum and not a
contract of deposit. Thus, Article 1980 of the New Civil Code provides that:

Article 1980. Fixed, savings, and current deposits of-money in banks and similar institutions shall be governed
by the provisions concerning simple loan.

In the case of Central Bank of the Philippines vs. Morfe (63 SCRA 114,119 [1975], We said:

It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are hat
true deposits. are considered simple loans and, as such, are not preferred credits

This Court also declared in the recent case of Serrano vs. Central Bank of the Philippines (96 SCRA 102 [1980])
that:

Bank deposits are in the nature of irregular deposits. They are really 'loans because they earn interest. All kinds
of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law
on. Current and saving deposits, are loans to a bank because it can use the same. The petitioner here in
making time deposits that earn interests will respondent Overseas Bank of Manila was in reality a creditor of
the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of
the respondent Bank to honor the time deposit is failure to pay its obligation as a debtor and not a breach of
trust arising from a depositary's failure to return the subject matter of the deposit

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

WE have already laid down the rule that:

In order that a person can be convicted under the above-quoted provision, it must be proven that he has the
obligation to deliver or return the some money, goods or personal property that he received Petitioners had
no such obligation to return the same money, i.e., the bills or coins, which they received from private
respondents. This is so because as clearly as stated in criminal complaints, the related civil complaints and the
supporting sworn statements, the sums of money that petitioners received were loans.

The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.

"Art. 1933. — By the contract of loan, one of the parties delivers to another, either something not consumable
so that the latter may use the same for a certain time- and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the condition that the same amount of the same
kind and quality shall he paid in which case the contract is simply called a loan or mutuum.

"Commodatum is essentially gratuitous.

"Simple loan may be gratuitous or with a stipulation to pay interest.

"In commodatum the bailor retains the ownership of the thing loaned while in simple loan, ownership passes
to the borrower.

"Art. 1953. — A person who receives a loan of money or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind and quality."

It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as contrasted to
commodatum the borrower acquires ownership of the money, goods or personal property borrowed Being the
owner, the borrower can dispose of the thing borrowed (Article 248, Civil Code) and his act will not be
considered misappropriation thereof'

But even granting that the failure of the bank to pay the time and savings deposits of private respondent David
would constitute a violation of paragraph 1(b) of Article 315 of the Revised Penal Code, nevertheless any
incipient criminal liability was deemed avoided, because when the aforesaid bank was placed under
receivership by the Central Bank, petitioners Guingona and Martin assumed the obligation of the bank to
private respondent David, thereby resulting in the novation of the original contractual obligation arising from
deposit into a contract of loan and converting the original trust relation between the bank and private
respondent David into an ordinary debtor-creditor relation between the petitioners and private respondent.
Consequently, the failure of the bank or petitioners Guingona and Martin to pay the deposits of private
respondent would not constitute a breach of trust but would merely be a failure to pay the obligation as a
debtor.

Moreover, while it is true that novation does not extinguish criminal liability, it may however, prevent the rise
of criminal liability as long as it occurs prior to the filing of the criminal information in court. Thus, in Gonzales
vs. Serrano ( 25 SCRA 64, 69 [1968]) We held that:
As pointed out in People vs. Nery, novation prior to the filing of the criminal information may convert the
relation between the parties into an ordinary creditor-debtor relation, and place the complainant in estoppel
to insist on the original transaction or "cast doubt on the true nature" thereof. (no criminal liability)

In conclusion, considering that the liability of the petitioners is purely civil in nature. We hold that the public
respondents acted without jurisdiction when they investigated the charges against the petitioners.

WHEREFORE, THE PETITION IS HEREBY GRANTED; THE TEMPORARY RESTRAINING ORDER PREVIOUSLY ISSUED
IS MADE PERMANENT. COSTS AGAINST THE PRIVATE RESPONDENT.

THE CONSOLIDATED BANK and TRUST CORPORATION, Petitioner, v. COURT OF APPEALS and L.C. DIAZ and
COMPANY, CPA’s, Respondents.

Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank

L.C. Diaz through its cashier, ("Macaraya"), filled up a savings (cash) deposit slip for P990 and a savings (checks)
deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz, ("Calapre"), to deposit the money with
Solidbank. Macaraya also gave Calapre the Solidbank passbook.

Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The teller
acknowledged receipt of the deposit by returning to Calapre the duplicate copies of the two deposit slips.
Since the transaction took time and Calapre had to make another deposit for L.C. Diaz with Allied Bank, he left
the passbook with Solidbank. Calapre then went to Allied Bank. When Calapre returned to Solidbank to
retrieve the passbook, Teller No. 6 informed him that "somebody got the passbook. Calapre went back to L.C.
Diaz and reported the incident to Macaraya.

Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000. Macaraya,
together with Calapre, went to Solidbank and presented to Teller No. 6 the deposit slip and check. The teller
stamped the words "DUPLICATE" and "SAVING TELLER 6 SOLIDBANK HEAD OFFICE" on the duplicate copy of
the deposit slip. When Macaraya asked for the passbook, Teller No. 6 told Macaraya that someone got the
passbook but she could not remember to whom she gave the passbook. When Macaraya asked Teller No. 6 if
Calapre got the passbook, Teller No. 6 answered that someone shorter than Calapre got the passbook. Calapre
was then standing beside Macaraya.

Failing to get back the passbook, Macaraya went back to her office and reported the matter to the Personnel
Manager of L.C. Diaz, Emmanuel Alvarez.

