GENERAL BANKING LAW

NATURE OF BANK FUNDS AND DEPOSITS

Allied Banking Corporation vs. Lim Sio Wan

G.R. No. 133179. March 27, 2008

DOCTRINE: Fundamental and familiar is the doctrine

that the relationship between a bank and a client is one of
debtor-creditor.

FACTS:
On November 14, 1983, respondent Lim Sio Wan deposited
with petitioner Allied Banking Corporation a money market
placement for a term of 31 days to mature on December 15,
1983.

On December 5 of the same year, a person claiming to be Lim

Sio Wan called Cristina So, an officer of Allied Bank, and
instructed the latter to pre-terminate the money market
placement and to issue a manager’s check representing its
proceeds. He further instructed to give the check to one
Deborah Santos Lee, who would pick up the check.

Santos later arrived at the bank to collect the manager’s

check. The check was later in the account of Filipinas Cement
Corporation (FCC) at Metrobank with the forged signature of
Lim Sio Wan as indorser.

On December 14, 1983, upon the maturity date of the money

market placement, Lim Sio Wan went to Allied Bank to
withdraw it but she was informed that it had been pre-
terminated upon her instructions. She denied giving any and
instructions and receiving the proceeds thereof.

Realizing her money would not be recovered, she sent a

demand letter to Allied Bank asking for its payment but the
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latter refused to pay claiming that the Lim Sio Wan had
authorized the pre-termination of the placement and its
subsequent release to Santos.

Thus, a case was filed before the RTC.

ISSUE:
Whether or not Allied Bank should be liable to Lim Sio Wan.

RULING:
YES, Allied Bank is liable to Lim Sio Wan.

Articles 1953 and 1980 of the Civil Code provide:

“Art. 1953. A person who receives a loan of money or

any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality.

Art. 1980. Fixed, savings, and current deposits of money

in banks and similar institutions shall be governed by
the provisions concerning simple loan.”

Thus, bank deposits are in the nature of a simple loan or

mutuum including money market placement.

In Cebu International Finance Corporation vs. Court of

Appeals, the Supreme Court defined a money market as
follows:

A money market is a market dealing in standardized short-

term credit instruments (involving large amounts) where
lenders and borrowers do not deal directly with each other
by through a middle man or dealer in open market. In a
money market transaction, the investor is a lender who
loans his money to a borrower through a middleman or
dealer.
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In the case at bar, the money market transaction between
the petitioner and the private respondent is in the nature of
a loan.

Lim Sio Wan, as creditor of the bank for her money

market placement is entitled to payment upon her
request, or upon maturity of the placement, or until the
bank is released from its obligation as debtor. Until such
event, the obligation of Allied to Lim Sio Wan remains
unextinguished.

From the factual findings of the trial and appellate courts

that Lim Sio Wan did not authorize the release of her money
market placement to Santos and the bank had been negligent
in so doing, there is no question that the obligation of Allied
to pay Lim Sio Wan had not been extinguished. Art. 1240 of
the Code states that "payment shall be made to the person in
whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive it."
As commented by Arturo Tolentino:

Even when the debtor acted in utmost good faith and by

mistake as to the person of his creditor, or through error
induced by the fraud of a third person, the payment to one
who is not in fact his creditor, or authorized to receive such
payment, is void, except as provided in Article 1241. Such
payment does not prejudice the creditor, and accrual of
interest is not suspended by it.

Metrobank was also negligent because it is a cross-check and

it allowed to deposit the manager’s check to the account of
FCC when it is supposed to be deposited only to Lim Sio Wan’s
account.

Associated Bank vs. Vicente Henry Tan

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G.R. No. 156940 December 14, 2004

DOCTRINE: While banks are granted by law the right to

debit the value of a dishonored check from a depositor's
account, they must do so with the highest degree of care,
so as not to prejudice the depositor unduly. Banking
business is impressed with public interest. 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 depositor
with meticulous care.

FACTS:
Vicente Henry Tan, a businessman and a regular depositor-
creditor of Allied Bank had deposited a postdated UCPB
check to said bank on September 17, 1990. The check was
duly entered in his bank record thereby making his balance
in the amount of P297,000.00, as of October 1, 1990, from
his original deposit.

Upon advice and instruction of the bank, the check was

already cleared and backed by sufficient funds. Thus, on the
same day, Tan withdrew the sum of P240,000 leaving a
balance of P 57,793.45. A day after, TAN deposited the
amount of P50,000.00 making his existing balance in the
amount of P107,793.45 because he had issued several
checks to his business partners.

However, his suppliers and business partners went back to

him alleging that the checks he issued had bounced for
insufficient funds.

Despite informing the bank, it did not bother nor offer any
apology regarding the incident. Consequently, Tan filed a
complaint for damages.

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In the course of the proceedings, it was found that Tan was
merely allowed to use the fund prior to clearing merely for
accommodation because the bank considered him as one of
its valued clients.

ISSUE:
Whether or not the petitioner, which is acting as a collecting
bank, has the right to debit the account of its client for a
check deposit which was dishonored by the drawee bank.

RULING:
A bank generally has a right to setoff over the deposits for
the payment of any withdrawals on the part of a depositor.
However, the liability of the petitioner in this case ultimately
revolves around the issue of whether it properly exercised
its right of setoff.

