PCI Bank vs CA

There are three cases consolidated here: G.R. No. 121413 (PCIB vs CA and Ford and Citibank),
G.R. No. 121479 (Ford vs CA and Citibank and PCIB), and G.R. No. 128604 (Ford vs Citibank and
PCIB and CA).
G.R. No. 121413/G.R. No. 121479
In October 1977, Ford Philippines drew a Citibank check in the amount of P4,746,114.41 in favor of
the Commissioner of the Internal Revenue (CIR). The check represents Ford’s tax payment for the
third quarter of 1977. On the face of the check was written “Payee’s account only” which means that
the check cannot be encashed and can only be deposited with the CIR’s savings account (which is
with Metrobank). The said check was however presented to PCIB and PCIB accepted the same.
PCIB then indorsed the check for clearing to Citibank. Citibank cleared the check and paid PCIB
P4,746,114.41. CIR later informed Ford that it never received the tax payment.
An investigation ensued and it was discovered that Ford’s accountant Godofredo Rivera, when the
check was deposited with PCIB, recalled the check since there was allegedly an error in the
computation of the tax to be paid. PCIB, as instructed by Rivera, replaced the check with two of its
manager’s checks.
It was further discovered that Rivera was actually a member of a syndicate and the manager’s
checks were subsequently deposited with the Pacific Banking Corporation by other members of the
syndicate. Thereafter, Rivera and the other members became fugitives of justice.
G.R. No. 128604
In July 1978 and in April 1979, Ford drew two checks in the amounts of P5,851,706.37 and
P6,311,591.73 respectively. Both checks are again for tax payments. Both checks are for “Payee’s
account only” or for the CIR’s bank savings account only with Metrobank. Again, these checks never
reached the CIR.
In an investigation, it was found that these checks were embezzled by the same syndicate to which
Rivera was a member. It was established that an employee of PCIB, also a member of the syndicate,
created a PCIB account under a fictitious name upon which the two checks, through high end
manipulation, were deposited. PCIB unwittingly endorsed the checks to Citibank which the latter
cleared. Upon clearing, the amount was withdrawn from the fictitious account by syndicate members.
ISSUE: What are the liabilities of each party?
HELD: G.R. No. 121413/G.R. No. 121479
PCIB is liable for the amount of the check (P4,746,114.41). PCIB, as a collecting bank has been
negligent in verifying the authority of Rivera to negotiate the check. It failed to ascertain whether or
not Rivera can validly recall the check and have them be replaced with PCIB’s manager’s checks as
in fact, Ford has no knowledge and did not authorize such. A bank (in this case PCIB) which cashes
a check drawn upon another bank (in this case Citibank), without requiring proof as to the identity of
persons presenting it, or making inquiries with regard to them, cannot hold the proceeds against the
drawee when the proceeds of the checks were afterwards diverted to the hands of a third party.
Hence, PCIB is liable for the amount of the embezzled check.
G.R. No. 128604
PCIB and Citibank are liable for the amount of the checks on a 50-50 basis.
As a general rule, a bank is liable for the negligent or tortuous act of its employees within the course
and apparent scope of their employment or authority. Hence, PCIB is liable for the fraudulent act of
its employee who set up the savings account under a fictitious name.
Citibank is likewise liable because it was negligent in the performance of its obligations with respect
to its agreement with Ford. The checks which were drawn against Ford’s account with Citibank
clearly states that they are payable to the CIR only yet Citibank delivered said payments to PCIB.
Citibank however argues that the checks were indorsed by PCIB to Citibank and that the latter has
nothing to do but to pay it. The Supreme Court cited Section 62 of the Negotiable Instruments Law
which mandates the Citibank, as an acceptor of the checks, to engage in paying the checks
according to the tenor of the acceptance which is to deliver the payment to the “payee’s account
only”.
But the Supreme Court ruled that in the consolidated cases, that PCIB and Citibank are not the only
negligent parties. Ford is also negligent for failing to examine its passbook in a timely manner which
could have avoided further loss. But this negligence is not the proximate cause of the loss but is
merely contributory. Nevertheless, this mitigates the liability of PCIB and Citibank hence the rate of
interest, with which PCIB and Citibank is to pay Ford, is lowered from 12% to 6% per annum.

