CYCLE 2– TO BE SUBMITTED 17 FEBRUARY 2019

THE GENERAL BANKING LAW (R.A. NO.8791)

1. Republic vs. Security Credit & Acceptance Corp., 19 SCRA 58
2. Bañas vs. Asia Pacific Corp., 343 SCRA 527
3. Simex International (Manila), Inc. vs. CA, 183 SCRA 360
4. Reyes vs. CA, G.R. No.118492, 15 August 2001
5. DBP vs. CA, 331 SCRA 267
6. UCPB vs. Ramos, G.R. No.147800, November 11, 2003
7. GSIS vs. Eduardo Santiago, G.R. No.155206, October 28, 2003
8. Central Bank vs. CA, 208 SCRA 652

Central Bank of the Philippines vs. Court of Appeals G.R. No. 88353, May 8, 1992
MARCH 16, 2014LEAVE A COMMENT
The following requisites must be present before the order of conservatorship may be set aside by a court: (1) The
appropriate pleading must be filed by the stockholders of record representing the majority of the capital stock of
the bank in the proper court; (2) Said pleading must be filed within ten (10) days from receipt of notice by said
majority stockholders of the order placing the bank under conservatorship; and (3) There must be convincing
proof, after hearing, that the action is plainly arbitrary and made in bad faith. 

Facts:    Central Bank discovered that certain questionable loans extended by Producer’s Bank of the Philippines
(PBP), totalling approximately P300 million (the paid-in capital of PBP amounting only to P 140.544 million, were
fictitious as they were extended, without collateral, to certain interests related to PBP owners themselves.
Subsequently and during the same year, several blind items about a family-owned bank in Binondo which granted
fictitious loans to its stockholders appeared in major newspapers which triggered a bank-run in PBP and resulted in
continuous over-drawings on the bank’s demand deposit account with the Central Bank; reaching to P 143.955
million. Hence, on the basis of the report submitted by the Supervision and Examination Sector, the Monetary
Board (MB), placed PBP under conservatorship.

 
PBP submitted a rehabilitation plan to the CB which proposed the transfer to PBP of 3 buildings owned by
Producers Properties, Inc. (PPI), its principal stockholder and the subsequent mortgage of said properties to the CB
as collateral for the bank’s overdraft obligation but which was not approved due to disagreements between the
parties. Since no other rehabilitation program was submitted by PBP for almost 3 years its overdrafts with the CB
continued to accumulate and swelled to a staggering P1.023 billion.  Consequently, the CB Monetary Board decided
to approve in principle what it considered a viable rehabilitation program for PBP. There being no response from
both PBP and PPI on the proposed rehabilitation plan, the MB issued a resolution instructing Central Bank
management to advise the bank that the conservatorship may be lifted if PBP complies with certain conditions.
Without responding to the communications of the CB, PBP filed a complaint with the Regional Trial Court of Makati
against the CB, the MB and CB Governor alleging that the resolutions issued were arbitraty and made in bad faith.
Respondent Judge issued a temporary restraining order and subsequently a writ of preliminary injunction. CB filed
a motion to dismiss but was denied and ruled that the MB resolutions were arbitrarily issued. CB filed a petition
for certiorari before the Court of Appeals seeking to annul the orders of the trial court but CA affirmed the said
orders. Hence this petition.

Issue:    Whether or not the trial court erred in not dismissing the case for lack of cause of action and declaring the
MB resolutions as arbitrary.

Held:
NO, there was neither arbitrariness nor bad faith in the issuance of MB Resolutions Nos. 649 and 751. It must be
stressed in this connection that the banking business is properly subject to reasonable regulation under the police
power of the state because of its nature and relation to the fiscal affairs of the people and the revenues of the
state. 55 Banks are affected with public interest because they receive funds from the general public in the form of
deposits. Due to the nature of their transactions and functions, a fiduciary relationship is created between the
banking institutions and their depositors. Therefore, banks are under the obligation to treat with meticulous care
and utmost fidelity the accounts of those who have reposed their trust and confidence in them. 56

It is then Government's responsibility to see to it that the financial interests of those who deal with banks and
banking institutions, as depositors or otherwise, are protected. In this country, that task is delegated to the Central
Bank which, pursuant to its Charter, 57 is authorized to administer the monetary, banking and credit system of the
Philippines. Under both the 1973 and 1987 Constitutions, the Central Bank is tasked with providing policy direction in
the areas of money, banking and credit; corollarily, it shall have supervision over the operations of banks.  58 Under its
charter, the CB is further authorized to take the necessary steps against any banking institution if its continued
operation would cause prejudice to its depositors, creditors and the general public as well.

One important measure adopted by the government to protect the public against unscrupulous practices of some
bankers is to require banking institutions to set up reserves against their deposit liabilities. These reserves, pegged at
a certain percentage of the volume of deposit liability, is that portion of the deposit received by a banking institution
which it cannot use for loans and investments. The reserve requirement, which ordinarily takes the form of a deposit
with the Central Bank, is one means by which the government ensures the liquidity of banking institutions. 60

These reserve accounts maintained by banking institutions with the Central Bank also serve as a basis for the clearing
of checks and the settlement of interbank balances. 61

The fact that PBP is grossly overdrawn on its reserve account with the CB (up to P1.233 billion as of 13 February 1990)
is not disputed by PBP. This enormous overdraft evidences the patent inability of the bank's management to keep
PBP liquid. This fact alone sufficiently justifies the remedial measures taken by the Monetary Board.

MB Resolutions Nos. 649 and 751 were not promulgated to arbitrarily divest the present stockholders of control over
PBP, as is claimed by the latter. The same contemplates an effective and viable plan to revive and restore PBP. It is to
be noted that before issuing these resolutions, the MB gave the management of PBP ample opportunity (from 30
March 1984 to June of 1987) to submit a viable rehabilitation plan for the bank.

9. PCIBank vs. CA, 350 SCRA 446

PCIB V. CA

350 SCRA 446

FACTS:

Ford Philippines filed actions to recover from the drawee bank Citibank and collecting   bank   PCIB   the   value   of  
several   checks   payable   to   the Commissioner of Internal Revenue which were allegedly embezzled  by an
organized  syndicate.    What  prompted  this  action  was  the  drawing  of  a check  by  Ford,  which  it  deposited 
to  PCIB  as  payment  and  was  debited from their Citibank account.  It later on found out that the payment wasn’t
received  by  the  Commissioner.    Meanwhile,  according  to  the  NBI  report, one of the checks issued by
petitioner was withdrawn from PCIB for alleged mistake in the amount to be paid.  This was replaced with
manager’s check by  PCIB,  which  were  allegedly  stolen  by  the  syndicate  and  deposited  in their own account.   
 