In BPI vs. Casa Montessori, the Court has emphasized that the
banking business is impressed with public interest.
"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."

Also affirming this long standing doctrine, Philippine Bank of

Commerce v. Court of Appeals has held that "the degree of
diligence required of banks is more than that of a good
father of a family where the fiduciary nature of their
relationship with their depositors is concerned." Indeed, the
banking business is vested with the trust and confidence of
the public; hence the "appropriate standard of diligence
must be very high, if not the highest, degree of diligence."
The standard applies, regardless of whether the account
consists of only a few hundred pesos or of millions.

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In this case, petitioner bank did not treat respondent’s
account with the highest degree of care.

It is undisputed -- nay, even admitted -- that purportedly as

an act of accommodation to a valued client, petitioner
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.

Under ordinary banking practice, after receiving a check

deposit, a bank either immediately credit the amount to a
depositor’s account; or infuse value to that account only
after the drawee bank shall have paid such amount. Before
the check shall have been cleared for deposit, the collecting
bank can only "assume" at its own risk -- as herein petitioner
did -- that the check would be cleared and paid out.

Allied Banking Corporation vs. Spouses Macam

G.R. No. 200635 February 1, 2021

DOCTRINE: In contemplation of the fiduciary nature of a

bank-depositor relationship, the law imposes on the bank
a higher standard of integrity and performance in
complying with its obligations under the contract of
simple loan, beyond those required of non-bank debtors
under a similar contract of simple loan.

FACTS:
Mario Macam deposited P1,572,000.00 in Elena Valerio’s
savings Account with Allied Bank as his investment in the
cellular business of Helen Garcia. Valerio was a Unit Manager
in Helen’s business, soliciting investments and promising
weekly interest payments of 2.29%. In turn, Valerio issued a
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BPI check to Mario covering the principal amount of his
investment.

Starting February 6, 2003, a series of transactions occurred

in Allied Bank Pasay facilitated by its branch head, Maribel
Cañ a in which it authorized a fund transfer from five
different accounts amounting to P46million. The fund
transfer receipts bore only Cañ a’s signature and ostensibly
indicated Helen’s deposit account as the source of the
P46million fund transfer.

Since Helen had yet to make the promised deposit and her
account balance did not amount to P46million, Cañ a effected
a local override and approved the fund transfer.
Consequently, the amounts were credited to the five deposit
accounts, including Valerio’s, in the amount of P10million.

Meanwhile, Valerio withdrew P1,722,500 from her deposit

account in the same branch of Allied Bank and deposited
P1,590,000 of it to Mario’s brother and wife, Sheila Macam.

In the same date, Spouses Mario Macam opened a savings

account with Allied Bank Tamo Branch. Their savings
account left a balance of P1.1 million.

Due to the significant discrepancy, Allied Bank investigated

the branch and its transactions on February 6, 2003. It was
able to recover more than half of the amount, leaving a
balance of P9,800,000.00.

Subsequently, Allied Bank ordered the debit of the

remaining P1.1 million from the account of Spouses of
Macam which resulted the closure thereof.

When spouses Macam learned of the closure, they filed a

complaint for Damages against the bank.

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Allied Bank denied liability for the closure and claimed
ownership of the P1.1 million deposit. Allied Bank traced its
title to the dubious transfers amounting to P46million on
February 6, 2003 beginning from the crediting of Helen’s
account and ensuing fund transfers to various deposit
accounts maintained by particular individuals with different
branches of Allied Bank.

Allied Bank persists that it holds valid title not only to the
P1.1million that it debited from the account of Spouses
Macam but the entire P1,590,000 that they used to open the
subject deposit accounts of the spouses in Allied Bank.

ISSUE:
Whether or not Allied Bank is liable for unilaterally debiting
and closing the deposit account of the Spouses Mario Macam.

RULING:
YES. RA 8791 enshrines the fiduciary nature of banking that
requires high standards of integrity and performance. Thus,
all banks are charged with extraordinary diligence in the
handling and care of its deposits as well as the highest
degree of diligence in the selection and supervision of its
employees.

In contemplation of the fiduciary nature of a bank-depositor

relationship, the law imposes on the bank a higher standard
of integrity and performance in complying with its
obligations under the contract of simple loan, beyond those
required of non-bank debtors under a similar contract of
simple loan.

In this case, Allied Bank cannot obliquely repudiate the

resulting banking relationship with spouses Macam and the
fiduciary nature thereof when it accepted the spouses intial
deposit of P1,590,000, the very same funds it claims as its
own. It cannot belatedly claim ignorance of its performance
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of a core banking function, i.e., accepting or creating demand
deposits.

"A certificate of deposit is defined as a written

acknowledgment by a bank or banker of the receipt of a sum
of money on deposit which the bank or banker promises to
pay to the depositor, to the order of the depositor, or to
some other person or his order, whereby the relation of
debtor and creditor between the bank and the depositor is
created." It is presumed that the money deposited in a bank
account belongs to the person in whose name the deposit
account is
opened.

With its acceptance of the Spouses Mario Macam's deposit

and their opening of an account with the bank's Pasong
Tamo Branch on February 6, 2003, Allied Bank explicitly
recognized the spouses' ownership and title over the
Pl,590,000.00. Notably, the bank repeatedly acknowledged
the creditordebtor relationship and its obligation to pay the
Spouses Mario Macam on demand when the latter withdrew
money from the said account on three separate occasions.
Undoubtedly, Allied Bank is liable to the Spouses Mario
Macam for the Pl .1 Million in their deposit account.

