GENERAL BANKING LAW the tenor thereof, are liable for damages.
Based on the
(R.A 8791)
G.R. No. 118492. August 15, 2001.
GREGORIO H. REYES and CONSUELO PUYAT-REYES,
petitioners, vs. THE HON. COURT OF APPEALS and FAR
EAST BANK AND TRUST COMPANY, respondents.
Remedial Law; Petition for Review; Factual findings of the
Court of Appeals are conclusive on the parties and not
reviewable by the Court—and they carry even more weight
when the Court of Appeals affirms the factual findings of the
trial court.—Section 1 of Rule 45 of the Revised Rules of Court
provides that “(T)he petition (for review) shall raise only
questions of law which must be distinctly set forth.” Thus, we
have ruled that factual findings of the Court of Appeals are
conclusive on the parties and not reviewable by this Court—
and they carry even more weight when the Court of Appeals
affirms the factual findings of the trial court.
Commercial Law; Banks and Banking; Negligence; 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; 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.—With these
established facts, we now determine the degree of diligence
that banks are required to exert in their commercial dealings.
In Philippine Bank of Commerce v. Court of Appeals
upholding a long standing doctrine, we ruled that 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.
G.R. No. 170942. August 28, 2013.*
COMSAVINGS BANK (now GSIS FAMILY BANK),
petitioner, vs. SPOUSES DANILO and ESTRELLA
CAPISTRANO, respondents.
Mercantile Law; Banks and Banking; A banking institution is
obliged to exercise the highest degree of diligence as well as
high standards of integrity and performance in all its
transactions because its business is imbued with public
interest.—The liability of Comsavings Bank towards
respondents was based on Article 20 and Article 1170 of the
Civil Code, viz.: Article 20. Every person who, contrary to law,
willfully or negligently causes damage to another, shall
indemnify the latter for the same. Article 1170. Those who in
the perfor-mance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene
provisions, a banking institution like Comsavings Bank is
obliged to exercise the highest degree of diligence as well as
high standards of integrity and performance in all its
transactions because its business is imbued with public
interest. As aptly declared in Philippine National Bank v. Pike,
470 SCRA 328 (2005): “The stability of banks largely depends
on the confidence of the people in the honesty and efficiency of
banks.”
G.R. No. 142411. October 14, 2005.*
WINIFREDA URSAL, petitioner, vs. COURT OF APPEALS,
THE RURAL BANK OF LARENA (SIQUIJOR), INC. and
SPOUSES JESUS MONESET and CRISTITA MONESET,
respondents.
Commercial Law; Banks and Banking; Mortgages; Banks
cannot merely rely on certificates of title in ascertaining the
status of mortgaged properties; as their business is impressed
with public interest, they are expected to exercise more care
and prudence in their dealings than private individuals.—
Banks cannot merely rely on certificates of title in ascertaining
the status of mortgaged properties; as their business is
impressed with public interest, they are expected to exercise
more care and prudence in their dealings than private
individuals. Indeed, the rule that persons dealing with
registered lands can rely solely on the certificate of title does
not apply to banks.
G.R. No. 180945. February 12, 2010.
PHILIPPINE NATIONAL BANK, AS THE ATTORNEY-IN-
FACT OF OPAL PORTFOLIO INVESTMENTS (SPV-AMC),
INC., petitioner, vs. MERCEDES CORPUZ, REPRESENTED
BY HER ATTORNEY-IN-FACT VALENTINA CORPUZ,
respondent.
Mortgages; Banks and Banking; Banks are expected to be more
cautious than ordinary individuals in dealing with lands, even
registered ones, since the business of banks is imbued with
public interest.—As a rule, the Court would not expect a
mortgagee to conduct an exhaustive investigation of the
history of the mortgagor’s title before he extends a loan. But
petitioner PNB is 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
the business of banks is imbued with public interest. It is of
judicial notice that the standard practice for banks before
approving a loan is to send a staff to the property offered as
collateral and verify the genuineness of the title to determine
the real owner or owners.
Same; Same; Anyone who deliberately ignores a significant
fact that would create suspicion in an otherwise reasonable
person cannot be considered as an innocent mortgagee for
value.—One of the CA’s findings in this case is that in the
course of its verification, petitioner PNB was informed of the
previous TCTs covering the subject property. And the PNB has
not categorically contested this finding. It is evident from the
faces of those titles that the ownership of the land changed
from Corpuz to Bondoc, from Bondoc to the Palaganases, and
from the Palaganases to the Songcuans in less than three
months and mortgaged to PNB within four months of the last
transfer. The above information in turn should have driven the
PNB to look at the deeds of sale involved. It would have then
discovered that the property was sold for ridiculously low
prices: Corpuz supposedly sold it to Bondoc for just
P50,000.00; Bondoc to the Palaganases for just P15,000.00; and
the Palaganases to the Songcuans also for just P50,000.00. Yet
the PNB gave the property an appraised value of P781,760.00.
Anyone who deliberately ignores a significant fact that would
create suspicion in an otherwise reasonable person cannot be
considered as an innocent mortgagee for value.
G.R. No. 112392. February 29, 2000.*
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs.
COURT OF APPEALS and BENJAMIN C. NAPIZA,
respondents.
Negotiable Instruments Law; Warranties of a person
negotiating an instrument by delivery or by qualified
indorsement.—–Section 65, on the other hand, provides for the
following warranties of a person negotiating an instrument by
delivery or by qualified indorsement: (a) that the instrument is
genuine and in all respects what it purports to be; (b) that he
has a good title to it; and (c) that all prior parties had capacity
to contract.
Banks and Banking; Passbooks; The requirement of
presentation of the passbook when withdrawing an amount
cannot be given mere lip service even though the person
making the withdrawal is authorized by the depositor to do
so.—–The withdrawal slip contains a boxed warning that
states: “This receipt must be signed and presented with the
corresponding foreign currency savings passbook by the
depositor in person. For withdrawals thru a representative,
depositor should accomplish the authority at the back.” The
requirement of presentation of the passbook when
withdrawing an amount cannot be given mere lip service even
though the person making the withdrawal is authorized by the
depositor to do so. This is clear from Rule No. 6 set out by
petitioner so that, for the protection of the bank’s interest and
as a reminder to the depositor, the withdrawal shall be entered
in the depositor’s passbook. The fact that private respondent’s
passbook was not presented during the withdrawal is
evidenced by the entries therein showing that the last
transaction that he made with the bank was on September 3,
1984, the date he deposited the controversial check in the
amount of $2,500.00.
Same; Negotiable Instruments Law; Checks; A negotiable
instrument, such as a check, whether a manager’s check or
ordinary check, is not legal tender.—–As correctly held by the
Court of Appeals, in depositing the check in his name, private
respondent did not become the outright owner of the amount
stated therein. Under the above rule, by depositing the check
with petitioner, private respondent was, in a way, merely
designating petitioner as the collecting bank. This is in
consonance with the rule that a negotiable instrument, such as
a check, whether a manager’s check or ordinary check, is not
legal tender. As such, after receiving the deposit, under its own
rules, petitioner shall credit the amount in private respondent’s
account or infuse value thereon only after the drawee bank
shall have paid the amount of the check or the check has been
cleared for deposit. Again, this is in accordance with ordinary
banking practices and with this Court’s pronouncement that
“the collecting bank or last endorser generally suffers the loss
because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check
for payment to the drawee is an assertion that the party
making the presentment has done its duty to ascertain the
genuineness of the endorsements.” The rule finds more
meaning in this case where the check involved is drawn on a
foreign bank and therefore collection is more difficult than
when the drawee bank is a local one even though the check in
question is a manager’s check.
Same; Same; Same; Words and Phrases; “Manager’s Check"
Explained; A manager’s check is like a cashier’s check which,
in the commercial world, is regarded substantially to be as
good as the money it represents.—–A manager’s check is like a
cashier’s check which, in the commercial world, is regarded
substantially to be as good as the money it represents (Tan v.
Court of Appeals, G.R. No. 108555, 239 SCRA 310, 322 [1994]).
Same; Same; In dealing with its depositors, a bank should
exercise its functions not only with the diligence of a good
father of a family but it should do so with the highest degree
of care.—–Said ruling brings to light the fact that the banking
business is affected with public interest. 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.” As such, in dealing with
its depositors, a bank should exercise its functions not only
with the diligence of a good father of a family but it should do
so with the highest degree of care.
Same; Same; Same; Words and Phrases; “Negligence,”
Explained; 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 do.—–In the case at bar, petitioner, in allowing the
withdrawal of private respondent’s deposit, failed to exercise
the diligence of a good father of a family. In total disregard of
its own rules, petitioner’s personnel negligently handled
private respondent’s account to petitioner’s detriment. As this
Court once said on this matter: “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 do. The seventy-eight (78)-year-
old, yet still relevant, case of Picart v. Smith, provides the test
by which to determine the existence of negligence in a
particular case which may be stated as follows: Did the
defendant in doing the alleged negligent act use that
reasonable care and caution which an ordinarily prudent
person would have used in the same situation? If not, then he
is guilty of negligence. The law here in effect adopts the
standard supposed to be supplied by the imaginary conduct of
the discreet pater familias of the Roman law. The existence of
negligence in a given case is not determined by reference to the
personal judgment of the actor in the situation before him. The
law considers what would be reckless, blameworthy, or
negligent in the man of ordinary intelligence and prudence
and determines liability by that.”
Same; Same; Same; Even after the lapse of the 35-day period,
the amount of a deposited check cannot be withdrawn in the
absence of a clearance thereon.—–From these facts on record, it
is at once apparent that petitioner’s personnel allowed the
withdrawal of an amount bigger than the original deposit of
$750.00 and the value of the check deposited in the amount of
$2,500.00 although they had not yet received notice from the
clearing bank in the United States on whether or not the check
was funded. Reyes’ contention that after the lapse of the 35-
day period the amount of a deposited check could be
withdrawn even in the absence of a clearance thereon,
otherwise it could take a long time before a depositor could
make a withdrawal, is untenable. Said practice amounts to a
disregard of the clearance requirement of the banking system.
G.R. No. 202514. July 25, 2016.
ANNA MARIE L. GUMABON, petitioner, vs. PHILIPPINE
NATIONAL BANK, respondent. Gumabon vs. Philippine
National Bank, 798 SCRA 103, G.R. No. 202514 July 25, 2016
Banks and Banking; A bank acts at its peril when it pays
deposits evidenced by a certificate of deposit, without its
production and surrender after proper indorsement.—The PNB
alleged that Anna Marie’s claim over FXCTD No. 993992
should only be limited to $5,857.79. It presented the manager’s
check, which admissibility we have heretofore discussed and
settled, and the miscellaneous tickets. We cannot absolve the
PNB from liability based on these miscellaneous tickets alone.
As the RTC correctly stated, the transactions allegedly
evidenced by these tickets were neither posted at the back of
Anna Marie’s certificate, nor recorded on her ledger to show
that several withdrawals had been made on the account. At
this point, we remind the PNB of the negotiability of a
certificate of deposit as it is a written acknowledgment by the
bank of the receipt of a sum of money on deposit which the
bank promises to pay to the depositor, to the latter’s order, or
to some other person or the latter’s order. To discharge a debt,
the bank must pay to someone authorized to receive the
payment. A bank acts at its peril when it pays deposits
evidenced by a certificate of deposit, without its production
and surrender after proper indorsement.
Same; Diligence Required of Banks; The bank is required to
assume a degree of diligence higher than that of a good father
of a family.—Section 2 of Republic Act No. 8791, declares the
State’s recognition of the “fiduciary nature of banking that
requires high standards of integrity and performance.” It
cannot be overemphasized that the banking business is
impressed with public interest. The trust and confidence of the
public to the industry is given utmost importance. Thus, the
bank is under obligation to treat its depositor’s accounts with
meticulous care, having in mind the nature of their
relationship. The bank is required to assume a degree of
diligence higher than that of a good father of a family.
Same; Same; The bank is not absolved from liability by the
fact that it was the bank’s employee who committed the
wrong and caused damage to the depositor.—The Court has
established in a number of cases the standard of care required
from banks, and the bank’s liability for the damages sustained
by the depositor. The bank is not absolved from liability by the
fact that it was the bank’s employee who committed the wrong
and caused damage to the depositor. Article 2180 of the New
Civil Code provides that the owners and managers of an
establishment are responsible for damages caused by their
employees while performing their functions.
