1. Arturo vs.

Sandejas

As he had to leave for the U.S., Arturo drew up a UCPB check and wrote on it the name of the payee,
Dr. Manuel Borja. He signed the check. The check was intended as payment for the renewal of the lease. The date and the
amount were left blank because Arturo does not know when it will be renewed and the new rate of the lease. The check was left
with Arturo's sister-in-law who was instructed to deliver or give it to Benjamin.
The check later came to the possession of Alice who felt that Arturo cheated their sister in the amount of ₱3,000,000.00. Alice
got her driver, Kudera, to stand as the payee of the check, Dr. Borja. They went to SBC Greenhills Branch together with Kudera
whom they introduced as Dr. Borja to the then Assistant Cashier Luis. After introducing the said man as Dr. Borja, Rosita, Alice
and the man who was later identified as Kudera opened a Joint Savings Account, and deposited the check there. No ID card was
required of Mr. Kudera because it is an internal policy of the bank that when a valued client opens an account, an identification
card is no longer required. SBC also allowed the check to be deposited without the endorsement of the impostor Kudera. SBC
officials stamped on the dorsal portion of the check "endorsement/lack of endorsement guaranteed" and sent the check for
clearing to the Philippine Clearing House Corporation. After the check had already been cleared by the drawer bank UCPB,
Rosita withdrew P1 million and deposited said amount to the current account of Alice with SBC Greenhills Branch, and also
caused the transfer
iSSUE: WON is grossly negligent

Ruling: YES. the act of Alice and Rosita in fraudulently encashing the subject check to the prejudice of
respondents is certainly a violation of law as well as of the public policy that no one should put the law into his own hands. As
to SBTC and its officers, their negligence is so gross as to amount to a willfull injury to respondents. The banking
system has become an indispensable institution in the modern world and plays a vital role in the economic life of
every civilized society. Whether as mere passive entities for the safe-keeping and saving of money or as active instruments of
business and commerce, banks have attained a ubiquitous presence among the people, who have come
to regard them with respect and even gratitude and most of all, confidence. For this reason, banks should guard
against injury attributable to negligence or bad faith on its part. exemplary or corrective damages are imposed by way of example
or correction for
the public good, in addition to moral, temperate, liquidated, or compensatory damages. In the instant case, the award
of exemplary damages in favor of respondents is in order for the purpose of deterring those who intend to enforce
their rights by taking measures or remedies which are not in accord with law and public policy. On the part of
respondent bank, the public relies on a bank's sworn profession of diligence and meticulousness in giving
irreproachable service. Hence, the level of meticulousness must be maintained at all times by the banking sector. In
the present case the award of exemplary damages is justified by the brazen acts of petitioners Rosita and Alice in violating the
law coupled with the gross negligence committed by respondent bank and its officers in allowing the subject check to be
deposited which later paved the way for its encashment.

2. BANK OF AMERICA NT & SA, Petitioner, vs. PHILIPPINE RACING CLUB, Respondent.

President and Vice President of PRCI were scheduled to go out of the country in connection with the corporation’s
business. In order not to disrupt operations in their absence, they pre-signed several checks relating to the current
account. The intention was to insure continuity of PRCI’s operations by making available cash/money especially to
settle obligations that might become due. These checks were entrusted to the accountant with instruction to make use of the same
as the need arose. The internal arrangement was, in the event there was need to make use of the checks, the accountant would
prepare the corresponding voucher and thereafter complete the entries on the pre-signed checks. It turned out that a John Doe
presented to BA for encashment a couple of PRCI’s checks with the indicated value of P110,000.00 each. It is admitted that these
2 checks were among those presigned by PRCI’s authorized signatories. On the space where the name of the payee
should be indicated (Pay To The Order Of) the following 2-line entries were instead typewritten: on the upper line was the
word "CASH" while the lower line had the following typewritten words, viz: "ONE HUNDRED TEN THOUSAND PESOS
ONLY."
Despite the highly irregular entries on the face of the checks, BA, without as much as verifying and/or confirming the
legitimacy of the checks considering the substantial amount involved and the obvious infirmity/defect of the checks
on their faces, encashed said checks .

Issue: won the bank is negligent and the proximate cause of the loss

Ruling: The proximate cause of the wrongful encashment of the checks in question was due to BA’s failure to make a verification
regarding the said checks with the PRCI in view of the misplacement of entries on the face of the checks. It is well-settled that
banks are engaged in a business impressed with public interest, and it is their duty to protect in return their many clients and
depositors who transact business with them. They have the obligation to treat their client’s account meticulously and with the
highest degree of care, considering the fiduciary nature of their relationship. The diligence required of banks, therefore, is more
than that of a good father of a family.
In the case at bar, extraordinary diligence demands that petitioner should have ascertained from respondent the
authenticity of the subject checks or the accuracy of the entries therein not only because of the presence of highly
irregular entries on the face of the checks but also of the decidedly unusual circumstances surrounding their
encashment. Respondent’s witness testified that for checks in amounts greater than Twenty Thousand Pesos
(₱20,000.00) it is the company’s practice to ensure that the payee is indicated by name in the check. it is highly uncommon for a
corporation to make out checks payable to "CASH" for substantial
amounts such as in this case. If each irregular circumstance in this case were taken singly or isolated, the bank’s
employees might have been justified in ignoring them. However, the confluence of the irregularities on the face of the checks and
circumstances that depart from the usual banking practice of respondent should have put petitioner’s
employees on guard that the checks were possibly not issued by the respondent in due course of its business .
Petitioner’s subtle sophistry cannot exculpate it from behavior that fell extremely short of the highest degree of care and diligence
required of it as a banking institution. Indeed, taking this with the testimony of petitioner’s operations manager that in case of an
irregularity on the face of the check. (such as when blanks were not properly filled out) the bank may or may not call the client
depending on how busy the bank is on a particular day, we are even more convinced that petitioner’s safeguards to protect clients
from check fraud are arbitrary and subjective. Every client should be treated equally by a banking institution regardless of the
amount of his deposits and each client has the right to expect that every centavo he entrusts to a bank would be handled with the
same degree of care as the accounts of other clients. Perforce, we find that petitioner plainly failed to adhere to the high standard
of diligence expected of it as a banking institution.

Cannot evade responsibility for the loss by attributing negligence on the part of petitioner by signing blank chels for the bank had
the last clear chance to avoid the loss.Failing to make the proper verification becase of the load of banking transaction is a flimy
excuse. ALLOCATED THE LOSS (60%- 40)

3.CITIBANK, N.A., Petitioner, v. ATTY. ERNESTO S. DINOPOL, Respondent

Facts: On March 6, 1997 , Atty. Dinopol issued a check using his credit checkbook account with Citibank in the amount of
P30,000.00 in favor of one Dr. Marietta M. Geonzon for investment purposes in her restaurant business. However, when the
check was deposited on March 12, 1997, it was dishonored for the reason, 'Drawn Against Insufficient Funds' or 'DAIF.' In
defense, Citibank averred that it was completely justified in dishonoring Atty. Dinopol's check because the account did not have
sufficient funds at the time it was issued. Citibank explained that when said check in the amount of P30,000.00 was issued, his
credit line was already insufficient to accommodate it. His credit limit had been reduced by the interests and penalty charges
imposed as a result of his late payment. Citibank argued that had Atty. Dinopol been prompt in the payment of his
obligations, he would not have incurred interests and penalty charges and his credit line of P30,000.00 would have been
available at the time the check was issued and presented for payment.

It cannot be over emphasized that the banking business is impressed with public interest. Of paramount importance
is the trust and confidence of the public in general in the banking industry. Consequently, the diligence required of
banks is more than that of a Roman pater familias or a good father of a family. The highest degree of diligence is
expected. In its declaration of policy, the General Banking Law of 2000 requires of banks the highest standards of integrity and
performance. Needless to say, a bank is 'under obligation to treat the accounts of its depositors with meticulous care.' The
fiduciary nature of the relationship between the bank and the depositors must always be of paramount concern.

Contrary to Citibank's insistence, Atty. Dinopol was definitely not yet a delinquent account holder. More importantly, Citibank
failed to consider the fact that Atty. Dinopol issued the check on March 6, 1997 after paying the full amount of P1,629.21 and
clearing with the bank if he could issue a check in the amount of P30,000.00. Citibank did not even refute the allegation that it
gave Atty. Dinopol the go-signal to issue such a check.

4.BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. CASA MONTESSORI INTERNATIONALE LEONARDO T.
YABUT, respondents.

Facts: CASA Montessori International opened a current account with BPI, with CASA’s President Ms. Ma. Carina C. Lebron as
one of its authorized signatories.
In 1991, after conducting an investigation, CASA discovered that nine (9) of its checks had been encashed by a certain Sonny D.
Santos since 1990 in the total amount of ₱782,000.00. It turned out that ‘Sonny D. Santos’ with account at BPI’s Greenbelt
Branch was a fictitious name used by Leonardo T. Yabut
who worked as external auditor of CASA. Yabut voluntarily admitted that he forged the signature of Ms. Lebron and encashed
the checks. The PNP Crime Laboratory conducted an examination of the nine (9) checks and concluded that the handwritings
thereon compared to the standard signature of Ms. Lebron were not written by the latter. RTC rendered a decision in favor of
CASA. CA apportioned the loss between BPI and CASA. The appellate court took into account CASA’s contributory negligence
that resulted in the undetected forgery. It then ordered Yabut to reimburse BPI half the total amount claimed; and CASA, the
other half. It also disallowed attorney’s fees and moral and exemplary damages.

Issue: WON BPI is negligent

Ruling: Having established the forgery of the drawer’s signature, BPI -- the drawee -- erred in making payments by virtue
thereof. The forged signatures are wholly inoperative, and CASA -- the drawer whose authorized signatures do not
appear on the negotiable instruments -- cannot be held liable thereon. Neither is the latter precluded from setting up
forgery as a real defense.
Clear Negligence in Allowing Payment Under a Forged Signature
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." BPI contends that it has a
signature verification procedure, in which checks are honored only when the signatures therein are verified to be the
same with or similar to the specimen signatures on the signature cards. Nonetheless, it still failed to detect the eight
instances of forgery. Its negligence consisted in the omission of that degree of diligence required of a bank. It cannot now feign
ignorance, for very early on we have already ruled that a bank is "bound to know the signatures of its customers; and if it
pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the
amount so paid to the account of the depositor whose name was forged." In fact, BPI was the same bank involved when we
issued this ruling seventy years ago.