DECLARATION OF POLICY

Consolidated Bank vs. Court of Appeals & Diaz

G.R. No. 138569 September 11, 2003

DOCTRINE: The State recognizes the "fiduciary nature of

banking that requires high standards of integrity and
performance." Supreme Court decisions held that the bank is
under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of
their relationship."

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FACTS:
Solidbank is a domestic banking corporation while private
respondent L.C. Diaz and Company, CPA’s (“L.C. Diaz”), is a
professional partnership engaged in the practice of
accounting and which opened a savings account with
Solidbank.

Diaz through its cashier, Mercedes Macaraya, filled up a

savings cash deposit slip and a savings checks deposit slip.
Macaraya instructed the messenger of L.C. Diaz, Ismael
Calapre, to deposit the money with Solidbank and give him
the Solidbank passbook. Calapre went to Solidbank and
presented to Teller No. 6 the two deposit slips and the
passbook. The teller acknowledged receipt of the deposit by
returning to Calapre the duplicate copies of the two deposit
slips.

Since the transaction took time and Calapre had to make

another deposit for L.C. Diaz with Allied Bank, he left the
passbook with Solidbank. When Calapre returned to
Solidbank to retrieve the passbook, Teller No. 6 informed
him that somebody got the passbook. Calapre went back to
L.C. Diaz and reported the incident to Macaraya.

The following day,, L.C. Diaz through its Chief Executive

Officer, Luis C. Diaz, called up Solidbank to stop any
transaction using the same passbook until L.C. Diaz could
open a new account followed by a formal written request
later that day. It was also on the same day that L.C. Diaz
learned of the unauthorized withdrawal the day before of
P300,000 from its savings account. The withdrawal slip
bore the signatures of the authorized signatories of L.C. Diaz,
namely Diaz and Rustico L. Murillo. The signatories,
however, denied signing the withdrawal slip. A certain Noel
Tamayo received the P300,000.

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L.C. Diaz demanded from Solidbank the return of its money
but to no avail. Hence, L.C. Diaz filed a Complaint for
Recovery of a Sum of Money against Solidbank with the
Regional Trial Court.

RTC COURT OF APPEALS

Absolved Solidbank, applying Solidbank’s negligence was
the rules on savings account the proximate cause of the
written on the passbook: unauthorized withdrawal.
"possession of this book shall
raise the presumption of
ownership and any payment or The teller who received the
payments made by the bank withdrawal slip of P300,000
upon the production of the said allowed the withdrawal
book and entry therein of the without making the
withdrawal shall have the same necessary inquiry.
effect as if made to the depositor
personally."

ISSUE:
Whether or not Solidbank must be held liable for the
fraudulent withdrawal from private respondent’s account.

RULING:
Solidbank is liable for breach of contract due to negligence.

The law imposes on banks high standards in view of the

fiduciary nature of banking.

Section 2 of R.A. 8791, which took effect on January 13,

2000, declares that the State recognizes the “fiduciary nature
of banking that requires high standards of integrity and
performance.” This new provision in the general banking
law, introduced in 2000, is a statutory affirmation of
Supreme Court decisions, holding that “the bank is under
obligation to treat the accounts of its depositors with
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meticulous care, always having in mind the fiduciary nature
of their relationship.”

This fiduciary relationship means that the bank's obligation

to observe "high standards of integrity and performance" is
deemed written into every deposit agreement between a
bank and its depositor. The fiduciary nature of banking
requires banks to assume a degree of diligence higher than
that of a good father of a family. Article 1172 of the Civil
Code states that the degree of diligence required of an
obligor is that prescribed by law or contract, and absent
such stipulation then the diligence of a good father of a
family.

Section 2 of RA 8791 prescribes the statutory diligence

required from banks - that banks must observe "high
standards of integrity and performance" in servicing their
depositors. Although RA 8791 took effect almost nine years
after the unauthorized withdrawal of the P300,000 from L.C.
Diaz's savings account, jurisprudence at the time of the
withdrawal already imposed on banks the same high
standard of diligence required under RA No. 8791.

PNB vs. COURT OF APPEALS

G.R. No. 127469 January 15, 2004

FACTS:
Leonilo Marcos made a time deposit with PNB on two
occasions. The first was on 11 March 1982 for P664,897.67.
The BANK issued Receipt No. 635734 for this time deposit.
On 12 March 1982, Marcos claimed he again made a time
deposit with the BANK for P764,897.67 but did not issue an
official receipt. However, it acknowledge the deposit through
a letter-certification issued by one of its officials, Florencio
Pagsaligan. The time deposits earned interest at 17% per
annum and had a maturity period of 90 days.

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Sometime in March 1983, Marcos wanted to withdraw from
the bank his time deposits and the accumulated interests
however, Pagsaligan convinced Marcos to keep his time
deposits intact and instead to open several domestic letter of
credit. The bank required Marcos to give a marginal deposit
of 30% of the total amount of the letters of credit. The time
deposits of Marcos would secure 70% of the letters of credit.

