BANKING LAWS

CASE DIGEST COMPILATION

SUBMITTED TO
Atty. Lorevill Pinoon-Fontanilla

SUBMITTED BY
Audrey Kristina V. Maypa
Chapter II - General Banking Law

A. Declaration of Policy
(1) Consolidated Bank v. CA & Diaz, G.R. No. 138569. Sept. 11, 2003
(2) PNB v. CA, G.R. No. 127469, Jan. 15, 2004
(3) PNB v. Pike, G.R. No. 157845, Sept. 20, 2005
(4) BPI v. Lifetime Marketing, G.R. No. 176434, June 25, 2008
(5) BPI v. Casa Montessori, G.R. No. 149454, May 28, 2004
(6) Central Bank vs. Citytrust Bank, G.R. No. 141835, Feb. 4, 2009

B. Nature of Bank Funds and Deposits

(1) Allied Bank vs. Lim Sio Wan, G.R. No. 133179, March 27, 2008
(2) Associated Bank vs. Tan, G.R. No. 156940, Dec. 14, 2004

C. Capital Expenditure Limit

(1) Benguet Management vs. Keppel Bank, G.R. No. 153571, Sept. 18, 2003
(2) San Fernando Rural Bank vs. Pampanga, G.R. No. 168088, April 3, 2007

D. Restrictions on Bank Exposure to Directors, Officers, Sockholders and

their Related Interests (DOSRI)
(1) Go vs. BSP, G.R. No. G.R. No. 178429, October 23, 2009
(2) Soriano vs. BSP, G.R. No. 162336, Feb. 1, 2010
 CONSOLIDATED BANK v. CA & DIAZ
G.R. No. 138569, Sept. 11, 2003
CARPIO, J.

FACTS:
LC Diaz filed a complaint for recovery of sum of money against Solidbank after the
latter refused to return the money of LC Diaz. When the messenger of LC Diaz
deposited an amount to the bank, he left the passbook to the teller. When he got back
to get the passbook, he was advised that the same was retrieved by somebody else.

As a result, there had been an unauthorized withdrawal of P300,000 against LC Diaz’s

account. The withdrawal slip bore the signatures of the authorized signatories of LC
Diaz.

RTC absolved the bank by applying the rules on savings account written on the
passbook. It states that possession of the book shall raise the presumption of
ownership and any payments made by the bank upon the production of said book and
entry therein of the withdrawal shall have the same effect as if made to the depositor
personally. It held that LC Diaz’s negligence cause the unauthorized withdrawal.

CA, on the other hand, ruled that Solidbank’s negligence was the proximate cause of
the unauthorized withdrawal. It ruled that while LC Diaz was negligent in entrusting its
deposits to its messenger and in leaving the passbook with the teller, Solidbank cannot
escape liability because of the doctrine of last clear chance. It further ruled that the
degree of diligence required from Solidbank is more than that of a good father of a
family.

ISSUE: Whether or not Solidbank is liable.

RULING: Yes, the bank 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 Code on simple loan. There is a debtor-creditor relationship
between the bank and its depositor. However, the fiduciary nature of a bank-depositor
does not convert the contract between the bank and its depositors from a simple loan
to a trust agreement whether express or implied.

Solidbank tellers must exercise a high degree of diligence in insuring that they return
the passbook only to the depositor or his authorized representative. Solidbank is
bound by the negligence of its employees under the principle of respondent superior
or command responsibility.

Solidbank is liable for breach of contract due to negligence in the performance of its
contractual obligation to LC Diaz. This is a case of culpa contractual, where neither
the contributory negligence of the plaintiff nor his last clear chance to avoid the loss,
would exonerate the defendant from liability. Such contributory negligence or last clear
chance by the plaintiff merely serves to reduce the recovery of damages by the plaintiff
but does not exculpate the defendant from his breach of contract.
 PNB v. CA
G.R. No. 127469, Jan. 15, 2004
CALLEJO, SR., J.

FACTS: Marcos filed in court a complaint for sum of money with damages against
Phil. Banking Corporation (PBC). Marcos allegedly made a time deposit in 2 occasions
the amt. of P664,897.67 and P764,897.67 through the persuasion of his friend
Pagsaligan, one of the bank’s officials. The bank issued receipt for the first deposit
while a letter-certification was issued for his second deposit by Pagsaligan. Pagsaligan
kept the various time deposit certificates. Marcos claimed that from the time of the
deposit, he had not received the principal amount or its interest.

