Banking Law Case Digest

1. Citystate Savings Bank v. Teresita Tobias

GR No. 22790

Reyes, Jr., J:

FACTS: Sometime in 2002, Teresita Tobias (Tobias) was introduced by her youngest son to Rolando
Robles (Robles), a certified public accountant employed with Citystate Savings Bank. After such
introduction, Robles was able to persuade Tobias to open an account with the petitioner.

After opening an account, Tobias and Robles had a back-to-back scheme which is supposedly offered
only to petitioner's most valued clients. Under the scheme, the depositors authorize the bank to use their
bank deposits and invest the same in different business ventures that yield high interest. Robles allegedly
promised that the interest previously earned by Tobias would be doubled and assured her that he will do
all the paper work. Lured by the attractive offer, Tobias signed the pertinent documents without reading
its contents and invested a total of Php 1,800,000.00 to petitioner through Robles.

In 2005, Robles failed to remit to respondents the interest as scheduled. Respondents tried to reach
Robles but he can no longer be found; their calls were also left unanswered. In a meeting with Robles'
siblings, it was disclosed to the respondents that Robles withdrew the money and appropriated it for
personal use. Robles later talked to the respondents, promised that he would return the money by
installments and pleaded that they do not report the incident to the petitioner. Robles however reneged on
his promise. Petitioner also refused to make arrangements for the return of respondents' money despite
several demands.

ISSUE: Whether the Court of Appeals seriously erred in ruling that Citystate is jointly and solidarily
liable with Robles.

RULING: The business of banking is one imbued with public interest. As such, banking institutions are
obliged to exercise the highest degree of diligence as well as high standards of integrity and performance
in all its transactions.

In light of these, banking institutions may be held liable for damages for failure to exercise the diligence
required of it resulting to contractual breach or where the act or omission complained of constitutes an
actionable tort.
In the case at bar, petitioner does not deny the validity of respondents' accounts, in fact it suggests that
transactions with it have all been accounted for as it is based on official documents containing authentic
signatures of Tobias. The point is well-taken. In fine, respondents' claim for damages is not predicated on
breach of their contractual relationship with petitioner, but rather on Robles' act of misappropriation.

Records show that respondents entered into two types of transactions with the petitioner, the first
involving savings accounts, and the other loan agreements. Both of these transactions were entered into
outside the petitioner bank's premises, through Robles.

In the first, the respondents, as the depositors, acts as the creditor, and the petitioner,asthedebtor. In these
agreements,the petitioner,by receiving the deposit impliedly agrees to pay upon demand and only upon
the depositor's order. Failure by the bank to comply with these obligations would be considered as breach
of contract.

The second transaction which involves three loan agreements, are the subject of contention. These loans
were obtained by respondents, secured by their deposits with the petitioner, and executed with
corresponding authorization letters allowing the latter to debit from their account in case of default.
Respondents do not contest the genuineness of their signature in the relevant documents; rather they
submit that they were merely lured by Robles into signing the same without knowing their import. The
loans were approved and released by the petitioner, but instead of reinvesting the same, the proceeds
were misappropriated by Robles, as a result, respondents' accounts were debited and applied as payment
for the loan.

Under the premises, the petitioner had the authority to debit from the respondents' accounts having been
appointed as their attorney-in-fact in a duly signed authentic document.

Furthermore, there is nothing irregular or striking that transpired which should have impelled petitioner
into further inquiry as to the authenticity of the attendant transactions. Suffice it is to state that the
questioned withdrawal was not the first time in which Robles has acted as the authorized representative
of the petitioner or as intermediary between the petitioner and the respondents, who is also not merely an
employee but petitioner's branch manager.

Nonetheless, while it is clear that the proximate cause of respondents' loss is the misappropriation of
Robles, petitioner is still liable under Article 1911 of the Civil Code, to wit:

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarity liable with the agent
if the former allowed the latter to act as though he had full powers.

In the case of Prudential Bank v. CA, this Court first laid down the doctrine of apparent authority where
it said that a bank is liable for wrongful acts of its officers done in the interests of the bank or in the
course of dealings of the officers in their representative capacity but not for acts outside the scope of their
authority. A bank holding out its officers and agent as worthy of confidence will not be permitted to
profit by the frauds they may thus be enabled to perpetuate in the apparent scope of their employment;
nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to
the bank therefrom. Accordingly, 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 is secretly abusing his authority and attempting to
perpetrate a fraud upon his principal or some other person, for his own ultimate benefit.