Marcos accused the BANK of unjustly demanding payment

for the total amount of the trust receipt agreements without
deducting the 30% marginal deposit that he had already
made. He decried the BANK’s unlawful charging of
accumulated interest because he claimed there was no
agreement as to the payment of interest. The interest arose
from numerous alleged extensions and penalties. Marcos
reiterated that there was no agreement to this effect because
his time deposits served as the collateral for his remaining
obligation.

The trial court ruled in favor of Marcos and directed PNB to

return his time deposit with interest thereon. The trial court
noted the defective documentation of its transaction and
attributed the bank’s lapses to Pagsaligan’s scheme to
defraud Marcos of his time deposits.

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

RULING:
The BANK is liable to Marcos for offsetting his time deposits
with a fictitious promissory note. The existence of
Promissory Note No. 20-979-83 could have been easily
proven had the BANK presented the original copies of the
promissory note and its supporting evidence. In lieu of the
original copies, the BANK presented the "machine copies of
the duplicate" of the documents. These substitute documents
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have no evidentiary value. The BANK’s failure to explain the
absence of the original documents and to maintain a record
of the offsetting of this loan with the time deposits bring to
fore the BANK’s dismal failure to fulfill its fiduciary duty to
Marcos.

Section 2 of Republic Act No. 8791 (General Banking Law of

2000) expressly imposes this fiduciary duty on banks when
it declares that the State recognizes the "fiduciary nature of
banking that requires high standards of integrity and
performance." This statutory declaration merely echoes the
earlier pronouncement of the Supreme Court in Simex
International (Manila) Inc. v. Court of Appeals 31 requiring
banks to "treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature
of their relationship."32 The Court reiterated this fiduciary
duty of banks in subsequent cases.33

Although RA No. 8791 took effect only in the year 2000,34 at

the time that the BANK transacted with Marcos,
jurisprudence had already imposed on banks the same high
standard of diligence required under RA No. 8791.35 This
fiduciary relationship means that the bank’s obligation to
observe "high standards of integrity and performance" is
deemed written into every deposit agreement between a
bank and its depositor.

The fiduciary nature of banking requires banks to assume a

degree of diligence higher than that of a good father of a
family. Thus, the BANK’s fiduciary duty imposes upon it a
higher level of accountability than that expected of Marcos, a
businessman, who negligently signed blank forms and
entrusted his certificates of time deposits to Pagsaligan
without retaining copies of the certificates.

The business of banking is imbued with public interest. The

stability of banks largely depends on the confidence of the
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people in the honesty and efficiency of banks. In Simex
International (Manila) Inc. v. Court of Appeals36 we pointed
out the depositor’s reasonable expectations from a bank and
the bank’s corresponding duty to its depositor, as follows:

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 bank
must record every single transaction accurately, down to the
last centavo, and as promptly as possible. This has to be
done if the account is to reflect at any given time the amount
of money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to whomever he
directs.

As the BANK’s depositor, Marcos had the right to expect that

the BANK was accurately recording his transactions with it.
Upon the maturity of his time deposits, Marcos also had the
right to withdraw the amount due him after the BANK had
correctly debited his outstanding obligations from his time
deposits.

By the very nature of its business, the BANK should have had
in its possession the original 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.

Whether it was the BANK’s negligence and inefficiency or

Pagsaligan’s misdeed that deprived Marcos of the amount
due him will not excuse the BANK from its obligation to
return to Marcos the correct amount of his time deposits
with interest. The duty to observe "high standards of
integrity and performance" imposes on the BANK that

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obligation. The BANK cannot also unjustly enrich itself by
keeping Marcos’ money.

PNB vs. NORMAN PIKE

G.R. No. 157845 September 20, 2005

FACTS:
Complainant Norman Pike opened a U.S. Dollar Savings
Account with PNB Buendia Branch for which he was issued a
corresponding passbook.

Before leaving for Japan on March 1993, he kept the

passbook inside a cabinet under lock and key in his home.
When he went back home, he discovered that some of his
valuables were missing including the passbook.

The incident was immediately reported leading to the arrest

of a certain Joy Manuel Davasol.

It was discovered that Joy Manuel Davasol made two (2)

unauthorized withdrawals from Pike’s U.S. dollar savings
account amounting to $7,500. With this, Pike demanded
from PNB to return the total withdrawn amount on the
ground that he never authorized anybody to withdraw but
PNB refused without justifiable reason, and instead,
defendant bank wrote him that it exercised due diligence in
the handling of said account.

PNB alleged in its Motion to Dismiss that there was an

arrangement between the bank represented by its Asst. Vice
President Lorenzo Bal, Jr. and the depositor Norman Y. Pike
to honor pre-signed withdrawal slips to be transmitted and
presented by his talent manager and choreographer, Joy
Davasol.

The RTC was not impressed with the defense put up by the
bank. The court compared the signatures in the questioned
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withdrawal slips with the known signatures of the depositor
and is convinced that the signatures in the unauthorized
withdrawal slips do not correspond to the true signatures of
the depositor. From the evidence that it received, the court is
convinced that the bank was negligent in the performance of
its duties such that unauthorized withdrawals were made in
the deposit of plaintiff Norman Y. Pike.

ISSUE:
Whether or not the bank is liable.

RULING:
YES, the evidence clearly showed that the petitioner bank
did not exercise the degree of diligence that it ought to have
exercised in dealing with their clients.