When Marcos wanted to withdraw his time deposit and its accumulated interest
Pagsaligan convinced him to keep his time deposits intact and instead to open several
letters of credit to the bank by executing 3 trust receipts agreement. Since Marcos
trusted the Bank and Pagsaligan, he signed blank forms for domestic letter of credits,
trust receipts agreements and promissory notes. He was required to deposit 30% of
the total amount of credit and his time deposit will secure the remaining 70% of the
letters of credit. He is now accusing the bank for unjustly collecting payment without
deducting the 30% of his down payment and charging him with accumulating interests
since his time deposit serves as collateral for his remaining obligation. He further
denied making a loan of P500,000 with 25% interest per annum covered by a
promissory note produced by the bank.

ISSUE: Whether or not PNB failed to take a proper account on Marcos’ deposits and
payment of his loans.

RULING: Yes, the bank is liable for offsetting the time deposit of Marcos to the fictitious
promissory note for the 500,000 loan. The Supreme Court upheld the findings of the
lower court on the discrepancies shown by the machine copy of the duplicate of the
promissory note and the suspicious claim of the bank that it could not produce the
original copy thereof. The mere machine copy of the document has no evidentiary
value before the court. The court held that the Bank did not forge the promissory note.
Pagsaligan did to cover up his failure to give the proper account of Marcos’ time
deposits. This however does not excuse the Bank to return to Marcos the correct
amount of his time deposit with interest. Bank has the fiduciary duty before its clients.
The fiduciary nature of banking requires banks to assume a degree higher than that
of a good father of a family. By the nature of its business, the Bank should have had
in its possession the copies of the disputed promissory note and the records and
ledgers evidencing the offsetting of the loan with the time deposits of Marcos. The
Bank inexplicably failed to produce the original copies of these documents. Clearly,
the Bank failed to treat the account of Marcos with meticulous care.

Assuming Pagsaligan is responsible for the spurious promissory note the court held
that a Bank is liable for the wrongful acts of its officers. A banking corporation is liable
to innocent third persons where the representation is made in the course of its
business by an agent acting within the general scope of his authority even though, in
the particular case, the agent secretly abusing his authority and attempting to
perpetrate a fraud upon his principal or some other person.
 PNB v. PIKE
G.R. No. 157845, Sept. 20, 2005
CHICO-NAZARIO, J.

FACTS: Pike, a gay entertainer, opened a dollar account at PNB Buendia branch for
which he was issued a passbook. Before leaving for abroad, Pike verbally authorized
AVP of PNB Buendia branch, Lorenzo Bal, to honor all withdrawal that will be made
by Davasol, talent manager, who will be presenting a pre-signed withdrawal slip
bearing Pike’s signature. Subsequently, the passbook was stolen in his house by his
talent manager Joy Davasol who made 2 unauthorized withdrawals. After knowing the
incident, Pike demanded the total withdrawn amount on the ground that he never
authorized anyone to withdraw from his account and signatures presented on
withdrawal slips was forgeries. Pike through his counsel, demanded the bank to credit
back the amount of unauthorized withdrawal on the ground that signatures was forged.
Pike in a letter to PNB prayed to lift the hold order that her sister made and allow her
to withdraw the remaining balance of the account provided that he will not hold PNB
responsible for the unauthorized withdrawal which was then approved by PNB on the
same date. On the other hand, PNB contends that they exercised due diligence of a
good father of a family in handling the transactions and cannot grant the request of
pike for refund. Plaintiff’s counsel denied that petitioner made a promise not to hold
PNB responsible for unauthorized withdrawal which was answered by PNB stating that
the withdrawal of remaining balance barred the claim of petitioner for unauthorized
withdrawals.

ISSUE: Whether or not PNB is negligent in accommodating the pre-signed deposit

slip presented by Davasol.

RULING: Yes, banks can allow withdrawal by representative provided that said
representative was authorized and the signature of the principal is secured on the
space for such transaction. The signature of Pike was misplaced and still it wasn’t
corrected by Bal. PNB approved the withdrawal slip presented by Davasol without
taking any precautions regarding its authenticity. The admitted withdrawal slips do not
constitute the normal procedure with respect to withdrawals of representatives. PNB
alleged that they observed diligence of a good father of a family but according to the
jurisprudence, the bank is obliged to treat the account of depositors with meticulous
care always having in mind its fiduciary nature which then makes the degree of
diligence more than ordinary diligence.
 BPI v. LIFETIME MARKETING
G.R. No. 176434, June 25, 2008
TINGA, J.