Application of these principles is especially necessary because banks have a fiduciary relationship with
the public and their stability depends on the confidence of the people in their honesty and efficiency.

In Banate, this Court ruled that the doctrine of apparent authority does not apply and absolved the bank
from liability resulting from the alteration by its branch manager of the terms of a mortgage contract
which secures a loan obtained from the bank.

As aptly pointed by the CA, petitioner's evidence bolsters the case against it, as they support the finding
that Robles as branch manager, has been vested with the apparent or implied authority to act for the
petitioner in offering and facilitating banking transactions.
The testimonies of the witnesses presented by petitioner establish that there was nothing irregular in the
manner in which Robles transacted with the respondents. In fact, petitioner's witnesses admitted that
while the bank's general policy requires that transactions be completed inside the bank premises,
exceptions are made in favor of valued clients, such as the respondents. In which case, banking
transactions are allowed to be done in the residence or place of business of the depositor, since the same
are verified subsequently by the bank cashier.

Nothing short is expected of petitioner considering that the nature of the banking business is imbued with
public interest, and as such the highest degree of diligence is demanded.
 2. LBP v. Narcisso Kho

G.R. No. 205839

Brion, J:

FACTS: Narcisso Kho is the sole proprietor of United Oil Petroleum, a business engaged in trading
diesel fuel. Sometime in 2006, he entered into a verbal agreement to purchase lubricants from Red Orange,
represented by Rudy Medel. Red Orange insisted that it would only accept a Landbank manager's check
as payment.

On December 2005, Kho accompanied by Rudy Medel opened a savings account with Landbank of the

Philippines. Kho also purchased manager's check and requested a photocopy of the said manager's check

to provide to Red Orange. The branch manager, Ma. Lorena Flores accommodated his request, that is then

Kho gave the photocopy of the check to Rudy Medel. On January 2006, Flores informed Kho that the

check was cleared and paid by the BPI, Kamuning branch. Shocked. Kho informed Flores that he never

negotiated the check because the deal did not materialize. More importantly, the actual check was still in

his possession.

ISSUE: Whether Kho's action of handing the photocopy of the Manager's check to Medel was the
proximate cause of the fraudulent act.

RULING: The Court stated that it cannot agree that the proximate causes of the loss were Kho' s act of
giving Medel a photocopy of check No. 07410 and his failure to inform Land Bank that his deal with Red
Orange did not push through.

The business of banking is imbued with public interest; it is an industry where the general public' s trust
and confidence in the system is of paramount importance. Consequently, banks are expected to exert the
highest degree of, if not the utmost, diligence. They are obligated to treat their depositors' accounts with
meticulous care, always keeping in mind the fiduciary nature of their relationship.

Banks hold themselves out to the public as experts in determining the genuineness of checks and
corresponding signatures thereon. Stemming from their primordial duty of diligence, one of a bank' s
prime duties is to ascertain the genuineness of the drawer' s signature on check being encashed. This holds
especially true for manager' s checks.
The genuine check No. 07410 remained in Kho' s possession the entire time and Land Bank admits that
the check it cleared was a fake. When Land Bank' s CCD forwarded the deposited check to its Araneta
branch for inspection, its officers had every opportunity to recognize the forgery of their signatures or the
falsity of the check. Whether by error or neglect, the bank failed to do so, which led to the withdrawal and
eventual loss of the F25,000,000.00.

This is the proximate cause of the loss. Land Bank breached its duty of diligence and assumed the risk of
incurring a loss on account of a forged or counterfeit check. Hence, it should suffer the resulting damage.

Kho' s negligence does not even come close to approximating those of Gempesaw or of the province of
Tarlac. While his act of giving Medel a photocopy of the check may have allowed the latter to create a
duplicate, this cannot possibly excuse Land Bank' s failure to recognize that the check itself - not just the
signatures - is a fake instrument. More importantly, Land Bank itself furnished Kho the photocopy
without objecting to the latter' s intention of giving it to Medel.

Kho's failure to inform Land Bank that the deal did not push through as of January 2, 2006, does not
justify Land Bank's confirmation and clearing of a fake check bearing the forged signatures of its own
officers. Whether or not the deal pushed through, the check remained in Kho's possession. He was entitled
to a reasonable expectation that the bank would not release any funds corresponding to the check.

