Sec 2 GBL Digests (Consolidated)

8/12/2019 Sec 2 GBL Digests (Consolidated)

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SIMEX INTL MANILA V. COURT OF APPEALS, 183 SCRA 360 (1990)FACTS:

ISSUE:

HELD:


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BPI V. IAC AND SPOUSES CANLAS, 206 SCRA 408 (1992)FACTS: Spouses Arthur and Vivienne Canlas opened a joint current account with CommercialBank and Trust Company of the Philippines (CBTC). By mistake, the "new accounts" teller ofthe bank miscredited the initial deposit of P2,250 to Arthur's personal account in the samebranch. The spouses subsequently deposited other amounts in their joint account.

1. Vivienne Canlas issued a check for Pl,639.89 and another check for P1,160.002.One ofthe checks was dishonored by the bank for insufficient funds and a penalty of P20 wasdeducted from the account in both instances.

2. Respondents then filed a complaint for damages against CBTC in the CFI Pampanga3. During the pendency of the case, the Bank of the Philippine Islands (BPI) and CBTC

were merged.4. TC awarded the private respondents P465,0005. IAC - reduced the damage-award to P105,000

ISSUE: WON the petitioner was guilty of gross negligence in the handling of privaterespondents' bank account

HELD: There is no merit in petitioner's argument that it should not be considered negligent,much less held liable for damages on account of the inadvertence of its bank employee for

Article 1173 of the Civil Code only requires it to exercise the diligence of a good father of family.In Simex International (Manila), Inc . vs . Court of Appeals (183 SCRA 360, 367), this Courtstressed the fiduciary nature of the relationship between a bank and its depositors and theextent of diligence expected of it in handling the accounts entrusted to its care.

In every case, the depositor expects the bank to treat his account with the utmost fidelity,whether such account consists only of a few hundred pesos or of millions. The bankmust record every single transaction accurately, down to the last centavo, and aspromptly as possible. This has to be done if the account is to reflect at any giventime the amount of money the depositor can dispose of as he sees fit, confidentthat the bank will deliver it as and to whomever he directs. A blunder on the part

of the bank, such as the dishonor of a check without good reason, can cause thedepositor not a little embarrassment if not also financial loss and perhaps evencivil and criminal litigation.

The point is that as a business affected with public interest and because of the nature ofits functions, the bank is under obligation to treat the accounts of its depositors withmeticulous care, always having in mind the fiduciary nature of their relationship

The bank is not expected to be infallible but, as correctly observed by respondent AppellateCourt, in this instance, it must bear the blame for not discovering the mistake of its teller despitethe established procedure requiring the papers and bank books to pass through a battery ofbank personnel whose duty it is to check and countercheck them for possible errors.


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BANK OF THE PHILIPPINE ISLANDS V. COURT OF APPEALS AND NAPIZA, 326 SCRA641 (2000)FACTS: Private respondent Napiza deposited in a Foreign Currency Deposit Unit (FCDU)account with petitioner BPI a managers check from Continental Bank, payable to cash in theamount of $2,500. It appears the check belonged to a certain Henry and asked Napiza todeposit the check in his dollar account by way of accommodation and for the purpose ofclearing the same.

1. Napiza agreed to the arrangement and delivered to Chan a signed blank withdrawal slip,with the understanding that as soon as the check is cleared, both of them will withdraw theamount of the check upon presenting Napizas passbook to the bank

2. However, a certain Ruben Gayon used the Napizas blank withdrawal slip to withdraw theamount of $2,541.67 from the latters FCDU. Notably, the withdrawal slip shows that theamount w as payable to de Guzman and was duly initiated by BPIs assistant manager

3. Subsequently, BPI was informed by Wells Fargo bank (Drawee bank) that the checkdeposited by Napiza was a counterfeit. As such, BPIs branch manager notified Napizathat the check was dishonored

4. For failure to return the amount, petitioner BPI filed an action against Napiza praying forthe return of $2,500

5. Napiza, in his answer, alleged that while he did indeed signed a blank withdrawal slipwith the understanding that the amount deposited shall be withdrawn only after the checkhas been cleared. However, without his knowledge, Gayon withdrew $2,541.67 Napizacontended that the bank was grossly negligent for its apparent ignorance of routine bankrules since it accepted the encashed the check even if the account holders passbook wasnot presented

6. The lower court dismissed the complaint and ruled that incumbent upon the petitionerbank to credit the value of the check to the account of the private respondent only uponreceipt of fina l payment and should not have authorized the withdrawal from the lattersaccount of the value of the check.

7. CA affirmed the lower courts decision citing that BPI committed clear gross negligence inallowing Gayon to withdraw the money without presenting the private respondents

passbook. The mere deposit of a check in private respondents account did not mean thecheck was already the private respondents property. The check still had to be cleared andits proceeds can only be withdrawn upon presentation of a passbook in accordance withthe banks rules and regulations.

ISSUE: WON petitioner bank was grossly negligent in allowing the withdrawal

HELD: Yes. As correctly held by the CA, in depositing the check in his name, privaterespondent did not become the outright owner of the amount stated therein. Under the aboverule, by depositing the check with petitioner, private respondent was, in a way, merelydesignating petitioner as the collecting bank. This is in consonance with the rule that anegotiable 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 theamount in private respondent's account or infuse value thereon only after the drawee bank shallhave paid the amount of the check or the check has been cleared for deposit. Again, this is inaccordance with ordinary banking practices and with this Court's pronouncement that " thecollecting bank or last endorser generally suffers the loss because has the duty toascertain the genuineness of all prior endorsements considering that the act ofpresenting the check for payment to the drawee is an assertion that the party making thepresentment has done its duty to ascertain the genuineness of the endorsements." Therule finds more meaning in this case where the check involved is drawn on a foreign bank and


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therefore collection is more difficult than when the drawee bank is a local one even though thecheck in question is a manager's check.

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 agood father of a family but it should do so with the highest degree of care.

CAB: BPI, in allowing the withdrawal of private respondent's deposit, failed to exercise thediligence of a good father of a family. In total disregard of its own rules, petitioner's personnelnegligently handled private respondent's account to petitioner's detriment.While it is true that private respondent's having signed a blank withdrawal slip set in motion theevents that resulted in the withdrawal and encashment of the counterfeit check, the negligenceof petitioner's personnel was the proximate cause of the loss that petitioner sustained.Proximate cause, which is determined by a mixed consideration of logic, common sense, policyand precedent, is "that cause, which, in natural and continuous sequence, unbroken by anyefficient intervening cause, produces the injury, and without which the result would not haveoccurred." The proximate cause of the withdrawal and eventual loss of the amount of $2,500.00on petitioner's part was its personnel's negligence in allowing such withdrawal in disregard of itsown rules and the clearing requirement in the banking system. In so doing, petitioner assumedthe risk of incurring a loss on account of a forged or counterfeit foreign check and hence, itshould suffer the resulting damage.


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CONSOLIDATED BANK & TRUST CORP V. COURT OF APPEALS AND L.C. DIAZ CO, 410SCRA 562 (2003)FACTS: L.C. Diaz opened a savings account with Solidbank. L.C. Diaz through its cashier,Macaraya, filled up a savings (cash) deposit slip for P990 and a savings (checks) deposit slipfor P50. Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre, to deposit the moneywith Solidbank. Macaraya also gave Calapre the Solidbank passbook.

1. Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and thepassbook. The teller acknowledged receipt of the deposit by returning to Calapre theduplicate copies of the two deposit slips. Teller No. 6 stamped the deposit slips with thewords DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE. Since thetransaction took time and Calapre had to make another deposit for L.C. Diaz with AlliedBank, he left the passbook with Solidbank. Calapre then went to Allied Bank. WhenCalapre returned to Solidbank to retrieve the passbook, Teller No. 6 informed him thatsomebody got the passbook.Calapre went back to L.C. Diaz and reported the incide ntto Macaraya.

2. The following day, 15 August 1991, L.C. Diaz, called up Solidbank to stop anytransaction using the same passbook until L.C. Diaz could open a new account. On thesame day, Diaz formally wrote Solidbank to make the same request. It was also on thesame day that L.C. Diaz learned of the unauthorized withdrawal the day before,of P300,000 from its savings account. The withdrawal slip for the P300,000 bore thesignatures of the authorized signatories of L.C. Diaz. The signatories, however, deniedsigning the withdrawal slip. A certain Noel Tamayo received the P300,000.

3. L.C. Diaz through its counsel demanded from Solidbank the return of itsmoney. Solidbank refused.

4. L.C. Diaz filed a Complaint for Recovery of a Sum of Money against Solidbank. The trialcourts absolved Solidbank and dismissed the complaint. It found LC Diaz to be negligentin handling its passbook. The loss of the P300k was not the result of Solidbanksnegligence.

5. The Court of Appeals reversed the decision of the trial court.The CA used the rules onquasi-delict.

ISSUE: WON the relations between Solidbank and LC Diaz, the depositor, is governed byquasi-delict in determining the liability of Solidbank

HELD: Solidbanks Fiduciary Duty under the Law The rulings of the trial court and the Court of Appeals conflict on the application of the law. Thetrial court pinned the liability on L.C. Diaz based on the provisions of the rules on savingsaccount, a recognition of the contractual relationship between Solidbank and L.C. Diaz, thelatter being a depositor of the former. On the other hand, the Court of Appeals applied the lawon quasi-delict to determine who between the two parties was ultimately negligent. The law onquasi-delict or culpa aquiliana is generally applicable when there is no pre-existing contractualrelationship between the parties.

We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual. The contract between the bank and its depositor is governed by the provisions of the Civil Codeon simple loan. There is a debtor-creditor relationship between the bank and its depositor. Thedepositor lends the bank money and the bank agrees to pay the depositor on demand. Thesavings deposit agreement between the bank and the depositor is the contract that determinesthe rights and obligations of the parties.


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The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2of RA 8791declares that the State recognizes the fiduciary nature of banking tha t requires highstandards 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 1990case of Simex Internat ional v. Court of A ppeals , holdin g that the bank is under obligation totreat the accounts of its depositors with meticulous care, always having in mind the fiduciarynature of their relationship.

This fiduciary relationship means that the banks obligation to observe high standardsof integrity and performance is deemed written into every deposit agreement between abank and its depositor. The fiduciary nature of banking requires banks to assume adegree of diligence higher than that of a good father of a family. Although RA 8791 tookeffect almost nine years after the unauthorized withdrawal of the P 300,000 from L.C. Diazssavings account, jurisprudence at the time of the withdrawal already imposed on banks thesame high standard of diligence required under RA No. 8791.However, the fiduciary nature of a bank-depositor relationship does not convert the contractbetween the bank and its depositors from a simple loan to a trust agreement, whether expressor implied. Failure by the bank to pay the depositor is failure to pay a simple loan, and not abreach of trust.T he law simply imposes on the bank a higher s tandard of integrity andperformance in complying with its obligations under the contract of simple loan, beyond thoserequired 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 becausebanks do not accept deposits to enrich depositors but to earn money for themselves. The lawallows banks to offer the lowest possible interest rate to depositors while charging the highestpossible interest rate on their own borrowers. The interest spread or differential belongs to thebank and not to the depositors who are not cestuique trust of banks. If depositors are cestuiquetrust of banks, then the interest spread or income belongs to the depositors, a situation thatCongress certainly did not intend in enacting Section 2 of RA 8791.

Solidbanks Breach of its Contractual Obligation - For breach of the savings depositagreement due to negligence, or culpa contractual , the bank is liable to its depositor.

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

Solidbank is bound by the negligence of its employees under the principle of respondeatsuperior or command responsibility. The defense of exercising the required diligence in theselection and supervision of employees is not a complete defense in culpa contractual , unlikein culpa aquiliana .

The bank must not only exercise high standards of integrity and performance, it must alsoinsure that its employees do likewise because this is the only way to insure that the bank willcomply with its fiduciary duty.


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Proxim ate Cause of the Unauthorized Withdrawal- L.C. Diaz was not at fault that thepassbook landed in the hands of the impostor. Solidbank was in possession of the passbookwhile it was processing the deposit. After completion of the transaction, Solidbank had thecontractual obligation to return the passbook only to Calapre, the authorized representative ofL.C. Diaz. Solidbank failed to fulfill its contractual obligation because it gave the passbook toanother person.Solidbanks failure to return the passbook to Calapre made possible thewithdrawal of the P300,000 by the impostor who took possession of the passbook.

Doct rine of Last Clear Chance- We do not apply the doctrine of last clear chance to thepresent case. Solidbank is liable for breach of contract due to negligence in the performance ofits contractual obligation to L.C. Diaz. This is a case of culpa contractual , where neither thecontributory negligence of the plaintiff nor his last clear chance to avoid the loss, wouldexonerate the defendant from liability.Such contributory negligence or last clear chance by theplaintiff merely serves to reduce the recovery of damages by the plaintiff but does not exculpatethe defendant from his breach of contract.

Mitig ated Damages- In this case, L.C. Diaz was guilty of contributory negligence in allowing awithdrawal slip signed by its authorized signatories to fall into the hands of an impostor. Thus,the liability of Solidbank should be reduced.

Petitioner Solidbank Corporation shall pay private respondent L.C. Diaz and Company, CPAsonly 60% of the actual damages awarded by the Court of Appeals. The remaining 40% of theactual damages shall be borne by private respondent L.C. Diaz and Company, CPAs.


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PHIL BANKING CORP V. COURT OF APPEALS, 419 SCRA 487 (2004)FACTS:

ISSUE:

HELD:


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SAMSUNG CONSTRUCTION COMPANY PHILIPPINES, INC. V. FAR EAST BANK, 436SCRA 402 (2004)If a bank pays out on a forged check, is it liable to reimburse the drawer from whose account thefunds were paid out? The CA, in reversing a trial court decision adverse to the bank, invokedtenuous reasoning to acquit the bank of liability. We reverse, applying time-honored principles oflaw.FACTS : Samsung Construction, while based in Bian, Laguna, maintained a current accountwith defendant Far East Bank and Trust Company 1 ("FEBTC") at the latters Bel -Air, Makatibranch .2 The sole signatory to Samsung Constructions account was Jong Kyu Lee ("Jong"), itsProject Manager, while the checks remained in the custody of the companys accountant, KyuYong Lee ("Kyu").