Prudential Bank vs. Court of Appeals G.R. No. 125536, March 16, 2000
FACTS: Private respondent Leticia Tupasi-Valenzuela opened an account in the Petitioner Prudential
bank. On June 1, 1988, herein private respondent deposited P35,271.60 drawn against the Philippine
Commercial International Bank (PCIB). Thereafter, private respondent issued Prudential Bank check
in the amount of P11,500 post-dated June 20, 1988 in favor of one Belen Legaspi. Legaspi, who was
in jewelry trade, endorsed the check to Philip Lhuiller, a businessman in the same field. When the
check was deposited with the PCIB, it was dishonored for being drawn against insufficient funds.
Private respondent asked why her check was dishonored where there was sufficient funds. The bank
officer told her there was no need to review the passbook because the bank ledger was the best
proof that she did not have sufficient funds. Then he abruptly faced his typewriter and started typing.
Later, it was found out that the bank misposted private respondent’s check deposit to another
account and delayed the posting of the same to the proper account. The bank admitted that it was at
fault. But since it is not the first time that private respondent experienced this scenario, she
commenced a suit for damages.
ISSUE: Can damages be awarded to private respondent on account of the bank’s negligence ?
HELD: Yes. The trial court found “that the misposting is a clear proof of lack of supervision on the
part of the defendant bank”. The appellate court also found out that “while it may be true that the
bank’s negligence in dishonoring the properly funded check might not have been attended with
malice and bad faith, as appellee submits, nevertheless, it is the result of lack of due care and
caution expected of an employee of a firm engaged in so sensitive and accurately demanding task as
banking”.
In Simex International vs. CA, 183 SCRA 360,367 (1990), and BPI vs. IAC, 206 SCRA 408, this court
had occasion to stress the fiduciary nature of the relationship between a bank and its depositors and
the extent of diligence expected from the former in handling the accounts entrusted to its care.
In the case of PNB vs. CA, we held that “a bank is under obligation to treat the accounts of its
depositors with meticulous care whether such account consists only of a few hundred pesos or
millions of pesos. Responsibility arising from negligence in the performance of every kind of
obligation is demandable. While petitioner’s negligence in this case may not have been attended with
malice and bad faith, nevertheless, it caused serious anxiety, embarrassment and humiliation”. 

DEVELOPMENT BANK OF THE PHILIPPINES (DBP) vs. COURT OF APPEALS

FACTS
:The land in dispute, 19.4 has., was owned by Ulpiano Mumar since 1917. He sold it torespondent
Cajes in 1950 for which tax declarations wereissued in 1950, 1961, and1974.In 1969, unknown to
Cajes, Jose Alvarez obtained registration of a parcel of land withan area of 1,512,468 sq. m. in his
name, on June 16, 1969, which included the 19.4has. Occupied by Cajes.In 1972, Alvarez sold the
land to Sps. Beduya who, like Alvarez, were neverin possession of the property. Sps. Beduya then
obtained a loan from petitioner DBP(Development Bank of the Philippines) for P 526,000.00 and
mortgaged the land.In 1978, another mortgage over the land was executed by SAAD
InvestmentCorp. represented by G. Beduya and Sps. Beduya in favour of DBP for P 1.43 million.In
1985, mortgage on the property was foreclosed. In the foreclosure sale,DBP was the highest bidder.It
appears that respondent Cajes had also applied for a loan from DBP in1978, offering his 19.4 has. as
security for the loan which was approved. However,after the release of the loan, DBP found out that
the land mortgaged by Cajes wasincluded in the land mortgaged by the Sps. Beduya.Petitioner DBP
cancelled the loan & demanded payment from Cajes.Sometime in April of 1986, more than a year
after the foreclosure sale, a re-appraisalof the property covered by TCT No. 10101 was conducted by
petitioner’s
representatives. It was then discovered that private respondent Cajes was occupyinga portion of said
land. Private respondent Cajes wasinformed that petitioner had become the owner of the land he
wasoccupying, & he was asked to vacate the property. As private respondentrefused to do so,
petitioner filed a complaint for recovery of possession withdamages against him, invoking that it was
an innocent purchaser for value.The Regional Trial Court-Tagbilaran City rendered a decision
declaring
Page
24petitioner DBP the lawful owner of the entire land on the ground that thedecree of registration was
binding upon the land.The Court of Appeals reversed the RTC decision. Hence, this petition.
ISSUES
:1. Whether or not petitioner bank is a mortgagee in good faith?2. Whether or not petitioner bank can
can be considered an innocentpurchaser for value?
HELD
:No. At the time of the constitution of the mortgagee, the mortgageebankfailed to conduct an ocular
inspection. While an innocent mortgagee isnot expected to conduct an exhaustive investigation on
the history of the
mortgagor’s title, in the case of banking institutions, a mortgagee must
 exercise due diligence before entering into said contract. Judicial notice istaken of the standard
practice for banks, before approving a loan, to sendrepresentatives to the premises of the land
offered as collateral & toinvestigate who are the legal owners thereof. Banks, having been
impressedwith public interest, are expected to exercise more care & prudence thanprivate individuals
in their dealings, even those involving registered lands.Petitioner was already aware that a person
other than the registeredowner was in actual possession of the land when it bought the same at the
foreclosure sale. “A person who
 deliberately ignores a significant fact whichwould create a suspicion in an otherwise reasonable man
is not an innocent
purchaser for value.” It is a well
-settled rule that a purchaser cannot closehis eyes to facts which should put a reasonable man upon
his guard, & thenclaim that he acted in goof faith under the belief that there was no defect in
the title of the vendor.”
 Judgment AFFIRMED in toto.

