BANKING
Atty. Dino De Leon
I. THE GENERAL BANKING LAW OF 200 (RA NO. 8791)
E. Bank Powers and Liabilities
CA AGRO-INDUSTRIAL DEVELOPMENT CORP. v. COURT OF APPEALS
219 SCRA 426, G.R. No. 90027, MARCH 3, 1993
DAVIDE, JR., J.:
Deposit; Commercial Law; Banks and Banking; A contract for the rent of a
safety deposit box is not an ordinary contract of lease but a special kind of
deposit.
Primary function of banking institutions authorized to rent out safety deposit
box, within the parameters of contract of deposit in accord with General
Banking Act which adopts prevailing rule in American jurisprudence.
Any stipulation exempting depository from liability for loss of thing deposited
on account of fraud, negligence or delay considered void for being contrary to
law and public policy.
Liability of lessor in contract of lease of safety deposit box can be limited by
stipulation but any stipulation for exemption shall be held ineffective.
Bank's exoneration from liability not by virtue of characterization of impugned
contract as a contract of lease but by reason of the absence of proof as to its
knowledge about existing agreement between the other parties, as well as,
that the loss of certificates not attributable to its negligence or fraud.
LUZAN SIA v. COURT OF APPEALS and SECURITY BANK AND TRUST
COMPANY
222 SCRA 24, G.R. No. 102970, May 13, 1993.
DAVIDE, JR., J.:
Deposit; Contract for the use of safety deposit box is a special kind of
deposit and the relationship between the parties thereto, with respect
to the contents of the box, is that of a bailor and bailee, the bailment
being for hire and mutual benefit.
Conditions in a Lease Agreement covering a safety deposit box
which exempt the bank from any liability for damage, loss or
destruction of the contents thereof arising from its own or its agents
fraud, negligence or delay are considered null and void, for being
contrary to law and public policy.
Although flooding could be considered a fortuitous event, failure of
the bank to give notice to the renter of such fact makes it liable for
damages, its negligence caused to aggravate injury or damage to the
renter; Case at bar.
F. Diligence Required of Banks
SIMEX INTERNATIONAL v. COURT OF APPEALS
183 SCRA 360, G.R. No. 88013, March 19, 1990.
CRUZ, J.:
As a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of their
relationship.
CONSOLIDATED BANK AND TRUST CORPORATION v. COURT OF
APPEALS
410 SCRA 562, G.R. No. 138569, September 11, 2003.
CARPIO, J.:
Note: this case is one of culpa contractual where neither the contributory
negligence of the plaintiff nor his last clear change to avoid the loss, would
exonerate the defendant from liability.
The contract between a bank and its depositor is governed by the provisions
of the Civil Code on simple loan
The fiduciary relationship means that the banks obligation to observe high
standards of integrity and performance is deemed written into every deposit
agreement between a bank and its depositor
The fiduciary nature of banking requires banks to assume a degree of
diligence higher than that of a good father of a family. Article 1172 of the Civil
Code states that the degree of diligence required of an obligor is that
prescribed by law or contract, and absent such stipulation then the diligence
of a good father of a family. Section 2 of RA 8791 prescribes the statutory
diligence required from banks - that banks must observe high standards of
integrity and performance in servicing their depositors.
Culpa Contractual v. Culpa Aquiliana
Culpa Contractual Culpa Aquiliana
once the plaintiff proves a the plaintiff has the burden of
breach of contract, there is a proving that the defendant
presumption that the was negligent.
defendant was at fault or
negligent. The burden is on
the defendant to prove that he
was not at fault or negligent
METROPOLITAN BANK AND TRUST COMPANY V. CABILZO
510 SCRA 259, G.R. No. 154469, December 6, 2006.
CHICO-NAZARIO, J.:
Note: this case is one of culpa Aquiliana.
The appropriate degree of diligence required of a bank must be a high degree
of diligence, if not the utmost diligence.
The bank on which the check is drawn, known as the drawee bank, is under
strict liability to pay to the order of the payee in accordance with the drawers
instructions as reflected on the face and by the terms of the check. Payment
made under materially altered instrument is not payment done in accordance
with the instruction of the drawer. When the drawee bank pays a materially
altered check, it violates the terms of the check, as well as its duty to charge
its clients account only for bona fide disbursements he had made.