5. PHILIPPINE BANKING CORPORATION, petitioner, vs. COURT OF APPEALS and LEONILO MARCOS, respondents.
According to the BANK, Marcos delivered to the BANK the time deposit certificates by virtue of the Deed of Assignment, which
Marcos executed to secure his various loan obligations. The BANK claimed that these loans are covered by Promissory Note No.
20-756-82 for P420,000 and Promissory Note No. 20-979-83 for P500,000. When Marcos defaulted in the payment of
Promissory Note No. 20-979-83, the BANK debited his time deposits and applied the same to the obligation that is now
considered fully paid. Marcos denied that he obtained the second loan from the BANK for P500,000 with interest at 25% per
annum supposedly covered by Promissory Note No. 20-979-83. Marcos prayed the trial court to declare Promissory Note No.
20-979-83 void.

Issue: WON the bank is negligent

Ruling: Yes. The existence of Promissory Note No. 20-979-83 could have been easily proven had the BANK presented the
original copies of the promissory note and its supporting evidence. In lieu of the original copies, the BANK presented the
"machine copies of the duplicate" of the documents. These substitute documents have no evidentiary value. The BANK’s failure
to explain the absence of the original documents and to maintain a record of the offsetting of this loan with the time deposits
bring to fore the BANK’s dismal failure to fulfill its fiduciary duty to Marcos. Section 2 of Republic Act No. 8791 (General
Banking Law of 2000) expressly imposes this fiduciary duty on banks when it declares that the State recognizes the "fiduciary
nature of banking that requires high standards of integrity and performance." This statutory declaration merely echoes the earlier
pronouncement of the Supreme Court in Simex International (Manila) Inc. v. Court of Appeals requiring banks to "treat the
accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship."

6. PHILIPPINE NATIONAL BANK VS. PIKE

Facts: This case stemmed from Pike’s complaint alleging that before he left for Japan, to work as a gay entertainer, he kept his
passbook inside a cabinet under lock and key, in his home. On April 1993, he discovered that some of his valuables were missing
including the passbook. He then immediately reported the incident to the police which led to the arrest and prosecution of Mr.
Joy Davasol. Pike also discovered that Davasol made two unauthorized withdrawals from his U.S. Dollar Savings Account both
times at the PNB Buendia branch. However, PNB refused to credit the amount back to Pike’s account without justifiable reason,
and instead, PNB wrote
him that it exercised due diligence in the handling of said account.

Issue: WON PNB negligently allowed the unauthorized withdrawals of respondent Pike’s U.S. Dollar Savings
Account.

Ruling: Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees, and
having such obligation, the Supreme Court cannot ignore the circumstances surrounding the case at bar - how the employees of
petitioner PNB turned their heads, nay, closed their eyes to the suspicious circumstances enfolding the two withdrawals subject of
the case at bar. It may even be said that they went out of their ways to disregard standard operating procedures formulated
to ensure the security of each and every account that they are handling. PNB does not deny that the withdrawal slips used were in
breach of standard operating procedures of banks in the ordinary and usual course of banking operations as testified to by one of
its witnesses, Mr. Lorenzo Bal, on cross-examination when he stated that “ Normally, a depositor and the bank agrees on certain
terms that if you allow withdrawal from his account, his or her account, its enough that the signature of the depositor appears on
both spaces in the front side of the withdrawal slip.
Even if you do not have the back portion of the withdrawal slip.” Petitioner PNB's witness was utterly remiss in protecting the
bank's client, as well as the bank itself, when he allowed an account holder to make it appear as if he was the one actually
withdrawing from an account and actually receiving the withdrawn amount.

From the cross-examination, it appears that the witness, Lorenzo Bal, was not even reasonably familiar with respondent Pike, yet,
he was ready, willing and able to accommodate the verbal request of said depositor. Worse still, the witness still approved the
withdrawal transaction without asking for any proof of identification for the reason that: 1) Davasol was in possession of a pre-
signed withdrawal slip; and 2) the witness "recognized" the signature of respondent Pike - even after admitting that he did not
bother to counter check the signature on the slip with the specimen signature card of respondent Pike and that he met respondent
Pike just once so that he cannot seem to recall what the latter looks like. The testimony of the same
witness will justify a finding of negligence amounting to bad faith when he admitted that: (1) he did not require Pike to sign the
authorization portion of the withdrawal slip; (2) he did not require any identification card from Joy Davasol; (3) the alleged
authority given to him by Pike was merely a verbal request and that (4) the verbal request was not a standard operating procedure
of the bank. Having admitted that pre-signed withdrawal slips do not constitute the normal procedure with respect to withdrawals
by representatives should have already put petitioner PNB's employees on guard. Rather than readily validating and permitting
said withdrawals, they should have proceeded more cautiously. Clearly, petitioner PNB’s employee, Lorenzo Bal, was
exceedingly careless in his treatment of Pike's savings account.

8. REYES VS. COURT OF APPEALS

Facts: Godofredo, Casheir of the Philippine Racing Club (PCRI), went to respondent bank to apply for a demand draft
in the amount AU$1,610.00 payable to the order of the 20th Asian Racing Conference Secretariat of Sydney,
Australia. He was attended to by respondent bank’s assistant cashier, Mr. Yasis, who at first denied the application
for the reason that respondent bank did not have an Australian dollar account in any bank in Sydney. Godofredo
asked if there could be a way for respondent bank to accommodate PRCI’s urgent need to remit Australian dollars to
Sydney. Yasis of respondent bank then informed Godofredo of a roundabout way of effecting the requested
remittance to Sydney thus: the respondent bank would draw a demand draft against Westpac Bank in Sydney,
Australia (Westpac-Sydney) and have the latter reimburse itself from the U.S. dollar account of the respondent in
Westpac Bank in New York, U.S.A. (Westpac-New York).

Petitioners spouses Gregorio Reyes and Consuelo Puyat-Reyes left for Australia to attend the said racing conference. When
petitioner Gregorio Reyes arrived in Sydney, he went directly to the lobby of Hotel Regent Sydney to register as a conference
delegate. At the registration desk, in the presence of other delegates from various member of the conference, the secretariat told
her that he could not register because the foreign exchange demand draft for his registration fee had been dishonored for the
second time.

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

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

9. FIRST PLANTERS VS. CIR

Facts: First Planter’s Pawnshop was informed by the BIR that it has an existing tax deficiency on its VAT and Documentary
Stamp Tax (DST) liabilities for the year 2000. The deficiency was 541,102.79 for VAT and 23,646.33 for DST. Subsequently,
petitioner received a formal notice of assessment directing payment of VAT and DST deficiency.

Petitioner protested the assessment for lack of legal and factual bases.

The core of petitioner’s argument is that it is not a lending investor within the purview of Section 108(A) of the NIRC, as
amended, and therefore not subject to VAT.

First Planter’s Pawnshop is not liable for VAT.

Ruling:

defines pawnshop as a person or entity engaged in the business of lending money on personal property delivered as security for
loans and shall be synonymous, and may be used interchangeably, with pawnbroker or pawn brokerage.
That pawnshops are to be treated as non-bank financial intermediaries is further bolstered by the fact that
pawnshops are under the regulatory supervision of the Bangko Sentral ng Pilipinas and covered by its Manual of
Regulations for Non-Bank Financial Institutions. Since petitioner is a non-bank financial intermediary, it is subject to 10% VAT
for the tax years 1996 to 2002; however, with the levy, assessment and collection of VAT from non-bank financial intermediaries
being specifically deferred by law, then petitioner is not liable for VAT during these tax years.

The Court found that pawnshops should have been treated as non-bank financial intermediaries from the very beginning, subject
to the appropriate taxes provided by law. Financial intermediaries as persons or entities whose principal functions include the
lending, investing or placement of funds or evidences of indebtedness or equity deposited with them, acquired by them, or
otherwise coursed through them, either for their own account or for the account of others.

Pledge is among the privileges, the exercise of which is subject to DST. A pledge may be defined as an accessory, real and
unilateral contract by virtue of which the debtor or a third person delivers to the creditor or to a third person
movable property as security for the performance of the principal obligation, upon the fulfillment of which the thing
pledged, with all its accessions and accessories, shall be returned to the debtor or to the third person … ”
True, the law does not consider said ticket as an evidence of security or indebtedness. However, for purposes of taxation, the
same pawn ticket is proof of an exercise of a taxable privilege of concluding a contract of pledge. At any rate, it is not said ticket
that creates the pawnshop’s obligation to pay DST but the exercise of the privilege to enter into a contract of pledge. There is
therefore no basis in petitioner’s assertion that a DST is literally a tax on a document and that no tax may be imposed on a pawn
ticket.

12. PHILIPPINE NATIONAL BANK, Petitioner, - versus - RAMON BRIGIDO L. VELASCO, Respondent.
G.R.

Facts: THIS is a tale of a bank officer-depositor clinging to his position after violating bank regulations and
falsifying his passbook to cover up a false transaction. Ramon Brigido L. Velasco, a PNB audit officer, and his wife,
Belen Amparo E. Velasco, maintained Dollar Savings Account at PNB Escolta Branch. On June 30, 1995, while on official
business at the Legazpi Branch, he went to the PNB Ligao, Albay Branch and withdrew US$15,000.00 from the dollar
savings account. The Ligao Branch is an off-line branch, i.e., one with no network connection or computer linkage with
other PNB branches and the head office . The transaction was evidenced by an Interoffice Savings Account Withdrawal
Slip, also known as the Ticket Exchange Center (TEC). PNB Escolta Branch received the TEC covering the withdrawal. The
withdrawal was not, however, posted in the computer of the Escolta Branch when it received said advice. This means that the
withdrawal was not recorded. Thus, the account of Velasco had an overstatement of US$15,000.00. In September 1995, Velasco
claims that his New York-based brother, Gregorio Velasco, sent him various checks through his kin totaling US$15,000.00 and
that the checks would just be deposited in time in Velasco's account. Velasco updated his dollar savings account by depositing
US$12.78, reflecting a balance of US$15,486.01. discovered that the inter-branch withdrawal made on June 30, 1995 by
Velasco at PNB Ligao, Albay Branch in the amount of US$15,000.00 was not posted; and that no deposit of said amount
had been credited to the dollar savings account.

Issue: Whether the dismissal is illegal.