The trial court decided in favor of Ford. 
 
ISSUE:

Has Ford the right to recover the value of the checks intended as payment to CIR? 
 

HELD:

YES. As ruled by the Court of Appeals, Citibank should answer the damages incurred because of the contractual
relationship existing between them. Citibank, as the drawee bank breached its contractual obligation with Ford and
such degree of culpability contributed to the damage caused to the latter.

Citibank should have scrutinized Citibank Check Numbers 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 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 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. The fact that the drawee bank did not discover
the irregularity seasonably, in our view, consitutes negligence in carrying out the bank's duty to its depositors. The
point is that as a business affected with public interest and because of the nature of its functions, the bank is under
obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of
their relationship.33

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. 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 umportance 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.35

Banks handle daily transactions involving millions of pesos.36 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.37 Banks are expected to exercise the highest degree of diligence in the selection and
supervision of their employees.38

10. Perez vs. Monetary Board, 20 SCRA 592

11. Central Bank vs. Morfe, 20 SCRA 507
12. Serrano vs. CA, 96 SCRA 96
13. Vitug vs. CA, March 29, 1990

14. Central Bank vs. CA, 106 SCRA 143

Central Bank vs. Court of Appeals L-50031-32 : July 27, 1981.

MARCH 16, 2014LEAVE A COMMENT
While the closure and liquidation of a bank may be considered an exercise of police power, the validity of such
exercise of police power is subject to judicial inquiry and could be set aside if it is either capricious,
discriminatory, whimsical, arbitrary, unjust, or a denial of due process and equal protection clauses of the
Constitution.
Facts:    Isidro Fernandez and Jesus Jayme are the majority and controlling stockholders of Provident Bank. When
Provident Savings Bank experienced bankrun, which was triggered off by adverse publicity in the newspapers,
radio and television of investigations conducted by Congress that some banks were unable to pay deposit
withdrawals. The Bank was forced to borrow funds from other banks and the Central Bank but despite the
borrowing, the funds remained insufficient to satisfy the withdrawals.

 Hence, the Isidro Fernandez and Jesus Jayme appealed to Central Bank for further assistance. However, the
Central Bank replied to them stating that they have to relinquish and turnover the management and control of the
bank to Iglesia ni Kristo (INK) affiliated entity Eagle Broadcasting in order for it to assist the distressed provident. 
Under the agreement, EB agreed to purchase 52,000 capital stock with provident.  The Eagle Broadcasting
Corporation, however, did not comply with its commitment to purchase 53,000 common shares of stock and to
convert its deposits into equity. Instead, the new management of PROVIDENT caused the conversion of the
deposits of Iglesia Ni Kristo into “bills payable” earning 12% interest, which were subsequently withdrawn. 4
PROVIDENT, under the new management, also failed to comply with the Monetary Board directives relative to the
rehabilitation of the bank so that it restored the interest rate of 12% on outstanding loans.

 These acts were made despite the presence of Central Bank examiners. Subsequently, Central Bank Monetary
Board issued a resolution declaring the closure of Provident Savings Bank and ordering its liquidation. Hence,
Fernandez and Jayme filed with the Court of First Instance a petition for certiorari, prohibition, and mandamus
against Central Bank to annul the resolution and restrain CB from proceeding with the liquidation which the court
granted.

Issue:    Whether or not the closure of the bank may be subject to judicial inquiry and whether or not the
resolution was issued arbitrarily and in bad faith.

Held:    Having decided in 1968 that PROVIDENT was salvageable and could be permitted to continue in business
with its support, provided there is change in management and introduction of reforms, the CB should have been
vigilant in its overseeing of the faithful compliance by the parties of the terms of the Memorandum Agreement, as
well as in supervising and controlling the operations of the bank under the management of EAGLE. The persuasive,
nay, compulsory, powers of the CB to accomplish these cannot be doubted. The CB exercises such control of
private banks under its broad powers that it can decree life or death of any bank by simply withholding from it the
facilitates that it normally accords banks.

While the closure and liquidation of a bank may be considered an exercise of police power, the validity of such
exercise of police power is subject to judicial inquiry and could be set aside if it is either capricious, discriminatory,
whimsical, arbitrary, unjust, or a denial of due process and equal protection clauses of the Constitution.   The
arbitrariness and bad faith of Central Bank is evident from the fact that it pressured Fernandez and Jayme into
relinquishing the management and control of Provident Savings Bank to Iglesia Ni Kristo which did not have any
intention of restoring the bank into its former sound financial condition but whose interest was merely to recover
its deposits from the bank and thereafter allowing INK to mismanage the bank until the bank’s financial
deterioration and subsequent closure. Central Bank acted whimsically and withdrew its commitment to support
the bank to the detriment of the latter.
 If jurisdiction was already acquired ito delve into the validity of Resolutions 1263 and 1290 (and this the Central
Bank admits), there is no cogent reason why, after such jurisdiction had been acquired, the Court should be
deprived thereof by the subsequent adoption of Resolution 1333, particularly because the latter, in relation to the
antecedent facts, appears to be no more than a deliberate effort to evade the jurisdiction of this Court, and have
the case thrown back to the Court of First Instance. The Central Bank, by promising to rehabilitate the bank, is
estopped from closing it down.  The conduct of the Central Bank reveals a calculated attempt to evade
rehabilitating OBM despite its promises. Hence, respondent Central Bank of thePhilippines is directed to comply
with it obligations under the voting trust agreement, and to desist from taking action in violation thereof.

The Central Bank made express representations to petitioners herein that it would support the OBM, and avoid its
liquidation if the petitioners would execute (a) the voting trust agreement turning over the management of OBM
to the Central Bank or its nominees, and (b) mortgage or assign their properties to the Central Bank to cover the
overdraft balance of OBM. The petitioners having complied with these conditions and parted with value to the
profit of the CB (which thus acquired additional security for its own advances), the Central Bank may not now
renege on its representations and liquidate the OBM, to the detriment of its stockholders, depositors and other
creditors, under the rule of promissory estoppel.

15. Abacus Real Estate Dev’t. Center vs. Manila Bank, G.R. No.162270, 06 April 2005
(see pdf file)

16. Manalo vs. CA, 08 October 2002 --- 2001 ako nakit.an

G.R. No. 141297            October 8, 2001

DOMINGO R. MANALO, petitioner, 
vs.
COURT OF APPEALS (Special Twelfth Division) and PAIC SAVINGS AND MORTGAGE BANK, respondents.