Quasi-delicts; Contributory Negligence; Contributory
negligence is conduct on the part of the injured party,
contributing as a legal cause to the harm he has suffered,
which falls below the standard to which he is required to
conform for his own protection.—As to contributory
negligence, the Court agrees with the RTC that the PNB failed
to substantiate its allegation that Anna Marie was guilty of
contributory negligence. Contributory negligence is conduct
on the part of the injured party, contributing as a legal cause to
the harm he has suffered, which falls below the standard to
which he is required to conform for his own protection.
Whether contributory negligence transpired is a factual matter
that must be proven. In the present case, Anna Marie cannot be
held responsible for entrusting her account with Salvoro. As
shown in the records, Salvoro was the bank’s time deposit
specialist. Anna Marie cannot thus be faulted if she engaged
the bank’s services through Salvoro for transactions related to
her time deposits. The Court also cannot accept the CA’s
conclusion that there was connivance between Anna Marie and
Salvoro. This conclusion is simply not supported by the
records and is therefore baseless.
Breach of Contracts; Damages; Moral Damages; In cases of
breach of contract, moral damages are recoverable only if the
defendant acted fraudulently or in bad faith, or is guilty of
gross negligence amounting to bad faith, or in clear disregard
of his contractual obligations.—In these lights, we hold that
Anna Marie is entitled to moral damages of P100,000.00. In
cases of breach of contract, moral damages are recoverable
only if the defendant acted fraudulently or in bad faith, or is
guilty of gross negligence amounting to bad faith, or in clear
disregard of his contractual obligations. Anna Marie was able
to establish the mental anguish and serious anxiety that she
suffered because of the PNB’s refusal to honor its obligations.
Same; Same; Exemplary Damages; Banks and Banking; Banks
must treat the accounts of its depositors with meticulous care
and always have in mind the fiduciary nature of its
relationship with them. Having failed to observe these, the
award of exemplary damages is justified.—Anna Marie is
likewise entitled to exemplary damages of P50,000.00. Article
2229 of the New Civil Code imposes exemplary damages by
way of example or correction for the public good. To repeat,
banks must treat the accounts of its depositors with meticulous
care and always have in mind the fiduciary nature of its
relationship with them. Having failed to observe these, the
award of exemplary damages is justified.
Same; Same; Attorney’s Fees; Cost of Suit; As exemplary
damages are awarded herein and as Anna Marie was
compelled to litigate to protect her interests, the award of
attorney’s fees and expenses of litigation of P150,000.00 is
proper.—As exemplary damages are awarded herein and as
Anna Marie was compelled to litigate to protect her interests,
the award of attorney’s fees and expenses of litigation of
P150,000.00 is proper.
Same; Same; Legal Interest; Pursuant to the Bangko Sentral ng
Pilipinas-Monetary Board (BSP-MB) Circular No. 799, the
legal interest rate is six percent (6%) per annum effective July
1, 2013. The new rate is applicable prospectively; thus, the
twelve percent (12%) per annum shall still apply until June 30,
2013.—We note that pursuant to the Bangko Sentral ng
Pilipinas-Monetary Board Circular No. 799, the legal interest
rate is 6% per annum effective July 1, 2013. The new rate is
applicable prospectively; thus, the 12% per annum shall still
apply until June 30, 2013. In the present case, Anna Marie filed
her complaint on August 12, 2004. PNB is therefore liable for
legal interest of 12% per annum from August 12, 2004 until
June 30, 2013, and 6% per annum from July 1, 2013, until its full
satisfaction.
G.R. No. 198756. January 13, 2015.*
BANCO DE ORO, et al., vs. REPUBLIC OF THE
PHILIPPINES, THE COMMISSIONER OF INTERNAL
REVENUE, BUREAU OF INTERNAL REVENUE,
SECRETARY OF FINANCE, DEPARTMENT OF FINANCE,
THE NATIONAL TREASURER and BUREAU OF
TREASURY, respondents.
Deposit Substitutes; Words and Phrases; The term ‘deposit
substitutes’ shall mean an alternative form of obtaining funds
from the public (the term ‘public’ means borrowing from
twenty [20] or more individual or corporate lenders at any one
time) other than deposits, through the issuance, endorsement,
or acceptance of debt instruments for the borrower’s own
account, for the purpose of relending or purchasing of
receivables and other obligations, or financing their own needs
or the needs of their agent or dealer.—The definition of deposit
substitutes was amended under the 1997 National Internal
Revenue Code with the addition of the qualifying phrase for
public — borrowing from 20 or more individual or corporate
lenders at any one time. Under Section 22(Y), deposit
substitute is defined thus: SEC. 22. Definitions.—When used in
this Title: . . . . (Y) The term ‘deposit substitutes’ shall mean an
alternative form of obtaining funds from the public (the term
‘public’ means borrowing from twenty (20) or more individual
or corporate lenders at any one time) other than deposits,
through the issuance, endorsement, or acceptance of debt
instruments for the borrower’s own account, for the purpose of
relending or purchasing of receivables and other obligations,
or financing their own needs or the needs of their agent or
dealer. These instruments may include, but need not be limited
to, bankers’ acceptances, promissory notes, repurchase
agreements, including reverse repurchase agreements entered
into by and between the Bangko Sentral ng Pilipinas (BSP) and
any authorized agent bank, certificates of assignment or
participation and similar instruments with recourse: Provided,
however, That debt instruments issued for interbank call loans
with maturity of not more than five (5) days to cover
deficiency in reserves against deposit liabilities, including
those between or among banks and quasi-banks, shall not be
considered as deposit substitute debt instruments. (Emphasis
supplied) Under the 1997 National Internal Revenue Code,
Congress specifically defined “public” to mean “twenty (20) or
more individual or corporate lenders at any one time.” Hence,
the number of lenders is determinative of whether a debt
instrument should be considered a deposit substitute and
consequently subject to the 20% final withholding tax.
G.R. No. 174134. July 30, 2008.*
FIRST PLANTERS PAWNSHOP, INC., petitioner, vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
Same; Same; Same; Banks and Banking; General Banking Law
of 2000 (Republic Act No. 8791); Republic Act No. 8791
provides that banks shall refer to entities engaged in the
lending of funds obtained in the form of deposits; Financial
intermediaries are defined 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.—R.A.
No. 337, as amended, or the General Banking Act characterizes
the terms banking institution and bank as synonymous and
interchangeable and specifically include commercial banks,
saving bank, mortgage banks, development banks, rural
banks, stock savings and loan associations, and branches and
agencies in the Philippines of foreign banks. R.A. No. 8791 or
the General Banking Law of 2000, meanwhile, provided that
banks shall refer to entities engaged in the lending of funds
obtained in the form of deposits. R.A. No. 8791 also included
cooperative banks, Islamic banks and other banks as
determined by the Monetary Board of the Bangko Sentral ng
Pilipinas in the classification of banks. Financial
intermediaries, on the other hand, are defined 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.”
Same; Same; Same; Pawnshop Regulation Act (P.D. No. 114);
A pawnshop’s business and operations are governed by P.D.
No. 114 and Central Bank Circular No. 374 (Rules and
Regulations for Pawnshops); It need not be elaborated that
pawnshops are non-banks/banking institutions—the nature of
their business activities partakes that of a financial
intermediary in that its principal function is lending.—It need
not be elaborated that pawnshops are non-banks/banking
institutions. Moreover, the nature of their business activities
partakes that of a financial intermediary in that its principal
function is lending. A pawnshop’s business and operations are
governed by Presidential Decree (P.D.) No. 114 or the
Pawnshop Regulation Act and Central Bank Circular No. 374
(Rules and Regulations for Pawnshops). Section 3 of P.D. No.
114 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.” The
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. The Manual includes pawnshops
in the list of non-bank financial intermediaries.
Same; Same; Same; Since petitioner pawnshop is a non-bank
financial intermediary, it is subject to 10% Value Added Tax
(VAT) for the tax years 1996 to 2002, but, with the levy,
assessment and collection of VAT from non-bank financial
intermediaries being specifically deferred by law, then it is not
liable for VAT during these tax years.—Coming now to the
issue at hand—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. But with the full implementation of the VAT
system on non-bank financial intermediaries starting January
1, 2003, petitioner is liable for 10% VAT for said tax year. And
beginning 2004 up to the present, by virtue of R.A. No. 9238,
petitioner is no longer liable for VAT but it is subject to
percentage tax on gross receipts from 0% to 5%, as the case
may be.
G.R. No. 176697. September 10, 2014.*
CESAR V. AREZA and LOLITA B. AREZA, petitioners, vs.
EXPRESS SAVINGS BANK, INC. and MICHAEL
POTENCIANO, respondents. Areza vs. Express Savings
Bank, Inc., 734 SCRA 588, G.R. No. 176697 September 10,
2014
Same; Banks and Banking; Depositary Banks; Collecting
Banks; Words and Phrases; A depositary bank is the first bank
to take an item even though it is also the payor bank, unless
the item is presented for immediate payment over the counter;
A collecting bank is defined as any bank handling an item for
collection except the bank on which the check is drawn.—A
depositary bank is the first bank to take an item even though it
is also the payor bank, unless the item is presented for
immediate payment over the counter. It is also the bank to
which a check is transferred for deposit in an account at such
bank, even if the check is physically received and indorsed first
by another bank. A collecting bank is defined as any bank
handling an item for collection except the bank on which the
check is drawn.
Same; Same; Same; Same; If any of the warranties made by the
depositary/collecting bank turns out to be false, then the
drawee bank may recover from it up to the amount of the
check.—A depositary/collecting bank where a check is
deposited, and which endorses the check upon presentment
with the drawee bank, is an endorser. Under Section 66 of the
Negotiable Instruments Law, an endorser warrants “that the
instrument is genuine and in all respects what it purports to
be; that he has good title to it; that all prior parties had capacity
to contract; and that the instrument is at the time of his
endorsement valid and subsisting.” It has been repeatedly held
that in check transactions, the depositary/collecting bank or
last endorser generally suffers the loss because it has the duty
to ascertain the genuineness of all prior endorsements
considering that the act of presenting the check for payment to
the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of
the endorsements. If any of the warranties made by the
depositary/collecting bank turns out to be false, then the
drawee bank may recover from it up to the amount of the
check.
Same; Same; Collecting Banks; The law imposes a duty of
diligence on the collecting bank to scrutinize checks deposited
with it for the purpose of determining their genuineness and
regularity.—The law imposes a duty of diligence on the
collecting bank to scrutinize checks deposited with it for the
purpose of determining their genuineness and regularity. The
collecting bank being primarily engaged in banking holds itself
out to the public as the expert and the law holds it to a high
standard of conduct. As collecting banks, the Bank and
Equitable-PCI Bank are both liable for the amount of the
materially altered checks. Since Equitable-PCI Bank is not a
party to this case and the Bank allowed its account with
Equitable-PCI Bank to be debited, it has the option to seek
recourse against the latter in another forum.
Same; Same; Collecting Banks; Depositary Banks; A
depositary/collecting bank may resist or defend against a
claim for breach of warranty if the drawer, the payee, or either
the drawee bank or depositary bank was negligent and such
negligence substantially contributed to the loss from
alteration.—The Bank cannot debit the savings account of
petitioners. A depositary/collecting bank may resist or defend
against a claim for breach of warranty if the drawer, the payee,
or either the drawee bank or depositary bank was negligent
and such negligence substantially contributed to the loss from
alteration. In the instant case, no negligence can be attributed
to petitioners. We lend credence to their claim that at the time
of the sales transaction, the Bank’s branch manager was
present and even offered the Bank’s services for the processing
and eventual crediting of the checks. True to the branch
manager’s words, the checks were cleared three days later
when deposited by petitioners and the entire amount of the
checks was credited to their savings account.
Same; Same; It is well-settled that the relationship of the
depositors and the Bank or similar institution is that of
creditor-debtor.—It is well-settled that the relationship of the
depositors and the Bank or similar institution is that of
creditor-debtor. Article 1980 of the New Civil Code provides
that fixed, savings and current deposits of money in banks and
similar institutions shall be governed by the provisions
concerning simple loans. The bank is the debtor and the
depositor is the creditor. The depositor lends the bank money
and the bank agrees to pay the depositor on demand. The
savings deposit agreement between the bank and the depositor
is the contract that determines the rights and obligations of the
parties. But as previously discussed, petitioners are not liable
for the deposit of the altered checks. The Bank, as the
depositary and collecting bank ultimately bears the loss. Thus,
there being no indebtedness to the Bank on the part of
petitioners, legal compensation cannot take place.
G.R. No. 156132. October 16, 2006.*
CITIBANK, N.A. (Formerly First National City Bank) and
INVESTORS’ FINANCE CORPORATION, doing business
under the name and style of FNCB Finance, petitioners, vs.