Ruling: No.

As an audit officer, Velasco should be the first to ensure that banking laws, policies, rules and regulations, are strictly observed
and applied by its officers in the day-to-day transactions. The banking system is an indispensable
institution in the modern world. It plays a vital role in the economic life of every civilized nation. Whether banks act
as mere passive entities for the safekeeping and saving of money, or as active instruments of business and commerce, they have
become an ubiquitous presence among the citizenry, who have come to regard them with respect and even gratitude and, most of
all, confidence. Velasco did not only violate bank rules and regulations. What compounds his offense was his unusual silence. He
never informed PNB about the huge overstatement of US$15,000.00 in his account. With his silence, he clearly intended to gain
at the expense of PNB. The omission to report is not trivial or inconsequential because it gave him the opportunity to withdraw
from his dollar savings account more than its real balance, as what he actually did. He took advantage of the overstatement of his
account, instead of protecting the interest of the bank. It would be impossible for him not to detect the error at the time he
deposited US$12.78 on October 6, 1995, because his account had a big balance despite the fact that no large amount of money
was deposited.

14. BPI FAMILY SAVINGS BANK, INC., Petitioner , - versus -FIRST METRO INVESTMENT CORPORATION,
Respondent. G.R. No 132390, May 21, 2004, THIRD DIVISION, SANDOVAL-GUTIERREZ, J.

Facts: First Metro Investment Corporation (FMIC), respondent, is an investment house organized under Philippine laws. FMIC,
through its Executive VP Antonio Ong, deposited METROBANK check no. 898679 of P100 million with BPI Family Bank (BPI
FB) San Francisco del Monte Branch (Quezon City). BPI FB paid FMIC 17% interest or P14,667,687.01 upon clearance of
the latter’s check deposit. However, onAugust 29, 1989, on the basis of an Authority to Debit signed by Ong and Ma.
Theresa David, Senior Manager of FMIC, BPI FB transferred P80 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.

Thereupon, to recover immediately its deposit, FMIC, on September 12, 1989, issued BPI FB check no. 129077 for
P86,057,646.72 payable to itself and drawn on its deposit with BPI FB SFDM branch. But upon presentation for payment
on September 13, 1989, BPI FB dishonored the check as it was “drawn against insufficient funds” (DAIF). BPI FB
contends that P80 Million transferred to Tevesteco’s account were proceeds of a loan extended by respondent FMIC to
Tevesteco.

The RTC ruled in favor of FMIC ordering BPI-FB to pay the amount of 80 million WITH interest from the time complaint is
filed less 14, 667, 678. The CA affirmed the decision. BPI FB contends that the Court of Appeals erred in awarding the 17% per
annum interest corresponding to the amount deposited by respondent FMIC. Petitioner insists that respondent’s deposit is not a
special savings account similar to a time deposit, but actually a demand deposit, withdrawable upon demand, proscribed
from earning interest under Central Bank Circular 777.

Issue: WON BPI-FB is liable

We hold that the parties did not intend the deposit to be treated as a demand deposit but rather as an interest-earning time deposit
not withdrawable any time. Both agreed that the deposit of P100 million was non-withdrawable for one year upon payment in
advance of the 17% per annum interest. Clearly, when respondent FMIC invested its money with petitioner BPI FB, they
intended the P100 million as a time deposit, to earn 17% per annum interest and to remain intact until its maturity
dateone year thereafter. Ordinarily, a time deposit is defined as “one, the payment of which cannot legally be required
within such a specified number of days.” In contrast, demand deposits are “all those liabilities of the Bangko Sentral and
of other banks which are denominated in Philippine currency and are subject to payment in legal tender upon demand by
the presentation of (depositor’s) checks.”

Under this circumstance, the withdrawal of deposit by respondent FMIC before the one-year maturity date did not change the
nature of its time deposit to one of demand deposit.
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. We reiterated this doctrine in Prudential Bank vs. Court of Appeals, 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. (bank estopped from denying such authority). 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 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. Significantly, the transaction was actually acknowledged and ratified by
petitioner when it paid respondent in advance the interest for one year. Thus, petitioner is estopped from denying that it
authorized its Branch Manager to enter into an agreement with respondent’s Executive Vice President concerning the deposit
with the corresponding 17% interest per annum.

35. BPI v. CA (1994)

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. For this loan, Eastern issued on the same day a
negotiable promissory note for P73,000.00 payable on demand to the order of
CBTC. The note was signed by Lim both in his own capacity and as President and General Manager of Eastern. No
reference to any security for the loan appears on the note. In the Disclosure Statement, the box with the printed word
"UNSECURED" was marked with "X" — meaning unsecured, while the line with the words "this loan is wholly/partly
secured by" is followed by the typewritten words which refers to the joint account of Velasco and Lim with a balance of
P331,261.44. Another document entitled "Holdout Agreement," wherein it was stated that "as security for the Loan [Lim
and Eastern] have offered [CBTC] and the latter accepts a holdout on said in the joint names of Lim and Velasco to the
full extent of their alleged interests therein as these may appear as a result of final and definitive judicial action or a
settlement between and among the contesting parties thereto."

In the meantime, a case for the settlement of Velasco's estate was filed with the RTC of Pasig. In the said case, the whole balance
of P331,261.44 in the aforesaid joint account of Velasco and Lim was being claimed as part of Velasco's estate. The intestate
court granted the urgent motion of the heirs of Velasco to withdraw the deposit under the joint account of Lim and Velasco and
authorized the heirs to divide among themselves the amount withdrawn.

Sometime in 1980, CBTC was merged with BPI. BPI filed with the RTC of Manila a complaint against Lim and Eastern
demanding payment of the promissory note for P73,000.00. Defendants Lim and Eastern, in turn, filed a counterclaim against
BPI for the return of the balance in the disputed account subject of the Holdout Agreement and the interests thereon after
deducting the amount due on the promissory note.

BPI filed the instant petition alleging therein that the Holdout Agreement in question was subject to a suspensive
condition stated therein, viz., that the "P331,261.44 shall become a security for respondent Lim's promissory note only if
respondents' Lim and Eastern Plywood Corporation's interests to that amount are established as a result of a final and
definitive judicial action or a settlement between and among the contesting parties thereto."

Rtc- dimissed the claim the promissory note in question is subject to the 'hold-out' agreement," and that based on this
agreement, "it was the duty of plaintiff Bank [BPI] to debit the account of the defendants under the promissory note to set
off the loan even though the same has no fixed maturity.;

CA-affirmed tc decision

ISSUE: WHETHER BPI CAN DEMAND PAYMENT OF THE LOAN OF P73,000.00 DESPITE THE EXISTENCE OF THE
HOLDOUT AGREEMENT.

RULING: WHAT THE AGREEMENT CONFERRED ON CBTC WAS A POWER, NOT A DUTY. GENERALLY, A
BANK IS UNDER NO DUTY OR OBLIGATION TO MAKE THE APPLICATION. TO APPLY THE DEPOSIT TO THE
PAYMENT OF A LOAN IS A PRIVILEGE, A RIGHT OF SET-OFF WHICH THE BANK HAS THE OPTION TO
EXERCISE. ALSO, PARAGRAPH 05 OF THE HOLDOUT AGREEMENT ITSELF STATES THAT
NOTWITHSTANDING THE AGREEMENT, CBTC WAS NOT IN ANY WAY PRECLUDED FROM DEMANDING
PAYMENT FROM EASTERN AND FROM INSTITUTING AN ACTION TO RECOVER PAYMENT OF THE LOAN.
What it provides is an alternative, not an exclusive, method of enforcing its claim on the note. When it demanded payment of the
debt directly from Eastern and Lim, BPI had opted not to exercise its right to apply part of the deposit subject of the Holdout
Agreement to the payment of the promissory note for P73,000.00. Its suit for the enforcement of the note was then in order and it
was error for the trial court to dismiss it on the theory that it was set off by an equivalent portion in C/A No. 2310-001-42 which
BPI should have debited. The Court of Appeals also erred in affirming such dismissal.

The "suspensive condition" theory of the petitioner is, therefore, untenable.

The Court of Appeals correctly decided on the counterclaim.

In Serrano vs. Central Bank of the Philippines, 21 we held that bank deposits are in the nature of irregular deposits; they are
really loans because they earn interest. The relationship then between a depositor and a bank is one of creditor and debtor. The
deposit under the questioned account was an ordinary bank deposit; hence, it was payable on demand of the depositor. The
account was proved and established to belong to Eastern even if it was deposited in the names of Lim andVelasco.

AS THE REAL CREDITOR OF THE BANK, EASTERN HAS THE RIGHT TO WITHDRAW IT OR TO DEMAND
PAYMENT THEREOF. BPI CANNOT BE RELIEVED OF ITS DUTY TO PAY EASTERN SIMPLY BECAUSE IT
ALREADY ALLOWED THE HEIRS OF VELASCO TO WITHDRAW THE WHOLE BALANCE OF THE ACCOUNT. The
petitioner should not have allowed such withdrawal because it had admitted in the Holdout Agreement the questioned
ownership of the money deposited in the account.

42. PNB V. CA AND LAPEZ

Facts: Defendant (herein petitioner PNB) applied/appropriated the amounts of $2,627.11 and P34,340.38
from remittances of the plaintiff's (private respondent herein) principals abroad.

The first remittance was made by the NCB of Jeddah for the benefit of Lapez, to be credited to his account at
Citibank, Greenhills Branch;

the second was from Libya, and was intended to be deposited at Lapez’s account with PNB.

These were admitted by the defendant, subject to the affirmative defenses of compensation for what is owing to
it on the principle of solution indebiti. Lapez made a written demand for remittance of the equivalent of $2,627.11 by
means of a letter. Defendant PNB made a demand upon the plaintiff for refund of the double or duplicated credits
erroneously made on plaintiff's account, by means of a letter dated October 23, 1986 or 5 years and 11 months from
November 1980, and 5 years and 9 months from January 1981. The deduction of P34,340.38 was made by PNB without
the knowledge and consent of Lapez.

Two erroneous double payments made to plaintiff's accounts in 1980 and 1981 created an extra-contractual
obligation on the part of the plaintiff in favor of the defendant, under the principle of solutio indebiti (Article 2154, Civil
Code of the Phil.)

The trial court held that the parties are not both principally bound with respect to the $2,627.11 neither are they at the
same time principal creditor of the other. Therefore, their obligations are not subject to compensation or set off.