FACTS: Lifetime Marketing Corporation opened a current account with the BPI. In this
account, the "sales agents" of LMC would have to deposit their collections or payments
to the latter. As a result, LMC and BPI, made a special arrangement that the former's
agents will accomplish 3 copies of the deposit slips, the third copy to be retained and
held by the teller until LMC's authorized representatives, Mrs. Virginia Mongon and
Mrs. Violeta Ancajas, shall retrieve them on the following banking day.

A certain Alice Laurel deposited several checks in favor of respondent. The deposit of
these checks was later reversed upon request by Laurel. In turn, the amount that was
supposed to be credited to respondent was cancelled. The above fraudulent
transactions of Laurel were made possible through BPI tellers’ failure to retrieve the
duplicate original copies of the deposit slips from the former, every time they ask for
cancellation or reversal of the deposit or payment transaction. LMC then filed a
complaint for damages against BPI.

ISSUE: Whether or not BPI is liable.

RULING: Yes, the Supreme Court have repeatedly emphasized that the banking
industry is impressed with public interest. Of paramount importance thereto is the trust
and confidence of public in general. Accordingly, the highest degree of diligence is
expected, and high standards of integrity and performance are required of it. By the
nature of its functions, a bank is under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of its relationship with
them.
 BPI v. CASA MONTESSORI
G.R. No. 149454, May 28, 2004
TINGA, J.

FACTS: CASA filed a complaint for collection with damages against BPI after it
discovered that nine checks had been encashed by a certain Sonny Santos in the total
amount of P782,000.00. It turned out that 'Sonny D. Santos' with account at BPI's
Greenbelt Branch was a fictitious name used by third party defendant Leonardo T.
Yabut who worked as external auditor of CASA. Third party defendant voluntarily
admitted that he forged the signature of Ms. Lebron and encashed the checks. RTC
ruled in favor of CASA. However, on appeal, the CA apportioned the loss between BPI
and CASA. It took into account CASA’s contributory negligence that resulted in the
undetected forgery.

ISSUE: Whether or not BPI is liable.

RULING: Yes, the Supreme Court have repeatedly emphasized that, since the
banking business is impressed with public interest, of paramount importance thereto
is the trust and confidence of the public in general. Consequently, the highest degree
of diligence is expected, and high standards of integrity and performance are even
required, of it. By the nature of its functions, a bank is "under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship."

BPI contends that it has a signature verification procedure, in which checks are
honored only when the signatures therein are verified to be the same with or similar to
the specimen signatures on the signature cards. Nonetheless, it still failed to detect
the eight instances of forgery. Its negligence consisted in the omission of that degree
of diligence required of a bank. It cannot now feign ignorance, for very early on we
have already ruled that a bank is "bound to know the signatures of its customers; and
if it pays a forged check, it must be considered as making the payment out of its own
funds, and cannot ordinarily charge the amount so paid to the account of the depositor
whose name was forged." In fact, BPI was the same bank involved when we issued
this ruling seventy years ago.
 CENTRAL BANK v. CITYTRUST BANK
G.R. No. 141835, Feb. 4, 2009
CARPIO MORALES, J.

FACTS: Citytrust Bank filed a complaint for recovery of sum of money with damages
against petitioner which it alleged erred in encashing the checks and in charging the
proceeds thereof to its account, despite the lack of authority of Cayabyab. It appears
that a certain Flores encashed a check and signed by the name of Cayabyab. Central
Bank then debited the amount against Citytrust.

RTC ruled that both parties were negligent and accordingly held them liable for the
loss. CA affirmed the trial court’s decision and noted that while respondent failed to
take adequate precautionary measures to prevent the fraudulent encashment of its
checks, petitioner was not entirely blame-free in light of its failure to verify the signature
of Citytrust’s agent authorized to receive payment.

ISSUE: Whether or not Central Bank is liable.