MODESTA R. SABENIANO, respondent. Citibank, N.A.
(Formerly First National City Bank) vs. Sabeniano, 504 SCRA
378, G.R. No. 156132 October 16, 2006
Banks and Banking; Checks; Manager’s Checks (MCs) are
drawn by the bank’s manager upon the bank itself and
regarded to be as good as the money it represents.—It bears to
emphasize that the proceeds of the loans were paid to
respondent in MCs, with the respondent specifically named as
payee. MCs checks are drawn by the bank’s manager upon the
bank itself and regarded to be as good as the money it
represents. Moreover, the MCs were crossed checks, with the
words “Payee’s Account Only.”
Same; Same; Crossed Checks; A crossed check cannot be
presented to the drawee bank for payment in cash—the check
can only be deposited with the payee’s bank which, in turn,
must present it for payment against the drawee bank in the
course of normal banking hours; The crossed check can only be
deposited and the drawee bank may only pay to another bank
in the payee’s or indorser’s account.—In general, a crossed
check cannot be presented to the drawee bank for payment in
cash. Instead, the check can only be deposited with the payee’s
bank which, in turn, must present it for payment against the
drawee bank in the course of normal banking hours. The
crossed check cannot be presented for payment, but it can only
be deposited and the drawee bank may only pay to another
bank in the payee’s or indorser’s account. The effect of crossing
a check was described by this Court in Philippine Commercial
International Bank v. Court of Appeals, 350 SCRA 446 (2001)—
[T]he crossing of a check with the phrase “Payee’s Account
Only” is a warning that the check should be deposited in the
account of the payee. Thus, it is the duty of the collecting bank
PCI Bank to ascertain that the check be deposited in payee’s
account only. It is bound to scrutinize the check and to know
its depositors before it can make the clearing indorsement “all
prior indorsements and/or lack of indorsement guaranteed.”
Same; Same; Same; Presumptions; Given that a check is more
than just an instrument of credit used in commercial
transactions for it also serves as a receipt or evidence for the
drawee bank of the cancellation of the said check due to
payment, then, the possession by the drawee bank of the said
Manager’s Checks (MCs), duly stamped “Paid” gives rise to
the presumption that the said Manager’s Checks (MCs) were
already paid out to the intended payee.—The crossed MCs
presented by petitioner Bank were indeed deposited in several
different bank accounts and cleared by the Clearing Office of
the Central Bank of the Philippines, as evidenced by the stamp
marks and notations on the said checks. The crossed MCs are
already in the possession of petitioner Citibank, the drawee
bank, which was ultimately responsible for the payment of the
amount stated in the checks. Given that a check is more than
just an instrument of credit used in commercial transactions for
it also serves as a receipt or evidence for the drawee bank of
the cancellation of the said check due to payment, then, the
possession by petitioner Citibank of the said MCs, duly
stamped “Paid” gives rise to the presumption that the said
MCs were already paid out to the intended payee, who was in
this case, the respondent.
Same; Same; Same; Same; It is presumed that private
transactions have been fair and regular, and that the ordinary
course of business has been followed.—This Court finds
applicable herein the presumptions that private transactions
have been fair and regular, and that the ordinary course of
business has been followed. There is no question that the loan
transaction between petitioner Citibank and the respondent is
a private transaction. The transactions revolving around the
crossed MCs—from their issuance by petitioner Citibank to
respondent as payment of the proceeds of her loans; to its
deposit in respondent’s accounts with several different banks;
to the clearing of the MCs by an independent clearing house;
and finally, to the payment of the MCs by petitioner Citibank
as the drawee bank of the said checks—are all private
transactions which shall be presumed to have been fair and
regular to all the parties concerned. In addition, the banks
involved in the foregoing transactions are also presumed to
have followed the ordinary course of business in the
acceptance of the crossed MCs for deposit in respondent’s
accounts, submitting them for clearing, and their eventual
payment and cancellation.
Same; Same; Same; Same; Where checks crossed for payee’s
account only were actually deposited, cleared, and paid, then
the presumption would be that the said checks were properly
deposited to the account of the payee, who was clearly named
as such in the checks; The mere fact that the Manager’s Checks
(MCs) do not bear the payee’s signature at the back does not
negate deposit thereof in her account.—Respondent denied
ever receiving MCs No. 220701 and 226467. However,
considering that the said checks were crossed for payee’s
account only, and that they were actually deposited, cleared,
and paid, then the presumption would be that the said checks
were properly deposited to the account of respondent, who
was clearly named the payee in the checks. Respondent’s bare
allegations that she did not receive the two checks fail to
convince this Court, for to sustain her, would be for this Court
to conclude that an irregularity had occurred somewhere from
the time of the issuance of the said checks, to their deposit,
clearance, and payment, and which would have involved not
only petitioner Citibank, but also BPI, which accepted the
checks for deposit, and the Central Bank of the Philippines,
which cleared the checks. It falls upon the respondent to
overcome or dispute the presumption that the crossed checks
were issued, accepted for deposit, cleared, and paid for by the
banks involved following the ordinary course of their business.
The mere fact that MCs No. 220701 and 226467 do not bear
respondent’s signature at the back does not negate deposit
thereof in her account. The liability for the lack of indorsement
on the MCs no longer fall on petitioner Citibank, but on the
bank who received the same for deposit, in this case, BPI
Cubao Branch. Once again, it must be noted that the MCs were
crossed, for payee’s account only, and the payee named in both
checks was none other than respondent. The crossing of the
MCs was already a warning to BPI to receive said checks for
deposit only in respondent’s account. It was up to BPI to verify
whether it was receiving the crossed MCs in accordance with
the instructions on the face thereof. If, indeed, the MCs were
deposited in accounts other than respondent’s, then the
respondent would have a cause of action against BPI.
Same; Same; Same; A check, whether a manager’s check or
ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be
refused receipt by the obligee or creditor.—Mr. Tan, in his
deposition, further explained that provisional receipts were
issued when payment to the bank was made using checks,
since the checks would still be subject to clearing. The purpose
for the provisional receipts was merely to acknowledge the
delivery of the checks to the possession of the bank, but not yet
of payment. This bank practice finds legitimacy in the
pronouncement of this Court that a check, whether an MC or
an ordinary check, is not legal tender and, therefore, cannot
constitute valid tender of payment. In Philippine Airlines, Inc.
v. Court of Appeals, 181 SCRA 557 (1990), this Court
elucidated that: Since a negotiable instrument is only a
substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment (Sec. 189,
Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan Landon
Co. v. American Bank, 7 Phil. 255; Tan Sunco, v. Santos, 9 Phil.
44; 21 R.C.L. 60, 61). A check, whether a manager’s check or
ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be
refused receipt by the obligee or creditor. Mere delivery of
checks does not discharge the obligation under a judgment.
The obligation is not extinguished and remains suspended
until the payment by commercial document is actually realized
(Art. 1249, Civil Code, par. 3).
G.R. No. L-60033. April 4, 1984.*
TEOFISTO GUINGONA, JR., ANTONIO L. MARTIN, and
TERESITA SANTOS, petitioners, vs. THE CITY FISCAL OF
MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY
FISCAL FELIZARDO N. LOTA and CLEMENT DAVID,
respondents. Guingona, Jr. vs. City Fiscal of Manila, 128
SCRA 577, No. L-60033 April 4, 1984
Banks; Criminal Law; Contracts; A bank time or savings
deposit constitutes a simple loan, not a contract of deposit.
Non-payment of the said bank deposit does not constitute
estafa.—It must be pointed out that when private respondent
David invested his money on time and savings deposits with
the aforesaid bank, the contract that was perfected was a
contract of simple loan or mutuum and not a contract of
deposit.
Same; Same; Same; Same.—Hence, the relationship between
the private respondent and the Nation Savings and Loan
Association is that of creditor and debtor; consequently, the
ownership of the amount deposited was transmitted to the
Bank upon the perfection of the contract and it can make use of
the amount deposited for its banking operations, such as to
pay interests on deposits and to pay withdrawals. While the
Bank has the obligation to return the amount deposited, it has,
however, no obligation to return or deliver the same money
that was deposited, And, the failure of the Bank to return the
amount deposited will not constitute estafa through
misappropriation punishable under Article 315, par. 1(b) of the
Revised Penal Code, but it will only give rise to civil liability
over which the public respondents have no jurisdiction.
Same; Same; Same; Same; Where a bank’s obligation to a
depositor was assumed by another, the trust relationship is
converted into creditor-debtor relationship which cannot give
rise to estafa.—But even granting that the failure of the bank
to pay the time and savings deposits of private respondent
David would constitute a violation of paragraph 1 (b) of
Article 315 of the Revised Penal Code, nevertheless any
incipient criminal liability was deemed avoided, because when
the aforesaid bank was placed under receivership by the
Central Bank, petitioners Guingona and Martin assumed the
obligation of the bank to private respondent David, thereby
resulting in the novation of the original contractual obligation
arising from deposit into a contract of loan and converting the
original trust relation between the bank and private
respondent David into an ordinary debtor-creditor relation
between the petitioners and private respondent. Consequently,
the failure of the bank or petitioners Guingona and Martin to
pay the deposits of private respondent would not constitute a
breach of trust but would merely be a failure to pay the
obligation as a debtor.
Same; Same; Same; Novation of contract of deposit will
prevent criminal liability where it occurs before filing of
information.—Moreover, while it is true that novation does
not extinguish criminal liability, it may however, prevent the
rise of criminal liability as long as it occurs prior to the filing of
the criminal information in court.
Same; Same; Same; Same.—It may be observed in this regard
that novation is not one of the means recognized by the Penal
Code whereby criminal liability can be extinguished; hence,
the role of novation may only be to either prevent the rise of
criminal liability or to cast doubt on the true nature of the
original basic transaction, whether or not it was such that its
breach would not give rise to penal responsibility, as when
money loaned is made to appear as a deposit, or other similar
disguise is resorted to (cf. Abeto vs. People, 90 Phil. 581; U.S.
vs. Villareal, 27 Phil. 481).
Same; Same; Central Bank; Petitioners’ contention that they
did not engage in prohibited dollar transactions is meritorious
as Clement David’s dollar draft was first converted to pesos
before the money was accepted as bank deposit.—It appears
from the records that when respondent David was about to
make a deposit of a bank draft issued in his name in the
amount of US$50,000.00 with the Nation Savings and Loan
Association, the same had to be cleared first and converted
into Philippine currency. Accordingly, the bank draft was
endorsed by respondent David to petitioner Guingona, who in
turn deposited it to his dollar account with the Security Bank
and Trust Company. Petitioner Guingona merely
accommodated the request of the Nation Savings and Loan
Association in order to clear the bank draft through his dollar
account because the bank did not have a dollar account.
Immediately after the bank draft was cleared, petitioner
Guingona authorized Nation Savings and Loan Association to
withdraw the same in order to be utilized by the bank for its
operations.
Same; Same; Same; Same.—It is safe to assume that the U.S.
dollars were converted first into Philippine pesos before they
were accepted and deposited in Nation Savings and Loan
Association, because the bank is presumed to have followed
the ordinary course of the business which is to accept deposits
in Philippine currency only, and that the transaction was
regular and fair, in the absence of a clear and convincing
evidence to the contrary (see paragraphs p and q, Sec. 5, Rule
131, Rules of Court).
G.R. No. 138569. September 11, 2003.*
THE CONSOLIDATED BANK and TRUST
CORPORATION, petitioner, vs. COURT OF APPEALS and
L.C. DIAZ and COMPANY, CPA’s, respondents.
Banks and Banking; Loans; The contract between a bank and
its depositor is governed by the provisions of the Civil Code on
simple loan.—The contract between the bank and its depositor
is governed by the provisions of the Civil Code on simple loan.
Article 1980 of the Civil Code expressly provides that “x x x
savings x x x deposits of money in banks and similar
institutions shall be governed by the provisions concerning
simple loan.” There is a debtor-creditor relationship between
the bank and its depositor. The bank is the debtor and the
depositor is the creditor. The depositor lends the bank money
and the bank agrees to pay the depositor on demand. The
savings deposit agreement between the bank and the depositor
is the contract that determines the rights and obligations of the
parties.
Same; Same; General Banking Act of 2000 (R.A. No. 8791); The
new provision in the general banking law, that the State
recognizes the “fiduciary nature of banking that requires high
standards of integrity and performance,” introduced in 2000, is
a statutory affirmation of Supreme Court decisions, starting
with the 1990 case of Simex International v. Court of Appeals,
183 SCRA 360.—The law imposes on banks high standards in
view of the fiduciary nature of banking. Section 2 of Republic
Act No. 8791 (“RA 8791”), which took effect on 13 June 2000,
declares that the State recognizes the “fiduciary nature of
banking that requires high standards of integrity and
performance.” This new provision in the general banking law,
introduced in 2000, is a statutory affirmation of Supreme Court
decisions, starting with the 1990 case of Simex International v.