Facts:   Villanueva Enterprises, represented by its president, Therese Villanueva Vargas, obtained a loan of three
million pesos and one million pesos from the respondent PAIC Savings and Mortgage Bank and the Philippine
American Investments Corporation (PAIC), respectively. To secure payment of both debts, Vargas executed in favor
of the respondent and PAIC a joint first mortgageover two parcels of land registered under her name. One of the
lots is the subject of the present case. S. Villanueva Enterprises failed to settle its loan obligation.

Accordingly, respondent instituted extrajudicial foreclosure proceedings over the mortgaged lots and acquired the
same as the highest bidder. After the lapse of one year, title was consolidated in respondent’s name for failure of
Vargas to redeem. The Central Bank of the Philippines filed a petition for assistance in the liquidation of the
respondent PAIC with the Regional Trial Court. After a few years, respondent petitioned the
RegionalTrialCourtofPasayCity for the issuance of a writ of possession for the subject property. However, during
the pendency of civil case for the issuance of a writ of possession, Vargas executed a deed of absolute sale selling,
transferring, and conveying ownership of the disputed lot in favor of a certain Armando Angsico. Notwithstanding
this sale, Vargas, still representing herself to be the lawful owner of the property, leased the same to petitioner
Domingo R. Manalo. Later, Armando Angsico, as buyer of the property, assigned his rights therein to petitioner.
The court subsequently issued the writ of possession but Villanueva Enterprises and Vargas moved for its quashal.
Petitioner, on the strength of the lease contract and deed of assignment made in his favor, submitted a permission
to file an ex-parte motion to intervene. Both motions were denied by the court. Court of Appeals upheld the order
of the lower court. Hence this petition.

 Issue:    Whether or not the jurisdiction for the issuance of the writ of possession filed by the respondent bank is
vested solely on the liquidation court.

Held:   No. The exclusive jurisdiction of the liquidation court pertains only to the adjudication of claims against the
bank. It does not cover the reverse situation where it is the bank which files a claim against another person or legal
entity.

Although the law provides that all claims against the insolvent bank should be filed in the liquidation proceeding,
such legal provision only finds operation in cases where there are claims against an insolvent bank. In fine, the
exclusive jurisdiction of the liquidation court pertains only to the adjudication of claims against the bank. It does
not cover the reverse situation where it is the bank which files a claim against another person or legal entity.
Moreover, a bank which had been ordered closed by the monetary board retains its juridical personality which can
sue and be sued through its liquidator. The only limitation being that the prosecution or defense of the action must
be done through the liquidator. Otherwise, no suit for or against an insolvent entity would prosper. In such
situation, banks in liquidation would lose what justly belongs to them through a mere technicality.

17. Sps. Larrobis, Jr. vs. Phil. Veterans Bank, G.R. No.135706, 01 October 2004

Facts:

Petitioner spouses contracted a monetary loan with herein respondent bank secured by a REM executed on their
lot. Respondent bank then went bankrupt and was placed under receivership/liquidation by the Central Bank.
Sometime after, respondent bank sent a demand letter for the amount of the insurance premiums advanced by it
over the mortgaged property of petitioners. More than 14 years from the time the loan became due and
demandable, respondent bank moved for the extrajudicial foreclosure of the mortgaged property and was sold to
it as being the lone bidder. Petitioners moved to declare the foreclosure null and void contending that the
respondent bank being placed under receivership did not interrupt the running of the prescriptive period. RTC
ruled in favor of respondents.

Issues:

(1) Whether or not foreclosure of mortgage is included in the acts prohibited during receivership/liquidation
proceedings.

(2) Whether or not the period within which the respondent bank was placed under receivership and liquidation
proceedings interrupted the running of the prescriptive period in bringing actions.

Ruling: NO.

(1) While it is true that foreclosure falls within the broad definition of “doing business,” it should not be considered
included, however, in the acts prohibited whenever banks are “prohibited from doing business” during
receivership and liquidation proceedings. This is consistent with the purpose of receivership proceedings, i.e., to
receive collectibles and preserve the assets of the bank in substitution of its former management, and prevent the
dissipation of its assets to the detriment of the creditors of the bank.

There is also no truth to respondent’s claim that it could not continue doing business from the time it was under
receivership. As correctly pointed out by petitioner, respondent was even able to send petitioners a demand letter,
through Francisco Go, for the insurance premiums advanced by respondent bank over the mortgaged property of
petitioners. How it could send a demand letter on unpaid insurance premiums and not foreclose the mortgage
during the time it was “prohibited from doing business” was not adequately explained by respondent.

(2) A close scrutiny of the Provident case shows that the Court arrived at said conclusion, which is an exception to
the general rule, due to the peculiar circumstances of Provident Savings Bank at the time. The Superintendent of
Banks, which was instructed to take charge of the assets of the bank in the name of the Monetary Board, had no
power to act as a receiver of the bank and carry out the obligations specified in Sec. 29 of the Central Bank Act.

In this case, it is not disputed that Philippine Veterans Bank was placed under receivership by the Monetary Board
of the Central Bank pursuant to Section 29 of the Central Bank Act on insolvency of banks. Unlike Provident Savings
Bank, there was no legal prohibition imposed upon herein respondent to deter its receiver and liquidator from
performing their obligations under the law. Thus, the ruling laid down in the Provident case cannot apply in the
case at bar.

(In contrast to Provident Savings Bank v. CA, this is the General Rule)

18. Lipana vs. Dev’t. Bank of Rizal, 154 SCRA 257

After the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the
Board becomes the trustee of its assets for the equal benefit of all the creditors, including depositors. To execute
the judgment would unduly deplete the assets of respondent bank to the obvious prejudice of other depositors
and creditors.
Facts:    Petitioners opened and maintained both time and savings deposits with the respondent Development
Bank of Rizal. When some of the time deposit certificates matured, petitioners were not able to cash them but
instead were issued a manager’s check which was dishonored upon presentment. Demands for the payment of
both time and savings deposits have failed. Hence, petitioners filed with the RTC a collection suit with prayer for
issuance of a writ of preliminary attachment which was granted by the court. The RTC rendered judgment in favor
of petitioners. Meanwhile, the Monetary Board placed the respondent bank under receivership. Subsequently, the
motion for execution pending appeal filed by petitioners was granted by the court but was also stayed by the trial
judge. The motion filed by petitioners to lift the stay order having been denied, this petition was filed.