1. A certain Roberto Gonzaga presented for payment FEBTC Check payable to cash anddrawn against Samsung Constructions current account in the amount ofP999,500.00.The bank teller was satisfied as to the authenticity of the signatureappearing on the check.

2. Shirley Syfu, approved the encashment of the check after Jose Sempio III (whom at thetime of the encashment was in the bank with Gonzaga), the assistant accountant ofSamsung Construction who was well-known to Syfu and the other bank officers,vouched for the genuine ness of Jongs signature.

3. Kyu discovered that a checkP999,500.00 had been encashed and found that the lastblank check was missing. He reported the matter to Jong, who then proceeded to thebank and realized that his signature had been forged.

4. Samsung Construction demanded that FEBTC credit to it the amount encashed withinterest but to no avail. Samsung Construction filed a Complaint for violation of Section23 of the Negotiable Instruments Law, and prayed for the payment of the amountdebited as a result of the questioned check plus interest, and attorneys fees.

ISSUE : WON FEBTC is liable

HELD: Yes. Even assuming that FEBTC had a standing habit of dealing with Sempio, acting in

behalf of Samsung Construction, the irregular circumstances attending the presentment of theforged check should have put the bank on the highest degree of alert. The Court recentlyemphasized that the highest degree of care and diligence is required of banks.

Banks are engaged in a business impressed with public interest, and it is their duty toprotect in return their many clients and depositors who transact business with them.They have the obligation to treat their clients account meticulously and with the highestdegree of care, considering the fiduciary nature of their relationship. The diligencerequired of banks, therefore, is more than that of a good father of a family.

Given the circumstances (huge amount of money involved), extraordinary diligence dictates thatFEBTC should have ascertained from Jong personally that the signature in the questionable

check was his.
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PHILIPPINE NATIONAL BANK V. PIKE, 470 SCRA 328 (2005)FACTS: Respondent Pike, who worked in Japan, opened a US Dollar savings account withpetitioner bank PNB, for which he was issued a corresponding passbook.

1. Pike filed an action for damages against the bank alleging that:a. Sometime in 1993, he discovered that some of his valuables were missing

including his PNB passbook, which led to the arrest of a Joy Manuel Davasol.Pike also learned that Davasol made 2 unauthorized withdrawals from his USDollar Savings account

b. Pike then went to PNB and demanded the return of the amount withdrawn fromhis account on the ground that he never authorized the withdrawal. The bankrefused to credit said amount and instead argued that it exercised due diligencein the handling of said account

2. On the other hand, PNB alleged the different set of facts:a. Sometime in 1993, Pike and Davasol went to see PNB AVP Lorenzo Val to

withdraw $2,000. Pike also instructed PNB to honor all withdrawals to betransmitted by Davasol, who shall present pre-signed withdrawal slips bearingPikes signature

b. Subsequently, Pikes sister notified the bank that Pikes PNB passbook was loston account of robbery and requested for a hold- order on hers brotherspassbook

c. Pike then executed an affidavit of loss and requested PNB to replace the sameand allow him to make withdrawals therein. He also stated that he was holdingthe bank free from any liability

3. The lower court held in favor of Pike and ruled that the bank was negligent in theexercise of its duties for allowing such a bizarre arrangement. The bank also comparedthe signatures on the questioned withdrawal slips with the known signature of Pike andfound that said signatures do not match

4. CA affirmed the same, citing that the bank did not follow its usual procedure of requiringa depositor who is withdrawing the money through a representative to fill out the backportion of the withdrawal slips.

5. PNB argument: It cannot be liable for the loss since Pike gave verbal instructions toallow the withdrawal from his account through another person. Moreover, the fact thatPike withdrew the remaining balance from his account and executed a waiver releasingPNB from any liability due to the loss of founds negates a finding of negligence on itspart

ISSUE: WON PNB should be held liable

HELD: Yes. PNBs liability arose from the negligence exhibited by employees of PNB inthe treatment of Pikes dollar account . A banks liability as an obligor is not merely vicariousbut primary, as banks are expected to exercise the highest degree of diligence in the selectionand supervision of its employees. Ordinarily, banks allow withdrawal by someone who is not the

account holder so long as the account holder authorizes his representative to withdraw andreceive from his account by signing on the space provided particularly for such transactions,usually found at the back of the withdrawal slips.

With banks, the degree of diligence required, contrary to the position of PNB, is morethan that of a good father of a family considering that the business of banking is imbuedwith public interest due to the nature of their functions. The stability of banks largelydepends on the confidence of the people in the honesty and efficiency of banks. Thus,the law imposes on banks a high degree of obligation to treat the accounts of its depositors with


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meticulous care, always having in mind the fiduciary nature of banking. Sec 2 General BankingLaw makes a categorical declaration that the State recognizes the fiduciary nature of bankingthat requires high standards of integrity and performance. A rt 1172 NCC provides that thedegree of diligence required of an obligor is that prescribed by law or contract, and absent suchstipulation then the diligence of a father of a family. In every case, the depositor expects thebank to treat his account with utmost fidelity, whether such accounts consist only of a fewhundred pesos or millions of pesos.


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FAR EAST BANK AND TRUST COMPANY V. PACILAN JR, 486 SCRA 372 (2005)FACTS: Respondent Pacilan opened a current account with FEBTC Bacolod branch in 1980.Since then, he has issued postdated checks to different payees drawn against the said againstthe said account. Sometime in 1988, respondent issued a check for P680.

1. Upon presentment, the check in question was dishonored by petitioner bank. Thefollowing day, Pacilan deposited P800 to his current account, thus increasing thebalance of his account to P1,051.43

2. When Pacilan inquired with the bank about the dishonor of his check, he found out thathis current account was closed on the ground that it was improperly handled.

3. As such, respondent wrote to petitioner bank complaining that the closure of his accountwas unjustified. When he did not receive a reply, he filed an action for damages againstFEBTC

4. Pacilan alleged that prior to the closure of his current account, he had issue severalother postdated checks. FEBTCs act of closing his current account allegedly preemptedthe deposits that he intended to make to fund those checks, and exposed him to criminalprosecution for violation of BP 22. He further alleged that the closure of his account wasdone in malice since he was a cashier of a competitor bank

5. In its answer, FEBTC contended that under the banks rules and regulations, the bankreserves the right to close an account if the depositor frequently draws checks againstinsufficient funds and/or uncollected deposits and that the bank reserves the right atany time to return checks of the depositor which are drawn against insufficient funds orfor any reason

6. As evidence, the bank showed that Pacilans account was overdrawn 156 times in 1986,117 in 1987 and in 1988, 26 times. The respondent also signed several checks with adifferent signature from the specimen on file for dubious reasons

7. When Pacilan deposited P800, it was obviously to cover the issuances made theprevious day against an insufficiently funded account. When he presented the check inquestion, he had already incurred an overdraft. Hence, the bank rightfully dishonored thesame for insufficiency of funds

8. The lower court held in favor of Pacilan ruling that the respondent as depositor, had the

right to put up sufficient finds for a check that was returned due to insufficient funds theday after the check had been received from the clearing office. In previous instances, itwas shown that the bank notified Pacilan when he incurred an overdraft and he wouldthen deposit sufficient funds to cover the overdraft. Thus, the bank acted unjustifiablywhen it immediately closed Pacilans ac count and deprived him of an opportunity toreclear his check or deposit sufficient funds the next day. CA affirmed the lower courtsdecision

ISSUE: WON the bank had acted with malice in closing the respondents account

HELD: No. Under Art 19 NCC, there is abuse of rights when the following concur: (a) theexistence of a legal right or duty; (b) which is exercised in bad faith; (c) for the sole intent of

prejudicing or injuring another.