Court of Appeals, holding that “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.”
Same; Same; Same; The fiduciary relationship means that the
bank’s obligation to observe “high standards of integrity and
performance” is deemed written into every deposit agreement
between a bank and its depositor; Although RA 8791 took
effect almost nine years after the unauthorized withdrawal in
the instant case, jurisprudence at the time of the withdrawal
already imposed on banks the same high standard of diligence
required under R.A. 8791.—This fiduciary relationship means
that the bank’s obligation to observe “high standards of
integrity and performance” is deemed written into every
deposit agreement between a bank and its depositor. 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. Although RA 8791 took effect
almost nine years after the unauthorized withdrawal of the
P300,000 from L.C. Diaz’s savings account, jurisprudence at the
time of the withdrawal already imposed on banks the same
high standard of diligence required under RA No. 8791.
Same; Same; Same; The fiduciary nature of a bank-depositor
relationship does not convert the contract between the bank
and its depositors from a simple loan to a trust agreement,
whether express or implied—the law simply imposes on the
bank a higher standard of integrity and performance in
complying with its obligations under the contract of simple
loan, beyond those required of non-bank debtors under a
similar contract of simple loan; The fiduciary nature of banking
does not convert a simple loan into a trust agreement because
banks do not accept deposits to enrich depositors but to earn
money for themselves.—The fiduciary nature of a bank-
depositor relationship does not convert the contract between
the bank and its depositors from a simple loan to a trust
agreement, whether express or implied. Failure by the bank to
pay the depositor is failure to pay a simple loan, and not a
breach of trust. The law simply imposes on the bank a higher
standard of integrity and performance in complying with its
obligations under the contract of simple loan, beyond those
required of non-bank debtors under a similar contract of
simple loan. The fiduciary nature of banking does not convert
a simple loan into a trust agreement because banks do not
accept deposits to enrich depositors but to earn money for
themselves. The law allows banks to offer the lowest possible
interest rate to depositors while charging the highest possible
interest rate on their own borrowers. The interest spread or
differential belongs to the bank and not to the depositors who
are not cestui que trust of banks. If depositors are cestui que
trust of banks, then the interest spread or income belongs to
the depositors, a situation that Congress certainly did not
intend in enacting Section 2 of RA 8791.
Same; Negligence; Bank tellers must exercise a high degree of
diligence in insuring that they return the passbook only to the
depositor or to his authorized representative.—Likewise,
Solidbank’s tellers must exercise a high degree of diligence in
insuring that they return the passbook only to the depositor or
his authorized representative. The tellers know, or should
know, that the rules on savings account provide 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 presumptive ownership of
the passbook, facilitating unauthorized withdrawals by that
person. For failing to return the passbook to Calapre, the
authorized representative of L.C. Diaz, Solidbank and Teller
No. 6 presumptively failed to observe such high degree of
diligence in safeguarding the passbook, and in insuring its
return to the party authorized to receive the same.
G.R. No. 148582. January 16, 2002.*
FAR EAST BANK AND TRUST COMPANY, petitioner, vs.
ESTRELLA O. QUERIMIT, respondent.
Banks and Banking; A bank acts at its peril when it pays
deposits evidenced by a certificate of deposit, without its
production and surrender after proper indorsement; Debtor has
the burden of showing with legal certainty that the obligation
has been discharged by payment.—The principle that payment,
in order to discharge a debt, must be made to someone
authorized to receive it is applicable to the payment of
certificates of deposit. Thus, a bank will be protected in making
payment to the holder of a certificate indorsed by the payee,
unless it has notice of the invalidity of the indorsement or the
holder’s want of title. A bank acts at its peril when it pays
deposits evidenced by a certificate of deposit, without its
production and surrender after proper indorsement. As a rule,
one who pleads payment has the burden of proving it. Even
where the plaintiff must allege non-payment, the general rule
is that the burden rests on the defendant to prove payment,
rather than on the plaintiff to prove payment. The debtor has
the burden of showing with legal certainty that the obligation
has been discharged by payment.
Same; Same; A bank is under obligation to treat the accounts
of its depositors with meticulous care whether such accounts
consist only of a few hundred pesos or of millions of pesos.—
Because the business of banks is impressed with public
interest, the degree of diligence required of banks is more than
that of a good father of the family or of an ordinary business
firm. The fiduciary nature of their relationship with their
depositors requires them to treat the accounts of their clients
with the highest degree of care. A bank is under obligation to
treat the accounts of its depositors with meticulous care
whether such accounts consist only of a few hundred pesos or
of millions of pesos. Responsibility arising from negligence in
the performance of every kind of obligation is demandable.
G.R. No. 173134. September 2, 2015.*
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs.
TARCILA FERNANDEZ, respondent,
Mercantile Law; Banks and Banking; Certificate of Deposit;
Words and Phrases; A certificate of deposit is defined as a
written acknowledgment by a bank or banker of the receipt of
a sum of money on deposit which the bank or banker promises
to pay to the depositor, to the order of the depositor, or to
some other person or his order, whereby the relation of debtor
and creditor between the bank and the depositor is created.—A
certificate of deposit is defined as a written acknowledgment
by a bank or banker of the receipt of a sum of money on
deposit which the bank or banker promises to pay to the
depositor, to the order of the depositor, or to some other
person or his order, whereby the relation of debtor and
creditor between the bank and the depositor is created. In
particular, the certificates of deposit contain provisions on the
amount of interest, period of maturity, and manner of
termination. Specifically, they stressed that endorsement and
presentation of the certificate of deposit is indispensable to
their termination. In other words, the accounts may only be
terminated upon endorsement and presentation of the
certificates of deposit. Without the requisite presentation of the
certificates of deposit, BPI may not terminate them.
G.R. No. 90027. March 3, 1993.*
CA AGRO-INDUSTRIAL DEVELOPMENT CORP.,
petitioner, vs. THE HONORABLE COURT OF APPEALS
and SECURITY BANK AND TRUST COMPANY,
respondents.
Civil Law; 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.—We agree with
the peti tioner's contention that the contract for the rent of the
safety deposi t 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.
Same; Same; Same; Same; 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.—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: xxx 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.
Same; Same; Same; Same; 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.—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 perform: ng
its obligation, it is found guilty of fraud, negligence, delay or
contravention of the tenor of the agreement. In the absence of
any s tipulation prescribing the degree of diligence required,
that of a good father of a family is to be observed. Hence, any
stipulation exempting ng 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.
Same; Same; Same; Same; 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.—With
respect to property deposited in a safe-deposit box by a
customer of a safety 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. xxx 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.
Same; Same; Same; Same; 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.—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 re om this Court's determination that the contract
involved was one of deposit.
G.R. No. 102970. May 13, 1993.*
LUZAN SIA, petitioner, vs. COURT OF APPEALS and
SECURITY BANK AND TRUST COMPANY, respondents.
Civil Law; 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.—In the recent case of CA Agro-Industrial
Development Corp. vs. Court of Appeals, this Court explicitly
rejected the contention that a contract for the use of a safety
deposit box is a contract of lease governed by Title VII, Book
IV of the Civil Code. Nor did We fully subscribe to the view
that it is a contract of deposit to be strictly governed by the
Civil Code provision on deposit; it is, as We declared, a special
kind of deposit. The prevailing rule in American
jurisprudence—that the relation between a bank renting out
safe deposit boxes and its customer with respect to the
contents of the box is that of a bailor and bailee, the bailment
being for hire and mutual benefit has been adopted in this
jurisdiction.
Same; Same; Same; 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 agent’s fraud, negligence or delay
are considered null and void, for being contrary to law and
public policy.—Assayed in the light of Our aforementioned
pronouncements in CA Agro-Industrial Development Corp., it
is not at all difficult to conclude that both conditions No. 9 and
No. 13 of the “Lease Agreement” covering the safety deposit
box in question (Exhibits “A” and “1”) must be stricken down
for being contrary to law and public policy as they are meant
to exempt SBTC from any liability for damage, loss or
destruction of the contents of the safety deposit box which may
arise from its own or its agents’ fraud, negligence or delay.
Accordingly, SBTC cannot take refuge under the said
conditions.
Same; Same; Same; Same; 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.—Unfortunately, however, the public respondent
failed to consider that in the instant case, as correctly held by
the trial court, SBTC was guilty of negligence. The facts
constituting negligence are enumerated in the petition and
have been summarized in this ponencia. SBTC’s negligence
aggravated the injury or damage to the petitioner which
resulted from the loss or destruction of the stamp collection.
SBTC was aware of the floods of 1985 and 1986; it also knew
that the floodwaters inundated the room where Safe Deposit
Box No. 54 was located. In view thereof, it should have lost no
time in notifying the petitioner in order that the box could
have been opened to retrieve the stamps, thus saving the same
from further deterioration and loss. In this respect, it failed to
exercise the reasonable care and prudence expected of a good
father of a family, thereby becoming a party to the aggravation
of the injury or loss. Accordingly, the aforementioned fourth
characteristic of a fortuitous event is absent x x x The
destruction or loss of the stamp collection which was, in the
language of the trial court, the “product of 27 years of patience
and diligence” caused the petitioner pecuniary loss; hence, he
must be compensated therefore.
G.R. No. 179096. February 6, 2013.*
JOSEPH GOYANKO, JR., as administrator of the Estate of
Joseph Goyanko, Sr., petitioner, vs. UNITED COCONUT
PLANTERS BANK, MANGO AVENUE BRANCH,
respondent.
Same; Same; Savings Deposit; United Coconut Planters Bank
(UCPB) did not become a trustee by the mere opening of the
account. While this may seem to be the case, by reason of the
fiduciary nature of the bank’s relationship with its depositors,
this fiduciary relationship does not “convert the contract
between the bank and its depositors from a simple loan to a
trust agreement, whether express or implied;” It simply means
that the bank is obliged to observe “high standards of
integrity and performance” in complying with its obligations
under the contract of simple loan. Per Article 1980 of the Civil
Code, a creditor-debtor relationship exists between the bank
and its depositor.―Contrary to the petitioner’s position, UCPB
did not become a trustee by the mere opening of the
ACCOUNT. While this may seem to be the case, by reason of
the fiduciary nature of the bank’s relationship with its
depositors, this fiduciary relationship does not “convert the
contract between the bank and its depositors from a simple
loan to a trust agreement, whether express or implied.” It
simply means that the bank is obliged to observe “high
standards of integrity and performance” in complying with its
obligations under the contract of simple loan. Per Article 1980
of the Civil Code, a creditor-debtor relationship exists between
the bank and its depositor. The savings deposit agreement is
between the bank and the depositor; by receiving the deposit,
the bank impliedly agrees to pay upon demand and only upon
the depositor’s order.
G.R. No. 205705. August 5, 2015.*
DOMINADOR M. APIQUE, petitioner, vs. EVANGELINE
APIQUE FAHNENSTICH, respondent.
Banks and Banking; Joint Accounts; A joint account is one
that is held jointly by two (2) or more natural persons, or by
two or more juridical persons or entities.—A joint account is
one that is held jointly by two or more natural persons, or by
two or more juridical persons or entities. Under such setup, the
depositors are joint owners or co-owners of the said account,
and their share in the deposits shall be presumed equal, unless
the contrary is proved, pursuant to Article 485 of the Civil
Code, which provides: Art. 485. The share of the co-owners, in
the benefits as well as in the charges, shall be proportional to
their respective interests. Any stipulation in a contract to the
contrary shall be void. The portions belonging to the co-
owners in the co-ownership shall be presumed equal, unless
the contrary is proved.
Same; Same; The common banking practice is that regardless
of who puts the money into the account, each of the named
account holder has an undivided right to the entire balance,
and any of them may deposit and/or withdraw, partially or
wholly, the funds without the need or consent of the other,
during their lifetime.—The common banking practice is that
regardless of who puts the money into the account, each of the
named account holder has an undivided right to the entire
balance, and any of them may deposit and/or withdraw,
partially or wholly, the funds without the need or consent of
the other, during their lifetime. Nevertheless, as between the
account holders, their right against each other may depend on
what they have agreed upon, and the purpose for which the
account was opened and how it will be operated.
G.R. No. 82027. March 29, 1990.*
ROMARICO G. VITUG, petitioner, vs. THE HONORABLE
COURT OF APPEALS and ROWENA FAUSTINO-
CORONA, respondents.