Based on the cross-examination of PNB employees, it was

admitted that pre-signed withdrawal slips do not constitute
the normal procedure with respect to withdrawals by
representatives. This should have already put petitioner
PNB's employees on guard. Rather than readily validating
and permitting said withdrawals, they should have
proceeded more cautiously. Clearly, petitioner bank's
employee, Lorenzo T. Bal, an Assistant Vice President at that,
was exceedingly careless in his treatment of respondent
Pike's savings account.

With banks, the degree of diligence required, contrary to the

position of petitioner PNB, is more than that of a good father
of a family considering that the business of banking is
imbued with public interest due to the nature of their
functions. The stability of banks largely depends 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
meticulous care, always having in mind the fiduciary nature
of banking.
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PNB vs. LIFETIME MARKETING
G.R. No. 176434 June 25, 2008

DOCTRINE: The banking industry is impressed with public

interest. Of paramount importance thereto is the trust and
confidence of the 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. The fiduciary
nature of banking, previously imposed by case law, is now
enshrined in Republic Act No. 8791 or the General Banking
Law of 2000. Section 2 thereof specifically says that the state
recognizes the fiduciary nature of banking that requires high
standards of integrity and performance.

FACTS:
Lifetime Marketing Corporation (LMC) opened a current
account with the Bank of Philippine Islands in Greenhills
EDSA branch.

Since LMC have several agents around the Philippines, it

required to remit their payments through BPI, where LMC
maintained its current account. It has been LMC's practice to
require its agents to present a validated deposit slip and, on
that basis, LMC would issue to the latter an
acknowledgement receipt.

Alice Laurel, one of LMC’s educational consultants or sales

agent, deposited checks to LMC’s account at different
branches of BPI. Each check were retrieved by Alice Laurel
after the deposit slips were machine-validated, except for
thirteen (13) checks, which bore no machine validation.

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A verification with BPI by LMC showed that Alice after the
check deposits were machine-validated, Alice would request
the teller to reverse the transactions. Based on general
banking practices, the cancellation of deposit or payment
transactions upon request by any depositor or payor,
requires that all copies of deposit slips must be retrieved or
surrendered to the bank. Notwithstanding this, the verbal
requests of Alice Laurel and her husband to reverse the
deposits even after the deposit slips were already received
and consummated were accommodated by BPI tellers.

Alice Laurel presented the machine-validated deposit slips

to LMC which, on the strength thereof, considered her
account paid. LMC even granted her certain privileges or
prizes based on the deposits she made.

A claim for damages was instituted against BPI and the trial
court rendered a decision in favor of LMC, in which was
affirmed by the Court of Appeals.

ISSUE:
Whether or not BPI observed the highest degree of care in
handling LMC’s account.

RULING:
NO. The reversal of the transactions in question was
unilaterally undertaken by BPI's tellers without following
normal banking procedure which requires them to ensure
that all copies of the deposit slips are surrendered by the
depositor. The machine-validated deposit slips do not show
that the transactions have been cancelled, leading LMC to
rely on these slips and to consider Alice Laurel's account as
already paid.

It is well to reiterate that the degree of diligence required of

banks is more than that of a reasonable man or a good father
of a family. In view of the fiduciary nature of their
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relationship with their depositors, banks are duty-bound to
treat the accounts of their clients with the highest degree of
care. BPI cannot escape liability because of LMC's failure to
scrutinize the monthly statements sent to it by the bank.
This omission does not change the fact that were it not for
the wanton and reckless negligence of BPI's tellers in failing
to require the surrender of the machine-validated deposit
slips before reversing the deposit transactions, the loss
would not have occurred. BPI's negligence is undoubtedly
the proximate cause of the loss. Proximate cause is that
cause which, in a natural and continuous sequence,
unbroken by any efficient intervening cause, produces the
injury, and without which the result would not have
occurred.

BPI vs. CASA MONTESSORI

G.R. No. 149454 May 28, 2004

DOCTRINE: By the nature of its functions, a bank is required

to take meticulous care of the deposits of its clients, who have
the right to expect high standards of integrity and
performance from it.

Among its obligations in furtherance thereof is knowing the

signatures of its clients. Depositors are not estopped from
questioning wrongful withdrawals, even if they have failed to
question those errors in the statements sent by the bank to
them for verification.

FACTS:
Casa Montessori International opened a current account
with defendant BPI, with CASA’s President Ms. Ma. Carina C.
Lebron as one of its authorized signatories.

CASA discovered that nine (9) of its checks had been

encashed by a certain Sonny D. Santos amounting to
P782,000. It turned out that “Sonny D. Santos” was a
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fictitious name used by third party defendant Leonardo T.
Yabut, who worked as external auditor of CASA.

With this, CASA instituted a complaint for collection of

damages against BPI. The RTC rendered a decision in favor
of CASA, but RTC modified the decision on the account of
CASA’s contributory negligence that resulted in the
undetected forgery.

ISSUE:
Whether or not the defendant bank was negligent.

RULING:
YES, BPI erred in making payments by virtue of the forgery.

We 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
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name was forged." In fact, BPI was the same bank involved
when we issued this ruling seventy years ago.

For allowing payment on the checks to a wrongful and

fictitious payee, BPI -- the drawee bank -- becomes liable to
its depositor-drawer.