Issue:    Whether or not respondent judge could legally stay execution of judgment that has already become final
and executor

Held:    In the instant case, the stay of the execution of judgment is warranted by the fact that respondent bank
was placed under receivership. To execute the judgment would unduly deplete the assets of respondent bank to
the obvious prejudice of other depositors and creditors, since, as aptly stated in Central Bank of the Philippines vs.
Morfe (63 SCRA 114), after the Monetary Board has declared that a bank is insolvent and has ordered it to cease
operations, the Board becomes the trustee of its assets for the equal benefit of all the creditors, including
depositors. The assets of the insolvent banking institution are held in trust for the equal benefit of all creditors, and
after its insolvency, one cannot obtain an advantage or a preference over another by an attachment, execution or
otherwise.
After the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the Board
becomes the trustee of its assets for the equal benefit of all the creditors, including depositors. The assets of the
insolvent banking institution are held in trust for the equal benefit of all creditors, and after its insolvency, one
cannot obtain an advantage or a preference over another by an attachment, execution or otherwise. To execute
the judgment would unduly deplete the assets of respondent bank to the obvious prejudice of other depositors
and creditors.

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19. Phil.Veterans Bank vs. NLRC, G.R. NO.13039, 26 October 1999

[G.R. No. 130439. October 26, 1999]

 20. Provident Savings Bank vs. CA, 222 SCRA 125

Facts:

Spouses Guarin obtained a loan from petitioner bank and as a security, executed a REM in its favor over a parcel of
land. Then petitioner bank was placed under receivership until it was set aside. Guarin signified its willingness to
pay its obligation in exchange for the mortgaged title. Petitioner bank could not release said title as it also served
as security for another loan obtained by Guarin for his corporation. Private respondent Chua wrote petitioner bank
saying that the mortgaged property was offered to him as payment of judgment he obtained against the Guarins.
The Guarins sold the property to Chua with the latter assuming the obligations. Chua tried to pay the loan but
petitioner would not release the title unless the second loan of Guarin was also settled.

Issue:

Whether or not a bank being placed under receivership interrupts the prescription of actions it may institute.

Ruling: YES.

When a bank is prohibited to do business by the Central Bank and a receiver is appointed for such bank, that bank
would not be able to do new business, i.e., to grant new loans or to accept new deposits.

Having arrived at the conclusion that the foreclosure is part of bank’s business activity which could not have been
pursued by the receiver then because of the circumstances discussed in the Central Bank case, we are thus
convinced that the prescriptive period was legally interrupted by fuerza mayor in 1972 on account on the
prohibition imposed by the Monetary Board against petitioner from transacting business, until the directive of the
board was nullified in 1981. Indeed, the period during which the obligee was prevented by a caso fortuito from
enforcing his right is not reckoned against him (Article 1154, New Civil Code). When prescription is interrupted, all
the benefits acquired so far from the possession cease and when prescription starts anew, it will be entirely a new
one. This concept should not be equated with suspension where the past period is included in the computation
being added to the period after prescription is resumed. Consequently, when the closure of was set aside in 1981,
the period of ten years within which to foreclose under Article 1142 of the New Civil Code began to run again and,
therefore, the action filed on August 21, 1986 to compel petitioner to release the mortgage carried with it the
mistaken notion that petitioner’s own suit foreclosure had prescribed.

(In contrast to Larrobis v. Phil Veterans Bank, this is an exception to the general rule because of peculiar
circumstances)

21. Fidelity Savings vs. Cenzon, 184 SCRA 141

Facts:

Respondent spouses Santiago maintained a savings and time deposit with petitioner bank. The Monetary Board
found petitioner bank to be insolvent and ordered for its assets to be taken charged of by the Acting
Superintendent. The PDIC paid spouses for their deposits with petitioner bank but there was still a remaining
balance. The Monetary Board then directed the liquidation of the affairs of petitioner bank and a subsequent
petition for assistance and supervision in liquidation was filed in the court. The liquidation proceedings still
pending, respondent spouses sent demand letters to petitioner bank for the payment of their deposits. The court
found in favor of respondent spouses.

Issue:

Whether or not petitioner bank may be adjudged to pay interest on unpaid deposits even after its closure by the
Central Bank by reason of insolvency.

Ruling: NO.
It is settled jurisprudence that a banking institution which has been declared insolvent and subsequently ordered
closed by the Central Bank of the Philippines cannot be held liable to pay interest on bank deposits which accrued
during the period when the bank is actually closed and non-operational. In The Overseas Bank of Manila vs. Court
of Appeals and Tony D. Tapia, we held that:

It is a matter of common knowledge, which We take judicial notice of, that what enables a bank to pay stipulated
interest on money deposited with it is that thru the other aspects of its operation it is able to generate funds to
cover the payment of such interest. Unless a bank can lend money, engage in international transactions, acquire
foreclosed mortgaged properties or their proceeds and generally engage in other banking and financing activities
from which it can derive income, it is inconceivable how it can carry on as a depository obligated to pay stipulated
interest. Conventional wisdom dictates this inexorable fair and just conclusion. And it can be said that all who
deposit money in banks are aware of such a simple economic proposition. Consequently, it should be deemed read
into every contract of deposit with a bank that the obligation to pay interest on the deposit ceases the moment
the operation of the bank is completely suspended by the duly constituted authority, the Central Bank.

From the aforecited authorities, it is manifest that petitioner cannot be held liable for interest on bank deposits
which accrued from the time it was prohibited by the Central Bank to continue with its banking operations.  The
order, therefore, of the Central Bank as receiver/liquidator of petitioner bank allowing the claims of depositors and
creditors to earn interest up to the date of its closure is in line with the doctrine laid down in the jurisprudence
above cited.

22. People vs. Ong, 204 SCRA vs. 942

 23. BPI vs. CA, 232 SCRA 302

FACTS: Private respondents Eastern Plywood Corporation and Benigno Lim as officer of the corporation, had an
“AND/OR” joint account with Commercial Bank and Trust Co (CBTC), the predecessor-in-interest of petitioner Bank
of the Philippine Islands. Lim withdraw funds from such account and used it to open a joint checking account (an
“AND” account) with Mariano Velasco. When Velasco died in 1977, said joint checking account had P662,522.87.
By virtue of an Indemnity Undertaking executed by Lim and as President and General Manager of Eastern
withdrew one half of this amount and deposited it to one of the accounts of Eastern with CBTC. 

Eastern obtained a loan of P73,000.00 from CBTC which was not secured. However, Eastern and CBTC executed a
Holdout Agreement providing that the loan was secured by the “Holdout of the C/A No. 2310-001-42” referring to
the joint checking account of Velasco and Lim. 

Meanwhile, a judicial settlement of the estate of Velasco ordered the withdrawal of the balance of the account of
Velasco and Lim. 

Asserting that the Holdout Agreement provides for the security of the loan obtained by Eastern and that it is the
duty of CBTC to debit the account of respondents to set off the amount of P73,000 covered by the promissory
note, BPI filed the instant petition for recovery. Private respondents Eastern and Lim, however, assert that the
amount deposited in the joint account of Velasco and Lim came from Eastern and therefore rightfully belong to
Eastern and/or Lim. Since the Holdout Agreement covers the loan of P73,000, then petitioner can only hold that
amount against the joint checking account and must return the rest. 