Civil Law; Contracts; Conveyance in question is not one of
mortis causa which should be embodied in a will; Definition of
a Will.—The conveyance in question is not, first of all, one of
mortis causa, which should be embodied in a will. A will has
been defined as “a personal, solemn, revocable and free act by
which a capacitated person disposes of his property and rights
and declares or complies with duties to take effect after his
death.” In other words, the bequest or device must pertain to
the testator. In this case, the monies subject of savings account
No. 35342-038 were in the nature of conjugal funds.
Same; Same; Same; Same; Survivorship agreements are
permitted by the Civil Code.—The validity of the contract
seems debatable by reason of its “survivor-take-all” feature,
but in reality, that contract imposed a mere obligation with a
term, the term being death. Such agreements are permitted by
the Civil Code.
Same; Same; Same; Same; Same; Although the survivorship
agreement is per se not contrary to law its operation or effect
may be violative of the Law.—But although the survivorship
agreement is per se not contrary to law its operation or effect
may be violative of the law. For instance, if it be shown in a
given case that such agreement is a mere cloak to hide an
inofficious donation, to transfer property in fraud of creditors,
or to defeat the legitime of a forced heir, it may be assailed and
annulled upon such grounds. No such vice has been imputed
and established against the agreement involved in this case.
Same; Same; Same; Same; Same; Same; No demonstration here
that survivorship agreement had been executed for unlawful
purposes or as held by the respondent court in order to
frustrate our laws on wills, donations and conjugal
partnership.—There is no demonstration here that the
survivorship agreement had been executed for such unlawful
purposes, or, as held by the respondent court, in order to
frustrate our laws on wills, donations, and conjugal
partnership. Vitug vs. Court of Appeals, 183 SCRA 755, G.R.
No. 82027 March 29, 1990
G.R. No. 181426. July 13, 2015.*
GAMES AND GARMENTS DEVELOPERS, INC., petitioner,
vs. ALLIED BANKING CORPORATION, respondent.
Civil Law; Guaranty; Suretyship; Banks and Banking; Section
74 of the General Banking Act, as amended, proscribes banks
from entering into “any contract of guaranty or suretyship”
without providing definitions of such contracts.—It is
undisputed that Mercado wrote two “letters of guaranty”
dated August 22, 1996 and January 27, 1997. Although
Mercado’s letters used the words “guarantee” and “guaranty,”
the same do not constitute contracts of guaranty covered by
the prohibition under Section 74 of the General Banking Act, as
amended. Section 74 of the General Banking Act, as amended,
proscribes banks from entering into “any contract of guaranty
or suretyship” without providing definitions of such contracts.
Consequently, we rely on the general definitions of contracts of
guaranty and suretyship under Article 2047 of the Civil Code:
ART. 2047. By guaranty a person, called the guarantor, binds
himself to the creditor to fulfill the obligation of the principal
debtor in case the latter should fail to do so. If a person binds
himself solidarily with the principal debtor, the provisions of
Section 4, Chapter 3, Title I of this Book shall be observed. In
such case the contract is called a suretyship.
Same; Same; Same; Same; While a surety undertakes to pay if
the principal does not pay, the guarantor only binds himself to
pay if the principal cannot pay. The former is the insurer of the
debt, the latter an insurer of the solvency of the debtor.—While
a surety undertakes to pay if the principal does not pay, the
guarantor only binds himself to pay if the principal cannot
pay. The former is the insurer of the debt, the latter an insurer
of the solvency of the debtor. We further expounded on the
nature of a contract of guaranty (vis-à-vis a contract of surety)
in E. Zobel, Inc. v. Court of Appeals, 290 SCRA 1 (1998), thus:
A contract of surety is an accessory promise by which a person
binds himself for another already bound, and agrees with the
creditor to satisfy the obligation if the debtor does not. A
contract of guaranty, on the other hand, is a collateral
undertaking to pay the debt of another in case the latter does
not pay the debt. Strictly speaking, guaranty and surety are
nearly related, and many of the principles are common to both.
However, under our civil law, they may be distinguished thus:
A surety is usually bound with his principal by the same
instrument, executed at the same time, and on the same
consideration. He is an original promissor and debtor from the
beginning, and is held, ordinarily, to know every default of his
principal. Usually, he will not be discharged, either by the
mere indulgence of the creditor to the principal, or by want of
notice of the default of the principal, no matter how much he
may be injured thereby. On the other hand, the contract of
guaranty is the guarantor’s own separate undertaking, in
which the principal does not join. It is usually entered into
before or after that of the principal, and is often supported on a
separate consideration from that supporting the contract of the
principal. The original contract of his principal is not his
contract, and he is not bound to take notice of its
nonperformance. He is often discharged by the mere
indulgence of the creditor to the principal, and is usually not
liable unless notified of the default of the principal.
Banks and Banking; Doctrine of Apparent Authority; In
Prudential Bank v. Court of Appeals, 223 SCRA 350 (1993),
wherein the Supreme Court (SC) particularly applied the
doctrine of apparent authority to banks, it stressed that the
[a]pplication of these principles is especially necessary
because banks have a fiduciary relationship with the public
and their stability depends on the confidence of the people in
their honesty and efficiency.—In Prudential Bank v. Court of
Appeals, 223 SCRA 350 (1993), wherein we particularly
applied the doctrine of apparent authority to banks, we
stressed that the “[a]pplication of these principles is especially
necessary because banks have a fiduciary relationship with the
public and their stability depends on the confidence of the
people in their honesty and efficiency. Such faith will be
eroded where banks do not exercise strict care in the selection
and supervision of its employees, resulting in prejudice to their
depositors.” A bank is liable to innocent third persons where
representation is made in the course of its normal business by
an agent like Mercado as Branch Manager, even though such
agent is abusing his authority. Clearly, persons dealing with
Mercado could not be blamed for believing that he was
authorized to transact business for and on behalf of the bank.
G.R. No. 163654. October 8, 2014.*
BPI EXPRESS CARD CORPORATION,** petitioner, vs. MA.
ANTONIA R. ARMOVIT, respondent.
Credit Cards; The relationship between the credit card issuer
and the credit card holder is a contractual one that is governed
by the terms and conditions found in the card membership
agreement.—The relationship between the credit card issuer
and the credit card holder is a contractual one that is governed
by the terms and conditions found in the card membership
agreement. Such terms and conditions constitute the law
between the parties. In case of their breach, moral damages
may be recovered where the defendant is shown to have acted
fraudulently or in bad faith. Malice or bad faith implies a
conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity. However, a conscious or
intentional design need not always be present because
negligence may occasionally be so gross as to amount to malice
or bad faith. Hence, bad faith in the context of Article 2220 of
the Civil Code includes gross negligence.
Remedial Law; Evidence; Parol Evidence Rule; Considering
that the terms and conditions nowhere stated that the card
holder must submit the new application form in order to
reactivate her credit card, to allow BPI Express Credit to
impose the duty to submit the new application form in order
to enable Armovit to reactivate the credit card would
contravene the Parol Evidence Rule.—Considering that the
terms and conditions nowhere stated that the card holder must
submit the new application form in order to reactivate her
credit card, to allow BPI Express Credit to impose the duty to
submit the new application form in order to enable Armovit to
reactivate the credit card would contravene the Parol Evidence
Rule. Indeed, there was no agreement between the parties to
add the submission of the new application form as the means
to reactivate the credit card. When she did not promptly settle
her outstanding balance, BPI Express Credit sent a message on
March 19, 1992 demanding payment with the warning that her
failure to pay would force it to temporarily suspend her credit
card effective March 31, 1992. It then sent another demand
letter dated March 31, 1992 requesting her to settle her
obligation in order to lift the suspension of her credit card and
prevent its cancellation. In April 1992, she paid her obligation.
In the context of the contemporaneous and subsequent acts of
the parties, the only condition for the reinstatement of her
credit card was the payment of her outstanding obligation.
Had it intended otherwise, BPI Express Credit would have
surely informed her of the additional requirement in its letters
of March 19, 1992 and March 31, 1992. That it did not do so
confirmed that they did not agree on having her submit the
new application form as the condition to reactivate her credit
card.
G.R. No. 162336. February 1, 2010.*
HILARIO P. SORIANO, petitioner, vs. PEOPLE OF THE
PHILIPPINES, BANGKO SENTRAL NG PILIPINAS (BSP),
PHILIPPINE DEPOSIT INSURANCE CORPORATION
(PDIC), PUBLIC PROSECUTOR ANTONIO C. BUAN, and
STATE PROSECUTOR ALBERTO R. FONACIER,
respondents.
Criminal Law; Estafa Through Falsification of Commercial
Documents; The bank money (amounting to Php. 8 million)
which came to the possession of petitioners was money held in
trust or administration by him for the bank in his fiduciary
capacity as the President of said bank.—The bank money
(amounting to P8 million) which came to the possession of
petitioner was money held in trust or administration by him
for the bank, in his fiduciary capacity as the President of said
bank. It is not accurate to say that petitioner became the owner
of the P8 million because it was the proceeds of a loan. That
would have been correct if the bank knowingly extended the
loan to petitioner himself. But that is not the case here.
According to the information for estafa, the loan was supposed
to be for another person, a certain “Enrico Carlos”; petitioner,
through falsification, made it appear that said “Enrico Carlos”
applied for the loan when in fact he (“Enrico Carlos”) did not.
Through such fraudulent device, petitioner obtained the loan
proceeds and converted the same. Under these circumstances,
it cannot be said that petitioner became the legal owner of the
P8 million. Thus, petitioner remained the bank’s fiduciary with
respect to that money, which makes it capable of
misappropriation or conversion in his hands.
Same; Same; Prohibition in Section 83 is broad enough to
cover various modes of borrowing.—The prohibition in Section
83 is broad enough to cover various modes of borrowing. It
covers loans by a bank director or officer (like herein
petitioner) which are made either: (1) directly, (2) indirectly, (3)
for himself, (4) or as the representative or agent of others. It
applies even if the director or officer is a mere guarantor,
indorser or surety for someone else’s loan or is in any manner
an obligor for money borrowed from the bank or loaned by it.
The covered transactions are prohibited unless the approval,
reportorial and ceiling requirements under Section 83 are
complied with. The prohibition is intended to protect the
public, especially the depositors, from the overborrowing of
bank funds by bank officers, directors, stockholders and
related interests, as such overborrowing may lead to bank
failures. It has been said that “banking institutions are not
created for the benefit of the directors [or officers]. While
directors have great powers as directors, they have no special
privileges as individuals. They cannot use the assets of the
bank for their own benefit except as permitted by law.
Stringent restrictions are placed about them so that when
acting both for the bank and for one of themselves at the same
time, they must keep within certain prescribed lines regarded
by the legislature as essential to safety in the banking
business.”
G.R. No. 178429. October 23, 2009.*
JOSE C. GO, petitioner, vs. BANGKO SENTRAL NG
PILIPINAS, respondent.
Mercantile Law; Banks and Banking; Banks were not created
for the benefit of their directors and officers; they cannot use
the assets of the bank for their own benefit, except as may be
permitted by law. Congress has thus deemed it essential to
impose restrictions on borrowings by bank directors and
officers in order to protect the public, especially the
depositors.—The language of the law is broad enough to
encompass either act of borrowing or guaranteeing, or both.
While the first paragraph of Section 83 is penal in nature, and
by principle should be strictly construed in favor of the
accused, the Court is unwilling to adopt a liberal construction
that would defeat the legislature’s intent in enacting the
statute. The objective of the law should allow for a reasonable
flexibility in its construction. Section 83 of RA 337, as well as
other banking laws adopting the same prohibition, was
enacted to ensure that loans by banks and similar financial
institutions to their own directors, officers, and stockholders
are above board. Banks were not created for the benefit of their
directors and officers; they cannot use the assets of the bank for
their own benefit, except as may be permitted by law.
Congress has thus deemed it essential to impose restrictions on
borrowings by bank directors and officers in order to protect
the public, especially the depositors. Hence, when the law
prohibits directors and officers of banking institutions from
becoming in any manner an obligor of the bank (unless with
the approval of the board), the terms of the prohibition shall be
the standards to be applied to directors’ transactions such as
those involved in the present case.
G.R. No. 83139. April 12, 1989.*
ARNEL SY, petitioner, vs. HONORABLE COURT OF
APPEALS, STATE INVESTMENT HOUSE, INC. and THE
REGISTER OF DEEDS OF RIZAL, respondents.