CANLAS VS CA
FACTS: 
 August, 1982: Osmundo S. Canlas executed a Special Power of Attorney authorizing Vicente
Mañosca to mortgage 2 parcels of land situated in BF Homes Paranaque in the name of his wife
Angelina Canlas.  
 Subsequently, Osmundo Canlas agreed to sell the lands to Mañosca for P850K, P500K
payable within 1 week, and the balance serves as his investment in the business.  Mañosca
issued 2 checks P40K and P460K.  The P460K lacked sufficient funds. 
 September 3, 1982: Mañosca mortgage to Atty. Manuel Magno the parcels of lands for
P100K with the help of impostors who misrepresented themselves as the Spouses Canlas.
 September 29, 1982: Mañosca was granted a loan by the respondent Asian Savings Bank
(ASB) for P500K with the parcels of land as security and with the help of the same impostors.
The loan was left unpaid resulting in a extrajudicially foreclosure on the lots.
 January 15, 1983: Canlas wrote a letter informing ASB that the mortgage was without their
authority.  He also requested the sheriff Contreras to hold or cancel the auction.  Both parties
refused.
 The spouses Canlas filed a case for annulment of deed of real estate mortgage with prayer for
the issuance of a writ of preliminary injunction
 RTC: restrained the sheriff from issuing a Certificate of Sheriff’s Sale and annulled the
mortgage
 CA: reversed holding Canlas estopped for coming to the bank with Mañosca and letting
himself be introduced as Leonardo Rey
ISSUE: W/N the ASB had was negligent due to the doctrine of last clear chance
HELD: YES. Petition is GRANTED
 Article 1173. The fault or negligence of the obligor consist in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances of the
persons, of the time and of the place. When negligence shows bad faith, the provisions of articles
1171 and 2201, paragraph 2, shall apply
 The degree of diligence required of banks is more than that of a good father of a family
 not even a single identification card was exhibited by the said impostors to show their
true identity
 acted simply on the basis of the residence certificates bearing signatures which tended
to match the signatures affixed on a previous deed of mortgage to Atty. Magno
 previous deed of mortgage did not bear the tax account number of the
spouses as well as the Community Tax Certificate of Angelina Canlas 
 doctrine of last clear chance 
 where both parties are negligent but the negligent act of one is appreciably later in point
of time than that of the other, or where it is impossible to determine whose fault or negligence
brought about the occurrence of the incident, the one who had the last clear opportunity to avoid
the impending harm but failed to do so, is chargeable with the consequences arising therefrom
 the antecedent negligence of a person does not preclude recovery of damages caused
by the supervening negligence of the latter, who had the last fair chance to prevent the impending
harm by the exercise of due diligence
 Antecedent Negligence: Osmundo Canlas was negligent in giving Vicente Mañosca the
opportunity to perpetrate the fraud, by entrusting him the owner's copy of the transfer certificates
of title of subject parcels of land
 Supervening Negligence: Failing to perform the simple expedient of faithfully complying with
the requirements for banks to ascertain the identity of the persons transacting with them - ASB
bears the loss
 Canlas went to ASB with Mañosca and he was introduced as Leonardo Rey.  He didn't
correct Mañosca.  However, he did not know that the lots were being used as a security for he
was there to make sure that Mañosca pays his debt so he cannot be estopped from assailing the
validity of the mortgage 
 But being negligent in believing the misrepresentation by Mañosca that he had other lots and
that the lot were not to be used as a security, Canlas was negligent and undeserving of Attorney's
fees.
 the contract of mortgage sued upon was entered into and signed by impostors who
misrepresented themselves as the spouses Osmundo Canlas and Angelina Canlas = complete
nullity