RULING: Yes, Central Bank teller Iluminada did not verify Flores signature on the
flimsy excuse that Flores had had previous transactions with it for a number of years.
That circumstance did not excuse the teller from focusing attention to or at least
glancing at Flores as he was signing, and to satisfy herself that the signature he had
just affixed matched that of his specimen signature. Had she done that, she would
have readily been put on notice that Flores was affixing, not his but a fictitious
signature.

However, Citytrust’s failure to timely examine its account, cancel the checks and notify
petitioner of their alleged loss/theft should mitigate Cent liability, in accordance with
Article 2179 of the Civil Code which provides that if the plaintiffs negligence was only
contributory, the immediate and proximate cause of the injury being the defendants
lack of due care, the plaintiff may recover damages, but the courts shall mitigate the
damages to be awarded. Citytrust timely discovered the loss/theft and/or subsequent
encashment, their proceeds or part thereof could have been recovered.
 ALLIED BANKING CORP. v. LIM SIO WAN
G.R. No. 133179, March 27, 2008
VELASCO, JR., J.

FACTS: Lim deposited with Allied a money market placement of P1,152,597.35 for a
term of 31 days to mature on December 15, 1983. On Dec. 5, 1983, a person claiming
to be Lim called up an officer of Allied, and instructed to pre-terminate Lim’s money
market placement, to issue a manager’s check representing the proceeds of the
placement, and to give the check to one Deborah Dee Santos who would pick up the
check. The bank issued Manager’s Check representing the proceeds of Lim’s money
market placement in the name of the latter, as payee. The check was cross-checked
“For Payee’s Account Only” and given to Santos.

Thereafter, the manager’s check was deposited in the account of Filipinas Cement
Corporation (FCC) at Metrobank with the forged signature of Lim as indorser. Prior to
the aforesaid event, on Sept. 21, 1983, FCC had deposited a money market placement
for P2M with Producers Bank. Santos was the money market trader assigned to
handle FCC’s account When the placement matured, FCC demanded the payment of
the proceeds of the placement.

On December 14, 1983, upon the maturity date of the first money market placement,
Lim went to Allied to withdraw it. She was then informed that the placement had been
pre-terminated upon her instructions. She denied giving any instructions and receiving
the proceeds. Lim sent a demand letter to Allied asking for the payment of the
placement. Allied refused to pay, claiming that the latter had authorized the pre-
termination and its subsequent release to Santos. Lim filed with the RTC a complaint
against Allied to recover the proceeds of money market placement.

ISSUE: Whether or not Allied Banking Corp. is liable.

RULING: Yes, the Supreme Court ruled in a line of cases that a bank deposit is in the
nature of a simple loan or mutuum.

In the instant case, the trial court correctly found Allied negligent in issuing the
manager’s check and in transmitting it to Santos without even a written authorization.
In fact, Allied did not even ask for the certificate evidencing the money market
placement or call up Lim at her residence or office to confirm her instructions. Both
actions could have prevented the whole fraudulent transactions. Allied’s negligence
must be considered as the proximate cause of the resulting loss. To reiterate, had
Allied exercised the diligence due from a financial institution, the check would not have
been issued and no loss of funds would have resulted. In fact, there would have been
no issuance of indorsement had there been no check in the first place.The liability of
Allied, however, is concurrent with that of Metrobank as the last indorser of the check.
When Metrobank indorsed the check in compliance with the PCHC Rules and
Regulations without verifying the authenticity of Lim’s indorsement and when it
accepted the check despite the fact that it was cross-checked payable to payee’s
account only, its negligent indorsement contributed to the easier release of Lim’s
money and perpetuation of the fraud.
 ASSOCIATED BANK v. TAN
G.R. No. 156940, Dec. 14, 2004
PANGANIBAN, J.

FACTS: Tan is a businessman and a regular depositor-creditor of the Associated

Bank. Sometime in September 1990, he deposited a postdated check with the
petitioner in the amount of P101,000 issued to him by a certain Willy Cheng from
Tarlac. The check was duly entered in his bank record. Allegedly, upon advice and
instruction of Associated Bank that the P101,000 check was already cleared and
backed up by sufficient funds, respondent, on the same date, withdrew the sum of
P240,000 from his account leaving a balance of P57,793.45. A day after, Tan
deposited the amount of P50,000 making his existing balance in the amount of
P107,793.45, because he has issued several checks to his business partners.
However, his suppliers and business partners went back to him alleging that the
checks he issued bounced for insufficiency of funds. Thereafter, Tan informed the
bank to take positive steps regarding the matter for he has adequate and sufficient
funds to pay the amount of the subject checks. Nonetheless, petitioner did not bother
nor offer any apology regarding the incident. Tan filed a Complaint for Damages on
December 19, 1990, with the RTC against petitioner bank. The trial court rendered a
decision in favor of respondent and ordered petitioner to pay damages and attorney’s
fees. Appellate court affirmed the lower court’s decision. CA ruled that the bank should
not have authorized the withdrawal of the value of the deposited check prior to its
clearing.