Commercial Law; Banks; Section 78 of the General Banking
Act applies not only to banks and banking institutions but
also to credit institutions; State Investment House, Inc. is a
credit institution.–––It must be emphasized that the above
section is applicable not only to “banks and banking
institutions,” but also to “credit institutions.” And, as certified
by the Central Bank, SIHI is a credit institution, i.e., financial
intermediary engaged in quasi-banking functions, within the
purview of Section 78, it being an entity authorized to engage
in the lending of funds or purchasing of receivables or other
obligations with funds obtained from the public as provided in
the General Banking Act under Section 2-A (a); and, to lend,
invest or place funds deposited with them, acquired by them
or otherwise coursed through them, either for their own
account or for the account of others under Section 2-D(c).
Same; Same; Redemption; The amounts to be paid to redeem a
foreclosed property are the amounts due under the mortgage
deed plus interest and expenses; Petitioner is deemed
subrogated by virtue of the deed of assignment to the rights
and obligations of the assignor and bound by exactly the same
conditions relative to the redemption of the property that
bound the latter as debtor and mortgagor.–––Moreover,
petitioner by virtue of the deed of assignment of Carlos
Coquinco’s right of redemption must be deemed subrogated to
the rights and obligations of his assignor, and bound by
exactly the same conditions, relative to the redemption of the
subject property that bound the latter as debtor and mortgagor
[Gorospe v. Santos, G.R. No. L-30079, January 30, 1976, 69
SCRA 191]. Had Carlos Coquinco attempted to redeem the
subject foreclosed property, he would have had to pay “the
amount due under the mortgage deed . . . with interest thereon
at the rate specified in the mortgage and all costs . . . and other
expenses incurred . . . by reason of the execution [or
foreclosure] and sale and as a result of the custody of said
property less the income received from the property . . .”
pursuant to Section 78 of the General Banking Act in order to
effect a valid redemption. Since petitioner merely stepped into
the shoes of Carlos Coquinco, his assignor, petitioner should
have tendered and paid that same amount in order to redeem
the property.
Same; Same; Same; Ponce de Leon vs. RFC case which ruled
that the General Banking Act partakes of the nature of an
amendment to Act 3135 insofar as the redemption price is
concerned when the mortgagee is a bank or banking or credit
institution, is applicable in case at bar; Sec. 6 of Act 3135 is
inconsistent with Sec. 78 of the General Banking Act.–––
Contrary to petitioner’s claim, the Court’s decision in Ponce de
Leon v. Rehabilitation Finance Corporation, supra, is
applicable. In that case, the Court had occasion to state that the
General Banking Act partakes of the nature of an amendment
to Act No. 3135 insofar as the redemption price is concerned,
when the mortgagee is a bank or banking or credit institution,
Section 6 of Act No. 3135 being, in this respect, inconsistent
with Section 78 of the General Banking Act. Although the
foreclosure and sale of the subject property was done by SIHI
pursuant to Act No. 3135, as amended (whereby entities like
SIHI are authorized to extrajudicially foreclose and sell
mortgaged properties only under a special power inserted in
or annexed to the real estate mortgage contract, and interested
parties, like petitioner herein, are given one year from the date
of sale within which to redeem the foreclosed properties),
Section 78 of the General Banking Act, as amended, provides
the amount at which the subject property is redeemable from
SIHI, which is, in this case, the amount due under the
mortgage deed, or the outstanding obligation of Carlos
Coquinco, plus interest and expenses.
Same; Same; Same; PNB vs. CA case applicable only to
extrajudicial foreclosures by the PNB effected pursuant to a
mortgage contract entered into prior to the Revised Charter of
the PNB enacted in 1975.–––The decision in the 1985 case of
Philippine National Bank v. The Honorable Court of Appeals,
supra, invoked by petitioner is not determinative of the issues
in the instant petition because that case is applicable only to
extrajudicial foreclosures by the PNB effected pursuant to a
mortgage contract entered into prior to the enactment in 1975
of the Revised Charter of the PNB, P.D. No. 694 (which
contained provisions on redemption), and deals specifically
with the amount of interest to be included in the computation
of the redemption price.
Same; Same; Same; No valid redemption was effected as
petitioner failed to tender and pay the required amount for
redemption of the property under Sec. 78 of the General
Banking Act.–––Thus, inasmuch as petitioner failed to tender
and pay the required amount for the redemption of the subject
property pursuant to Section 78 of the General Banking Act, as
amended, no valid redemption was effected by him.
Consequently, there was no legal obstacle to the consolidation
of title by SIHI.
Same; Same; Same; The Register of Deeds incurred no liability
when he cancelled a transfer certificate of title and issued in
lieu thereof another certificate of title as he acted in
fulfillment of his official functions.–––As regards the third
issue, suffice it to say that the respondent Register of Deeds
incurred no liability when he cancelled TCT No. 2782 and
issued in lieu thereof TCT No. 44775 in the name of SIHI, the
former having acted in fulfillment of his official functions and
in accordance with law.
Same; Same; Same; Damages; Award of attorney’s fees as a
form of damages is the exception rather than the general rule;
How award of attorney’s fees predicated.–––A perusal of
Article 2208 of the New Civil Code will reveal that the award
of attorney’s fees as a form of damages is the exception rather
than the general rule for it is predicated upon the existence of
exceptional circumstances, such as a “clearly unfounded civil
action or proceeding” or evident bad faith on the plaintiff’s
part in instituting his action [Tan Ti v. Alvear, 26 Phil. 566
(1914); Buan v. Camaganacan, G.R. No. L-21569, February 28,
1966, 16 SCRA 321; Philippine National Bank v. Court of
Appeals, G.R. No. L-45770, March 20, 1988, 159 SCRA 433].
Same; Same; Same; Same; Petitioner had not acted in bad faith
in filing his complaint against the credit institution;
Petitioner’s complaint raised legitimate issues on the
application of Sec. 78 of the General Banking Act and the
import of the decisions in Ponce de Leon vs. RFC and PNB vs.
CA.–––It cannot be said that the present action instituted by
petitioner was clearly unfounded. Although the theory upon
which petitioner’s complaint was based is untenable, he had
raised legitimate issues on the application of Section 78 of the
General Banking Act to credit institutions like SIHI, and the
import of the decisions in the cases of Ponce de Leon v.
Rehabilitation Finance Corporation and Philippine National
Bank v. The Honorable Court of Appeals. Neither was it
established that petitioner had acted in bad faith in the filing of
his action against SIHI notwithstanding the dismissal of his
complaint in Civil Case No. 84-22839 (consignation case).
G.R. No. 134068. June 25, 2001.*
UNION BANK OF THE PHILIPPINES, petitioner, vs.
COURT OF APPEALS, APOLONIA DE JESUS GREGORIO,
LUCIANA DE JESUS GREGORIO, GONZALO VINCOY,
married to TRINIDAD GREGORIO VINCOY, respondents.
Same; Same; Same; Same; Section 78 of the General Banking
Act had the effect of amending Section 6 of Act No. 3135
insofar as the redemption price is concerned when the
mortgagee is a bank or a banking or credit institution.—
Petitioner’s contention that Section 78 of the General Banking
Act governs the determination of the redemption price of the
subject property is meritorious. In Ponce de Leon v.
Rehabilitation Finance Corporation, this Court had occasion to
rule that Section 78 of the General Banking Act had the effect
of amending Section 6 of Act No. 3135 insofar as the
redemption price is concerned when the mortgagee is a bank,
as in this case, or a banking or credit institution. The apparent
conflict between the provisions of Act No. 3135 and the
General Banking Act was, therefore, resolved in favor of the
latter, being a special and subsequent legislation. This
pronouncement was reiterated in the case of Sy v. Court of
Appeals where we held that the amount at which the
foreclosed property is redeemable is the amount due under the
mortgage deed, or the outstanding obligation of the mortgagor
plus interest and expenses in accordance with Section 78 of the
General Banking Act. It was therefore manifest error on the
part of the Court of Appeals to apply in the case at bar the
provisions of Section 30 Rule 39 of the Rules of Court in fixing
the redemption price of the subject foreclosed property.
G.R. No. 195540. March 13, 2013.*
GOLDENWAY MERCHANDISING CORPORATION,
petitioner, vs. EQUITABLE PCI BANK, respondent.
Same; Same; Same; Redemption; The one-year period of
redemption is counted from the date of the registration of the
certificate of sale.―The one-year period of redemption is
counted from the date of the registration of the certificate of
sale. In this case, the parties provided in their real estate
mortgage contract that upon petitioner’s default and the
latter’s entire loan obligation becoming due, respondent may
immediately foreclose the mortgage judicially in accordance
with the Rules of Court, or extrajudicially in accordance with
Act No. 3135, as amended.
Same; Same; Same; General Banking Law (R.A. No. 8791); Act
No. 3135; Section 47 of R.A. No. 8791 otherwise known as “The
General Banking Law of 2000” which took effect on June 13,
2000, amended Act No. 3135.―Section 47 of R.A. No. 8791
otherwise known as “The General Banking Law of 2000”
which took effect on June 13, 2000, amended Act No. 3135.
Under the new law, an exception is thus made in the case of
juridical persons which are allowed to exercise the right of
redemption only “until, but not after, the registration of the
certificate of foreclosure sale” and in no case more than three
(3) months after foreclosure, whichever comes first.
G.R. No. 148163. December 6, 2004.*
BANCO FILIPINO SAVINGS AND MORTGAGE BANK,
petitioner, vs. JUANITA B. YBAÑEZ, CHARLES B.
YBAÑEZ, JOSEPH B. YBAÑEZ and JEROME B. YBAÑEZ,
respondents.
Commercial Law; Banks; Receivership; Pendency of the case
did not diminish the authority of the designated liquidator to
administer and continue the bank’s transactions.—In Banco
Filipino Savings and Mortgage Bank v. Monetary Board, the
validity of the closure and receivership of Banco Filipino was
put in issue. But the pendency of the case did not diminish the
authority of the designated liquidator to administer and
continue the bank’s transactions. The Court allowed the bank’s
liquidator to continue receiving collectibles and receivables or
paying off creditor’s claims and other transactions pertaining
to normal operations of a bank. Among these transactions were
the prosecution of suits against debtors for collection and for
foreclosure of mortgages. The bank was allowed to collect
interests on its loans while under liquidation, provided that the
interests were legal.
Civil Law; Contracts; It is an elementary rule of contracts that
the contracting parties are free to stipulate the terms of their
contracts for as long as the terms are not contrary to law,
morals, good customs, public policy, public order and
national interests.—It is an elementary rule of contracts that
the contracting parties are free to stipulate the terms of their
contract for as long as the terms are not contrary to law,
morals, good customs, public policy, public order, and national
interests. Laws in force at the time the contract was made
generally govern its interpretation and application. The loan
agreement between petitioner and respondents specifies the
obligation of the debtor to pay interest. In principle said
stipulation is binding between the parties.
Same; Same; Interests; Court agree that the 21% interest is not
violative of the Usury Law as it stood at the time of the loan
transaction.—We note that at the time the parties entered into
the said loan agreement, the pertinent law, Act No. 2655,
already provided that the rate of interest for the forbearance of
money when secured by a mortgage upon real estate should
not be more than 12% per annum or the maximum rate
prescribed by the Monetary Board and in force at the time the
loan was granted. On December 1, 1979, the Monetary Board of
the Central Bank of the Philippines had issued CBP Circular
No. 705-79. On loan transactions with maturities of more than
730 days, it fixed the effective rate of interest at 21% per annum
for both secured and unsecured loans. Since the loan in
question has fixed 15 years for its maturity, it fell within the
coverage of said CBP Circular. Thus, we agree that the 21%
interest is not violative of the Usury Law as it stood at the time
of the loan transaction.
Same; Same; Same; Usury Law; CBP Circular No. 905-82
simply suspended the effectivity of the Usury Law.—CBP
Circular No. 905-82, which was effective January 1, 1983, did
not repeal nor in any way amend the Usury Law. The Circular
simply suspended the effectivity of the Usury Law. A Central
Bank Circular cannot repeal a law. Only a law can repeal
another law. Thus, the retroactive application of a CBP
Circular cannot, and should not, be presumed. The loan was
entered into on December 24, 1982, but CBP Circular No. 905-
82 was given force and effect only on January 1, 1983. Thus,
CBP Circular No. 905-82 could not be made applicable to the
loan agreement in this case, and petitioner could not rely on
this Circular for its imposition of 3% monthly surcharge.