Banks owe the highest degree fidelity to its clients and should not therefore
lightly rely on the judgment of other banks on occasions where its clients
money were involve, no matter how small or substantial the amount at stake.
PNB v. PIKE
470 SCRA 328, G.R. No. 157845, September 20, 2005.
CHICO-NAZARIO, J.:
Negligence of banking institutions should never be countenanced - though its
employees may be the ones negligent, a banks liability as an obligor is not
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 BANKING
Atty. Dino De Leon
merely vicarious but primary, as banks are expected to exercise the highest
degree of diligence in the selection and supervision of their employees.
A banks employee was utterly remiss in protecting the banks client, as well
as the bank itself, when he allowed an account holder to make it appear as if
he was the one actually withdrawing from an account and actually receiving
the withdrawn amount - ordinarily, banks allow withdrawal by someone who is
not the account holder so long as the account holder authorizes his
representative to withdraw and receive from his account by signing on the
space provided particularly for such transactions, usually found at the back of
withdrawal slips.
BPI v. LIFETIME MARKETING CORPORATION
555 SCRA 374, G.R. No. 176434, June 25, 2008.
TINGA, J.:
Note: this case is one of culpa Aquiliana.
ELEMENTS OF QUASI-DELICT:
(a) fault or negligence of the defendant, or some other person for whose acts
he must respond;
(b) damages suffered by the plaintiff; and
(c) the connection of cause and effect between the fault or negligence of the
defendant and the damages incurred by the plaintiff.
NEGLIGENCE
is the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would
do, or the doing of something which a prudent and reasonable man would
not do.
The damages awarded to a bank depositor may be reduced on account of its
own contributory negligence in accordance with Article 1172 of the Civil
Code.
BANK OF PHILIPPINE ISLANDS v. CASA MONTESSORI
INTERNATIONALE
430 SCRA 261, G.R. No. 149454, May 28, 2004.
PANGANIBAN, J.:
Best Evidence Rule; Under the best evidence rule as applied to documentary
evidence, like the checks in question, no secondary evidence or
substitutionary evidence may inceptively be introduced, as the original writing
itself must be produced in court, but when, without bad faith on the part of the
offeror, the original checks have already been destroyed or cannot be
produced in court, secondary evidence, like microfilm copies, may be
produced.
Even with respect to documentary evidence, the best evidence rule applies
only when the contents of the document - such as the drawers signature on a
check - is the subject of inquiry.
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.
CENTRAL BANK OF THE PHILIPPINES v. CITYTRUST BANKING
CORPORATION
578 SCRA 28, G.R. No. 141835, February 4, 2009.
CARPIO-MORALES, J.:
Fiduciary relationship means that the banks obligation to observe high
standards of integrity and performance is deemed written into every deposit
agreement between a bank and its depositor. The fiduciary nature of banking
requires banks to assume a degree of diligence higher than that of a good
father of a family.
60-40 Ratio
Citytrusts failure to timely examine its account, cancel the checks and notify
petitioner of their alleged loss/theft should mitigate petitioners liability, in
accordance with Article 2179 of the Civil Code which provides that if the
plaintiffs negligence was only contributory, the immediate and proximate
cause of the injury being the defendants lack of due care, the plaintiff may
recover damages, but the courts shall mitigate the damages to be awarded.
For had Citytrust timely discovered the loss/theft and/or subsequent
encashment, their proceeds or part thereof could have been recovered. In
line with the ruling in Consolidated Bank and Trust Corporation v. Court of
Appeals, 410 SCRA 562 (2003), the Court deems it proper to allocate the
loss between petitioner and Citytrust on a 60-40 ratio.
PHILIPPINE BANK OF COMMERCE, ET AL. v. COURT OF APPEALS, et al.
269 SCRA 695, G.R. No. 97626, March 14, 1997
HERMOSISIMA, JR., J.:
Last Clear Chance
an antecedent negligence of a person does not preclude the recovery of
damages for the supervening negligence of, or bar a defense against liability
sought by another, if the latter, who had the last fair chance, could have
avoided the impending harm by the exercise of due diligence.
REYES, ET AL. v. COURT OF APPEALS, et al.
363 SCRA 51, G.R. No. 118492. August 15, 2001
DE LEON, JR., J.:
Banks are not expected to exert high degree of diligence in commercial
transactions for it does not involve their fiduciary relationship with their
depositors.