ISSUE: Whether BPI can demand the payment of the loan despite the existence of the Holdout Agreement and
whether BPI is still liable to the private respondents on the account subject of the withdrawal by the heirs of
Velasco. 

RULING: Yes, for both issues. Regarding the first, the Holdout Agreement conferred on CBTC the power, not the
duty, to set off the loan from the account subject of the Agreement. When BPI demanded payment of the loan
from Eastern, it exercised its right to collect payment based on the promissory note, and disregarded its option
under the Holdout Agreement. Therefore, its demand was in the correct order. 

Regarding the second issue, BPI was the debtor and Eastern was the creditor with respect to the joint checking
account. Therefore, BPI was obliged to return the amount of the said account only to the creditor. When it allowed
the withdrawal of the balance of the account by the heirs of Velasco, it made the payment to the wrong party. The
law provides that payment made by the debtor to the wrong party does not extinguish its obligation to the creditor
who is without fault or negligence. Therefore, BPI was still liable to the true creditor, Eastern.

24. Tan Tiong Tick vs. American Apothecaries, 65 Phil. 417

Tan, Tiong, Tick vs. American Hypothecary Co., G.R. No. L-43682 March 31, 1938
Tan, Tiong, Tick v. American Hypothecary (case digest)

In Re Liquidation of Mercantile Bank of China.

TAN TIONG TICK, claimant-appellant, vs. AMERICAN APOTHECARIES CO., ET AL., claimants-appellees.
G.R. No. L-43682 March 31, 1938

DOCTRINES:
1.The bank can make use as its own the money deposited.
2.Current account and savings deposts are not preferred credits in case of insolvency and liquidation.
3.The bank can offset the deposit of the client who has a debt with the bank.
4.Deposits should not earn interest from the time the bank cease to do business. IMPERIAL, J.:

Facts:

In the proceedings for the liquidation of the Mercantile Bank of China, the appellant presented a written claim
alleging: that when this bank ceased to operate on September 19, 1931, his current account in said bank showed a
balance of P9,657.50 in his favor; that on the same date his savings account in the said bank also showed a balance
in his favor of P20,000 plus interest then due amounting to P194.78; that on the other hand, he owed the bank in
the amount of P13,262.58, the amount of the trust receipts which he signed because of his withdrawal from the
bank of certain merchandise consigned to him without paying the drafts drawn upon him by the remittors thereof;
that the credits thus described should be set off against each other according to law, and on such set off being
made it appeared that he was still the creditor of the bank in the sum of P16,589.70. And he asked that the court
order the Bank Commissioner to pay him the aforesaid balance and that the same be declared as preferred credit.
The claim was referred to the commissioner appointed by the court, who at the same time acted as referee, and
this officer recommended that the balance claimed be paid without interest and as an ordinary credit. The court
approved the recommendation and entered judgment in the accordance therewith. The claimant took an appeal.

ISSUES:

1.Whether or not the current account and savings deposits are preferred credits in cases involving insolvency and
liquidation of the bank.

2.Whether or not the deposits could be offset with the debt of the depositor with the bank.

3.Whether or not the deposits should earn interest from the time the bank ceased to operate.

RULING:

1.The SC ruled that, these deposits are essentially merchantile contracts and should, therefore, be governed by the
provisions of the Code of Commerce. In accordance with article 309, the so-called current account and savings
deposits have lost the character of deposits properly so-called, and are converted into simple commercial loans,
because the bank disposed of the funds deposited by the claimant for its ordinary transactions and for the banking
business in which it was engaged. That the bank had the authority of the claimant to make use of the money
deposited on current and savings account is deducible from the fact that the bank has been paying interest on
both deposits, and the claimant himself asks that he be allowed interest up to the time when the bank ceased its
operations. Moreover, according to section 125 of the Corporation Law and 9 of Act No. 3154, said bank is
authorized to make use of the current account, savings, and fixed deposits provided it retains in its treasury a
certain percentage of the amounts of said deposits.

2.It appears that even after the enactment of the Insolvency Law there was no law in this jurisdiction governing the
order or preference of credits in case of insolvency and liquidation of a bank. But the Philippine Legislature
subsequently enacted Act No. 3519, amended various sections of the Revised Administrative Code, which took
effect on February 20, 1929, and section 1641 of this latter Code. as amended by said Act provides:

SEC. 1641. Distribution of assets. — In the case of the liquidation of a bank or banking institution, after payment of
the costs of the proceeding, including reasonable expenses, commissions and fees of the Bank Commissioner, to
be allowed by the court, the Bank Commissioner shall pay the debts of the institution, under of the court in the
order of their legal priority.

From this section 1641 we deduce that the intention of the Philippine Legislature, in providing that the Bank
Commissioner shall pay the debts of the company by virtue of an order of the court in the order of their priority,
was to enforce the provisions of section 48, 49 and 50 of the Insolvency Law in the sense that they are made
applicable to cases of insolvency or bankruptcy and liquidation of banks. No other deduction can be made from the
phrase “in the order of their legal priority” employed by the law, for there being no law establishing any priority in
the order of payment of credits, the legislature could not reasonably refer to any legislation upon the subject,
unless the interpretation above stated is accepted.
Examining now the claims of the appellant, it appears that none of them falls under any of the cases specified by
section 48, 49 and 50 of the Insolvency Law; wherefore, we conclude that the appellant’s claims, consisting of his
current and savings account, are not preferred credits.

3. “It may be stated as a general rule that when a depositor is indebted to a bank, and the debts are mutual — that
is, between the same parties and in the same right — the bank may apply the deposit, or such portion thereof as
may be necessary, to the payment of the debt due it by the depositor, provided there is no express agreement to
the contrary and the deposit is not specially applicable to some other particular purposes.” (7 Am. Jur., par. 629,
p.455; United States vs. Butterworth-Judson Corp., 267 U.S., 387; National Bank vs. Morgan, 207 Ala.., 65; Bank of
Guntersville vs. Crayter, 199 Ala., 699; Tatum vs. Commercial Bank & T. Co., 193 Ala., 120; Desha Bank & T. Co. vs.
Quilling, 118 Ark., 114; Holloway vs. First Nat. Bank, 45 Idaho, 746; Wyman vs. Ft. Dearborn Nat Bank, 181 Ill., 279;
Niblack vs. Park Nat. Bank, 169 Ill., 517; First Nat Bank vs. Stapf., 165 Ind., 162; Bedford Bank vs. Acoam, 125 Ind.,
584.) The situation referred to by the appellees is inevitable because section 1639 of the Revised Administrative
Code, as amended by Act No. 3519, provides that the Bank Commissioner shall reduce the assets of the bank into
cash and this cannot be done without first liquidating individually the accounts of the debtors of said bank, and in
making this individual liquidation the debtors are entitled to set off, by way of compensation, their claims against
the bank.