Same; Same; Same; Same; A penal clause is an accessory
undertaking to assume greater liability in case of breach and is
attached to an obligation in order to secure its performance; If
such stipulation is found contrary to law for being usurious, it
can be nullified by the courts without affecting the principal
obligation.—Petitioner also argues that the 3% monthly
surcharge partakes of the nature of a penalty clause. A penal
clause is an accessory undertaking to assume greater liability
in case of breach and is attached to an obligation in order to
secure its performance. The penalty shall substitute the
indemnity for damages and the payment of interests in case of
non-compliance. But if such stipulation is found contrary to
law for being usurious, it can be nullified by the courts without
affecting the principal obligation.
G.R. No. 135046. August 17, 1999.*
SPOUSES FLORANTE and LAARNI BAUTISTA,
petitioners, vs. PILAR DEVELOPMENT CORPORATION,
respondent.
Same; Same; Interests; Circular No. 905 removed the ceiling on
interest rates for secured and unsecured loans regardless of
maturity.–On December 1, 1979, the Monetary Board of the
Central Bank of the Philippines issued Circular No. 705 which
fixed the effective rate of interest on loan transactions with
maturities of more than 730 days to twenty-one per cent (21%)
per annum for both secured and unsecured loans. On January
28, 1980, The Monetary Board issued Circular No. 712
reiterating the effective interest rate of 21% on said loan
transactions. On January 1, 1983, CB Circular No. 905, series of
1982, took effect. This Circular declared that the rate of interest
on any loan or forbearance of any money, goods or credits,
regardless of maturity and whether secured or unsecured,
“shall not be subject to any ceiling prescribed under or
pursuant to the Usury Law, as amended.– In short, Circular
No. 905 removed the ceiling on interest rates for secured and
unsecured loans, regardless of maturity.
G.R. No. 97412. July 12, 1994.*
EASTERN SHIPPING LINES, INC., petitioner, vs. HON.
COURT OF APPEALS AND MERCANTILE INSURANCE
COMPANY, INC., respondents. Eastern Shipping Lines, Inc.
vs. Court of Appeals, 234 SCRA 78, G.R. No. 97412 July 12,
1994
Same; Same; Same; Same; In case of other obligations, the
interest on the amount of damages may be imposed at the
discretion of the court at the rate of 6% per annum.—When an
obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may
be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the
demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim
is made judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally
adjudged.
Same; Same; Same; Same; When the judgment of the court
awarding a sum of money becomes final and executory, the
rate of legal interest shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed
to be by then an equivalent to a forbearance of credit.—When
the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case
falls under paragraph 1 or paragraph 2, above, shall be 12%
per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a
forbearance of credit.
G.R. No. 189871. August 13, 2013.*
DARIO NACAR, petitioner, vs. GALLERY FRAMES and/or
FELIPE BORDEY, JR., respondents. Nacar vs. Gallery
Frames, 703 SCRA 439, G.R. No. 189871 August 13, 2013
Interest Rates; In the absence of an express stipulation as to
the rate of interest that would govern the parties, the rate of
legal interest for loans or forbearance of any money, goods or
credits and the rate allowed in judgments shall no longer be
twelve percent (12%) per annum — as reflected in the case of
Eastern Shipping Lines vs. Court of Appeals, 234 SCRA 78
(1994), and Subsection X305.1 of the Manual of Regulations for
Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the
Manual of Regulations for Non-Bank Financial Institutions,
before its amendment by BSP-MB Circular No. 799 — but will
now be six percent (6%) per annum effective July 1, 2013.—In
the absence of an express stipulation as to the rate of interest
that would govern the parties, the rate of legal interest for
loans or forbearance of any money, goods or credits and the
rate allowed in judgments shall no longer be twelve percent
(12%) per annum — as reflected in the case of Eastern Shipping
Lines, Inc. v. Court of Appeals, 234 SCRA 78 (1994) and
Subsection X305.1 of the Manual of Regulations for Banks and
Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of
Regulations for Non-Bank Financial Institutions, before its
amendment by BSP-MB Circular No. 799 — but will now be six
percent (6%) per annum effective July 1, 2013. It should be
noted, nonetheless, that the new rate could only be applied
prospectively and not retroactively. Consequently, the twelve
percent (12%) per annum legal interest shall apply only until
June 30, 2013. Come July 1, 2013 the new rate of six percent
(6%) per annum shall be the prevailing rate of interest when
applicable.
Same; Monetary Board; The Bangko Sentral ng Pilipinas-
Monetary Board may prescribe the maximum rate or rates of
interest for all loans or renewals thereof or the forbearance of
any money, goods or credits, including those for loans of low
priority such as consumer loans, as well as such loans made by
pawnshops, finance companies and similar credit
institutions.—In the recent case of Advocates for Truth in
Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral
Monetary Board, 688 SCRA 530 (2013), this Court affirmed the
authority of the BSP-MB to set interest rates and to issue and
enforce Circulars when it ruled that “the BSP-MB may
prescribe the maximum rate or rates of interest for all loans or
renewals thereof or the forbearance of any money, goods or
credits, including those for loans of low priority such as
consumer loans, as well as such loans made by pawnshops,
finance companies and similar credit institutions. It even
authorizes the BSP-MB to prescribe different maximum rate or
rates for different types of borrowings, including deposits and
deposit substitutes, or loans of financial intermediaries.”
Same; When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been
stipulated in writing; In the absence of stipulation, the rate of
interest shall be 6% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.—When the
obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of
the Civil Code.
Same; When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the amount
of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum.—When an obligation, not
constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed
at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or
damages, except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such certainty
cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification
of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.
Same; When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal interest,
shall be 6% per annum from such finality until its
satisfaction.—When the judgment of the court awarding a
sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph
2, above, shall be 6% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.
G.R. No. 146942. April 22, 2003.*
CORAZON G. RUIZ, petitioner, vs. COURT OF APPEALS
and CONSUELO TORRES, respondents.
Civil Law; Contracts; Contracts of Adhesion; In contracts of
adhesion, the only participation of the other party is the
signing of his signature or his ‘adhesion’ thereto.—“. . . there
are certain contracts almost all the provisions of which have
been drafted only by one party, usually a corporation. Such
contracts are called contracts of adhesion, because the only
participation of the other party is the signing of his signature
or his ‘adhesion’ thereto. Insurance contracts, bills of lading,
contracts of sale of lots on the installment plan fall into this
category. “. . . it is drafted only by one party, usually the
corporation, and is sought to be accepted or adhered to by the
other party . . . who cannot change the same and who are thus
made to adhere hereto on the ‘take it or leave it’ basis . . .”
Same; Loan; Interest; Usury Law; Nothing in the said circular
(Usury Law) grants lenders carte blanche authority to raise
interest rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their assets.—We held
that while the Usury Law has been suspended by Central Bank
Circular No. 905, s. 1982, effective on January 1, 1983, and
parties to a loan agreement have been given wide latitude to
agree on any interest rate, still stipulated interest rates are
illegal if they are unconscionable. Nothing in the said circular
grants lenders carte blanche authority to raise interest rates to
levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets.
Same; Same; Same; Surcharges; This surcharge or penalty
stipulated in a loan agreement in case of default partakes of
the nature of liquidated damages.—This surcharge or penalty
stipulated in a loan agreement in case of default partakes of the
nature of liquidated damages under Art. 2227 of the New Civil
Code, and is separate and distinct from interest payment. Also
referred to as a penalty clause, it is expressly recognized by
law. It is an accessory undertaking to assume greater liability
on the part of an obligor in case of breach of an obligation. The
obligor would then be bound to pay the stipulated amount of
indemnity without the necessity of proof on the existence and
on the measure of damages caused by the breach. Although
the courts may not at liberty ignore the freedom of the parties
to agree on such terms and conditions as they see fit that
contravene neither law nor morals, good customs, public order
or public policy, a stipulated penalty, nevertheless, may be
equitably reduced if it is iniquitous or unconscionable.
G.R. No. 109563. July 9, 1996.*
PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF
APPEALS, MARIA AMOR BASCOS and MARCIANO
BASCOS, respondents.
Commercial Law; Banks and Banking; Interests; Any increase
in the rate of interest made pursuant to an escalation clause
must be the result of agreement between the parties.—To begin
with, PNB’s argument rests on a misapprehension of the
import of the appellate court’s ruling. The Court of Appeals
nullified the interest rate increases not because the promissory
note did not comply with P.D. No. 1684 by providing for a de-
escalation, but because the absence of such provision made the
clause so one-sided as to make it unreasonable. That ruling is
correct. It is in line with our decision in Banco Filipino Savings
& Mortgage Bank v. Navarro that although P.D. No. 1684 is
not to be retroactively applied to loans granted before its
effectivity, there must nevertheless be a de-escalation clause to
mitigate the one-sidedness of the escalation clause. Indeed
because of concern for the unequal status of borrowers vis-a-
vis the banks, our cases after Banco Filipino have fashioned the
rule that any increase in the rate of interest made pursuant to
an escalation clause must be the result of agreement between
the parties.
G.R. No. 174433. February 24, 2014.*
PHILIPPINE NATIONAL BANK, petitioner, vs. SPOUSES
ENRIQUE MANALO & ROSALINDA JACINTO, ARNOLD
J. MANALO, ARNEL J. MANALO, and ARMA J. MANALO,
respondents.
Civil Law; Contracts; Contract of Adhesion; A contract where
there is no mutuality between the parties partakes of the
nature of a contract of adhesion, and any obscurity will be
construed against the party who prepared the contract, the
latter being presumed the stronger party to the agreement, and
who caused the obscurity.—The Court has declared that a
contract where there is no mutuality between the parties
partakes of the nature of a contract of adhesion, and any
obscurity will be construed against the party who prepared the
contract, the latter being presumed the stronger party to the
agreement, and who caused the obscurity. PNB should then
suffer the consequences of its failure to specifically indicate the
rates of interest in the credit agreement.
Same; Interest Rates; Interest should be computed from the
time of the judicial or extrajudicial demand.—Indeed, the
Court said in Eastern Shipping Lines, Inc. v. Court of Appeals,
234 SCRA 78 (1994), that interest should be computed from the
time of the judicial or extrajudicial demand. However, this case
presents a peculiar situation, the peculiarity being that the
Spouses Manalo did not demand interest either judicially or
extrajudicially. In the RTC, they specifically sought as the main
reliefs the nullification of the foreclosure proceedings brought
by PNB, accounting of the payments they had made to PNB,
and the conversion of their loan into a long term one. In its
judgment, the RTC even upheld the validity of the interest
rates imposed by PNB. In their appellant’s brief, the Spouses
Manalo again sought the nullification of the foreclosure
proceedings as the main relief. It is evident, therefore, that the
Spouses Manalo made no judicial or extrajudicial demand
from which to reckon the interest on any amount to be
refunded to them. Such demand could only be reckoned from
the promulgation of the CA’s decision because it was there that
the right to the refund was first judicially recognized.
Nevertheless, pursuant to Eastern Shipping Lines, Inc. v. Court
of Appeals, 234 SCRA 78 (1994), the amount to be refunded
and the interest thereon should earn interest to be computed
from the finality of the judgment until the full refund has been
made.
Same; Same; Monetary Board Circular No. 799; The Supreme
Court, in Nacar v. Gallery Frames, 703 SCRA 439 (2013) and
S.C. Megaworld Construction v. Parada, 705 SCRA 584 (2013),
already applied Monetary Board Circular No. 799 by reducing
the interest rates allowed in judgments from 12% per annum
to 6% per annum.—Anent the correct rates of interest to be
applied on the amount to be refunded by PNB, the Court, in
Nacar v. Gallery Frames, 703 SCRA 439 (2013) and S.C.
Megaworld Construction v. Parada, 705 SCRA 584 (2013)
already applied Monetary Board Circular No. 799 by reducing
the interest rates allowed in judgments from 12% per annum to
6% per annum. According to Nacar v. Gallery Frames, MB
Circular No. 799 is applied prospectively, and judgments that
became final and executory prior to its effectivity on July 1,
2013 are not to be disturbed but continue to be implemented
applying the old legal rate of 12% per annum. Hence, the old
legal rate of 12% per annum applied to judgments becoming
final and executory prior to July 1, 2013, but the new rate of 6%
per annum applies to judgments becoming final and executory
after said date.
G.R. No. 177260 March 30, 2011.*
LOTTO RESTAURANT CORPORATION, represented by
SUAT KIM GO, petitioner, vs. BPI FAMILY SAVINGS
BANK, INC., respondent.
Loans; Interest Rates; The Court has previously upheld as
valid the proviso in loans that the interest rate would be made
to depend on the prevailing market rate.—The Court has
previously upheld as valid the proviso in loans that the interest
rate would be made to depend on the prevailing market
rate. Such provision does not signify an automatic increase in
the interest. It simply means that the bank may adjust the
interest according to the prevailing market rate. This may
result to either an increase or a decrease in the interest.