I. Nature of Bank funds and Bank Deposits
BANK OF PHILIPPINE ISLANDS v. SUAREZ
615 SCRA 291, G.R. No. 167750, March 15, 2010
CARPIO, J.:
Banks must at all times maintain a high level of meticulousness and should
guard against injury attributable to negligence or bad faith on its part.
Conditions for the Award of Moral Damages:
1. there is an injury - whether physical, mental or psychological - clearly
sustained by the claimant;
2. the culpable act or omission is factually established;
3. the wrongful act or omission of the defendant is the proximate cause of the
injury sustained by the claimant; and
4. the award of damages is predicated on any of the cases stated in Art. 2219
of the Civil Code.
ALLIED BANK v. LIM SIO WAN
549 SCRA 504, G.R. No. 133179, March 27, 2008
VELASCO, JR., J.:
Note: this case is one of Quasi-Delict
The relationship between a bank and a client is one of debtor-creditor.
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 BANKING
Atty. Dino De Leon
Articles 1953 and 1980 of the Civil Code provide: Art. 1953. A person who
receives a loan of money or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind
and quality. Art. 1980. Fixed, savings, and current deposits of money in banks
and similar institutions shall be governed by the provisions concerning simple
loan.
money market is a market dealing in standardized short-term credit
instruments (involving large amounts) where lenders and borrowers do not
deal directly with each other but through a middle man or dealer in open market
- in a money market transaction, the investor is a lender who loans his money
to a borrower through a middleman or dealer
Given the relative participation of two banks to the instant case, both banks
cannot be adjudged as equally liablehence, the 60:40 ratio of the liabilities.
In the instant case, the trial court correctly found Allied negligent in issuing
the managers check and in transmitting it to Santos without even a written
authorization. In fact, Allied did not even ask for the certificate evidencing
the money market placement or call up Lim Sio Wan at her residence or
office to confirm her instructions. Both actions could have prevented the
whole fraudulent transaction from unfolding. Allieds negligence must be
considered as the proximate cause of the resulting loss. To reiterate, had
Allied exercised the diligence due from a financial institution, the check
would not have been issued and no loss of funds would have resulted. In
fact, there would have been no issuance of indorsement had there been no
check in the first place. The liability of Allied, however, is concurrent with
that of Metrobank as the last indorser of the check. When Metrobank
indorsed the check in compliance with the PCHC Rules and Regulations
without verifying the authenticity of Lim Sio Wans indorsement and when it
accepted the check despite the fact that it was cross-checked payable to
payees account only, its negligent and cavalier indorsement contributed to
the easier release of Lim Sio Wans money and perpetuation of the fraud.
Given the relative participation of Allied and Metrobank to the instant case,
both banks cannot be adjudged as equally liable. Hence, the 60:40 ratio of
the liabilities of Allied and Metrobank, as ruled by the CA, must be upheld.
ASSOCIATED BANK v. TAN
446 SCRA 282, G.R. No. 156940, December 14, 2004
PANGANIBAN, J.:
The right of a collecting bank to debit a clients account for the value of a
dishonored check that has previously been credited has fairly been
established by jurisprudence. - A bank generally has a right of setoff over the
deposits therein for the payment of any withdrawals on the part of a depositor.
Article 1980 of the Civil Code provides that [f]ixed, savings, and current
deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan.
The relationship between banks and depositors has been held to be that of
creditor and debtor. Thus, legal compensation under Article 1278 of the Civil
Code may take place when all the requisites mentioned in Article 1279 are
present, as follows: (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 consist 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; (5)
That over neither of them there be any retention or controversy, commenced
by third persons and communicated in due time to the debtor.
Under the provisions of the Negotiable Instruments Law regarding the liability
of a general indorser and the procedure for a notice of dishonor, it was
incumbent on the bank to give proper notice to respondent.
BPI v. COURT OF APPEALS
512 SCRA 620, G.R. No. 136202, January 25, 2007
AZCUNA, J.:
If instruments payable to named payees or to their order have not been
indorsed in blank, only such payees or their indorsees can be holders and
entitled to receive payment in their own right.
A bank generally has a right of set-off over the deposits therein for the payment
of any withdrawals on the part of a depositor - the right of a collecting bank to
debit a clients account for the value of a dishonored check that has previously
been credited has fairly been established by jurisprudence.
A depositor has the right to recover reasonable moral damages even if the
banks negligence may not have been attended with malice and bad faith, if
the former suffered mental anguish, serious anxiety, embarrassment and
humiliation.