ISSUE: Whether or not Associated Bank has the right to debit the account of its
client for a check deposit which was dishonored by the drawee bank.

RULING: Yes, but the case ultimately revolves around the issue of whether the bank
properly exercised its right to setoff.

It is undisputed that purportedly as an act of accommodation to a valued client,

Associated Bank allowed the withdrawal of the face value of the deposited check prior
to its clearing. That act certainly disregarded the clearance requirement of the banking
system. Such a practice is unusual, because a check is not legal tender or money;
and its value can properly be transferred to a depositor’s account only after the check
has been cleared by the drawee bank.
 BENGUET MANAGEMENT v. CA and Keppel Bank
G.R. No. 153571, Sept. 18, 2003
YNARES-SANTIAGO, J.

FACTS: Benguet Management Corporation and Keppel Bank Philippines, Inc. (KBPI),
acting as trustee of the other respondent banks, entered into a Loan Agreement and
Mortgage Trust Indenture (MTI) whereby BMC, in consideration of the syndicated loan
of P190,000,000.00, constituted in favor of KBPI a mortgage on several lots located in
Alaminos, Laguna and Iba, Zambales. On September 28, 2001, for failure of BMC to
pay in full the installments due on the Loan Agreement and Mortgage Trust Indenture,
KBPI filed an application for extra-judicial foreclosure of mortgage before the Office of
the Clerk of Court of the RTC of Iba, Zambales. On February 6, 2002, despite several
contention from BMC, KBPI’s application for extra-judicial foreclosure of mortgage was
found to be sufficient in form and substance, and was granted. Hence, BMC filed a
petition for certiorari with the Court of Appeals. In its Resolution dated April 5, 2002,
the Court of Appeals denied BMC’s prayer to restrain the consolidation of title in the
name of KBPI. BMC filed a motion for reconsideration claiming, among others, that
Section 47 of the General Banking Act (Republic Act No. 8791), which reduced the
period of redemption for extra-judicially foreclosed properties of juridical persons from
one year to until, but not after, the registration of the certificate of foreclosure sale
which in no case shall be more than three (3) months after foreclosure, whichever is
earlier," is unduly discriminatory and therefore unconstitutional. On May 28, 2002, the
Court of Appeals denied BMC’s motion for reconsideration. Hence, BMC filed the
instant petition, raising the issue among others that the new law (General Banking Law
of 2000) abrogating the right to one-year redemption period of corporate mortgagors
is unconstitutional.

ISSUE: Whether or not the General Banking Law of 2000 is constitutional.

RULING: The resolution of the constitutionality of Section 47 of the General Banking

Act is not the very lis mota of the controversy: (1) Anent the constitutional issue raised
by BMC, we have repeatedly held that the constitutionality of a law may be passed
upon by the Court, where there is an actual case and that the resolution of the
constitutional question must be necessary in deciding the controversy.

In this case, the resolution of the constitutionality of Section 47 of the General Banking
Act which reduced the period of redemption of extra-judicially foreclosed properties of
juridical persons is not the very lis mota of the controversy. BMC is not asserting a
legal right for which it is entitled to a judicial determination at this time inasmuch as it
may not even be entitled to redeem
the foreclosed properties. Until an actual controversy is brought to test the
constitutionality of Republic Act No. 8791, the presumption of validity, which inheres
in every statute, must be accorded to it.
 SAN FERNANDO RURAL BANK v. PAMPANGA
G.R. No. 168088, April 3, 2007
CALLEJO, SR., J.