The question, however, is, where both of the obligors bound principally, and was each
one of them a debtor and creditor of the other at the same time?

"‘Only the plaintiff is principally bound as a debtor of the defendant to the extent of the double credits.
On the other hand, the defendant was an implied trustee, who was obliged to deliver to the Citibank for
the benefit of the plaintiff the sum of $2,627.11.

"‘Thus while it may be concluded that the plaintiff owes the defendant the equivalent of the sums of
$5,179.23 and $5,885.38 erroneously doubly credited to his account, the defendant’s actuation in
intercepting the amount of $2,627.11 supposed to be remitted to another bank is not only improper; it
will also erode the trust and confidence of the international banking community in the banking system
of the country, something we can ill afford at this time when we need to attract and invite deposits of
foreign currencies."

"It would have been different has the telex advice from NCB of Jeddah been for deposit of $2,627.11 to
plaintiff’s account No. 830-2410 with the defendant bank. However, the defendant alleged this for the
first time in its Memorandum (Pls. see par. 16, p. 6 of defendant’s Memorandum). There was neither
any allegation thereof in its pleadings, nor was there any evidence to prove such fact. On the contrary,
the defendant admitted that the telex advice was for credit of the amount of $2,627.11 to
plaintiff’s account with Citibank, Greenhills, San Juan, Metro-Manila (Pls. see par. of
defendant’s Answer with Compulsory Counterclaim, in relation to plaintiff’s Complaint).
Hence, it is submitted that the set-off or compensation of $2,627.11 against the double
payments to plaintiff’s account is not in accordance with law.

Issue: WON the lower courts erred in ruling that it was improper to set-off the amount

Article 1279 of the Civil Code provides:jgc:chanrobles.com.ph

"‘In order that compensation may prosper, it is necessary:chanrob1es virtual 1aw library

(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;

(2) That both debts consists in a sum of money, or if the things due are consumable, they be
of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(6) That over neither of them there by any retention or controversy, commenced by persons
and communicated in due time debtor." ‘

"‘In the case of the $2,627.11, requisites Nos. 2 through 5 are apparently present, for both debts consist
in a sum of money, are both due, liquidated and demandable, and over neither of them is there a
retention or controversy commenced by third persons and communicated in due time to the debtor.

Ruling: But petitioner has adopted a novel theory, contending that since respondent Court found that private
respondent is "an obligor of PNB and the latter, as aforesaid, has become an obligor of private respondent (resulting
in legal compensation), the (h)onorable respondent court should have ordered private respondent to pay PNB what
the latter is bound by the trial court's decision to return the former." 7

By this simplistic approach, petitioner in effect seeks to render nugatory the decisions of the trial court and the
appellate Court, and have this Court validate its original misdeed, thereby making a mockery of the entire judicial
process of this country. What the petitioner bank is effectively saying is that since the respondent Court of Appeals
ruled that petitioner bank could not do a shortcut and simply intercept funds being coursed through it, for transmittal
to another bank, and eventually to be deposited to the account of an individual who happens to owe some amount of
money to the petitioner, and because respondent Court order petitioner bank to return intercepted amount to said
individual, who in turn was found by the appellate Court to be indebted to petitioner bank, THEREFORE, there must
now be legal compensation of the amounts each owes the other, and hence, there is no need for petitioner bank
to actually return the amount, and finally, that petitioner bank ends up in exactly the same position as when it first
took the improper and unwarranted shortcut by intercepting the said money transfer, notwithstanding the assailed
Decision saying that this could not be done!

We see in this petition a clever ploy to use this Court to validate or legalize an improper act of the petitioner bank,
with the not impossible intention of using this case as a precedent for similar acts of interception in the future. This
piratical attitude of the nation's premier bank deserves a warning that it should not abuse the justice system in its
collection efforts, particularly since we are aware that if the petitioner bank had been in good faith, it could have easily
disposed of this controversy in ten minutes flat by means of an exchange of checks with private respondent for the
same amount. The litigation could have ended there, but it did not. Instead, this plainly unmeritorious case had to clog
our docket and take up the valuable time of this Court.

43. METROBANK. (SUCCESSOR OF BPO) V. CENTRO DEVELOPMENT CORP

Facts: On 20 March 1990, in a special meeting of the board of directors of respondent Centro Development
Corporation (Centro), its president Go Eng Uy was authorized to mortgage its properties and assets to secure the
medium-term loan of ₱84 million of Lucky Two Corporation and Lucky Two Repacking. . This authorization was
subsequently approved on the same day by the stockholders. Thus, respondent Centro, represented by Go Eng Uy, executed
a Mortgage Trust Indenture (MTI) with the Bank of the Philippines Islands (BPI). To secure these obligations from different
creditors, respondent Centro constituted a continuing mortgage on all or substantially all of its properties and assets in
favor of BPI, the trustee. Should respondent Centro or any of its affiliates fail to pay their obligations when due, the trustee
shall cause the foreclosure of the mortgaged property. Centro and BPI amended the MTI to allow an additional loan of ₱36
million and to include San Carlos Milling Company, Inc. (San Carlos) as a borrower. respondent Centro, represented by Go
Eng Uy, approached petitioner Metrobank and proposed that the latter assume the role of successor-trustee of the
existing MTI. Petitioner and respondent Centro then executed the assailed MTI, amending the previous agreements
by appointing the former as the successor-trustee of BPI.

Respondents herein, Chongking Kehyeng, members of the board of directors of Centro and Manuel Co
Kehyeng and Quirino Kehyeng, stockholder of centro, discovered that the properties of respondent Centro had
been mortgaged, and that the MTI that had been executed appointing petitioner as trustee. Meanwhile, San Carlos
obtained loans in the total principal amount of P812,793,513.23 from petitioner Metrobank and failed to pay these
outstanding obligations despite demand. Thus, petitioner, as trustee of the MTI, enforced the conditions thereof
and initiated foreclosure proceedings.

respondents herein filed a Complaint for the annulment of the 27 September 1994 MTI with a prayer for
a temporary restraining order (TRO) and preliminary injunction

RTC and CA ruled the MTI as invalid for failure to comply with Sec 40 of the corp code.
Issue: Republic Act No. 8971, or the General Banking Law of 2000, recognizes the vital role of banks in providing
an environment conducive to the sustained development of the national economy and the fiduciary nature of
banking; thus, the law requires banks to have high standards of integrity and performance. The fiduciary nature
of banking requires banks to assume a degree of diligence higher than that of a good father of a family.

In the case at bar, petitioner itself was negligent in the conduct of its business when it extended unsecured loans
to the debtors. Worse, it was in serious breach of its duty as the trustee of the MTI. It was not able to protect the
interests of the parties and was even instrumental in violating the terms of the MTI, to the detriment of the parties
thereto. Thus, petitioner has only itself to blame for being left with insufficient recourse under the assailed MTI.

Petitioner failed to comply with this directive of the court. For one reason or another, instead of submitting MPCs
evidencing its interest in the MTI, it submitted to this Court documents referring to different instruments
altogether.32Petitioner should have been more careful in complying with this Court’s Orders.

44. PHILIPPINE BANKING CORPORATION, Petitioner, v. ARTURO DY, BERNARDO DY, JOSE DELGADO AND
CIPRIANA DELGADO, Respondents

Facts: Thespouses Delgado entered into an agreement with a certain Cecilia Tan for the purchase
of the former’s property by the latter to be paid in installment, or from time to time, until the Sps.
Delgado are ready to execute a deed of sale and transfer the title to Tan upon full payment.
Tan however later on found out that the property had already been transferred to the name of the
Dys and had been mortgaged to Philbank. Tan filed an action for specific performance and
annulment of the title of the Dys.

Issue: WON Philbank is a mortgagee in good faith

RULING:

YES. Philbank's mortgage rights over the subject properties shall be maintained. While it is settled that a simulated
deed of sale is null and void and therefore, does not convey any right that could ripen into a valid title, it has been equally
ruled that, for reasons of public policy, the subsequent nullification of title to a property is not a ground to annul the
contractual right which may have been derived by a purchaser, mortgagee or other transferee who acted in good faith.

Primarily, the doctrine of "mortgagee in good faith" is based on the rule that all persons dealing with property covered by
a Torrens Certificate of Title are not required to go beyond what appears on the face of the title. In the case of banks and
other financial institutions, however, greater care and due diligence are required since they are imbued with public interest,
failing which renders the mortgagees in bad faith. 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 genuineness of the title to determine the real owner(s) thereof. The apparent purpose of an ocular inspection
is 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 thereto. The apparent purpose of an
ocular inspection is 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
thereto.23ςrνll

In this case, while Philbank failed to exercise greater care in conducting the ocular inspection of the properties
offered for mortgage, its omission did not prejudice any innocent third parties. In particular, the buyer did not pursue her
cause and abandoned her claim on the property. On the other hand, Sps. Delgado were parties to the simulated sale in
favor of the Dys which was intended to mislead Philbank into granting the loan application. Thus, no amount of
diligence in the conduct of the ocular inspection could have led to the discovery of the complicity between the
ostensible mortgagors (the Dys) and the true owners (Sps. Delgado). In fine, Philbank can hardly be deemed
negligent under the premises since the ultimate cause of the mortgagors' (the Dys') defective title was the
simulated sale to which Sps. Delgado were privies.
45. EUSEBIO GONZALES v. PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK, EDNA OCAMPO AND ROBERTO
NOCEDA

Facts: Eusebio was a long-standing client of PCIB. In 1992 PCIB granted a credit line to Gonzales through a Credit-on-
Hand Loan Agreement (COHLA) wherein the aggregate amount of the accounts of Gonzales with PCIB served as
collateral and his availment limit under the credit line. Gonzales had Foreign Currency Deposit (FCD) amounting
to $8, 715.

In Oct 1995 Gonzales obtained a loan for 500k PHP. They obtained additional loan from PCIB amounting to 1.3 M
with Sps. Panlilio as co-borrowers. The three-loan totaling 1.8M were covered by 3 promissory notes, which
specified the solidarity liability of both spouses for the payment of the loan. As security, a REM over a parcel of land
was executed by the two spouses.

The interest for the loan is automatically deducted from the PCIB account of Sps. Panlilio. But on July 1998 they defaulted
in the payment. PCIB allegedly notified Gonzales of this default and the accumulating periodic interest dues that remain
unpaid.