It is clear that FEBTC has the right to close the account of respondent based on its Rulesand Regulations Governing the Establishment and Operation of Regular DemandDeposits. The same rules also provide that the depositor is not entitled, as a matter ofright to overdraw on this deposit and the bank reserves the right to return the checks ofthe depositor drawn against insufficient funds.


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The facts do not establish that, in the exercise of this right, FEBTC committed an abuse thereof.Specifically, the second and third elements of abuse of rights are not present in this case. Giventhat the respondent had a history of overdrawing his current account, the bank was justified inclosing the same for improper handling.

Nowhere under its rules and regulations is petitioner bank required to notify therespondent or any depositor of the closure of the account for frequently drawing checksagainst insufficient funds. No malice or bad faith can be imputed on petitioner bank foracting as such since the records clearly show that respondent had been improperly andirregularly handling his account not just a few times but hundreds of times. Under thecircumstances, FEBTC could not be faulted for exercising its right in accordance withthe express rules and regulations of the bank. Upon the opening of his account, Pacilanhad agreed to be bound by these terms and conditions.

Moreover, it has not been shown that the bank had closed Pacilans current account with thesole intention of prejudicing and injuring the respondent. While Pacilan may have suffered injuryas a result thereof, but this falls within the concept of damnum absque injuria.


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CITIBANK, N.A. V. CABAMONGAN, 488 SCRA 517 (2006)


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CITIBANK NA V. SABENIANO, 504 SCRA 378 (2006)FACTS: Respondent claimed to have substantial deposits and money market placements withthe petitioners, as well as money market placements with the Ayala Investment andDevelopment Corporation (AIDC), the proceeds of which were supposedly depositedautomatically and directly to respondent's accounts with petitioner Citibank.

1. Respondent alleged that petitioners refused to return her deposits and the proceeds ofher money market placements despite her repeated demands, thus, compellingrespondent to file a case against petitioners for "Accounting, Sum of Money andDamages."

2. On the other hand, petitioners admitted that respondent had deposits and money marketplacements with them, including dollar accounts in the Citibank branch in Geneva,Switzerland (Citibank-Geneva). Petitioners further alleged that the respondent laterobtained several loans from petitioner Citibank, for which she executed PromissoryNotes (PNs), and secured by (a) a Declaration of Pledge of her dollar accounts inCitibank-Geneva, and (b) Deeds of Assignment of her money market placements withpetitioner FNCB Finance.

3. When respondent failed to pay her loans despite repeated demands by petitionerCitibank, the latter exercised its right to off-set or compensate respondent's outstandingloans with her deposits and money market placements, pursuant to the Declaration ofPledge and the Deeds of Assignment executed by respondent in its favor.

4. RTC set-off was illegal, null and void butruled that Sabeniano is indebted to Citibank5. CA ruled entirely in favor of Sabenianosaying that Citibank failed to establish by

competent evidence the alleged indebtedness of Sabeniano

ISSUE: WON Petitioner Citibank shall be liable for damages to respondent

HELD: Yes. Citibank did commit wrong when it failed to pay and properly account for theproceeds of respondent's money market placements and when it sought the remittance ofrespondent's dollar accounts from Citibank-Geneva by virtue of a highly-suspect Declaration ofPledge to be applied to the remaining balance of respondent's outstanding loans. It bears to

emphasize that banking is impressed with public interest and its fiduciary characterrequires high standards of integrity and performance. A bank is under the obligation totreat the accounts of its depositors with meticulous care whether such accounts consistonly of a few hundred pesos or of millions of pesos. The bank must record every singletransaction accurately, down to the last centavo, and as promptly as possible.PetitionerCitibank evidently failed to exercise the required degree of care and transparency in itstransactions with respondent, thus, resulting in the wrongful deprivation of her property.

SC affirmed CA with additional payment of damages BUT Sabeniano was ordered to pay for theoutstanding balance of her loan.


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CHINA BANKING CORP V. COURT OF APPEALS AND GOTIANUY, 511 SCRA 110 (2006)FACTS: Jose Gotianuy accused his daughter Mary Margaret Dee of stealing, among his otherproperties, US dollar deposits with Citibank NA amounting to P35 million and $864,000.

1. Dee received these amounts from Citibank through checks which she allegedlydeposited at China Bank.

2. Gotianuy also accused his son-in-law, George Dee, of transferring his real propertiesand shares of stock in Georges name without any consideration.

3. During the pendency of the case, Gotianuy died and was substituted by his daughter,Elizabeth Gotianuy Lo.

4. Dee admitted during the trial that she withdrew funds of Citibank upon instruction of herfather and the funds belonged exclusively to the latter.

5. The checks were presented as evidence during the trial. Upon motion of Gotianuy Lo,the trial court subpoenaed 2 employees of China Bank to testify on the case.

6. China Bank opposed and moved for reconsideration. The trial court held that thedisclosure only as to the name or in whose name the said fund is deposited is notviolative of the law. On appeal, CA affirmed the trial court. It held that what the lawcovers is only deposit but not the name of the depositor.

7. China Bank contended that since Jose Gotianuy is not the owner of the subject foreigncurrency deposit, thus he cannot invoke the aid of the court in compelling the disclosureof someone elses foreign currency deposit.

ISSUE: WON China Banks contention is correct

HELD: No. Sec 8 RA 6426 (Foreign Currency Deposit Act) provides that all foreign currencydeposits are considered absolutely confidential in nature and may not be inquired into,except when the disclosure is permitted by the depositor.

Based on the facts of the case, it is clear that the source of the funds deposited by Dee is JoseGotianuy. As the owner of the funds unlawfully taken and which are undisputably deposited withChina Bank, Jose Gotianuy has the right to inquire into the said deposits.

As found by the CA: it is indubitable that the Citibank checks were drawn against the foreigncurrency account with Citibank. The monies subject of said checks originally came from the lateJose Gotianuy, the owner of the account. Thus, he also has legal rights and interests in theCBC account where said monies were deposited. More impo rtant ly, the Ci t ibank checksreadi ly demonstra te that the la te Jose Got ianuy is one of th e payees of sa id checks .Being a co-payee thereof, then he or his estate can be considered as a co-depositor ofsaid checks. Ergo, since the late Jose Gotianuy is a co-depositor of the CBC account,then his request for the assailed subpoena is tantamount to an express permission of adepositor for the disclosure of the name of the account holder .


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BPI V. CASA MONTESORRI INTERNATIONALE, 430 SCRA 261 (2004)FACTS: CASA Montessori Internationale (CASA) opened a current account with BPI, withCASAs president Lebron as one of its authorized signatories

1. After conducting an investigation, CASA found that 9 of its checks had been encashedby a Sonny Santos amounting to a total of P782,000.