FACTS: PODC was the registered owner of a parcel of land in San Fernando,
Pampanga. PODC secured two loans from SAFER Bank and Masantol Rural Bank,
Inc. To secure payment of the loans, PODC executed a real estate mortgage over the
subject lot in favor of the creditor banks. The contract provided that in case of failure
or refusal of the mortgagor to pay the obligation secured thereby, the real estate
mortgage may be extrajudicially foreclosed in accordance with Act No. 3135, as
amended. Eliza M. Garbes (PODC President), together with her husband Aristedes
Garbes, secured a P950,000.00 loan from SAFER Bank. Upon PODC's failure to pay
its loan to SAFER Bank, the latter filed a petition for extrajudicial foreclosure of real
estate mortgage and at the auction, SAFER Bank emerged as the winning bidder for
P1,245,982.05. On May 11, 2002, PODC executed a notarized deed of assignment in
favor of Dominic G. Aquino over its right to redeem the property. Aquino offered to
redeem the property for P1,588,094.28, but SAFER Bank rejected the offer and
demanded the payment of P16,805,414.71 redemption money. Aquino rejected the
demand of SAFER Bank. Aquino remitted P1,588,094.28 to the Ex-Officio Sheriff as
redemption money for the property. The Ex-Officio Sheriff computed the redemption
price (based on the General Banking Act and The Rural Bank Act of 1992 R.A. No.
7353) to be P5,194,742.50. When Aquino was apprised of this, he remitted on June
7, 2002 the remaining balance. The Ex-Officio Sheriff then informed SAFER Bank that
Aquino had redeemed the property and requested SAFER Bank, to turn over the
owner's duplicate before the redemption price of P5,194,742.50 would be remitted.
However, SAFER Bank refused to do so.

ISSUE: Whether or not Aquino had lawfully redeemed the property as provided in
Section 47 of R.A. No. 8791.

RULING: The Court did not resolve the issue. The threshold issue between SAFER Bank
and Aquino in the RTC was the correct amount of redemption money under Section 47 of
R.A. No. 8791. Aquino had the right to file an action against SAFER Bank in the RTC in
the exercise of its general jurisdiction to enforce redemption within the redemption period
to preserve its right to redeem the foreclosed property. It bears stressing that the
controversy between the parties relates to the precise amount of redemption: SAFER
Bank contended that, under the real estate mortgage executed by PODC in its favor, the
loan account of the spouses Garbes was secured by the property covered by said deed;
on the other hand, PODC and Aquino averred that only the loan account of PODC was
secured by the mortgage of its property. Indeed, the parties could have raised the issue
of the redemption period under the second paragraph of Section 47 of R.A. No. 8791. The
ministerial duty of the RTC to issue a writ of possession does not become discretionary
simply because the Register of Deeds had elevated in consulta to the LRA the question
of whether the Torrens title should be issued in favor of SAFER Bank whose Affidavit of
Consolidation was registered in the Office of the Register of Deeds, or in favor of Aquino
who claimed to have redeemed the property on June 7, 2002 as gleaned from the
Certificate of Redemption of the Ex-Officio Sheriff but registered only on June 17, 2002.
Aquino claimed to have redeemed the property with the correct redemption price and
within the one-year period of redemption.
 GO v. BSP
G.R. No. G.R. No. 178429, October 23, 2009
BRION, J.

FACTS: Jose Go, the Director and the President and Chief Executive Officer of the
Orient Commercial Banking Corporation was charged before the RTC for violation of
Section 83 of RA 337 or the General Banking Act. Go allegedly borrowed the
deposits/funds of the Orient Bank and/or acting as guarantor, indorser of obligor for
loans to other persons. He then used the borrowed deposits/funds in facilitating and
granting and/or of credit lines/loans to the New Zealand Accounts loans in the total
amount of PHP 2,754,905,857. He completed the alleged transaction without the
written approval of the majority of the Board of Directors of said Orient Bank. Go then
filed a motion to quash the Information. He averred that the use of the word "and/or"
meant that he was charged for being either a borrower or a guarantor, or for being
both. Thus, the charge does not constitute an offense. That the Section 83 of RA 337
penalized only directors and officers xxx who acted either as borrower or as guarantor,
but not as both. The Information did not also constitute an offense since the information
failed to state the amount he purportedly borrowed. According to Go, the second
paragraph of Section 83, serves as an exception to the first paragraph which allows
the banks to extend credit accommodations to their directors, officers, and
stockholders, provided it is "limited to an amount equivalent to the respective
outstanding deposits and book value of the paid-in capital contribution in the bank."
The RTC granted Go’s motion to quash the Information.