Lastly, we agree with the RTC's finding that neither Flores nor Cruz is liable to Kho in their private
capacities. Their refusal to honor Kho' s demands was made in good faith pursuant to the directives of the
Land Bank's management.

As a pillar of economic development, the banking industry is impressed with public interest. The general
public relies on banks' sworn duty to serve with utmost diligence. Public trust and confidence in banks is
critical to a healthy, stable, and well-functioning economy. Let this serve as a reminder for banks to
always act with the highest degree of diligence and the most meticulous attention to detail.
3. Anna Marie Gumabon v. Philippine National Bank

G.R. No. 202514

Brion, J:

FACTS: Anna Marie filed a complaint of sum of money and damages against Philippine National Bank
(PNB) and the PNB Delta branch manager Silverio Fernandez. The case stemmed from the PNB's refusal
to release Anna Marie's money in a consolidated savings account and in two foreign exchange time
deposits.
In 2001, Anna Marie, together with her mother and her siblings, deposited with PNB Delta branch a sum
of money, for which they were issued Foreign Exchange Certificates of Time Deposit (FXCTD).

Anna Marie decided to consolidate the 8 savings accounts and withdraw a certain amount of money, she
then called the PNB employee handling her accounts, Reino Antonio Salvoro to facilitate the
consolidation of the savings accounts and withdrawal. However, when she went to the bank to withdraw,
she was informed that she could not withdraw from the savings accounts since her bank records were
missing and Salvoro cannot be contacted.

On April 15, 2003, Anna Marie presented her two FXCTDs, but was also unable to withdraw against them.
Fernandez informed her that the bank would still verify and investigate before allowing the withdrawal
since Salvoro had not reported for work. After a month, the PNB finally consolidated the savings account.

On July 30, 2003, the PNB sent letters to Anna Marie to inform her that the PNB refused to honor its
obligation under FXCTD Nos. 993902 and 993992, and that the PNB withheld the release of the balance of
F250,741.82 in the consolidated savings account. According to the PNB, Anna Marie pre-terminated,
withdrew and/or debited sums against her deposits.

As to the two FXCTDs, Anna Marie contended that the PNB' s refusal to pay her time deposits is contrary
to law. The PNB cannot claim that the bank deposits have been paid since the certificates of the time
deposits are still with Anna Marie. PNB presented no concrete proof that this amount had been
withdrawn.
ISSUE: Whether Anna Marie is entitled to the payment of the accounts and damages.

RULING: Section 2 of Republic Act No. 8791, declares the State' s recognition of the "fiduciary nature of
banking that requires high standards of integrity and performance." It cannot be overemphasized that the
banking business is impressed with public interest. The trust and confidence of the public to the industry
is given utmost importance. Thus, the bank is under obligation to treat its depositor' s accounts with
meticulous care, having in mind the nature of their relationship. The bank is required to assume a degree
of diligence higher than that of a good father of a family.

As earlier settled, the PNB was negligent for its failure to update and properly handle Anna Marie' s
accounts. This is patent from the PNB ' s letter to Anna Marie, admitting the error and unauthorized
withdrawals from her account. Moreover, Anna Marie was led to believe that the amounts she has in her
accounts would remain because of the Deed of Waiver and Quitclaim executed by her, her mother, and
PNB. Assuming arguendo that Anna Marie made the contested withdrawals, due diligence requires the
PNB to record the transactions in her passbooks.

In addition, the Court held in PNB v. Pike, that although the bank' s employees are the ones negligent, a
bank is primarily liable for the employees' acts because banks are expected to exercise the highest degree
of diligence in the selection and supervision of their employees.

Indeed, a great possibility exists that Salvoro was involved in the unauthorized withdrawals. Anna Marie
entrusted her accounts to and made her banking transactions only through him. Salvaro' s unexplained
disappearance further confirms this Court' s suspicions. The Court is alarmed that he was able to
repeatedly do these unrecorded transactions without the bank noticing it. This only shows that the PNB
has been negligent in the supervision of its employees.

Anna Marie, thus, cannot be held responsible for entrusting her account with Salvoro. As shown in the
records, Salvoro was the bank' s time deposit specialist. Anna Marie cannot thus be faulted if she engaged
the bank' s services through Salvoro for transactions related to her time deposits.