2. It turned out the Sonny Santos was a fictitious name used by Yabut, who worked as anexternal auditor of CASA. Yabut admitted that he forged the signature of Lebron andencashed the checks.

3. CASA, then, filed an action for damages against BPI, praying that the latter be orderedto reinstate the amount of P782,500 in the current and savings account of CASA.

4. RTC held in favor of CASA. On appeal, CA apportioned the loss between BPI andCASA. CA took into account CASAs contributory negligence that resulted in theundetected forgery.

ISSUE: WON BPI is liable in this case

HELD: Yes. Under Sec 23 NIL, a forged signature is a real or absolute defense, and a personwhose signature on a negotiable instrument is forged is deemed to have never become a partythereto and to have never consented to the contract that allegedly gave rise to it. Yabutvoluntarily admitted that he forged the drawers signature and encashed the checks.

Having established the forgery in the drawers signature, BPI (drawee bank) erred in makingpayments by virtue thereof. The forged signatures are wholly inoperative and CASA (drawer)whose authorized signatures do not appear on the checks, cannot be held liable thereon.

Since the banking business is impressed with public interest, of paramount importance theretois the trust and confidence of the public in general. Consequently, the highest degree ofdiligence is expected, and high standards of integrity and performance are required.

BPIs contention that it has a signature verification procedure, in which checks are honored only

when the signatures therein are verified to be the same or with similar to the specimensignatures on the signature cards. However , it still failed to detect the 8 instances of forgery.Its negligence consisted in the omission of that degree of diligence required of a bank. Itcannot now feign ignorance, since it is very clear that the bank is bound to know thesignature of its customers; and if it pays a forged check, it must be considered asmaking the payment out of its own funds, and cannot ordinarily charged the amount sopaid to the account of the depositor whose name was forged.

For allowing payment on the checks to a wrongful and fictitious payee, BPI is liable to itsdepositor-drawer. Since the encashing bank is one of its branches, BPI could have easily heldit liable for reimbursement. It may not debit the drawers account and is not entitled toindemnification from the drawer .

It is well-settled that when one of two innocent persons must suffer the wrongful act of a thirdperson, the loss must be borne by the one whose negligence is the proximate cause or who putit into the power of the third person to perpetrate the wrong.


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PHIL. BANK OF COMMERCE V. COURT OF APPEALS, 269 SCRA 695 (1997)


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PHIL. SAVINGS BANK V. CHOWKING FOOD CORP, 557 SCRA 318 (2008)

It is the peculiar quality of a fool to perceive the fault of others and to forget his own. Ang i sangkakatuwang katangian ng isang hangal ay punahin ang kam alian ng iba a t kal imutannaman ang sa kanya .

FACTS: Joe Kuan Food Corporation issued in favor of Chowking five (5) PSBank checksamounting to P556,981.86.On the respective due dates of each check, Chowking's actingaccounting manager, Rino T. Manzano, endorsed and encashed said checks with the Bustosbranch of respondent PSBank.

1. All the five checks were honored by defendant Santos, even with only the endorsementof Manzano approving them. The signatures of the other authorized officers ofrespondent corporation were absent in the five (5) checks, contrary to usual bankingpractice. Unexpectedly, Manzano absconded with and misappropriated the checkproceeds.

2. When Chowking demanded reimbursement from PSBank but to no avail. Chowking fileda complaint for a sum of money with damages before the RTC. Likewise impleaded werePS Bank's president, Antonio S. Abacan, and Bustos branch head, Santos.

3. Petitioner, Santos and Abacan were unanimous in asserting that respondent is estoppedfrom claiming reimbursement and damages since it was negligent in allowing Manzanoto take hold, endorse, and encash its checks. Petitioner pointed out that the proximatecause of respondent's loss was its own negligence.

ISSUE: WON the respondent's negligence was the proximate cause of its own loss absolvingpetitioner from liability

HELD: No. Petitioner failed to prove that it has observed the due diligence required ofbanks under the law . Contrary to petitioner's view, its negligence is the proximate cause ofrespondent's loss.

It cannot be over emphasized that the banking business is impressed with public interest. Ofparamount importance is the trust and confidence of the public in general in the bankingindustry. Consequently, the diligence required of banks is more than that of a Roman paterfamilias or a good father of a family. The highest degree of diligence is expected.

In its declaration of policy, the General Banking Law of 2000 requires of banks the higheststandards of integrity and performance. Needless to say, a bank is "under obligation to treat theaccounts of its depositors with meticulous care." The fiduciary nature of the relationshipbetween the bank and the depositors must always be of paramount concern.Petitioner, throughSantos, was clearly negligent when it honored respondent's checks with the lone endorsementof Manzano.

Measured by the foregoing yardstick, the proximate cause of the loss is not respondent'salleged negligence in allowing Manzano to take hold and encash respondent's checks.The proximate cause is petitioner's own negligence in the supervision of its employeeswhen it overlooked the irregular practice of encashing checks even without the requisiteendorsements.


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GONZALES V. PCIB, 644 SCRA 180 (2011)FACTS: PCIB granted a credit line to Gonzales through the execution of a Credit-On-HandLoan Agreement (COHLA), in which the aggregate amount of the accounts of Gonzales withPCIB served as collateral for and his availment limit under the credit line. Gonzales drew fromsaid credit line through the issuance of check. At the institution of the instant case, Gonzaleshad a Foreign Currency Deposit (FCD) of USD 8,715.72 with PCIB.

1. Gonzales and his wife obtained a loan for PhP 500,000. Subsequently, on December 26,1995 and January 3, 1999, the spouses Panlilio and Gonzales obtained two additionalloans from PCIB in the amounts of PhP 1,000,000 and PhP 300,000, respectively.These three loans amounting to PhP 1,800,000 were covered by three promissorynotes.

2. To secure the loans, a real estate mortgage was executed by Gonzales and the spousesPanlilio. Notably, the promissory notes specified, the solidary liability of Gonzales andthe Panlilio for the payment of the loans. However, it was the spouses Panlilio whoreceived the loan proceeds of PhP 1,800,000.

3. The monthly interest dues were paid by the spouses Panlilio through the automaticdebiting of their account with PCIB. But the spouses Panlilio, defaulted.

4. PCIB allegedly called the attention of Gonzales regarding the defaults and thesubsequent accumulating periodic interest dues which were left still left unpaid.

5. In the meantime, Gonzales issued a check in favor of Unsonfor PhP 250,000 drawnagainst the credit line. However, upon presentment for payment, it was dishonored bydue to the termination of the credit line for the unpaid periodic interest dues from theloans. PCIB likewise froze the FCD account of Gonzales.

6. Gonzales had a falling out with Unson due to the dishonor of the check. They had aheated argument, which caused great embarrassment and humiliation to Gonzales.Thereafter, Unson sent a demand letter with the threat of legal action.

7. Gonzales, wrote PCIB insisting that the check he issued had been fully funded, anddemanded the return of the proceeds of his FCD as well as damages for the unjustdishonor of the check.

8. PCIB stood its ground in freezing the accounts. Gonzales reiterated his demand,

reminding PCIB that it knew well that the actual borrowers were the spouses Panlilio andhe never benefited from the proceeds of the loans, which were serviced by the PCIBaccount of the spouses Panlilio.