SERRANO V. CENTRAL BANK OF THE PHILIPPINES

Petitioner
: The petitioner claimed to establish joint andsolidary liability to the amount of Php350,000.00 with
interestagainst respondent and its stockholders on the failure to returnthe time deposits on the
ground that the
respondent CentralBank failed in its duty to exercise strict supervision overOverseas Bank of Manila t
o protect depositors and generalpublic.
Respondent:
Central Bank claimed that it is not guarantor of thepermanent solvency of an banking institution. Cent
ral Bankdenied that a constructive trust was created in favor of thepetitioner
and his predecessor in interest Concepcion Manejawhen their time deposits were made with Overse
as Bank of Manila.IV.OBJECTIVES OF THE
PARTYPetitioner:The petitioner sought to recover time deposits withan amount of
Php350,000.00 including interests due thereinfrom respondent Overseas Bank of Manila and
recovery of damages against respondent Central Bank by virtue of constructive
trust.Respondent:The respondent sought to be relieved in paying damagesdue to the petitioner’s
claim as during that time Overseas Bankof Manila was not an insolvent bank.V.KEY FACTSManuel
Serrano made a time deposit, for one year with 6%interest of One Hundred Fifty Thousand Pesos
with the RespondentOverseas Bank of Manila. Concepcion Maneja also made a timedeposit, for one
year with 6-1/2% interest, of Two Hundred ThousandPesos on the same respondent Overseas Bank
of Manila.
 
Concepcion MAneja, then married,
assigned and conveyed topetitioner Manuel Serrano, her time deposit of Php200,000.00.Notwithstan
ding series of demands for encashment of theaforementioned time deposit from the respondent
Overseas Bank of Manila, not a single one of the time deposit certificates was honored byrespondent
Overseas Bank of Manila.Respondent Central Bank dissolve and liquidated the OverseasBank
of Manila. The former denied that it is a guarantor of
thepermanent solvency of any banking institution as claimed by thepetitioner. Respondent Central
Bank avers no knowledge of petitionersclaim that the properties given by the respondent Overseas
Bank of Manila as additional collaterals to the respondent Central Bank of
thePhilippines for the former’s overdrafts and emergency loans wereacquired from the depositor’s
money including the time deposits of thepetitioner.Hence, this petition.
VI.ISSUEWhether or not the respondents are jointly and solidary liablefor damages due to breach of
trust.
VII.HOLDINGS. The Court held that both respondent banks was not givenpreliminary injunction with r
espect to the acts of the respondentCentral Bank.VIII. RATIO DECIDENDIBoth parties overlooked
the fundamental principle in the natureof bank deposits when the petitioner claimed that there should
becreated a constructive trust in his favor when the respondent OverseasBank of Manila increased
the collaterals in favor of the
respondentCentral Bank of the Philippines for the former’s overdrafts andemergency loans, since
these collaterals were acquired by the use of depositor’s money.Bank deposits are in nature of
irregular deposits. They are reallyloans because they earn interest. All kinds of bank deposits,
whetherfixed, savings or current are to be treated as loans and are to becovered by the loans.
Current and savings deposits are loans to a bankbecause it can use the same. The petitioner here in
the making timedeposits that earn interests with respondent Overseas Bank of Manilawas in reality a
creditor of the respondent bank and not a depositor. The respondent bank was in turn a debtor
of petitioner. Failure of therespondent bank to honor the time deposit is failure to pay obligationas a
debtor and not a breach of trust arising from depository’s failureto return the subject matter of the
deposit.
IX.DISPOSITION The petition is dismissed for lack of merit, with costs against thepetitioner.