CENTRAL BANK vs. CITYTRUST BANK

G.R. No. 141835 February 4, 2009

FACTS:
Pursuant to Republic Act No. 625, the old Central Bank Law,
respondent Citytrust Banking Corporation (Citytrust),
formerly Feati Bank, maintained a demand deposit account
with petitioner Central Bank of the Philippines, now Bangko
Sentral ng Pilipinas.

Rounceval Flores, a roving teller of Citytrust presented two

Citytrust checks to Central Bank teller, Illuminada dela Cruz.

After the checks were certified by petitioner’s Accounting

Department, Iluminada verified them, prepared the cash
transfer slip on which she affixed her signature, stamped the
checks with the notation "Received Payment" and asked
Flores to, as he did, sign on the space above such notation.
Instead of signing his name, however, Flores signed as
"Rosauro C. Cayabyab" – a fact Iluminada failed to

After further verification, an officer of Central Bank’s Cash

Department approved the cash transfer slip and paid the
corresponding amount to Flores. Petitioner then debited the
amount of the checks totaling ₱1,750,000 from Citytrust’s
demand deposit account.

More than a year and nine months later, Citytrust, by letter

dated April 23, 1979, alleging that the checks were already
cancelled because they were stolen, demanded petitioner to
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restore the amounts covered thereby to its demand deposit
account. Petitioner did not heed the demand.

Thus, Citytrust filed a complaint for recovery of sum of

money against Central Bank alleging it erred in encashing
the checks and charging the proceeds thereof to its account,
despite the lack of authority of "Rosauro C. Cayabyab."

Both the RTC and Court of Appeals found both banks to have
contributed equally to the fraudulent encashment of checks.

In the present appeal, Central Bank maintained that Flores

have been authorized roving teller and Citytrust is bound by
his acts. It also maintained that it was negligent in releasing
the proceeds of the checks to Flores, contending that
verification could be dispensed with for having known
Flores to be an authorized roving teller who had numerous
transactions with petitioner.

It further attributed negligence solely to Coty trust for

allowing Flores to steal the checks and failing to timely
cancel them.

ISSUE:
Whether or not the proximate cause of the fraudulent
transaction was the negligence of Citytrust.

RULING:
NO, petitioner’s 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.
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This fiduciary relationship means that the bank’s obligation
to observe "high standards of integrity and performance" is
deemed written into every deposit agreement between a
bank and its depositor. The fiduciary nature of banking
requires banks to assume a degree of diligence higher than
that of a good father of a family. Article 1172 of the Civil
Code states that the degree of diligence required of an
obligor is that prescribed by law or contract, and absent
such stipulation then the diligence of a good father of a
family. Section 2 of RA 8791 prescribes the statutory
diligence required from banks – that banks must observe
"high standards of integrity and performance" in servicing
their depositors.

LANDBANK vs. GUALBERTO CATADMAN

G.R. No. 200407 June 17, 2020

FACTS:
Landbank of the Philippines received three (3) Development
Bank of the Philippines (DBP) checks:

(1) No. 1731263 in the amount of P8,500 payable to

GNCK Merchandising, owned by respondent
Gualberto Catadman, to be credited to his Landbank
Account 2562-0016-49;
(2) No. 151837 in the amount of P100,000 payable to
National Economic Development Authority (NEDA)
and to be credited to its Landbank Account No. 2562-
001-46;
(3) No. 358896 in the amount of P6,502 payable to
Benjamin Reyno and to be credited to his Landbank
account 2561-0135-70.

All three checks were cleared, but two days later, NEDA and
Reyno’s DBP checks were erroneously credited to

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Catadman’s account while his DBP, while the first check
payable to GNCK was credited twice to Catadman’s account.

When Landbank discovered the erroneous transactions

amounting to P115,002.68, it informed Catadman and
demanded to return the amount. On its second attempt,
Catadman acknowledged that the amount was credited to
his account and that he already spent it. As way of
settlement, he promised to pay P2,000 monthly until the
whole amount is returned.

After paying an accumulated amount of P15,000, Catadman

refused to make further payments, constraining Landbank to
file a case for collection of sum of money.

MTC RTC COURT OF

APPEALS
It dismissed the It reversed the MTC Landbank must, as
case on the ground ruling and applied a consequence,
that the Articles 19, 22, and bear its loss, “To
reimbursement on 1456 of the Civil allow Landbank to
the part of Code. secure a
Catadman was not reimbursement of
a civil obligation, Article 1456 the subject amount
but a natural obliges him as a would open the
obligation. It trustee to take care floodgates of public
explained that if of the money which distrust in the
Catadman would through mistake banking industry.”
not hearken to hos came into his
conscience that he hands. It also considered
had availed of the bad faith on the
money which did part of Catadman.
not rightfully and
lawfully belong to It affirmed the RTC
him and would not ruling with
continue to pay the modifications.
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balance, Landbank
must suffer the loss Catadman – to pay
caused by its 40% of the amount.
negligent
employee. Landbank – shall
bear the 60% loss.

ISSUE:
Whether or not Catadman should liable for the full amount
mistakenly credited to his account.

RULING:
YES, Catadman is undeniably at fault when he appropriated
the money even knowing fully well that it did not belong to
him.