9. PCIBs refusal to heed his demands compelled Gonzales to file the instant case fordamages with the RTC, on account of the alleged unjust dishonor of the check issued infavor of Unson.

10. 11.The RTC found Gonzales solidarily liable with the spouses Panlilio on the threepromissory notes relative to the outstanding REM loan. The trial court found no fault inthe termination by PCIB of the COHLA with Gonzales and in freezing the lattersaccounts to answer for the past due loan. The trial court ruled that the dishonor of thecheckwas proper considering that the credit line had already been terminated or revokedbefore the presentment of the check. The CA affirmed the decision.

ISSUES :1. 1.Whether Gonzales is liable for the three promissory notes he made with the spouses

Panlilio where a REM was constituted as security- yes 2. 2.Whether PCIB properly dishonored the check of Gonzales drawn against the COHLA

he had with the bank.- no

HELD: First Issue: Solidarily Liability on Promissory Notes


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The effectivity clause of the COHLA is crystal clear that termination of the COH should be doneonly upon prior notice served on the CLIENT . This is the legal duty of PCIB to informGonzales of the termination.

In the instant case, PCIB was able to send a letter advising Gonzales of the unpaid interest onthe loans but failed to mention anything about the termination of the COHLA. More significantly,no letter was ever sent to him about the termination of the COHLA. The failure to give priornotice on the part of PCIB is already prima facie evidence of bad faith. Therefore, it isabundantly clear that this case falls squarely within the purview of the principle of abuse ofrights as embodied in Art. 19.

3 rd - There is no dispute on the right of PCIB to suspend, terminate, or revoke the COHLA underthe "cross default provisions" of both the promissory notes and the COHLA. However, thesecross default provisions do not confer absolute unilateral right to PCIB, as they are qualified bythe other stipulations in the contracts or specific circumstances, like in the instant case of anaccommodation party.Thus, due to PCIBs negligence in not giving Gonzales proper notice relative to thedelinquencies, the unjust terminati on, revocation, or suspension of the credit line from PCIBsgross negligence in not honoring its obligation to give prior notice to Gonzales about suchtermination and in not informing Gonzales of the fact of such termination, treating Gonzalesaccount as closed and dishonoring his PhP 250,000 check, was certainly a reckless act byPCIB. This resulted in the actual injury of PhP 250,000 to Gonzales whose FCD account wasfrozen and had to look elsewhere for money to pay Unson.

With banks, the degree of diligence required is more than that of a good father of the familyconsidering that the business of banking is imbued with public interest due to the nature of theirfunction. The law imposes on banks a high degree of obligation to treat the accounts of itsdepositors with meticulous care, always having in mind the fiduciary nature of banking.

Third Issue: Award of Damages

The banking system has become an indispensable institution in the modern world and plays avital role in the economic life of every civilized society banks have attained a ubiquitouspresence among the people, who have come to regard them with respect and even gratitudeand most of all, confidence, and it is for this reason, banks should guard against injuryattributable to negligence or bad faith on its part.

In the present case, Gonzales had the right to be informed of the accrued interest and mostespecially, for the suspension of his COHLA. For failure to do so, the bank is liable to paynominal damages. The amount of such damages is addressed to the sound discretion of thecourt, taking into account the relevant circumstances.

Even in the absence of malice or bad faith, a depositor still has the right to recover reasonable

moral damages, if the depositor suffered mental anguish, serious anxiety, embarrassment, andhumiliation. Although incapable of pecuniary estimation, moral damages are certainlyrecoverable if they are the proximate result of the defendants wrongful act or omission.

Thus, an award of PhP 50,000 is reasonable moral damages for the unjust dishonor of thecheck which was the proximate cause of the consequent humiliation, embarrassment, anxiety,and mental anguish suffered by Gonzales from his loss of credibility among his friends,colleagues and peers.


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Furthermore, t he initial carelessness of the banks omission in not properly informing Gonzalesof the outstanding interest dues aggravated by its gross neglect in omitting to give prior noticeas stipulated under the COHLA and in not giving actual notice of the termination of the creditline justifies the grant of exemplary damages of PhP 10,000. Such an award is imposed byway of example or correction for the public good.

Finally, an award for attorneys fees is likewise called for from PCIBs negligence whichcompelled Gonzales to litigate to protect his interest. In accordance with Art. 2208(1) of theCode, attorneys fees may be recovered when exemplary damages are awarded. We find thatthe amount of PhP 50,000 as attorneys fees is reasonable.


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State recognizes the "fiduciary nature of banking that requires high standards of integrity andperformance."

This fiduciary relationship means that the banks obligation to observe "high standards ofintegrity and performance" is deemed written into every deposit agreement between a bank andits depositor. The fiduciary nature of banking requires banks to assume a degree of diligencehigher than that of a good father of a family. Article 1172 of the Civil Code states that the degreeof diligence required of an obligor is that prescribed by law or contract, and absent suchstipulation then the diligence of a good father of a family.

Citytrusts failure to timely examine its account, cancel the checks and notify petitioner of theiralleged loss/theft should mitigate petitioners liability, in accordance with Article 2179 of the CivilCode which provides that if the plaintiffs negligence was only contributory, the immediate andproximate cause of the injury being the defendants lack of due care, the plaintiff may recoverdamages, but the courts shall mitigate the damages to be awarded. For had Citytrust timelydiscovered the loss/theft and/or subsequent encashment, their proceeds or part thereof couldhave been recovered.

In line with the ruling in Consolidated Bank, the Court deems it proper to allocate the lossbetween petitioner and Citytrust on a 60-40 ratio.


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G. REYES V. COURT OF APPEALS, 363 SCRA 52 (2001)


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FAR EAST BANK & TRUST CO. (NOW BPI) VS TENTMAKERS GROUP, INC., 675 SCRA546 (2012)FACTS: The signatures of respondents, Gregoria Pilares Santos and Rhoel P. Santos,President and Treasurer of respondent Tentmakers Group, Inc. (TGI) respectively, appeared onthe 3 promissory notes for loans contracted with petitioner Far East Bank and TrustCompany (FEBTC), now known as Bank of the Philippine Islands (BPI).

1. Gregoria and Rhoel alleged that they did sign on "blank" promissory notes intended forfuture use. After a futile demand, FEBTC filed a Complaint before the RTC for thepayment of the principal of the promissory notes.

2. Respondents alleged that FEBTC had no right at all to demand from them the amountbeing claimed; it was FEBTCs branch manager, a certain Liza Liwanag, whorepresented to Gregoria and Rhoel that they could avail of additional working capital forTGI by having them sign the promissory notes in advance, which were blank at the time,so they would be ready for future use

3. RTC - ruled in favor of FEBTC.CA- reversed RTC

ISSUE: WON respondents are liable to FEBTC

HELD: No FEBTC miserably failed to present any document that would serve as basis for itsclaim that the proceeds of the 3 promissory notes were indeed credited to the account of therespondents. Indeed, the Court finds no evidentiary basis to sustain the RTCs finding of actualreceipt by TGI of the amounts stated in the promissory notes. Accordingly, the Court affirms theCA decision for being more in accord with the facts and evidence on record.