CA Agro-Industrial Development Corporation vs CA GR No. 90027. March 3, 1993

Facts:
                   CA Agro (through its President, Aguirre) and spouses Pugao entered into an agreement
whereby the former purchased two parcels of land for P350, 525 with a P75, 725 down payment
while the balance was covered by three (3) postdated checks. Among the terms embodied in a
Memorandum of True and Actual Agreement of Sale of Land were that titles to the lots shall be
transferred to the petitioner upon full payment of the purchase price and that the owner’s copies of
the certificates of titles thereto shall be deposited in a safety deposit box of any bank. The same
could be withdrawn only upon the joint signatures of a representative of the petitioner upon full
payment of the purchase price. They then rented Safety Deposit box of private respondent Security
Bank and Trust Company (SBTC). For this purpose, both signed a contract of lease which contains
the following conditions:
13. The bank is not a depositary of the contents of the safe and it has neither the possession nor
control of the same.
14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it
assumes absolutely no liability in connection therewith.

After the execution of the contract, two (2) renter’s key were given to Aguirre, and Pugaos. A key
guard remained with the bank. The safety deposit box has two key holes and can be opened with the
use of both keys. Petitioner claims that the CTC were placed inside the said box.

Thereafter, a certain Mrs. Ramos offered to buy from the petitioner the two (2) lots at a price of P225
per sqm. Mrs. Ramose demanded the execution of a deed of sale which necessarily entailed the
production of the CTC. Aguirre and Pugaos then proceeded to the bank to open the safety deposit
box. However, when opened in the presence of bank’s representative, the box yielded no certificates.
Because of the delay in reconstitution of title, Mrs. Ramos withdrew her earlier offer and as a
consequence petitioner failed to realize the expected profit of P280 , 500. Hence, the latter filed a
complaint for damages.
RTC: Dismissed the complaint
CA: Affirmed

Issue:
          Whether or not the contractual relation between a commercial bank and another party in the
contract of rent of a safety deposit box is one of bailor and bailee.

Ruling:
          Yes.
          The contract in the case at bar is a special kind of deposit. It cannot be characterized as an
ordinary contract of lease under Article 1643 because the full and absolute possession and control of
the safety deposit box was not given to the joint renters – the petitioner and Pugaos.
          American Jurisprudence:
          The prevailing rule is 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 bail or bailee, the bailment being for hire
and mutual benefit.

          Our provisions on safety deposit boxes are governed by Section 72 (a) of the General Banking
Act, and this primary function is still found within the parameters of a contract of deposit like 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. Thus, depositary’s liability is governed by our civil code rules on obligation and contracts,
and thus the SBTC would be liable if, in performing its obligation, it is found guilty of fraud,
negligence, delay or contravention of the tenor of the agreement.