BPI FAMILY BANK v. FRANCO
G.R. No. 123498, November 23, 2007
NACHURA, J.:
Money - albeit characterized as movable, is generic and fungible.
In this case, the deposit in Francos accounts consists of money which, albeit
characterized as a movable, is generic and fungible. The quality of being
fungible depends upon the possibility of the property, because of its nature
or the will of the parties, being substituted by others of the same kind, not
having a distinct individuality.
Money, which had passed through various transactions in the general course
of banking business, even if of traceable origin, bears no earmarks of peculiar
ownership. Its primary function is to pass from hand to hand as a medium of
exchange, without other evidence of its title. Money, which had passed through
various transactions in the general course of banking business, even if of
traceable origin, bears no earmarks of peculiar ownership.
CONSOLIDATED BANK AND TRUST CORP. v. COURT OF APPEALS
410 SCRA 562, G.R. No. 138569,September 11, 2003
CARPIO, J.:
Depositors are only authorized to withdraw money upon showing of their
passbook. The rules on savings account even provided that any person in
possession of the passbook is presumptively its owner. If the tellers give the
passbook to the wrong person, they would be clothing that person
pre-sumptive ownership of the passbook, facilitating unauthorized
withdrawals by that person.
URSUA v. COURT OF APPEALS
256 SCRA 147, G.R. No. 112170. April 10, 1996
BELLOSILLO, J.:
The enactment of C.A. No. 142 as amended was made primarily to curb the
common practice among the Chinese of adopting scores of different names
and aliases which created tremendous confusion in the field of trade. Such a
practice almost bordered on the crime of using fictitious names which for
obvious reasons could not be successfully maintained against the Chinese
who, rightly or wrongly, claimed they possessed a thousand and one names.
C.A. No. 142 thus penalized the act of using an alias name, unless such alias
was duly authorized by proper judicial proceedings and recorded in the civil
register.
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Atty. Dino De Leon
ALIAS
a name or names used by a person or intended to be used by him publicly
and habitually usually in business transactions in addition to his real name
by which he is registered at birth or baptized the first time or substitute name
authorized by a competent authority.
NAME
the sound or sounds by which he is commonly designated by his fellows and
by which they distinguish him but sometimes a man is known by several
different names and these are known as aliases.
The use of a fictitious name or a different name belonging to another person
in a single instance without any sign or indication that the user intends to be
known by this name in addition to his real name from that day forth does not
fall within the prohibition in C.A. No. 142.
The confusion and fraud in business transactions which the anti-alias law and
its related statutes seek to prevent are not present here as the circumstances
are peculiar and distinct from those contemplated by the legislature in enacting
C.A. No. 142 as amended. There exists a valid presumption that undesirable
consequences were never intended by a legislative measure and that a
construction of which the statute is fairly susceptible is favored, which will
avoid all objectionable, mischievous, indefensible, wrongful, evil and injurious
consequences.
PEOPLE v. ESTRADA, et al.
583 SCRA 302, G.R. Nos. 164368-69, April 2, 2009
BRION, J.:
Criminal Law; Illegal Use of Alias; Definition of an Alias; There must be a
sign or indication that the user intends to be known by this name (the
alias) in addition to his real name from that day forth for the use of alias
to fall within the prohibition contained in Commonwealth Act (C.A.) No.
142 as amended. How this law is violated has been answered by the Ursua
definition of an alias - a name or names used by a person or intended to be
used by him publicly and habitually usually in business transactions in addition
to his real name by which he is registered at birth or baptized the first time or
substitute name authorized by a competent authority. There must be, in the
words of Ursua, a sign or indication that the user intends to be known by this
name (the alias) in addition to his real name from that day forth... [for the use
of alias to] fall within the prohibition contained in C.A. No. 142 as amended.
Habituality of use of the alias
the repeated use of an alias within a single day cannot be deemed habitual,
as it does not amount to a customary practice or use. This reason alone
dictates the dismissal of the petition under CA No. 142 and the terms of
Ursua.
In order to be held liable for a violation of Commonwealth Act (C.A.) No. 142,
the user of the alias must have held himself out as a person who shall publicly
be known under that other name. In other words, the intent to publicly use the
alias must be manifest.