Article 22 of the Civil Code, “every person who through an

act of performance by another, or any other means, acquires
or comes into possession of something at the expense of the
latter without just or legal ground, shall return the same to
him.” There is unjust enrichment “when a person unjustly
retains a benefit to the loss of another, or when a person
retains money or property of another against the
fundamental principles of justice, equity and good
conscience.

The principle of unjust enrichment has two conditions. First,

a person must have been benefited without a real or valid
basis or justification. Second, the benefit was derived at
another person’s expense or damage.

Pursuant to Article 22 of the Civil Code, Catadman must

unconditionally return the money to Landbank. Contrary to
his claim, the doctrine on the fiduciary nature of banking
institutions in the cases of Simex and BPI Family Bank does
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not preclude Landbank from recovering the money from
him.

However, this Court reprimands Landbank for its negligence

and reminds Landbank that the law imposes on banks high
standards in view of the fiduciary nature of banking.

Section 2 of Republic Act No. 8791, declares that the State

recognizes the “fiduciary nature of banking that requires
high standards of integrity and performance.”

The bank is under obligation to treat the accounts of all its

depositors with meticulous care, always having in mind the
fiduciary nature if their relationship. This fiduciary
relationship means that the bank’s obligation to observe
“high standards of integrity and performance” is deemed
written into every deposit agreement between a bank and its
depositor. The fiduciary nature of banking requires banks to
assume a degree of diligence higher than of a good father of
a family. Likewise, Section 2 of R.A. 8791 prescribes the
statutory diligence required from banks – that banks must
observe “high standards of integrity and performance” in
servicing depositors.

RULES WITH REGARD TO DIRECTORS, OFFICERS,

STOCKHOLDERS, AND RELATED INTEREST

GO vs. BANGKO SENTRAL NG PILIPINAS

G.R. No. 178429 October 23, 2009

FACTS:

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An information for violation of Section 83 of Republic Act No.
337 or the General Banking Act, was filed against Jose C. Go,
the then Director, and the President and Chief Executive
officer of the Orient Commercial Banking Corporation
(Orient Bank).

In his motion to quash, Go averred that based on the facts

alleged in the Information, he was being prosecuted for
borrowing the deposits or funds of the Orient Bank and/or
acting as a guarantor, indorser or obligor for the bank’s
loans to other persons.

It was alleged that Go took advantage of his position as

director of the said bank for the following acts:
 wilfully, unlawfully and knowingly borrow, either directly or indirectly, for himself or as the
representative of his other related companies, the deposits or funds of the said banking
institution and/or become a guarantor, indorser or obligor for loans from the said bank to
others,
 using said borrowed deposits/funds of the said bank in facilitating and granting and/or
caused the facilitating and granting of credit lines/loans and, among others, to the New
Zealand Accounts loans in the total amount of TWO BILLION AND SEVEN HUNDRED FIFTY-
FOUR MILLION NINE HUNDRED FIVE THOUSAND AND EIGHT HUNDRED FIFTY-SEVEN
AND
 the same has been done by him without the written approval of the majority of the Board of
Directors of said Orient Bank and which approval the said accused deliberately failed to
obtain and enter the same upon the records of said banking institution and to transmit a
copy of which to the supervising department of the said bank, as required by the General
Banking Act.

The use of the word “and/or” meant that he was charged for
being either a borrower or a guarantor, or being both. Go
claimed that the charge was not only vague, but also did not
constitute an offense. He posited that Section 83 of R.A. 337
penalized only directors and officers of banking institutions
who acted either as borrower or as guarantor, but not as
both.

Furthermore, Go alleged that the second paragraph of

Section 83 allowed 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
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contribution in the bank.” Extending credit accommodations
to bank directors, officers, and stockholders is not per se
prohibited, unless the amount exceeds the legal limit. Since
the Information failed to state that the amount he
purportedly borrowed

RTC COURT OF APPEALS

Granted the motion to quash the The CA declared that the RTC misread the
Information. law when it decided to quash the
Information against Go. It explained that
the allegation that Go acted either as a
borrower or a guarantor or as both
borrower and guarantor merely set forth
the different modes by which the offense
was committed. It 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. Thus, the failure of the
Information to state that the amount of the
loan Go borrowed or guaranteed exceeded
the legal limits was, to the CA, an irrelevant
issue.

ISSUE:
Whether or not the allegation that Go acted as borrower or
guarantor rendered the information defective.

RULING:
NO, an Information only needs to state the ultimate facts
constituting the offense, not the finer details of why and how
the illegal acts alleged amounted to undue injury or damage
– matters that are appropriate for trial.

The facts and circumstances necessary to be included in the

Information are determined by reference to the definition
and elements of the specific crimes. The Information must
allege clearly and accurately the elements of the crime
charged.

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Under Section 83, RA 337, the following elements must be
present to constitute a violation of its first paragraph:

1. the offender is a director or officer of any banking

institution;

2. the offender, either directly or indirectly, for himself or

as representative or agent of another, performs any of
the following acts:

a. he borrows any of the deposits or funds of such

bank; or

b. he becomes a guarantor, indorser, or surety for

loans from such bank to others, or

c. he becomes in any manner an obligor for money

borrowed from bank or loaned by it;

3. the offender has performed any of such acts without

the written approval of the majority of the directors of
the bank, excluding the offender, as the director
concerned.