G.R. No. 138544 October 3, 2000
SECURITY BANK AND TRUST COMPANY, Inc., vs. RODOLFO M. CUENCA,
petitioner bank cannot hold herein respondent liable for loans obtained in excess of the amount or
beyond the period stipulated in the original agreement, absent any clear stipulation showing that the
latter waived his right to be notified thereof, or to give consent thereto.
FACTS:
Defendant-
appellant Sta. Ines Melale (‘Sta. Ines’/SIMC) is a corporation engaged in logging operations. It was a
holder of a Timber License Agreement issued by the DENROn 10 November 1980, Security Bank
and Trust Co. granted appellant Sta. Ines a credit line in the amount of (P8,000,000.00) effective til
November 30, 1981 to assist the latter in meeting the additional capitalization requirements of 
its logging operations.To secure payment, it executed a chattel mortgage over some of its
machineries and equipments. And as an additionalsecurity, its President and Chairman of the Board
of Directors Rodolfo Cuenca, executed an Indemnity agreement in favor of Security Bank whereby he
bound himself jointly and severally with Sta. Ines.Specific stipulations:
The bank reserves the right to amend any of the aforementioned terms and conditions upon written
notice to theBorrower.
As additional security for the payment of the loan, Rodolfo M. Cuenca executed an Indemnity
Agreementdated 17 December 1980 solidary binding himself:
‘Rodolfo M. Cuenca x x x hereby binds himself x x x jointly and severally
with the client (SIMC) in favor of thebank for the payment, upon demand and without the benefit of
excussion of whatever amount x x x the client maybe indebted to the bank x x x by virtue of aforesaid
credit accommodation(s) including the substitutions,renewals, extensions, increases,
amendments, conversions and revivals of the aforesaid credit
accommodation(s) x x x .’
1985: Cuenca resigned as President and Chairman of the Board of Directors of defendant-appellant
Sta. Ines.Subsequently, the shareholdings of Cuenca in Sta. Ines were sold at a public auction to
Adolfo Angala. Before and after this, Sta Ines availed of its credit line.Sta Ines encountered difficulty
in making the amortization payments on its loans and requested SBTC for a complete restructuring
of its indebtedness. SBTC accommodated SIMC’s request and signified its approval in a letter
dated
18February 1988 wherein SBTC and Sta. Ines, without notice to or the prior consent of ] Cuenca,
agreed to restructure thepast due obligations of defendant-appellant Sta. Ines. To formalize their
agreement to restructure the loan obligations of Sta. Ines, Security Bank and Sta. Ines executed a
Loan Agreement dated 31 October 1989 ‘Sta Ines made payments up to (P1,757,000.00) The
defaulted in the payment of its restructured loan obligations to SBTCdespite demands made upon
appellant SIMC and CUENCA,SBTC filed a complaint for collection of sum of resulting after trial on
the merits in a decision by the court a quo, fromwhich Cuenca appealedCA: Released Cuenca from
liability because 1989 Loan Agreement novated the 1980 credit accommodation whichextinguished
the Indemnity Agreement for which Cuenca was liable solidarily. No notice/consent to restructure.
Since withexpiration date, liable only up to that date and up to that amount (8M). Amounted to
extension.of time with no notice tosuret therefore released from liability.
ISSUES:
(a) whether the 1989 Loan Agreement novated the original credit accommodation and Cuenca’s
liability under theIndemnity Agreement YES(b) whether Cuenca waived his right to be notified of and
to give consent to any substitution, renewal, extension, increase,amendment, conversion or revival of
the said credit accommodation. NO

Security Bank vs Makati RTC

In 1983, Eusebio acquired 3 separate loans from Security Bank amounting to P265k. The agreed
interest rate was 23% per annum. The promissory note was freely and voluntarily signed by both
parties. Leia Ventura was the co-maker. Eusebio defaulted from paying. Security Bank sued for
collection. Judge Gorospe of the Makati RTC ordered Eusebio to pay but he lowered the interest rate
to 12% per annum.
ISSUE: Whether or not the courts have liberality to reduce stipulated interest rates to the legal rate of
12% per annum.
HELD: No. From the examination of the records, it appears that indeed the agreed rate of interest as
stipulated on the three (3) promissory notes is 23% per annum.  The applicable provision of law is
the Central Bank Circular No. 905 which took effect on December 22, 1982:
Sec. 1. The rate of interest, including commissions, premiums, fees and other charges, on a loan or
forbearance of any money, goods or credits, regardless of maturity and whether secured or
unsecured, that may be charged or collected by any person, whether natural or judicial, shall not be
subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.
Only in the absence of stipulations will the 12% rate be applied or if the stipulated rate is grossly
excessive.
Further, Eusebio never questioned the rate. He merely expressed to negotiate the terms and
conditions. The promissory notes were signed by both parties voluntarily. Therefore, stipulations
therein are binding between them.