The presence of Lacquian and Chua when Estrada signed as Jose Velarde
and opened Trust Account No. C-163 does not necessarily indicate his
intention to be publicly known henceforth as Jose Velarde. In relation to
Estrada, Lacquian and Chua were not part of the public who had no access to
Estradas privacy and to the confidential matters that transpired in Malacan ang
where he sat as President; Lacquian was the Chief of Staff with whom he
shared matters of the highest and strictest confidence, while Chua was a
lawyer--friend bound by his oath of office and ties of friendship to keep and
maintain the privacy and secrecy of his affairs. Thus, Estrada could not be said
to have intended his signing as Jose Velarde to be for public consumption by
the fact alone that Lacquian and Chua were also inside the room at that time.
The same holds true for Estradas alleged representations with Ortaliza and
Dichavez, assuming the evidence for these representations to be admissible.
All of Estradas representations to these people were made in privacy and in
secrecy, with no iota of intention of publicity.
J. Stipulations on Interest
FLORIENDA v. METROPOLITAN BANK AND TRUST CO.
532 SCRA 43, G.R. No. 148325, September 3, 2007
SANDOVAL-GUTIERREZ, J.:
Principle of Mutuality of Contracts
Increases of interest rate unilaterally imposed by respondent bank without
petitioners assent are violative of the principle of mutuality of contracts
ordained in Article 1308 of the Civil Code. The determination to increase or
decrease interest rate, if primarily left to the discretion of the Bank without
the assent of the person who took out the loan is illegal excessive and
arbitrary.
The binding effect of any agreement between the parties to a contract is
premised on two settled principles:
(1) that obligations arising from contracts have the force of law between the
contracting parties; and
(2) that there must be mutuality between the parties based on their essential
equality to which is repugnant to have one party bound by the contract
leaving the other free therefrom.
Any contract which appears to be heavily weighed in favor of one of the parties
so as to lead to an unconscionable result is void. Any stipulation regarding the
validity or compliance of the contract which is left solely to the will of one of the
parties is likewise invalid.
A stipulation in a promissory note which gives the bank authority to increase
the interest rate at will during the term of the loan violates the principle of
mutuality between the parties; While the Usury Law ceiling on interest rate was
lifted by Central Bank Circular No. 905, nothing therein could possibly be read
as granting the lender carte blanche authority to raise interest rate to levels
which would either enslave its borrower or lead to hemorrhaging of his assets.
- In the present case, the promissory note gives re-spondent bank authority to
increase the interest rate at will during the term of the loan. This stipulation
violates the principle of mutuality between the parties. It would be converting
the loan agreement into a contract of adhesion where the parties do not
bargain on equal footing, the weaker partys (petitioners) participation being
reduced to the alternative to take it or leave it. While the Usury Law ceiling on
interest rate was lifted by Central Bank Circular No. 905, nothing therein could
possibly be read as granting respondent bank carte blanche authority to raise
interest rate to levels which would either enslave its borrower (petitioner
herein) or lead to hemorrhaging of his assets.
EQUITABLE PCI BANK v. NG SHEUNG NGOR
541 SCRA 223, G.R. No. 171545, December 19, 2007
CORONA, J.:
Escalation clauses are not void per se. However, one which grants the
creditor an unbridled right to adjust the interest independently and upwardly,
completely depriving the debtor of the right to assent to an important
modification in the agreement is void. Clauses of that nature violate the
principle of mutuality of contracts. Article 1308 of the Civil Code holds that a
contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them. For this reason, we have consistently held
that a valid escalation clause provides: 1. that the rate of interest will only be
increased if the applicable maximum rate of interest is increased by law or by
the Monetary Board; and 2. that the stipulated rate of interest will be reduced
if the applicable maximum rate of interest is reduced by law or by the Monetary
Board (de-escalation clause).
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 BANKING
Atty. Dino De Leon

K. Grant of Loans and Security Requirements

GC DALTON INDUSTRIES, INC. v. EQUITABLE PCI BANK

596 SCRA 723, G.R. No. 171169, August 24, 2009

CORONA, J.:

The mortgagor loses all legal interest over the foreclosed property after the
expiration of the redemption period.21 Under Section 47 of the General
Banking Law, if the mortgagor is a juridical person, it can exercise the right to
redeem the foreclosed property until, but not after, the registration of the
certificate of foreclosure sale within three months after foreclosure, whichever
is earlier. Thereafter, such mortgagor loses its right of redemption.

II.

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