4. Upon this point a distinction must be made between the interest which the deposits should earn from their
existence until the bank ceased to operate, and that which they may earn from the time the bank’s operations
were stopped until the date of payment of the deposits. As to the first class, it should be paid because such
interest has been earned in the ordinary course of the bank’s business and before the latter has been declared in a
state or liquidation. Moreover, the bank being authorized by law to make us of the deposits, with the limitation
stated, to invest the same in its business and other operations, it may be presumed that it bound itself to pay
interest to the depositors as in fact it paid interest prior to the date of the said claims.

As to the interest which may be charged from the date the bank ceased to do business because it was declared in a
state of liquidation, SC held that the said interest should not be paid. Under articles 1101 and 1108 of the Civil
Code, interest is allowed by way of indemnity for damages suffered, in the cases wherein the obligation consists in
the payment of money. In view of this, SC held that in the absence of any express law or any applicable provision
of the Code of Commerce, it is not proper to pay this last kind of interest to the appellant upon his deposits in the
bank, for this would be anomalous and unjustified in a liquidation or insolvency of a bank. This rule should be
strictly observed in the instant case because it is understood that the assets should be prorated among all the
creditors as they are insufficient to pay all the obligations of the bank.

In view of all the foregoing considerations, SC affirmed the part of the appealed decision for the reasons stated
herein, and it is ordered that the net claim of the appellant, amounting to P13,611.21, is an ordinary and not a
preferred credit, and that he is entitled to charge interest on said amount up to September 19, 1931.

25. Guingona vs. City Fiscal, 128 SCRA 577

Facts:
Private respondent Clement David invested with the National Savings and Loan Association (NSLA) placed on 9
deposits through the inducement of an Australian national who was allegedly a close associate of petitioners
herein. NSLA was then placed under receivership by the Central Bank. David filed claims for his and his sister’s
investments and received a report that only a portion of the investments they claim were entered in the records of
NSLA. David alleged that there was misappropriation of funds and violation of Central Bank circulars, hence
charged petitioners herein with estafa. Petitioners moved to dismiss the charges on the ground that David’s claims
comprised a purely civil obligation which was itself novated.
Issue:
Whether or not the criminal complaint for estafa will prosper.
Ruling: NO.
It must be pointed out that when private respondent David invested his money on nine and savings deposits with
the aforesaid bank, the contract that was perfected was a contract of simple loan or mutuum and not a contract of
deposit.
Hence, the relationship between the private respondent and the Nation Savings and Loan Association is that of
creditor and debtor; consequently, the ownership of the amount deposited was transmitted to the Bank upon the
perfection of the contract and it can make use of the amount deposited for its banking operations, such as to pay
interests on deposits and to pay withdrawals. While the Bank has the obligation to return 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.
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.

26. PBCOM vs. CA, 269 SCRA 695

 G.R. No. 97626, March 14, 1997

o The negligence must be the proximate cause of the loss

FACTS: 

Rommel’s Marketing Corporation (RMC) maintained two separate current accounts with PBC in connection with its
business of selling appliances. The RMC General Manager Lipana entrusted to his secretary, Irene Yabut, RMC
funds amounting to P300,000+ for the purpose of depositing the same to RMC’s account with PBC. However, it
turned out that Yabut deposited the amounts in her husband’s account instead of RMC. Lipana never checked his
monthly statement of accounts regularly furnished by PBC so that Yabut’s modus operandi went on for the span of
more than one year.
ISSUE: 

o What is the proximate cause of the loss – Lipana’s negligence in not checking his monthly statements or
the bank’s negligence through its teller in validating the deposit slips?
HELD: 

The bank teller was negligent in validating, officially stamping and signing all the deposit slips prepared and
presented by Yabut, despite the glaring fact that the duplicate copy was not completely accomplished contrary to
the self-imposed procedure of the bank with respect to the proper validation of deposit slips, original or duplicate.

The bank teller’s negligence, as well as the negligence of the bank in the selection and supervision of its bank teller,
is the proximate cause of the loss suffered by the private respondent, not the latter’s entrusting cash to a
dishonest employee. Xxx Even if Yabut had the fraudulent intention to misappropriate the funds, she would not
have been able to deposit those funds in her husband’s current account, and then make plaintiff believe that it was
in the latter’s accounts wherein she had deposited them, had it not been for the bank teller’s aforesaid gross and
reckless negligence.

Doctrine of Last Clear Chance  – where both parties are negligent, but the negligent act of one is appreciably later
in time than that of the other, or when it is impossible to determine whose fault or negligence should be attributed
to the incident, the one who had the last clear opportunity to avoid the impending harm and failed to do so is
chargeable with the consequences thereof. It means that the antecedent negligence of a person does not preclude
the recovery of damages for the supervening negligence of, or bar a defense against liability sought by another, if
the latter, who had the last fair chance, could have avoided the impending harm by exercise of due diligence. (Phil.
Bank of Commerce v. CA, supra)

27. BPI vs. CA, 326 SCRA 641

BPI vs. Court of Appeals and Napiza

G.R. No. 112392. February 29, 2000, 326 scra 641
*accommodation party
**liability of general indorser

FACTS:
A certain Henry Chan owned a Continental Bank Manager’s Check payable to "cash" in the amount of Two
Thousand Five Hundred Dollars ($2,500.00).  Chan went to the office of Benjamin Napiza and requested him to
deposit the check in his dollar account by way of accommodation and for the purpose of clearing the same. Private
respondent acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with the understanding that as
soon as the check is cleared, both of them would go to the bank to withdraw the amount of the check upon private
respondent’s presentation to the bank of his passbook.  Napiza thus endorsed the check and deposited it in a
Foreign Currency Deposit Unit (FCDU) Savings Account he maintained with BPI.  Using the blank withdrawal slip
given by private respondent to Chan, one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67 from
Napiza's FCDU account.  It turned out that said check deposited by private respondent was a counterfeit check. 

*When BPI demanded the return of $2,500.00, private respondent claimed that he deposited the check "for
clearing purposes" only to accommodate Chan.

**Petitioner claims that private respondent, having affixed his signature at the dorsal side of the check, should be
liable for the amount stated therein in accordance with the provision of the Negotiable Instruments Law on the
liability of a general indorser (Sec. 66).

ISSUE:*
Whether private respondent is obliged to return the money paid out by BPI on a counterfeit check even if he
deposited the check "for clearing purposes" only to accommodate Chan.