In the meantime, Gonzales issued a check in favor of Unson for 250K drawn against the COHLA. However, this was
dishonored on presentment for payment due to the termination of the COHLA for the unpaid interests. The bank also
froze the FCD account of Gonzales.

Gonzales wrote to the PCIB to demand the return the proceeds of his FCD, that the check he issued is fully funded and
demanded for damaged for the unjust dishonor of the check which PCIB did not heed. Thus, this case.

Issue: Whether PCIB properly dishonored the check of Gonzales drawn against the COHLA

Ruling: No. It was improper for PCIB to dishonor the check issued by Gonzales.

First, because there was no proper notice to Gonzales on the default and delinquency of Sps. Panlilio. Him being an
accommodation party does not exonerate him of the liability but he has the right to be properly appraised of the
default being a co-signatory to the loan. Between Gonzales’ denial and bank employee’s assertion of notification,
SC found the testimony of bank employees as self-serving. No written notification can be provided by PCIB employees.
Without a clear and determinate demand through a formal written notice for the exact periodic interest dues for
the loans, Gonzales cannot be expected to pay for them.

Second, PCIB was grossly negligent in not giving prior notice to Gonzales about its course of action to suspend, terminate,
or revoke the credit line, thereby violating the clear stipulation in the COHLA which calls for prior notification. True there
is a stipulation which allows the bank to terminate and set off the debt with existing moneys or deposit of the debtor with
them, however this is subject to the requirement of notification, which PCIB did not afford Gonzales who was a long-
standing client of theirs.

Indeed, the business of banking is impressed with public interest and great reliance is made on the bank’s sworn
profession of diligence and meticulousness in giving irreproachable service. Like a common carrier whose business is
imbued with public interest, a bank should exercise extraordinary diligence to negate its liability to the depositors. 35 In
this instance, PCIB is sorely remiss in the diligence required in treating with its client, Gonzales. It may not wantonly
exercise its rights without respecting and honoring the rights of its clients.

Art. 19 of the New Civil Code clearly provides that "[e]very person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." This is the
basis of the principle of abuse of right which, in turn, is based upon the maxim suum jus summa injuria (the abuse of
right is the greatest possible wrong).36
In order for Art. 19 to be actionable, the following elements must be present: "(1) the existence of a legal right or duty,
(2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another." 37 We find that such
elements are present in the instant case. The effectivity clause of the COHLA is crystal clear that termination of the
COH should be done only upon prior notice served on the CLIENT. This is the legal duty of PCIB––to inform
Gonzales of the termination. However, as shown by the above testimonies, PCIB failed to give prior notice to Gonzales.

47. CONSOLIDATED RURAL BANK (CAGAYAN VALLEY), INC v. THE HONORABLE COURT OF APPEALS AND HEIRS OF
TEODORO DELA CRUZ

Facts: Madrid brothers were registered owners of a lot in Isabela. This was subdivided into several lots. Rizal Madrid later
sold his share to Gamiao and Dayag through a Deed of Sale. . This Deed of Sale was not registered by Gamiao and Dayag
were paying the property taxes under their name. These two sold the Sothern half of their lot to Dela Cruz. In a Deed of
Sale the Madrid brothers sold all their rights and interest over the totality of the original lot to Marquez. On the same date,
Spouses Marquez mortgaged 4 parts of the lot to Consolidated Rural Bank of Cagayan Valley (CRB) as security for a 100K
Loan. These REM were registered also with the Register of Deeds. The heir of Dela Cruz filed a case for reconveyance of the
southern portion of the lot, it being sold to his Father. Evangeline on the other hand filed with leave of court a Complaint in
Intervention where she is claiming the northern portion of the lot.

Issue: Whether RCB is a mortgagee in good faith.

Ruling: No. Marquez cannot be a purchaser in good faith, because he knew of the fact of the sale. Further the heirs
were occupying the disputed property. Although it is a recognized principle that a person dealing on a registered land
need not go beyond its certificate of title, it is also a firmly settled rule that where there are circumstances which would put
a party on guard and prompt him to investigate or inspect the property being sold to him, such as the presence of
occupants/tenants thereon, it is, of course, expected from the purchaser of a valued piece of land to inquire first into the
status or nature of possession of the occupants, i.e., whether or not the occupants possess the land en concepto de dueño,
in concept of owner.

Banks, their business being impressed with public interest, are expected to exercise more care and prudence than private
individuals in their dealings, even those involving registered lands. Hence, for merely relying on the certificates of title and
for its failure to ascertain the status of the mortgaged properties as is the standard procedure in its operations, we agree
with the Court of Appeals that CRB is a mortgagee in bad faith.

50. DBP vs. CA

Facts:

Mumar sold the said land to private respondent Carlo Cajes who was issued Tax Declaration No. R-1475 that
same year.

Unknown to private respondent, Jose Alvarez succeeded in obtaining the registration of a parcel of land with an area
of 1,512,468.00 square meters, in his name for which he was issued an OCT in his name.

Alvarez sold the land to the Gaudencio and Rosario Beduya (spouses Beduya) to whom TCT No. 10101 was issued.

That same year, the spouses Beduya obtained a loan from petitioner Development Bank of the Philippines and, as
security, mortgaged the land to the bank.

Gaudencio Beduya, and the spouses Beduya personally executed another mortgage over the land in favor of
petitioner to secure a loan.

The spouses Beduya failed to pay their loans, as a result of which, the mortgage on the property was foreclosed. In the
resulting foreclosure sale, petitioner DBP was the highest bidder. As the spouses Beduya failed to redeem the property,
petitioner consolidated its ownership.

It appears that private respondent had also applied for a loan from petitioner in 1978, offering his 19.4 hectare
property as security for the loan. As part of the processing of the application, a representative of petitioner
inspected the land and appraised its value.
Private respondent’s loan application was later approved by petitioner. However after releasing the amount of the loan to
private respondent, DBP found that the land mortgaged by private respondent was included in the land covered by TCT in
the name of the spouses Beduya. DBP, therefore, cancelled the loan and demanded immediate payment of the
amount. Private respondent paid the loan to petitioner for which the former was issued a Cancellation of Mortgage
releasing the property in question from encumbrance.

Issue: Whether DBP may be considered as an innocent mortgagee for value of the land in question, having purchased the
same during a public auction sale.

Ruling: NO. The evidence before us, however, indicates that petitioner DBP is not a mortgagee in good faith. To be
sure, an innocent mortgagee is not expected to conduct an exhaustive investigation on the history of the
mortgagor’s title. Nonetheless, especially in the case of a banking institution, a mortgagee must exercise due
diligence before entering into said contract. Judicial notice is taken of the standard practice for banks, before
approving a loan, to send representatives to the premises of the land offered as collateral and to investigate who
are the real owners thereof. Banks, their business being impressed with public interest, are expected to exercise
more care and prudence than private individuals in their dealings, even those involving registered lands.

petitioner was already informed by Gaudencio Beduya that private respondent occupied a portion of the property
covered by TCT No. 10101; and (2) petitioner’s representative conducted an investigation of the property in 1979
to ascertain whether the land mortgaged by private respondent was included in TCT No. 10101

Petitioner was already aware that a person other than the registered owner was in actual possession of the land
when it bought the same at the foreclosure sale. A person who deliberately ignores a significant fact which would
create suspicion in an otherwise reasonable man is not an innocent purchaser for value. "It is a well-settled rule
that a purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim
that he acted in good faith under the belief that there was no defect in the title of the vendor."

51. IBAAN RURAL BANK INC., Petitioner, -versus- THE COURT OF APPEALS AND MR. AND MRS. RAMON TARNATE,
Respondents.
G.R. No. 123817, SECOND DIVISION, December 17, 1999, QUISUMBING, J.

Facts:
Spouses Cesar and Leonila Reyes were the owners of three lots covered by TCTs of the Register of Deeds of Lipa City. The
spouses mortgaged these lots to Ibaan Rural Bank, Inc (herein petitioner).

With the knowledge and consent of the petitioner, the spouses as sellers, and Mr. and Mrs. Ramon Tarnate (herein
private respondents) as buyers, entered into a Deed of Absolute Sale with Assumption of Mortgage of the lots in
question.

Private respondents failed to pay the loan and the bank extra-judicially foreclosed (redemption, right of redemption
applicable only in extrajudicial foreclosure, 1 year from confirmation of sale and registration of certificate of sale) on the
mortgaged lots. The Provincial Sheriff conducted a public auction of the lots and awarded the lots to the bank, the sole
bidder. The Provincial Sheriff issued a Certificate of Sale which was registered on October 16, 1979. The certificate stated
that the redemption period expires two years from the registration of the sale. No notice of the extrajudicial
foreclosure was given to the private respondents.

On September 23, 1981, private respondents offered to redeem the foreclosed lots. However, petitioner Bank refused the
redemption on the ground that it had consolidated its titles over the lots.

Thus, Private respondents filed a complaint to compel the bank to allow their redemption of the foreclosed lots alleging
that they were entitled to redeem the foreclosed lots because they offered to redeem and tendered the redemption price
within the 2-year redemption period.

Issue: What was the period of redemption: two years as unilaterally fixed by the sheriff in the contract, or one year as fixed
by law?

Ruling:
When petitioner Ibaan Rural Bank received a copy of the Certificate of Sale registered in the Office of the Register of Deeds
of Lipa City, it had actual and constructive knowledge of the certificate and its contents. For two years, it did not object to
the two-year redemption period provided in the certificate. Thus, it could be said that petitioner consented to the two-year
redemption period specially since it had time to object and did not. When circumstances imply a duty to speak on the part
of the person for whom an obligation is proposed, his silence can be construed as consent. By its silence and inaction,
petitioner misled private respondents to believe that they had two years within which to redeem the mortgage. After the
lapse of two years, petitioner is estopped from asserting that the period for redemption was only one year and that the
period had already lapsed.

58.STATE INVESTMENT HOUSE INC., petitioner,

vs.
COURT OF APPEALS, LOMUYON TIMBER INDUSTRIES, INC., AMANDA MALONJAO, and RUFINO
MALONJAO, respondents.

Lomuyon agreed to sell to State Investment Hous Inc. (SIHI) its “receivables” at a
discount. It was agreed that should a receivable remain unpaid, SIHI may impose a penalty
fee of 3% per month. To secure the payment of the receivables, the Malonjaos also
executed in favor of SIHI a real estate mortgage over their 2 real properties.
Lomuyon sold to SIHI for a total consideration of P2,558,073.75. various receivables
consisting of checks.