On a final note, FEBTC should have been more circumspect in dealing with its clients. It cannotbe over emphasized that the banking business is impressed with public interest. Of paramountimportance is the trust and confidence of the public in general in the banking industry.Consequently, the diligence required of banks is more than that of a Roman pater familias or agood father of a family. The highest degree of diligence is expected. In handling loantransactions, banks are under obligation to ensure compliance by the clients with all the

documentary requirements pertaining to the approval and release of the loan applications. Forfailure of its branch manager to exercise the requisite diligence in abiding by the MORB and thebanking rules and practices, FEBTC was negligent in the selection and supervision of itsemployees. In Equitable PCI Bank v. Tan, the Court ruled:

xxx. Banks handle daily transactions involving millions of pesos. By the very nature of theirworks the degree of responsibility, care and trustworthiness expected of their employees andofficials is far greater than those of ordinary clerks and employees. Banks are expected toexercise the highest degree of diligence in the selection and supervision of their employees .29 For the loss suffered by FEBTC due to its laxity and carelessness to police its own personnel,the bank has no one to blame but itself. As correctly concluded by the CA, this situationpartakes of the nature of damnum absque injuria .
http://www.lawphil.net/judjuris/juri2012/jul2012/gr_171050_2012.html#fnt29http://www.lawphil.net/judjuris/juri2012/jul2012/gr_171050_2012.html#fnt29http://www.lawphil.net/judjuris/juri2012/jul2012/gr_171050_2012.html#fnt29http://www.lawphil.net/judjuris/juri2012/jul2012/gr_171050_2012.html#fnt29


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PNB V. CHEAH CHEE CHONG, 671 SCRA 49 (2012)FACTS: On November 4, 1992, Ofelia Cheah and her friend AdelinaGuarin were having aconversation in the latters office when Adelinasfriend, Filipina Tuazon, approached her to ask ifshe could have Filipinas check cleared and encashed for a service fee of 2.5%.

1. The check was Bank of America Check No. 190drawn by Atty. Rosales against Bank of America California, USA, with a face amount of $300,000.00, payable to cash.

2. Because Adelina does not have a dollar account, she asked Ofelia if she couldaccommodate Filipinas request since she has a jo int dollar savings account with herhusband CheahChee Chongwith PNB Buendia Branch.

3. Ofelia agreed.They met with the Loans Department who referred them to PNB DivisionChief Garin. Garin discussed with them the process of clearing the check and they weretold that it normally takes 15 days. Assured that the deposit and subsequent clearanceof the check is a normal transaction, Ofelia deposited Filipinas check.

4. PNB then sent it for clearing through its correspondent bank, Philadelphia NationalBank. 5 days later, PNB received a credit advice from Philadelphia that the proceeds ofthe subject check had been temporarily credited to PNBs account as of November 6,1992.

5. On November 16, 1992, Garin called up Ofelia to inform her that the check had alreadybeen cleared. The following day, PNB Buendia, after deducting the bank charges,credited $299,248.37 to the account of the spouses Cheah.

6. Acting on Adelinas instruction to withdraw the credited amount. Filipina received all theproceeds.

7. In the meantime, the Cable Division of PNB Head Office received on November 16,1992 a SWIFT message from Philadelphia, informing PNB of the return of the check forinsufficient funds. However, the PNB Head Office could not ascertain to whichbranch/office it should forward the same for proper action.

8. After a few days, PNB Head Office ascertained that the SWIFT message was intendedfor PNB Buendia Branch.

9. Informed about the bounced check and upon demand by PNB Buendia to return themoney withdrawn, Ofelia immediately contacted Filipina to get the money back. But the

latter told her that all the money had already been given to several people who asked forthe checks encashment. Criminal charges were then filed against these suspectbeneficiaries.

10. Subsequently, PNB sent a demand letter to spouses Cheah for the return of the amountof the check, froze their peso and dollar deposits, and filed a complaint against them forSum of Money with the RTC. In said complaint, PNB demanded payment ofaround P8,202,220.44, plus interests and attorneys fees.

11. The RTC ruled in PNBs favor. It held that spouses Cheah were guilty of contributorynegligence.While the CA recognized the spouses Cheah as victims of a scam whonevertheless have to suffer the consequences of Ofelias lack of care and pr udence inimmediately trusting a stranger, the appellate court did not hold PNB scot-free. Itdeclared both parties equally negligent and should suffer and shoulder the loss.

ISSUE: WON PNB should be held liable.

HELD: PNBs act of releasing the proceeds of the check prior to the lapse of the 15-day clearingperiod was the proximate cause of the loss.

Ofelia deposited the subject check on November 4, 1992. Hence, the 15th banking day from thedate of said deposit should fall on November 25, 1992. However, what happened was that PNBBuendia, upon calling up Ofelia that the check had been cleared, allowed the proceeds thereof


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to be withdrawn on November 17 and 18, 1992, a week before the lapse of the standard 15-dayclearing period.

This Court already held that the payment of the amounts of checks without previously clearingthem with the drawee bank especially so where the drawee bank is a foreign bank and theamounts involved were large is contrary to normal or ordinary banking practice. Also, in

Associated Bank v. Tan, wherein the bank allowed the withdrawal of the value of a check priorto its clearing, we said that "[b]efore the check shall have been cleared for deposit, thecollecting bank can only assume at its own risk x xx that the check would be cleared and paidout."

The delay in the receipt by PNB Buendia of the SWIFT message notifying it of the dishonor is ofno moment, because had PNB Buendia waited for the expiration of the clearing period and hadnever released during that time the proceeds of the check, it would have already been dulynotified of its dishonor. Clearly, PNBs disregard of its preventive and protective measureagainst the possibility of being victimized by bad checks had brought upon itself the injury oflosing a significant amount of money.

It bears stressing that "the diligence required of banks is more than that of a Roman paterfamilias or a good father of a family. The highest degree of diligence is expected." PNBmiserably failed to do its duty of exercising extraordinary diligence and reasonable businessprudence. The disregard of its own banking policy amounts to gross negligence, which the lawdefines as "negligence characterized by the want of even slight care, acting or omitting to act ina situation where there is duty to act, not inadvertently but wilfully and intentionally with aconscious indifference to consequences in so far as other persons may be affected." Withregard to collection or encashment of checks, suffice it to say that the law imposes on thecollecting bank the duty to scrutinize diligently the checks deposited with it for the purpose ofdetermining their genuineness and regularity. "The collecting bank, being primarily engaged inbanking, holds itself out to the public as the expert on this field, and the law thus holds it to ahigh standard of conduct." A bank is expected to be an expert in banking procedures and it has

the necessary means to ascertain whether a check, local or foreign, is sufficiently funded.

Incidentally, PNB obliges the spouses Cheah to return the withdrawn money under the principleof solution indebiti.

In the case at bench, PNB cannot recover the proceeds of the check under the principle itinvokes. 1 st, the gross negligence of PNB, can never be equated with a mere mistake of fact,which must be something excusable and which requires the exercise of prudence. No recoveryis due if the mistake done is one of gross negligence.

The spouses Cheah are guilty of contributory negligence and are bound to share the loss withthe bank. "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 requiredto conform for his own protection."