ISSUE:**
Whether or not respondent Napiza is liable under his warranties as a general indorser.
 
RULING:
Ordinarily private respondent may be held liable as an indorser of the check or even as an accommodation
party.  However, petitioner BPI, in allowing the withdrawal of private respondent’s deposit, failed to exercise the
diligence of a good father of a family.  BPI violated its own rules by allowing the withdrawal of an amount that is
definitely over and above the aggregate amount of private respondent’s dollar deposits that had yet to be
cleared.  The proximate cause of the eventual loss of the amount of $2,500.00 on BPI's part was its personnel’s
negligence in allowing such withdrawal in disregard of its own rules and the clearing requirement in the banking
system. In so doing, BPI assumed the risk of incurring a loss on account of a forged or counterfeit foreign check and
hence, it should suffer the resulting damage.

28. Citytrust Banking vs. IAC, 232 SCRA 559

G.R. No. 84281, 27 May 1994

FACTS:

Private respondent averred that she, a businesswoman, made regular deposits, starting September of 1979, with
petitioner Citytrust at its Burgos branch in Calamba, Laguna. On 15 May 1980, she deposited with petitioner the
amount of Thirty One Thousand Five Hundred Pesos(P31,500.00), in cash, in order to amply cover 6 postdated
checks she issued. When presented for encashment upon maturity, all the checks were dishonored due to
“insufficient funds.”Petitioner, in its answer, asserted that it was due to private respondent’s fault that her checks
were dishonored. It averred that instead of stating her correct account number, i.e., 29000823, inh er deposit slip,
she inaccurately wrote 2900823. The RTC dismissed the complaint for lack of merit.

The CA reversed the trial court’s decision.

ISSUE: Whether petitioner bank is liable.

 

RULING:

We are not persuaded that defendant bank was not free from blame for the fiasco. The depositors are not
concerned with banking procedure. That is the responsibility of the bank and its employees. Bank clients are
supposed to rely on the services extended by the bank, including the assurance that their deposits will be duly
credited them as soon as they are made. For, any delay in crediting their account can be embarrassing to them as
in the case of plaintiff.

The point is that as a business affected with public interest and because of the nature of its functions, the bank is
under obligation to treat the accounts of its depositors with meticulous care,always having in mind the fiduciary
nature of their relationship. However it is wrong to award, along with nominal damages, temperate or moderate
damages. The two awards are incompatible and cannot be granted concurrently. Nominal damages are given in
order that a right of the plaintiff, which has been violated or invaded by the defendant,may be vindicated or
recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him (Art. 2221).

Temperate or moderate damages, which are more than nominal but less than compensatory damages, on the
other hand, may be recovered when the court finds that some pecuniary loss has been suffered but its amount
cannot, from the nature of the case, be proved with reasonable certainty (Art. 2224, New Civil Code). In the instant
case, we also find need for vindicating the wrong done on private respondent, and we accordingly agree with the
Court of Appeals in granting to her nominal damages but not in similarly awarding temperate or moderate
damages.

Other digest 

GR No. 84281 May 27, 1994

 Vitug, J:

Facts:
            Emme Herrero, businesswoman, made regular deposits with Citytrust Banking Corp. at its Burgoa branch in
Calamba, Laguna. She deposited the amount of P31, 500 in order to amply cover 6 postdated checks she issued. All
checks were dishonored due to insufficiency of funds upon the presentment for encashment. Citytrust banking
Corp. asserted that it was due to Herrero’s fault that her checks were dishonored, for he inaccurately wrote his
account number in the deposit slip. RTC dismissed the complaint for lack of merit. CA reversed the decision of RTC.

Issue:
            Whether or not Citytrust banking Corp.  has the duty to honor checks issued by Emme Herrero despite the
failure to accurately stating the account number resulting to insufficiency of funds for the check.

Held:
            Yes, even it is true that there was error on the account number stated in the deposit slip, its is, however,
indicated the name of “Emme Herrero.” This is controlling in determining in whose account the deposit is made or
should be posted. This is so because it is not likely to commit an error in one’s name than merely relying on
numbers which are difficult to remember. Numbers are for the convenience of the bank but was never intended to
disregard the real name of its depositors. The bank is engaged in business impressed with public trust, and it is its
duty to protect in return its clients and depositors who transact business with it. It should not be a matter of the
bank alone receiving deposits, lending out money and collecting interests. It is also its obligation to see to it that all
funds invested with it are properly accounted for and duly posted in its ledgers.

29. BPI vs. IAC, 206 SCRA 408

BPI vs. IAC, 206 SCRA 408, February 21, 1992

Posted by Pius Morados on August 22, 2012

(Bank; Negligence; Meticulous Care in treatment of accounts)
Facts: When the respondent spouses opened their joint current account, the “new accounts” teller of the bank by
mistake, placed the old existing separate personal account number of Arthur Canlas on the deposit slip for the new
joint checking account of the spouses so that the initial deposit for the joint checking account was miscredited to
Arthur’s personal account .

Because of this, one of the checks issued by one of the spouse was dishonoured for insufficient funds prompting
private respondents to file a complaint for damages against petitioner bank. Petitioner bank argues that it is not
considered negligent and liable for damages on account of the inadvertence of its bank employee considered that
it was an honest mistake and not tainted with malice and bad faith.

Issue: WON the petitioner bank was guilty of gross negligence in the handling of private respondents’ bank
account.

Held: There is no merit in petitioner’s argument that it should not be considered negligent, much less held liable
for damages on account of the inadvertence of its bank employee for Article 1173 of the Civil Code only requires it
to exercise the diligence of a good father of a family.

As a business affected with public interest and because of the nature of its functions, the bank is under obligation
to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their
relationship (Simex vs CA, 183 SCRA 360).

30. Go vs. IAC, 197 SCRA 22 di ko sure if mao ni pero 90 % feel nako mao ni haha
 31. Prudential Bank vs. CA, 328 SCRA 264
FACTS: Private respondent Leticia Tupasi-Valenzuela opened anaccount in the Petitioner Prudential bank. On June
1, 1988, herein private respondent deposited P35,271.60 drawn against the Philippine Commercial International
Bank (PCIB). Thereafter, private respondent issued Prudential Bank check in the amount of P11,500 post-dated
June 20, 1988 in favor of one Belen Legaspi. Legaspi, who was in jewelry trade, endorsed the check to Philip
Lhuiller, a businessman in the same field. When the check was deposited with the PCIB, it was dishonored for
being drawn against insufficient funds. Private respondent asked why her check was dishonored where there was
sufficient funds. The bank officer told her there was no need to review the passbook because the bank ledger was
the best proof that she did not have sufficient funds. Then he abruptly faced his typewriter and started typing.
Later, it was found out that the bank misposted private respondent’s check deposit to
another account anddelayed the posting of the same to the proper account. The bank admitted that it was at fault.
But since it is not the first time that private respondent experienced this scenario, she commenced a suit for
damages.