When SIHI presented the checks for payment to the drawee banks, the same were dishonored
for reason of insufficient funds except for TCBTC 618821.

Defendants failed to pay the value of the checks. Thus, SIHI decided to undertake foreclosure
of the real estate mortgage, wherein SIHI was the highest bidder at the public auction for
P4,233,874.00.

However, SIHI filed another complaint alleging that after deducting the price of the mortgaged
properties from defendants’ outstanding obligation, there remains a deficiency
of P2,601,147.62 as of February 14, 1983, which as of May 31, 1983 amounted to
P2,876,929.27 inclusive of interest and charges.

The defendants contended that SIHI’s computation of their outstanding obligation is

erroneous, and that the interest and charges made by plaintiff is usurious and unconscionable.

ISSUE:

Whether SIHI may be entitled to recover the deficiency.

HELD: NO.

The principal obligation of the private respondent would not have ballooned to such a
horrendous amount if not for the penalty charge of 3% per month or 36% per annum.

SIHI should have stopped imposing the 3% penalty charges and other burdens when it had
consolidated the two titles of the foreclosed properties.

While the Court recognizes the right of the parties to enter into contracts and are expected
to comply with the terms and obligations, this rule is not absolute. The Court allowed to
temper interest rates when necessary. Article 1229 of the New Civil Code clearly provides:
The judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous or unconscionable.
Likewise, Article 2227 provides: Liquidated damages, whether intended as an indemnity or
penalty, shall be equitably reduced if they are iniquitous and unconscionable.

60. SPOUSES MARIANO and GILDA FLORENDO, petitioners,

vs.
COURT OF APPEALS and LAND BANK OF THE PHILIPPINES, respondents.

61. Florendo vs CA and Landbank of the Philippines

GR NO. 101771 December 17, 1996
Third Division J. Panganiban
Facts:
Florendo was an employee of Landbank of the Philippines (LBP) from May 17,
1976 until August 16, 1984 when she voluntarily resigned. Before her
resignation, she applied for a housing loan payable in 25 years from LBP’s
Provident Fund. Both parties executed a Housing Loan Agreement and
constituted a Real Estate Mortgage and Promissory Note.
After almost a year from her resignation, LBP increased the interest rate on the
loan from 95 per annum to 17%. LBP informed Florendo and the latter
protested the increase. LBP kept on demanding Florendo to pay the increased
interest or the new monthly installments based on the increased interest rate.
Florendo maintained that such increase is unjustified and unlawful.
Nevertheless, Florendo just disregarded the increased rate and continued to
pay the obligation under the original contract.
Issue:
WON the LBP have a valid and legal basis to impose an increased interest rate
on the housing loan.
Ruling:
The increased rate imposed or charged is not valid.
In Banco Filipino, this Court, x x x, disallowed the bank from increasing the
interest rate on the subject loan from 12% to 17% despite an escalation clause
in the loan agreement authorizing the bank to “correspondingly increase the
interest rate stipulated in this contract without advance notice to me/us in the
event the law should be enacted increasing the lawful rates of interest that may
be charged on this particular kind of loan.

Despite the suspension of the usury law, this did not grant the bank the carte blance authority to
increase the interst rates that would lead to the hammorghafing of their assets. The loan contract
very categorically specifies that the any interest rates shall be in accordance with prevailing
rules, regulations and circulars og the Central. Without such CB issuance, any proposed interest
rate will never be effective. The mancom resolution was neither a rule or resolution of the central
bank.
The unilateral dteremination and imposition of the increased interest rates of the respondent bank is violative of the principle of
mutuality of contracts ordained under Art 1308.

64. PROVIDENT SAVINGS BANK, petitioner, vs. COURT OF APPEALS, Former SPECIAL EIGHTH DIVISION and WILSON
CHUA, respondents.

G.R. No. 97218, THIRD DIVISION, May 17, 1993, MELO, J.

Doctrine:
Having arrived at the conclusion that a foreclosure is part of a 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 of 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).

Statement of Facts:
Spouses Lorenzo Guarin and Liwayway Guarin obtained a loan from Provident Savings Bank executing a real estate
mortgage over a parcel of land as a security on 1962 payable in 1967

The bank was placed under receivership from 1972 until 27 July 1981 when the receivership was set aside by the
Supreme Court.

On 1984, Guarin assured that he and his wife had every intention of paying their obligation. They received a Statement of
Account from the bank showing two outstanding accounts. One was account of Lorenzo in the amount of P591,088.80, and
the other was the account of L.K. Guarin Manufacturing Co., Inc. in the amount of P6,287,380.27.

Even after the payment of the obligation of P591,088.80, the mortgaged title could not be released to Lorenzo
Guarin, as it also served as security for the indebtedness of L.Y. Guarin Manufacturing Co., Inc., to the bank,
undertaken by Lorenzo K. Guarin in his personal capacity and as president of the corporation.

In the meantime, Wilson Chua informed the bank saying that the mortgaged property of the Guarins had been
offered to him as payment of the judgment he obtained against the Guarins in a civil case and requested for bank’s
conformity to the assignment, expressing his willingness to pay for the obligation of Mr. Guarin so that the title
could be released by the bank.

On 10 July 1986, Spouses Guarins executed a Deed of Absolute Sale with Assumption of Mortgage for the sum of
P250,000.00 whereby the spouses sold the property to Chua and the latter has the obligation to pay the indebtedness.

Chua informed the bank that the mortgaged property had been sold to him by the Guarins, and requested that he
be allowed to pay the loan secured by the mortgage. In reply, defendant-appellant bank informed the former that his
request could be granted if he would settle the obligation of L.K. Guarin Manufacturing Co., Inc., as well.

Chua then requested that the owner's copy of the TCT n the possession of bank be released to him so that he can register
the sale and have the title to the property transferred in his name. He likewise informed the bank that it had lost
whatever right or action had against the Guarins because of prescription. However, the bank cannot comply with
the demands.

Statement of the Case:

Chua filed a complaint against the bank to compel the latter to: (1) release the real estate mortgaged executed by the Guarins
in favor of the bank; (2) return or surrender to him, as successor-in-interest of the Guarins, the latter's owner's duplicate
of the TCT; and (3) pay him P2,750,000.00 as actual and/or consequential damages, moral damages as may be proved
during the trial, exemplary damages as may be reasonably assessed by the court, and attorney's fees of P50,00.00.

RTC ruled in favor of Wilson Chua, saying that he can be considered a real-property-in-interest because he is the successor-
in-interest of the Guarins who is naturally entitled to the realty as against the so-called right of Provident Savings Bank,
as mortgagee, to foreclose the mortgage which had become stale through sheer lapse of time.
The bank insists that the period during which it was placed under receivership by the Central Bank is akin to a caso
fortuito and should not thus be reckoned against it.

CA ruled that petitioner cannot anymore foreclose the subject realty on account of the absence of proof to indicate
that the bank was precluded from collecting indebtedness while it was under receivership from September, 1972
until July 20,1981. Thus, there was no legal interruption of the prescriptive period to speak of, said respondent court,
which intervened between June 20, 1967, the date the mortgage matured, and June 20, 1977 the last day within which
petitioner could have foreclosed the mortgage.

CA reversed the decision of the trial court insofar as it ordered Wilson Chua to pay the sum of P591,088.80 to the bank and
affirmed the other dispositions made the court of origin

The bank filed a motion for reconsideration and a motion for new trial but was denied.

Issue/s:
Whether the bank is barred from foreclosing the subject realty on account of prescription. (NO)
Ruling:
A foreclosure is deemed embraced by the phrase "doing business" as a preparatory measure to acquiring or holding
property for petitioner as a saving bank under Section 34 of the General Banking Act. Like any other banking institution,
petitioner is vested with the usual attributes and powers of a corporation under Section 36 of the Corporation
Code. The prerogative of a bank to foreclose is implicit from and is even necessary to enforce collection of secured
debts under Section 36(11) and 45 of the Corporation Code, in conjunction with Section 29 of the General Banking
Act.

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. However, the receiver of
the bank is obliged to collect debts owing to the bank, which debts form part of the assets of the bank.

The receiver must assemble the assets and pay the obligation of the bank under receivership, and take steps to
prevent dissipation of such assets. Accordingly, the receiver of the bank is obliged to collect pre-existing debts due
to the bank, and in connection therewith, to foreclose mortgages securing debts.

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 some circumstances, the Court is 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.

Thus, a bank placed under receivership interrupts the prescription of actions it may institute. 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 the
bank 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. What
exacerbates the situation is the letter of private respondent requesting petitioner that private respondent be allowed to
pay the loan secured by the mortgage as the result of the Deed of Sale executed by the Guarins in his favor. In point of law,
this written communication is synonymous to an express acknowledgment of the obligation and had the effect of
interrupting the prescription for the second time. And this piece of document necessarily estops private respondent from
setting up prescription vis-a-vis his unfounded supposition that acknowledgment of the debt is of no moment because the
right of the petitioner to foreclose had long prescribed in 1977.

Dispositive portion:

WHEREFORE, the petition is hereby GRANTED. The decision dated August 31, 1990, including the resolution dated
February 6, 1991 of respondent court are hereby set aside and another one entered dismissing Wilson Chua's complaint.
No special pronouncement is made to costs.
65. REGISTER of DEEDS OF MANILA, Petitioner-appellee,
-versus-
CHINA BANKING CORPORATION, Respondent-appellant.

G.R. No. L-11964, EN BANC, April 28, 1962, DIZON, J.

Doctrine:

Assuming, arguendo, that under the provisions of the aforesaid Act [General Banking Act] any commercial bank, whether alien-
owned or controlled or not, may purchase and hold real estate for the specific purposes and in the particular cases enumerated
in Section 25 thereof, we find that the case before Us does not fall under anyone of them.

Paragraph (c), Section 25 of Republic Act 337 allows a commercial bank to purchase and hold such real estate as shall be
conveyed to it in satisfaction of debts previously contracted in the course of its dealings. We deem it quite clear and free from
doubt that the "debts" referred to in this provision are only those resulting from previous loans and other similar
transactions made or entered into by a commercial bank in the ordinary course of its business as such. Obviously,
whatever "civil liability" — arising from the criminal offense of qualified theft — was admitted in favor of appellant bank by
its former employee, Alfonso Pangilinan, was not a debt resulting from a loan or a similar transaction had between the two
parties in the ordinary course of banking business.