The fact that the check was cleared after only eight banking days from the time it was depositedor contrary to what Garin told her that clearing takes 15 days should have already put Ofelia onguard. She should have first verified the regularity of such hasty clearance considering that ifsomething goes wrong with the transaction, it is she and her husband who would be put at riskand not the accommodated party. Thus, we are one with the CA in ruling that Ofelias priorconsultation with PNB officers is not enough to totally absolve her of any liability


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In any case, the complaint against the spouses Cheah could not be dismissed. As PNBs client,Ofelia was the one who dealt with PNB and negotiated the check such that its value wascredited in her and her husbands account. Being t he ones in privity with PNB, the spousesCheah are therefore the persons who should return to PNB the money released to them.

All told, the Court concurs with the findings of the CA that PNB and the spouses Cheah areequally negligent and should therefore equally suffer the loss. The two must both bear theconsequences of their mistakes.


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EQUITABLE BANKING CORP V, SPECIAL STEEL PRODUCTS INC & A. PARDO, G.R. NO175350 (JUNE 13, 2012)

A crossed check with the notation "account payee only" can only be deposited in the namedpayees account. It is gross negligence for a bank to ignore this rule solely on the basis of a thirdpartys oral representations of having a good title thereto.

FACTS: Respondent Special Steel Products is a corporation selling steel products. Its co-respondent Augusto L. Pardo is SSPIs President and majority stockholder.

1. 2. Interco is its regular customer.2. Jose Isidoro Uy, alias Jolly Uy (Uy), is an Interco employee, in charge of the purchasing

department, and the son-in-law of its majority stockholder.3. Petitioner Equitable is engaged in banking and is the depository bank of Interco and of

Uy.4. SSPI sold welding electrodes to Interco. The invoices provided that Interco would pay

interest at the rate of 36% per annum in case of delay.5. In payment for the welding electrodes, Interco issued three checks payable to the order

of SSPI. Each check was crossed with the notation "account payee only" and was drawnagainst Equitable.

6. The records disclose that Uy presented each crossed check to Equitable on the day ofits issuance and claimed that he had good title thereto.

7. Equitable acceded to Uys demands on the assumption that Uy, as the son-in-law ofIntercos majority stockholder, was acting pursuant to Intercos orders. The bank alsorelied on Uys status as a valued client. Thus, Equitable accepted the checks for depositin Uys personal accounts and stamped "ALL PRIOR ENDORSEMENT AND/OR LACKOF ENDORSEMENT GUARANTEED" on their dorsal portion. Uy promptly withdrew theproceeds of the checks.

8. SSPI reminded Interco of the unpaid welding electrodes. Interco replied that it hadalready issued three checks payable to SSPI and drawn against Equitable. SSPI deniedreceipt of these checks.

9. It was determined that Uy, not SSPI, received the proceeds of the three checks that

were payable to SSPI. Thus, 23 months after the issuance of the three checks, Intercofinally paid the value of the three checks, plus a portion of the accrued interests. Intercorefused to pay the entire accrued interest of P767,345.64 on the ground that it was notresponsible for the delay. Thus, SSPI was unable to collect P437,040.35 (at thecontracted rate of 36% per annum) in interest income.

10. SSPI and its president, Pardo, filed a complaint for damages with application for a writ ofpreliminary attachment against Uy and Equitable Bank.

11. In his personal capacity, Pardo claimed an award of P3 million as moral damages fromthe defendants. He allegedly suffered hypertension, anxiety, and sleepless nights forfear that the government would charge him for tax evasion or money laundering.

12. The RTC rendered judgment in favor of plaintiffs Special Steel, and Pardo and againstdefendants Equitable and Uy," ordering defendants to jointly and severally pay plaintiffs.

The CA affirmed the trial courts ruling that SSPI had a cause of action for quasi -delictagainst Equitable.

ISSUE: WON SSPI has a cause of action against Equitable for quasi-delict .

HELD: This case involves a complaint for damages based on quasi- delict. SSPIs cause ofaction is not based on the three checks. SSPI does not ask Equitable or Uy to deliver to it theproceeds of the checks as the rightful payee. SSPI does not assert a right based on theundelivered checks or for breach of contract. Instead, it asserts a cause of action based on


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quasi-delict. Quasi-delicts exist even without a contractual relation between the parties. Thecourts below correctly ruled that SSPI has a cause of action for quasi-delict against Equitable.

The checks that Interco issued in favor of SSPI were all crossed, made payable to SSPIs order,and contained the notation "account payee only." This creates a reasonable expectation that thepayee alone would receive the proceeds of the checks and that diversion of the checks wouldbe averted. This expectation arises from the accepted banking practice that crossed checks areintended for deposit in the named payees account only and no other. At the very least, thenature of crossed checks should place a bank on notice that it should exercise more caution orexpend more than a cursory inquiry, to ascertain whether the payee on the check hasauthorized the holder to deposit the same in a different account. In this connection, it isimportant that banks should guard against injury attributable to negligence or bad faith on itspart. As repeatedly emphasized, since the banking business is impressed with public interest,the trust and confidence of the public in it is of paramount importance. Consequently, thehighest degree of diligence is expected, and high standards of integrity and performance arerequired of it."

Equitable did not observe the required degree of diligence expected of a banking institutionunder the existing factual circumstances.

The fact that a person, other than the named payee of the crossed check, was presenting it fordeposit should have put the bank on guard. It should have verified if the payee (SSPI)authorized the holder (Uy) to present the same in its behalf, or indorsed it to him. Consideringhowever, that the named payee does not have an account with Equitable (hence, the latter hasno specimen signature of SSPI by which to judge the genuineness of its indorsement to Uy), thebank knowingly assumed the risk of relying solely on Uys word that he had a good title to the three checks. Such misplaced reliance on empty words is tantamount to gross negligence,which is the "absence of or failure to exercise even slight care or diligence, or the entireabsence of care, evincing a thoughtless disregard of consequences without exerting any effortto avoid them."

Equitable contends that its knowledge that Uy is the son-in-law of the majority stockholder of thedrawer, Interco, made it safe to assume that the drawer authorized Uy to countermand the orderappearing on the check. It is troubling that Equitable proceeded with the transaction based onlyon its knowledge that Uy had close relations with Interco. The bank did not even make inquirieswith the drawer, Interco (whom the bank considered a "valued client"), to verify Uysrepresentation. The banking system is placed in peril when bankers act out of blind faith andempty promises, without requiring proof of the assertions and without making the appropriateinquiries. Had it only exercised due diligence, Equitable could have saved both Interco and thenamed payee, SSPI, from the trouble that the banks mislaid trust wrought for them.


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Sps. Serfinovs FEBTC, 683 SCRA 380 (Oct. 2012) banks have no duty to freeze an accountwhen there is an unverified adverse claim -- MON

22. Citytrust Banking Corp (now BPI) vs. I. Villanueva 361 SCRA 446 (2001) -- MON23. PCI Bank vs. CA and Ford Phils., 350 SCRA 446 (2001) -- MON24. Bank of America vs. PRC, 594 SCRA 301 (2009) -- MON25. Westmont Bank vs. M. Dela Rosa-Ramos, 684 SCRA 429 (2012) -- MON

Documents

Sec 2 GBL Digests (Consolidated)