ISSUE: Can damages be awarded to private respondent on accountof the bank’s negligence ?

HELD: Yes. The trial court found “that the misposting is a clear proof of lack of supervision on the part of
the defendant bank”. The appellatecourt also found out that “while it may be true that the bank’s negligence in
dishonoring the properly funded check might not have been attended with malice and bad faith, as appellee
submits, nevertheless, it is the result of lack of due care and caution expected of an employee of a firm engaged in
so sensitive and accurately demanding task as banking”.

In Simex International vs. CA, 183 SCRA 360,367 (1990), and BPI vs. IAC, 206 SCRA 408, this court had occasion to
stress the fiduciary nature of the relationship between a bank and its depositors and the extent
ofdiligence expected from the former in handling the accounts entrusted to its care.

In the case of PNB vs. CA, we held that “a bank is under obligation to treat the accounts of its depositors with
meticulous care whether suchaccount consists only of a few hundred pesos or millions of pesos. Responsibility
arising from negligence in the performance of every kind of obligation is demandable. While petitioner’s
negligence in this case may not have been attended with malice and bad faith, nevertheless, it caused serious
anxiety, embarrassment and humiliation”. 

32. Moran vs. CA, 230 SCRA 799

Facts: M who regularly purchased bulk fuel from P maintained 3 joint accounts with Citytrust Bank, namely:
Current Account No. 1 (CA1), Savings Account No. 1 (SA1), and Savings Account No. 2 (SA2).
M had a pre-authorized transfer (PAT) agreement with Citytrust wherein the former have written authority to the
latter to automatically transfer funds from their SA1 to their CA1 at any time whenever the funds in their current
account were insufficient to meet withdrawals from said current account.

On December 12, 1983, M drew a check for P50, 576.00 payable to P.

On December 13, 1983, M issued another check in the amount of P56, 090.00 in favor of the same.

On December 14, 1983, P deposited the 2 aforementioned check to its account with the PNB. In turn, PNB
presented them for clearing and the record shows that on December 14, 1983, the accounts has insufficient funds
(CA1 had a zero balance, while SA1 [covered by PAT] had an available balance of P26, 104.30 and SA2 had an
available balance of P43, 268.39). Hence the checks were dishonoured.

On December 15, 1983 at 10:00 AM, M went to the bank as was his regular practice and deposited in their SA2 the
amounts of P10, 874.58 and P6, 754.25, and he deposited likewise in the SA1 the amounts of P5, 900.00, P35,
100.00 and 30.00. The amount of P40,000.00 was then transferred by him from SA2 to their CA1. At the same time,
the amount of P66,666.00 was transferred from SA1 to the same current account through PAT agreement.

Sometime on December 15 or 16, 1983 M was informed that that P refused to deliver their orders on a credit basis
because the two checks they had previously issued were dishonored upon presentment for payment due to
“insufficiency of funds.” The non-delivery of orders forced petitioners to stop business operations, allegedly
causing them to suffer loss of earnings.

On December 16 or 17, 1983, P got the signature of M on an application for a manager’s check so that the
dishonoured checks could be redeemed and presented the checks in payment for the two dishonoured checks.

On July 24, 1984, claimed P1,000,000.00 for moral damages.

Issue: WON the bank is liable for damages for its refusal to pay a check on account of insufficient funds considering
the fact that a deposit may be made later in the day.
Held:  No, Petitioners had no sufficient funds in their accounts when the bank dishonoured the checks in question.
First, a check is a bill of exchange drawn on a bank payable on demand. Thus, a check is a written order addressed
to a bank or persons carrying on the business of banking, by a party having money in their hands, requesting them
to pay on presentment, to a person named therein or to bearer or order, a named sum of money.
Second, the relationship between the bank and the depositor is that of a debtor and creditor. By virtue of the
contract of deposit between the banker and its depositor, the banker agrees to pay checks drawn by the depositor
provided that said depositor has money in the hands of the bank.
Thirdly, where the bank possesses funds of the depositor, it is bound to honor his checks to the extent of the
amount deposits. The failure of a bank to pay the check of a merchant or a trader, when the deposit is sufficient,
entitles the drawer to substantial damages without any proof of actual damages. Conversely, a bank is not liable
for its refusal to pay a check on account of insufficient funds, notwithstanding the fact that a deposit may be made
later in the day. Before a bank depositor may maintain a suit to recover a specific amount form his bank, he must
first show that he had on deposit sufficient funds to meet demand.
Considering the clearing process adopted, it is clear that the available balance on December 14, 1983 was used by
the bank in determining whether or not there was sufficient cash deposited to fund the two checks. When M’s
checks were dishonored due to insufficiency of funds, the available balance of SA1 which was the subject of the
PAT agreement was not enough to cover either of the two checks. On December 14, 1983, when PNB presented
the checks for collection, the available balance for SA1 was only P26, 104.30 while CA1had no available balance. It
was only on December 15, 1983 at around 10:00 AM that the necessary funds were deposited, which
unfortunately was too late to prevent the dishonour of the checks.

33. Philbank vs. CA, 269 SCRA 695 same as number 26

34. Citytrust vs. IAC, 232 SCRA 559 same as number 28

35. BPI Family Savings Bank vs. First Metro Investment Corp., 429 SCRA 30

BPI Family Savings v. First Metro Investment (G.R. No. 132390)

Date: October 16, 2016Author: jaicdn0 Comments

Facts:

Respondent FMIC an investment house, through its EVP Ong, opened a current account amounting P100M with
petitioner’s San Francisco Del Monte branch upon the request of his friend which is a close acquaintance of said
bank’s branch manager with the latter’s aim of increasing the deposit level in his branch. Petitioner through its
SFDM branch manager guaranteed the payment of deposit by the FMIC with interest on the condition that the
interest is to be paid in advance. An agreement was reached between the parties and subsequently petitioner paid
FMIC upon clearance of the latter’s check deposit. However, on the basis of an Authority to Debit signed by the
EVP and Senior Manager of FMIC, petitioner transferred P80M from FMCI’s current account to the savings account
of one Tevesteco, a stevedoring company. FMIC denied having authorized the transfer of its funds claiming that
the signatures 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. Thus, FMIC filed a complaint with
the RTC which then ruled in their favor. CA affirmed.

Issue:

Whether petitioner was remiss in its fiduciary duty.

Ruling: YES.

Petitioner maintains that respondent should have first inquired whether the deposit of P100 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.
Thus, we uphold the finding of both lower courts that 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.