Statement of the Facts:

In an Information filed in the Court of First Instance of Manila and dated June 16, 1953, Alfonso Pangilinan and one
Guillermo Chua were charged with qualified theft, the money involved amounting to P275,000.00. Three years
thereafter, Pangilinan and his wife, Belen Sta. Ana, executed a public instrument entitled DEED OF TRANSFER
whereby, after admitting his civil liability in favor of his employer, the China Banking Corporation, in relation to
the offense aforesaid, he ceded and transferred to the latter, in satisfaction thereof, a parcel of land located in the
City of Manila.

The deed was subsequently presented for registration to the Register of Deeds of the City of Manila, but because the
transferee — the China Banking Corporation — was alien-owned and, as such, barred from acquiring lands in the
Philippines, in accordance with the provisions of Section 5, Article XIII of the Constitution of the Philippines, said
officer submitted the matter of its registration to the Land Registration Commission for resolution.

The Commission, in a resolution, held that the deed of transfer in favor of the appellant is unregistrable for being violative
of the Constitution.

Maintaining the affirmative, appellant argues that: (a) the temporary holding of land by an alien-owned commercial bank
under a public instrument such as the deed of transfer in question "bears no reasonable connection with the
constitutional purpose" underlying the provisions of Section 5, Article XIII of the Constitution of the Philippines; hence,
such holding or acquisition "was not within the contemplation of the framers of the Constitution"; (b) by judicial as well
as by executive-administrative an legislative construction, the constitutional prohibition against alien landholding does
not preclude enjoyment by aliens of temporary rights and land; (c) under the provisions of Section 25 of Republic
Act No. 337 (General Banking Act) an alien or an alien-owned commercial bank may acquire land in the
Philippines subject to the obligation of disposing of it within 5 years from the date of its
acquisition. 1äwphï1.ñët

Statement of the Case:

This is an Appeal from a resolution of the Land Registration Commission holding "that the deed of transfer in favor of an
alien bank, subject of the present Consulta, is unregistrable for being in contravention of the Constitution of the
Philippines."

Issue:

Whether or not, under Republic Act 337 or the General Banking Act, an alien-owned commercial bank is permitted to
acquire land in the Philippines subject to the obligation of disposing of it within 5 years from the date of its acquisition (NO)
Ruling:

To support its view, appellant relies particularly upon paragraphs (c) and (d), Section 25 of Republic Act 337 which read as
follows:

SEC. 25. Any commercial bank may purchase, hold, and convey real estate for the following purposes:

xxx xxx xxx

(c) Such shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings;

(d) Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it and such as it shall
purchase to secure debts due to it.

But no such bank shall hold the possession of any real estate under mortgage or trust deed, or the title and possession of
any real estate purchased to secure any debt due to it, for a longer period than five years.

Assuming, arguendo, that under the provisions of the aforesaid Act any commercial bank, whether alien-owned or
controlled or not, may purchase and hold real estate for the specific purposes and in the particular cases
enumerated in Section 25 thereof, we find that the case before Us does not fall under anyone of them.

Paragraph (c), Section 25 of Republic Act 337 allows a commercial bank to purchase and hold such real estate as shall
be conveyed to it in satisfaction of debts previously contracted in the course of its dealings. We deem it quite clear
and free from doubt that the "debts" referred to in this provision are only those resulting from previous loans and
other similar transactions made or entered into by a commercial bank in the ordinary course of its business as
such.

Obviously, whatever "civil liability" — arising from the criminal offense of qualified theft — was admitted in favor
of appellant bank by its former employee, Alfonso Pangilinan, was not a debt resulting from a loan or a similar
transaction had between the two parties in the ordinary course of banking business.

Neither do the provisions of paragraph (d) of the Same section apply to the present case because the deed of transfer
in question can in no sense be considered as a sale made by virtue of a judgment, decree, mortgage, or trust deed
held by appellant bank. In the same manner it cannot be said that the real property in question was purchased by
appellant "to secure debts due to it", considering that, as stated heretofore, the term debt employed in the pertinent legal
provision can logically refer only to such debts as may become payable to appellant bank as a result of a banking transaction.

Even in the case of Smith Bell & Co. vs. Register of Deeds of Davao (50 O.G., 5239) where a lease of a parcel of land for a
total period of 50 years in favor of an alien corporation was held to be registerable, the reason we gave for such
ruling was that a lease — unlike a sale — does not involve the transfer of dominion over the land, the clear
implication from this being that transfer of ownership over land, even for a limited period of time, is not
permissible in view of the constitutional prohibition.

The reason for this is manifestly the desire and purpose of the Constitution to place and keep in the hands of the
people the ownership over private lands in order not to endanger the integrity of the nation. Inasmuch as when an
alien buys land he acquires and will naturally exercise ownership over the same, either permanently or
temporarily, to that extent his acquisition jeopardizes the purpose of the Constitution.

Dispositive portion:

WHEREFORE, the resolution appealed from is hereby affirmed

66.
CA Agro Industrial Development Corp., vs Court of Appeals
GR# 90027 March 3, 193
DAVIDE, JR., J:

Facts:
Petitioner through its President Aguirre and the spouses Ramon and Paula Pugao entered into an
agreement whereby the former purchased from the latter two (2) parcels of land. Among the terms and
conditions of the agreement were that the titles to the lots shall be transferred to the petitioner upon full
payment of the purchase price and that the owner's copies of the certificates of titles thereto, and that title
shall be deposited shall be deposited in a safety deposit box of any bank. Petitioner and the Pugaos then
rented Safety Deposit Box of private respondent Security Bank and Trust Company. ). For this
purpose, both signed a contract of lease which contains, inter alia, the following conditions: “x x x 13. The bank is
not a depositary of the contents of the safe and it has neither the possession nor control of the same. x x x 14. The bank
has no interest whatsoever in said contents, except herein expressly provided, and it assumes absolutely no liability
in connection therewith.”

After the execution of the contract, two renter's keys were given to the renters — one to Aguirre (for the petitioner) and
the other to the Pugaos. A guard key remained in the possession of the respondent Bank. The safety deposit box has
two keyholes, one for the guard key and the other for the renter's key, and can be opened only with the use of both
keys. Petitioner claims that the certificates of title were placed inside the said box.

Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots. Mrs. Ramos
demanded the execution of a deed of sale which necessarily entailed the production of the certificates of
title. In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the respondent Bank to open
the safety deposit box and get the certificates of title. However, when opened in the presence of the Bank's
representative, the box yielded no such certificates.

Issue:
Is the contractual relation between a commercial bank and another party in a contract of rent of a safety
deposit box with respect to its contents placed by the latter one of bailor and bailee or one of lessor and
lessee?

Held:
The contract for the rent of the safety deposit box is not an ordinary contract of lease as defined in Article
1643 of the Civil Code. However, We do not fully subscribe to its view that the same is a contract of
deposit that is to be strictly governed by the provisions in the Civil Code on deposit; the contract
in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of lease
under Article 1643 because the full and absolute possession and control of the safety deposit box
was not given to the joint renters — the petitioner and the Pugaos. The guard key of the box
remained with the respondent Bank; without this key, neither of the renters could open the box. On
the other hand, the respondent Bank could not likewise open the box without the renter's key. In this case,
the said key had a duplicate which was made so that both renters could have access to the box.

In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this
jurisdiction, the prevailing rule in the United States has been adopted.

Section 72 of the General Banking Act pertinently provides: SEC. 72. In addition to the operations specifically
authorized elsewhere in this Act, banking institutions other than building and loan associations may perform
the following services: (a) Receive in custody funds, documents, and valuable objects, and rent safety
deposit boxes for the safeguarding of such effects. . . . The banks shall perform the services permitted
under subsections (a), (b) and (c) of this section as depositories or as agents. . . ." Note that the primary
function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of funds,
documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this principal function.
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of
funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent
from, but related to or in conjunction with, this principal function.

A contract of deposit may be entered into orally or in writing and, pursuant to Article 1306 of the Civil Code, the
parties thereto may establish such stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order or public policy. The depositary's
responsibility for the safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the
Civil Code. Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of fraud,
negligence, delay or contravention of the tenor of the agreement. In the absence of any stipulation prescribing the
degree of diligence required, that of a good father of a family is to be observed. Hence, any stipulation exempting
the depositary from any liability arising from the loss of the thing deposited on account of fraud, negligence or
delay would be void for being contrary to law and public policy.

Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It
is not correct to assert that the Bank has neither the possession nor control of the contents of
the box since in fact, the safety deposit box itself is located in its premises and is under its
absolute control; moreover, the respondent Bank keeps the guard key to the said box. As stated
earlier, renters cannot open their respective boxes unless the Bank cooperates by presenting and
using this guard key. Clearly then, to the extent above stated, the foregoing conditions in the contract in
question are void and ineffective. It has been said: jgc:chanrob les.com. ph

"With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the
parties, since the relation is a contractual one may by special contract define their respective duties
or provide for increasing or limiting the liability of the deposit company, provided such contract
is not in violation of law or public policy. It must clearly appear that there actually was such a special
contract, however, in order to vary the ordinary obligations implied by law from the relationship of the
parties; liability of the deposit company will not be enlarged or restricted by words of doubtful meaning. The
company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the
contents by its own fraud or negligence or that of its agents or servants, and if a provision of the
contract may be construed as an attempt to do so, it will be held ineffective for the purpose.
Although it has been held that the lessor of a safe-deposit box cannot limit its liability for loss of
the contents thereof through its own negligence, the view has been taken that such a lessor may
limit its liability to some extent by agreement or stipulation." 30 (Citations omitted).

Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the petition should
be dismissed, but on grounds quite different from those relied upon by the Court of Appeals. In the instant
case, the respondent Bank’s exoneration cannot, contrary to the holding of the Court of Appeals,
be based on or proceed from a characterization of the impugned contract as a contract of lease,
but rather on the fact that no competent proof was presented to show that respondent Bank was
aware of the agreement between the petitioner and the Pugaos to the effect that the certificates
of title were withdrawable from the safety deposit box only upon both parties’ joint signatures,
and that no evidence was submitted to reveal that the loss of the certificates of title was due to
the fraud or negligence of the respondent Bank. This in turn flows from this Court’s determination that
the contract involved was one of deposit. Since both the petitioner and the Pugaos agreed that each
should have one (1) renter’s key, it was obvious that either of them could ask the Bank for
access to the safety deposit box and, with the use of such key and the Bank’s own guard key,
could open the said box, without the other renter being present.