The following day L.C. Diaz called up Solidbank to stop any transaction using the same passbook until L.C. Diaz
could open a new account. It was also on the same day that L.C. Diaz learned of the unauthorized withdrawal
the day before of P300,000 from its savings account. The withdrawal slip for the P300,000 bore the signatures
of the authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo.

In an Information L.C. Diaz charged its messenger, Emerano Ilagan ("Ilagan") and one Roscon Verdazola with
Estafa through Falsification of Commercial Document. The Regional Trial Court of Manila dismissed the
criminal case

On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its money. Solidbank
refused.
L.C. Diaz filed a Complaint for Recovery of a Sum of Money against Solidbank with the Regional Trial Court of
Manila. the trial court rendered a decision absolving Solidbank and dismissing the complaint.

the Court of Appeals issued its Decision reversing the decision of the trial court.

The Ruling of the Trial Court

The trial court concluded that Solidbank acted with care and observed the rules on savings account when it
allowed the withdrawal of P300,000 from the savings account of L.C. Diaz because when the money was
withdrawn from solidbank, the passbook was shown bearing the authorized signatures and the bank verified
and compared the signatures with the specimen of the bank.

The trial court believed that Solidbank’s act of allowing the withdrawal of P300,000 was not the direct and
proximate cause of the loss. The trial court held that L.C. Diaz’s negligence caused the unauthorized
withdrawal. L.C. Diaz claimed that a letter must accompany withdrawals of more than P20,000. The letter must
request Solidbank to allow the withdrawal and convert the amount to a manager’s check. The bearer must also
have a letter authorizing him to withdraw the same amount. Another person driving a car must accompany the
bearer so that he would not walk from Solidbank to the office in making the withdrawal.

The trial court pointed out that L.C. Diaz disregarded these precautions in its past withdrawal.

The Ruling of the Court of Appeals

The Court of Appeals ruled that Solidbank’s negligence was the proximate cause of the unauthorized
withdrawal of P300,000 from the savings account of L.C. Diaz.

The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip for P300,000
allowed the withdrawal without making the necessary inquiry. The appellate court stated that the teller, who
was not presented by Solidbank during trial, should have called up the depositor because the money to be
withdrawn was a significant amount. Had the teller called up L.C. Diaz, Solidbank would have known that the
withdrawal was unauthorized. The teller did not even verify the identity of the impostor who made the
withdrawal. Thus, the appellate court found Solidbank liable for its negligence in the selection and supervision
of its employees.

The appellate court ruled that the degree of diligence required from Solidbank is more than that of a good
father of a family. The business and functions of banks are affected with public interest. Banks are obligated to
treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their
relationship with their clients. The Court of Appeals found Solidbank remiss in its duty, violating its fiduciary
relationship with L.C. Diaz.

Whether or not solidbank is liable. The petition is partly meritorious.

We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual.

The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple
loan. Article 1980 of the Civil Code expressly provides that." . . savings . . . deposits of money in banks and
similar institutions shall be governed by the provisions concerning simple loan." There is a debtor-creditor
relationship between the bank and its depositor. The bank is the debtor and the depositor is the creditor. The
depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit
agreement between the bank and the depositor is the contract that determines the rights and obligations of
the parties.
The law imposes on banks high standards in view of the fiduciary nature of banking. the State recognizes the
"fiduciary nature of banking that requires high standards of integrity and performance." This fiduciary
relationship means that the bank’s obligation to observe "high standards of integrity and performance" is
deemed written into every deposit agreement between a bank and its depositor.

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

The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not
accept deposits to enrich depositors but to earn money for themselves. The law allows banks to offer the
lowest possible interest rate to depositors while charging the highest possible interest rate on their own
borrowers. The interest spread or differential belongs to the bank and not to the depositors who are not cestui
que trust of banks. If depositors are cestui que trust of banks, then the interest spread or income belongs to
the depositors, a situation that Congress certainly did not intend in enacting Section 2 of RA 8791.

Solidbank’s Breach of its Contractual Obligation

Article 1172 of the Civil Code provides that "responsibility arising from negligence in the performance of every
kind of obligation is demandable." For breach of the savings deposit agreement due to negligence, or culpa
contractual, the bank is liable to its depositor.

Calapre left the passbook with Solidbank because the "transaction took time" and he had to go to Allied Bank
for another transaction. The passbook was still in the hands of the employees of Solidbank for the processing
of the deposit when Calapre left Solidbank. Solidbank’s rules on savings account require that the "deposit book
should be carefully guarded by the depositor and kept under lock and key, if possible." When the passbook is
in the possession of Solidbank’s tellers during withdrawals, the law imposes on Solidbank and its tellers an
even higher degree of diligence in safeguarding the passbook.

Likewise, Solidbank’s tellers must exercise a high degree of diligence in insuring that they return the passbook
only to the depositor or his authorized representative. For failing to return the passbook to Calapre, the
authorized representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high
degree of diligence in safeguarding the passbook, and in insuring its return to the party authorized to receive
the same.

In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the defendant
was at fault or negligent. The burden is on the defendant to prove that he was not at fault or negligent. In
contrast, in culpa aquiliana the plaintiff has the burden of proving that the defendant was negligent. In the
present case, L.C. Diaz has established that Solidbank breached its contractual obligation to return the
passbook only to the authorized representative of L.C. Diaz. There is thus a presumption that Solidbank was at
fault and its teller was negligent in not returning the passbook to Calapre. The burden was on Solidbank to
prove that there was no negligence on its part or its employees.

Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6, the teller with
whom Calapre left the passbook and who was supposed to return the passbook to him.

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