The prosecution filed a petition for certiorari before the CA. The CA granted the
petition. It explained that the allegation that Go acted either as a borrower or a
guarantor or both did not necessarily mean that Go acted both as borrower and
guarantor for the same loan at the same time. It agreed with the prosecution’s stand
that the second paragraph of Section 83 of RA 337 is not an exception to the first
paragraph. Hence, this petition.

ISSUE: Whether or not banks were created for the benefit of their directors and
officers/whether or not they can use the assets of the bank for their own benefit.

RULING: No, banks were not created for the benefit of their directors and officers;
they cannot use the assets of the bank for their own benefit, except as may be
permitted by law. Congress has thus deemed it essential to impose restrictions on
borrowings by bank directors and officers in order to protect the public, especially the
depositors. While the first paragraph of Section 83 is penal in nature, and by principle
should be strictly construed in favor of the accused, the Court is unwilling to adopt a
liberal construction that would defeat the legislature’s intent in enacting the statute.
The objective of the law should allow for a reasonable flexibility in its construction.
Section 83 of RA 337, as well as other banking laws adopting the same prohibition,
was enacted to ensure that loans by banks and similar financial institutions to their
own directors, officers and stockholders are above aboard. When the law prohibits
directors and officers of banking institutions from becoming in any manner an obligor
of the bank (unless with the approval of the board), the terms of the prohibition shall
be the standards to be applied to directors’ transactions such as those involved in the
present case.
 SORIANO v. BSP
G.R. No. 162336, Feb. 1, 2010
DEL CASTILLO, J.

FACTS: Soriano was charged for estafa through falsification of commercial

documents for allegedly securing a loan of 48 million in the name of two (2) persons
when in fact these individuals did not make any loan in the bank, nor did the bank's
officers approved or had any information about the said loan. The state prosecutor
conducted a Preliminary Investigation on the basis of letters sent by the officers of
Special Investigation of BSP together with 5 affidavits and filed two (2) separate
information against Soriano for estafa through falsification of commercial documents
and violation of DORSI law.

Soriano moved for the quashal of the two (2) informations based on the ground:
(1) that the court has no jurisdiction over the offense charged, for the letter transmitted
by the BSP to the DOJ constituted the complaint and was defective for failure to
comply with the mandatory requirements of Sec. 3(a), Rule 112 of the Rules of Court,
such as statement of address of the petitioner and oath of subscription and the
signatories were not authorized persons to file the complaint; and (2) that the facts
charged do not constitute an offense, for the commission of estafa under par. 1(b) of
Art. 315 of the RPC is inherently incompatible with the violation of DORSI law (Sec.
83 or RA 337 as amended by PD 1795), and therefore a person cannot be charged of
both offenses.

ISSUE: Whether or not a loan transaction within the ambit of the DOSRI law could
also be the subject of Estafa under Article 315 (1) (b) of the Revised Penal Code.

RULING: The Supreme Court have examined the two informations against Soriano and
that the allegations established the essential elements of the crime of DOSRI violation and
estafa thru falsification of commercial documents.

The prohibition in Section 83 is broad enough to cover various modes of borrowing. It

covers loans by a bank director or officer, like Soriano which are made either: (1) directly,
(2) indirectly, (3) for himself, (4) or as the representative or agent of others. It applies even
if the director or officer is a mere guarantor, indorser or surety for someone else’s loan or
is in any manner an obligor for money borrowed from the bank or loaned by it. The covered
transactions are prohibited unless the approval, reportorial and ceiling requirements
under Section 83 are complied with.The prohibition is intended to protect the public,
especially the depositors, from the overborrowing of bank funds by bank officers,
directors, stockholders and related interests, as such overborrowing may lead to bank
failures. It has been said that banking institutions are not created for the benefit of the
directors. While directors have great powers as directors, they have no special privileges
as individuals. They cannot use the assets of the bank for their own benefit except as
permitted by law. Stringent restrictions are placed about them so that when acting both for
the bank and for one of themselves at the same time, they must keep within certain
prescribed lines regarded by the legislature as essential to safety in the banking business.
A direct borrowing is obviously one that is made in the name of the DOSRI himself or
where the DOSRI is a named party, while an indirect borrowing includes one that is made
by a third party, but the DOSRI has a stake in the transaction. The latter type indirect
borrowing applies here.