Since, however, the petitioner cannot be blamed for the filing of the complaint and no bad faith on its part
had been established, the trial court erred in condemning the petitioner to pay the respondent Bank
attorney’s fees. To this extent, the Decision (dispositive portion) of public respondent Court of Appeals must
be modified.

Highest degree of diligence

Exceptions-20,8,39
Collecting bank as agent- ford 13, westomnt

Left blank checks and passbook- bank of America case and spouses cagungun case (grossly negligent yung bank, 25

Moral damages granted- number 16, 17, 2,3,19,29,37( financial credit of a businessman is a prized and valuable asset, it being
significant part of the foundation of any business. Any adverse reflection thereon constitutes some financial loss to him, 45
eusebio Gonzales not given notice of terminated COHLA

Bank grossly negligent number 16, 17, 24,33,45, 46 (COMSAVINGS grossly negligent being the maker of the certificate, it was
fully aware that the purpose of the signed certificate was to affirm that the house had been completely constructed according to the
approved plans and specifications),

Employees-18,14,13, 11, 19, 20, 21 (outsourcing), 27 (negligence is supervision of employees),28

Etr: 40 (mediola employee of pbtc, not privy, doctrine of apparent authority not applicable

Where the bank failed to discharge the burden-7,20

Tax-9,22

60-40 liability -2, 25, 28 (flores authorized roving teller but signed as Cayabyab, 34 (collecting bank and drawee bank)

Negligent- 26 bpi-fb to pay franco (as trustee should’ve known the signatures”), 27 (negligence is supervision of employees)31
(connected sa franco case, nor right to unilaterally freeze, crossed checks). 32 (a bank is under obligation to treat its deposit with
meticulous care whether such account consists only of a hundered pesos or a million pesos, special withdrawal slip), 38, 52 (The
degree of diligence required of banks is more than that of a good father of a family; in keeping with their responsibility to
exercise the necessary care and prudence in dealing even on a register or titled property. The business of a bank is affected
with public interest, holding in trust the money of the depositors, which bank deposits the bank should guard against loss
due to negligence or bad faith, by reason of which the bank would be denied the protective mantle of the land registration
law, accorded only to purchases or mortgagees for value and in good faith.
Respondent bank did not observe the requisite diligence in ascertaining or verifying the real identity of the couple
who introduced themselves as the spouses Osmundo Canlas and Angelina Canlas. It is worthy to note that not even
a single identification card was exhibited by the said impostors to show their true identity; and yet, the bank acted
on their representations simply on the basis of the residence certificates bearing signatures which tended to match
the signatures affixed on a previous deed of mortgage to a certain Atty. Magno, covering the same parcels of land
in question.
Evidently, the efforts exerted by the bank to verify the identity of the couple posing as Osmundo Canlas and Angelina Canlas
fell short of the responsibility of the bank to observe more than the diligence of a good father of a family. The negligence
of respondent bank was magnified by the fact that the previous deed of mortgage (which was used as the basis for
checking the genuineness of the signatures of the suppose Canlas spouses) did not bear the tax account number of
the spouses, as well as the Community Tax Certificate of Angelina Canlas. But such fact notwithstanding, the bank
did not require the impostors to submit additional proof of their true identity. BANK ALSO HAS THE LAST CLEAR
CHANCE TO PREVENT THE FRAUD. RTC DECISION AFFIRMED, THE MORTGAGE IS NULL AND VOID.

53- In the course of the investigation, a residential lot in the name of Teofilo C. Ramos, President and Chairman of
the Board of Directors of the Ramdustrial Corporation, married to Rebecca F. Ramos, was found. Thus, Sheriff
prepared a notice of levy and caused the annotation thereof by the Register of Deeds on the said title.

Meanwhile, Teofilo C. Ramos discovered that a notice of levy was annotated in his title in favor of UCPB. Declaring
that he and Teofilo Ramos, Sr. are not one and the same person, Teofilo C. Ramos demanded that Sheriff Villapaña
cause the cancellation of the said annotation. Eventually, the notice of levy was cancelled.

For this reason, the Court holds that the business of a bank is one affected with public interest, for which reason the bank
should guard against loss due to negligence or bad faith. In approving the loan of an applicant, the bank concerns itself with
proper informations regarding its debtors. The UCPB, as a bank and a financial institution engaged in the grant of loans, is
expected to ascertain and verify the identities of the persons it transacts business with. In this case, the UCPB knew that the
sureties to the loan granted to ZDC and the defendants in Civil Case No. 94-1822 were the Spouses Teofilo Ramos, Sr. and
Amelita Ramos. It behooved UCPB to ascertain whether the defendant Teofilo Ramos, Sr. in Civil Case No. 16453 was the
same person who appeared as the owner of the property covered by the said title.
Moreover, UCPB has access to more facilities in confirming the identity of their judgment debtors. It should have acted more
cautiously. Instead, UCPB treated the uncertainty raised by appraiser Eduardo C. Reniva as a flimsy matter, and placed more
importance on the information regarding the marketability and market value of the property, utterly disregarding the
identity of the registered owner thereof. In sum, UCPB acted negligently in causing the annotation of notice of levy in the
title of the herein respondent, and that its negligence was the proximate cause of the damages sustained by the respondent.

In sum, we rule that the petitioner acted negligently in levying the property of the respondent despite doubts as to the
identity of the respondent vis-à-vis its judgment debtor. By reason of such negligent act, a wrongful levy was made,
causing physical, mental and psychological injuries on the person of the respondent. Such injuries entitle the
respondent to an award of moral damages in the amount of ₱800,000. No exemplary damages can be awarded
because the petitioner’s negligent act was not tainted with malice and bad faith. By reason of such wrongful levy, the
respondent had to hire the services of counsel to cause the cancellation of the annotation; hence, the award of
attorney’s fees.

Embarrassment, moral damages- 29,3

Unilateral freeze- 26, 30,31

Equally negligent- 33 (sps chea, accommodated a stranger, pnb released proceeds prior to the lapse of the 15 day period)

Proximate cause- 33,38

Clearing a check-33,34

Mortgagee in good faith- 44 (simulated sale even if phil bank failed to exercise greater care in conducting the ocular inspection
of the properties, the omission did not prejudice third parties for the buyer tan dropped the suit and also sps Delgado was a party
to the fraudulent sale. Fraudulent sct of dy and sps Delgado’s deliberate simulation of the sale, sps cannot now be allowed to raise
validity of the sale as such would effectively sanction their blatant bad faith to philbanks detriment), 47 (monestes executed a
contract to sell in favor of ursal, ursal failed to pay the balance bundal atty in fact of monestes executed a rem over the proper in
favor of the bank, ursal filed an action for declaration of non-effectivity of mortgage, bank mortgagee in good faith, did not have
prior knowledge of the sale, the rule that persons dealing with registered kands can rely solely on the certificate of title does not
apply to banks)

Mortgagee in bad faith- 48 (PNB not an ordinary mortgagee it is a bank, banks are expected to be more cautious than ordinary
individuals in dealing with lands even registered ones since banks are imbued with public interest, it is evident that the titles
changed from Bondoc to Bondoc to palagnanses in less than 3 months and mortgaged to pnb 4 months after. This should’ve
driven pnb to look at the deeds involved. It would’ve discoved that it was old at ridiculously low prices. Anyone who deliberately
ignores a significant fact that would create a suspicion in an otherwise reasonable person cannot be considered as an innocent
mortagee. as a mortgagee bank, it should’ve conducted an exhaustive investigation of the history of the mortagee title before it
obtained the loan, it is of judicial notice that it is standard practice for banks that before approving a loan, it should’ve sent a staff
to the property offered as a collateral to verify the genuiness of the titke and determine who is the real owner.

49- bank a mortagee in bad faith, it is of judicial notice that it is standard practice for banks that before approving a loan, it
should’ve sent a staff to the property offered as a collateral to verify the genuiness of the titke and determine who is the real
owner. In this case, the bank has made no investigation.

55- Tio vs. Abayata- Abayata, et al. claimed that they were the absolute owners of the property in dispute, a 1,868-square
meter parcel of land located in Lapu-Lapu City, Cebu. They relied on the final Decision rendered by the RTC of Lapu-
Lapu City in an action for recovery of property and ownership. They also alleged that through machinations, Lasola
was able to register the property in his name and mortgage it to secure a loan from the Commercial Rural Bank of Tabogon
(Cebu), Inc. (Rural Bank). In turn, the Rural Bank foreclosed the mortgage and sold the property to Tios in 1898 who
registered the property.

Thus, Abayata, et al. filed an action for annulment of mortgage, mortgage sale, a subsequent sale and certificates of
title with the RTC. The Tios and the Rural Bank filed their respective Answers, claiming that they were innocent purchasers
for value and in good faith. Defendant Lasola and his wife were declared in default.
Rural Bank is a mortgagee in bad faith. Records confirm that the Rural Bank did not exercise the due diligence required of
banking and financial institutions before entering into the mortgage contract with Lasola. As aptly found by the RTC:

[D]efendant Rural Bank was not a mortgagee in good faith because of its failure to examine more closely the title
of the mortgagors despite the first-hand knowledge that other persons, and not the would-be mortgagors, were
in possession of the property. The very fact that the lot was not in the possession of the Lasolas should have put
the defendant bank on guard and prompted it to make a more thorough inquiry into the ownership of the lot.
Defendant Rural Bank relied on the representation of Banjamin Lasola that the residents on the lot were squatters.
There is no showing that it inquired from the residents themselves as to who the real owners were, something it
would have done if it were reasonably diligent and prudent in verifying the true ownership of the lot. Instead, as
testified to by Mrs. Lechido, the bank relied merely on the declarations of Benjamin Lasola and one resident on
the lot that the houses were built and occupied by squatters.

As a banking institution, it is expected to exercise due diligence before entering into a mortgage contract. The ascertainment
of the status or condition of a property offered to it as security for a loan must be a standard and indispensable part of its
operations.

Recordings:

Right to redeem, While the GBL says 3 months after foreclosure, under NCBA, the later law provides 90 months

What is expected of banks:

SEC 2

Fudiciary