Same; Mortgages; Foreclosure of Mortgage; Foreclosure is but
a necessary consequence of non-payment of mortgage
indebtedness.—As to BPI’s right to foreclose, the records show
that Lotto defaulted in its obligation when it unjustifiably
stopped paying its amortizations after the first
year. Consequently, there is no question that BPI (which
succeeded DBS) had a clear right to foreclose on Lotto’s
collateral. The Court held in Equitable PCI Bank, Inc. v. OJ-
Mark Trading, Inc. that foreclosure is but a necessary
consequence of non-payment of mortgage indebtedness. The
creditor-mortgagee has the right to foreclose the mortgage, sell
the property, and apply the proceeds of the sale to the
satisfaction of the unpaid loan.
G.R. No. 201264. January 11, 2016.*
FLORANTE VITUG, petitioner, vs. EVANGELINE A.
ABUDA, respondent.
Civil Law; Mortgages; For a mortgage contract to be valid, the
absolute owner of a property must have free disposal of the
property.—For a mortgage contract to be valid, the absolute
owner of a property must have free disposal of the property.
That property must be used to secure the fulfillment of an
obligation.
Remedial Law; Civil Procedure; Appeals; As a general rule,
findings of fact of the lower court and of the Court of Appeals
(CA) are not reviewable and are binding upon this court unless
the circumstances of the case are shown to be covered by the
exceptions.—This court is not a trier of facts. As a general rule,
findings of fact of the lower court and of the Court of Appeals
are not reviewable and are binding upon this court unless the
circumstances of the case are shown to be covered by the
exceptions. Petitioner failed to show any ground for this court
to review the trial court’s and the Court of Appeals’ finding
that petitioner mortgaged his property in consideration of a
loan amounting to P600,000.00. Petitioner’s undisputed title to
and ownership of the property is sufficient to give him free
disposal of it. As owner of the property, he has the right to
enjoy all attributes of ownership including jus disponendi or
the right to encumber, alienate, or dispose his property
“without other limitations than those established by law.”
Civil Law; Contracts; Contracts entered into in violation of
restrictions on a property owner’s rights do not always have
the effect of making them void ab initio.—Contracts entered
into in violation of restrictions on a property owner’s rights do
not always have the effect of making them void ab initio. This
has been clarified as early as 1956 in Municipality of Camiling
v. Lopez, 99 Phil. 187.
Same; Same; Contracts that only subject a property owner’s
property rights to conditions or limitations but otherwise
contain all the elements of a valid contract are merely
voidable by the person in whose favor the conditions or
limitations are made.—Contracts that only subject a property
owner’s property rights to conditions or limitations but
otherwise contain all the elements of a valid contract are
merely voidable by the person in whose favor the conditions or
limitations are made. The mortgage contract entered into by
petitioner and respondent contains all the elements of a valid
contract of mortgage. The trial court and the Court of Appeals
found no irregularity in its execution. There was no showing
that it was attended by fraud, illegality, immorality, force or
intimidation, and lack of consideration. At most, therefore, the
restrictions made the contract entered into by the parties
voidable by the person in whose favor they were made — in
this case, by the National Housing Authority. Petitioner has no
actionable right or cause of action based on those restrictions.
Same; Same; In Pari Delicto Rule; The Principle of In Pari
Delicto is an equitable principle that bars parties from
enforcing their illegal acts, assailing the validity of their acts,
or using its invalidity as a defense.—Even if the mortgage
contract were illegal or wrongful, neither of the parties may
assail the contract’s validity as against the other because they
were equally at fault. This is the principle of in pari delicto (or
in delicto) as embodied in Articles 1411 and 1412 of the Civil
Code: Art. 1411. When the nullity proceeds from the illegality
of the cause or object of the contract, and the act constitutes a
criminal offense, both parties being in pari delicto, they shall
have no action against each other, and both shall be
prosecuted. Moreover, the provisions of the Penal Code
relative to the disposal of effects or instruments of a crime shall
be applicable to the things or the price of the contract. This rule
shall be applicable when only one of the parties is guilty; but
the innocent one may claim what he has given, and shall not be
bound to comply with his promise. Art. 1412. If the act in
which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be
observed: (1) When the fault is on the part of both contracting
parties, neither may recover what he has given by virtue of the
contract, or demand the performance of the other’s
undertaking; (2) When only one of the contracting parties is at
fault, he cannot recover what he has given by reason of the
contract, or ask for the fulfillment of what has been promised
him. The other, who is not at fault, may demand the return of
what he has given without any obligation to comply his
promise. Under this principle, courts shall not aid parties in
their illegal acts. The court shall leave them as they are. It is an
equitable principle that bars parties from enforcing their illegal
acts, assailing the validity of their acts, or using its invalidity as
a defense.
Same; Same; Family Home; Article 155 of the Family Code
explicitly provides that debts secured by mortgages are
exempted from the rule against execution, forced sale, or
attachment of family home.—Petitioner argues that the
property should be exempt from forced sale, attachment, and
execution, based on Article 155 of the Family Code. Petitioner
and his family have been neighbors with respondent since
1992, before the execution of the mortgage contract. Even
though petitioner’s property has been constituted as a family
home, it is not exempt from execution. Article 155 of the
Family Code explicitly provides that debts secured by
mortgages are exempted from the rule against execution,
forced sale, or attachment of family home: Art. 155. The family
home shall be exempt from execution, forced sale or
attachment except: . . . . (3) For debts secured by mortgages on
the premises before or after such constitution[.] Since
petitioner’s property was voluntarily used by him as security
for a loan he obtained from respondent, it may be subject to
execution and attachment.
Same; Interest Rates; Mortgages; Parties are free to stipulate
interest rates in their loan contracts in view of the suspension
of the implementation of the Usury Law ceiling on interest
effective January 1, 1983.—The Court of Appeals correctly
found that the interest rates of 5% or 10% per month imposed
on petitioner’s loan were unconscionable. Parties are free to
stipulate interest rates in their loan contracts in view of the
suspension of the implementation of the Usury Law ceiling on
interest effective January 1, 1983. The freedom to stipulate
interest rates is granted under the assumption that we have a
perfectly competitive market for loans where a borrower has
many options from whom to borrow. It assumes that parties
are on equal footing during bargaining and that neither of the
parties has a relatively greater bargaining power to command
a higher or lower interest rate. It assumes that the parties are
equally in control of the interest rate and equally have options
to accept or deny the other party’s proposals. In other words,
the freedom is granted based on the premise that parties arrive
at interest rates that they are willing but are not compelled to
take either by force of another person or by force of
circumstances.
Same; Contracts; Iniquitous or unconscionable interest rates
are illegal and, therefore, void for being against public
morals.—In stipulating interest rates, parties must ensure that
the rates are neither iniquitous nor unconscionable. Iniquitous
or unconscionable interest rates are illegal and, therefore, void
for being against public morals. The lifting of the ceiling on
interest rates may not be read as “grant[ing] lenders carte
blanche [authority] to raise interest rates to levels which will
either enslave their borrowers or lead to a hemorrhaging of
their assets.”
Same; Same; Even if the parties voluntarily agree to an
interest rate, courts are given the discretionary power to
equitably reduce it if it is later found to be iniquitous or
unconscionable.—Even if the parties voluntarily agree to an
interest rate, courts are given the discretionary power to
equitably reduce it if it is later found to be iniquitous or
unconscionable. Courts approximate what the prevailing
market rate would have been under the circumstances had the
parties had equal bargaining power. An interest rate is not
inherently conscionable or unconscionable. Interest rates
become unconscionable in light of the context in which they
were imposed or applied. In Medel v. Court of Appeals, 299
SCRA 481 (1998), this Court ruled that the stipulated interest of
5.5% or 66% per annum was unconscionable and contrary to
morals. It was declared void. This court reduced the interest
rate to 1 % per month or 12% per annum.
G.R. No. 201927. February 17, 2016.
VICENTE D. CABANTING and LALAINE V. CABANTING,
petitioners, vs. BPI FAMILY SAVINGS BANK, INC.,
respondent.
Civil Law; Contracts; Contract of Adhesion; A contract of
adhesion is as binding as ordinary contracts, the reason being
that the party who adheres to the contract is free to reject it
entirely.—The CA is correct that no prior demand was
necessary to make petitioners’ obligation due and payable. The
Promissory Note with Chattel Mortgage clearly stipulated that
“[i]n case of my/our [petitioners’] failure to pay when due and
payable, any sum which I/We x x x or any of us may now or in
the future owe to the holder of this note x x x then the entire
sum outstanding under this note shall immediately become
due and payable without the necessity of notice or demand
which I/We hereby waive.” Petitioners argue that such
stipulation should be deemed invalid as the document they
executed was a contract of adhesion. It is important to stress
the Court’s ruling in Dio v. St. Ferdinand Memorial Park, Inc.,
509 SCRA 453 (2006), to wit: A contract of adhesion, wherein
one party imposes a ready-made form of contract on the other,
is not strictly against the law. A contract of adhesion is as
binding as ordinary contracts, the reason being that the party
who adheres to the contract is free to reject it entirely. Contrary
to petitioner’s contention, not every contract of adhesion is an
invalid agreement.
Due Process; Time and again, the Supreme Court (SC) has
stressed that there is no deprivation of due process when a
party is given an opportunity to be heard, not only through
hearings but even through pleadings, so that one may explain
one’s side or arguments; or an opportunity to seek
reconsideration of the action or ruling being assailed.—There
is likewise no merit to petitioners’ claim that they were
deprived of due process when they were deemed to have
waived their right to present evidence. Time and again, the
Court has stressed that there is no deprivation of due process
when a party is given an opportunity to be heard, not only
through hearings but even through pleadings, so that one may
explain one’s side or arguments; or an opportunity to seek
reconsideration of the action or ruling being assailed. The
records bear out that herein petitioners were given several
opportunities to present evidence, but said opportunities were
frittered away. We stress the fact that petitioners did not even
bother to move for reconsideration of the Order dated
February 13, 2008, deeming petitioners to have waived their
right to present evidence. Such is glaring proof of their
propensity to waste the opportunities granted them to present
their evidence.

Interest Rates; Rates found to be iniquitous or unconscionable

are void, as if it there were no express contract thereon.—The
CA is correct that the interest rate being charged by
respondent under the Promissory Note with Chattel Mortgage
is quite unreasonable. In New Sampaguita Builders
Construction, Inc. (NSBCI) v. Philippine National Bank, 435
SCRA 565 (2004), the Court ruled that “the interest ranging
from 26 percent to 35 percent in the statements of account —
‘must be equitably reduced for being iniquitous,
unconscionable and exorbitant.’ Rates found to be iniquitous
or unconscionable are void, as if it there were no express
contract thereon. Above all, it is undoubtedly against public
policy to charge excessively for the use of money.” However,
pursuant to prevailing jurisprudence and banking regulations,
the Court must modify the lower court’s award of legal
interest.

Same; Legal interest, effective July 1, 2013, was set at six

percent (6%) per annum in accordance with Bangko Sentral ng
Pilipinas-Monetary Board (BSP-MB) Circular No. 799, Series
of 2013.—Legal interest, effective July 1, 2013, was set at six
percent (6%) per annum in accordance with Bangko Sentral ng
Pilipinas-Monetary Board Circular No. 799, Series of 2013.

G.R. No. 137798. October 4, 2000.*

LUCIA R. SINGSON, petitioner, vs. CALTEX

(PHILIPPINES), INC., respondent.

Civil Law; Contracts; Extraordinary inflation exists when

there is a decrease or increase in the purchasing power of the
Philippine currency which is unusual or beyond the common
fluctuation in the value of said currency and such increase or
decrease could not have been reasonably foreseen or was
manifestly beyond the contemplation of the parties at the time
of the establishment of the obligation.—We have held
extraordinary inflation to exist when there is a decrease or
increase in the purchasing power of the Philippine currency
which is unusual or beyond the common fluctuation in the
value of said currency, and such increase or decrease could not
have been reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the establishment of
the obligation.

Same; Same; Supervening of extraordinary inflation is never

assumed.—The supervening of extraordinary inflation is never
assumed. The party alleging it must lay down the factual basis
for the application of Article 1250.

Same; Same; The effects of extraordinary inflation are not to

be applied without an official declaration thereof by
competent authorities.—This Court has held that the effects of
extraordinary inflation are not to be applied without an official
declaration thereof by competent authorities.