A simple reading of the above elements easily rejects Go’s

contention that the law penalizes a bank director or officer
only either for borrowing the bank’s deposits or funds or for
guarantying loans by the bank, but not for acting in both
capacities. The essence of the crime is becoming an obligor
of the bank without securing the necessary written approval
of the majority of the bank’s directors.

The prohibition is directed against a bank director or officer

who becomes in any manner an obligor for money borrowed
from or loaned by the bank without the written approval of
the majority of the bank’s board of directors. To make a
distinction between the act of borrowing and guarantying is
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therefore unnecessary because in either situation, the
director or officer concerned becomes an obligor of the bank
against whom the obligation is juridically demandable.

Banks were not created for the benefit of their directors and
officers; they cannot use the assets of the bank for their own
benefit, except as may be permitted by law. Congress has
thus deemed it essential to impose restrictions on
borrowings by bank directors and officers in order to
protect the public, especially the depositors. Hence, when
the law prohibits directors and officers of banking
institutions from becoming in any manner an obligor of the
bank (unless with the approval of the board), the terms of
the prohibition shall be the standards to be applied to
directors’ transactions such as those involved in the present
case.

Credit accommodation limit is not an exception nor is it

an element of the offense

The ceiling requirement under the second paragraph of

Section 83 regulates the amount of credit accommodations
that banks may extend to their directors or officers by
limiting these to an amount equivalent to the respective
outstanding deposits and book value of the paid-in capital
contribution in the bank. Again, this is a requirement
directed at the bank. In this light, a prosecution for violation
of the first paragraph of Section 83, such as the one involved
here, does not require an allegation that the loan exceeded
the legal limit. Even if the loan involved is below the legal
limit, a written approval by the majority of the bank’s
directors is still required; otherwise, the bank director or
officer who becomes an obligor of the bank is liable.
Compliance with the ceiling requirement does not dispense
with the approval requirement.

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Evidently, the failure to observe the three requirements
under Section 83 paves the way for the prosecution of three
different offenses, each with its own set of elements. A
successful indictment for failing to comply with the approval
requirement will not necessitate proof that the other two
were likewise not observed.

SORIANO vs. BANGKO SENTRAL NG PILIPINAS

G.R. No. 162336 February 1, 2010

FACTS:
In this case, two criminal cases were filed against petitioner
Hilario P. Soriano. Said cases were (1) Estafa thru
Falsification of Commercial Documents, in relation to PD No.
1689, and for Violation of Section 83 of RA 337, as amended
by PD 1795; and (2) for violation of Section 83 of R.A. 337.
The said provision refers to the prohibition against the so-
called DOSRI loans.

In the first Information, it stated that spouses Enrico and

Amalia Carlos appeared to have an outstanding loan of P8
million with the Rural Bank of San Miguel, Inc. (RBSM), but
had never applied for nor received such loan; that it was
petitioner, Hilario Soriano, who was then president of RBSM
who had ordered, facilitated, and received the proceeds of
the loan; and that the P8 million loan had never been
authorized by RBSM’s Board of Directors and no report
thereof had ever been submitted to the Department of Rural
Banks, Supervision and Examination Sector of the BSP.

As to the violation for DOSRI loans, the Information alleged

that, in his capacity as President of RBSM, petitioner
indirectly secured an ₱8 million loan with RBSM, for his
personal use and benefit, without the written consent and
approval of the bank's Board of Directors, without entering
the said transaction in the bank's records, and without
transmitting a copy of the transaction to the supervising
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department of the bank. His ruse was facilitated by placing
the loan in the name of an unsuspecting RBSM depositor,
one Enrico Carlos.

In his Motion to Quash, Soriano contended, among others,

that the commission of estafa under paragraph 1(b) of
Article 315 of the RPC is inherently incompatible with the
violation of DOSRI law. Hence, a person cannot be charged
for both offenses. He argued that a violation of DOSRI law
requires the offender to obtain a loan from his bank, without
complying with procedural, reportorial, or ceiling
requirements. On the other hand, estafa under par. 1(b),
Article 315 of the RPC requires the offender to
misappropriate or convert something that he holds in trust,
or on commission, or for administration, or under any
obligation involving the duty to return the same.

ISSUE:
Whether a loan transaction within the ambit of the DOSRI
law (violation of Section 83 of RA 337, as amended) could
also be the subject of Estafa under Article 315 (1) (b) of the
Revised Penal Code.

RULING:
We have examined the two informations against petitioner
and we find that they contain allegations which, if
hypothetically admitted, would establish the essential
elements of the crime of DOSRI violation and estafa thru
falsification of commercial documents.

In Criminal Case No. 238-M-2001 for violation of DOSRI

rules, the information alleged that petitioner Soriano was
the president of RBSM; that he was able to indirectly obtain
a loan from RBSM by putting the loan in the name of
depositor Enrico Carlos; and that he did this without
complying with the requisite board approval, reportorial,
and ceiling requirements.
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In Criminal Case No. 237-M-2001 for estafa thru falsification
of commercial documents, the information alleged that
petitioner, by taking advantage of his position as president
of RBSM, falsified various loan documents to make it appear
that an Enrico Carlos secured a loan of ₱8 million from
RBSM; that petitioner succeeded in obtaining the loan
proceeds; that he later converted the loan proceeds to his
own personal gain and benefit; and that his action caused
damage and prejudice to RBSM, its creditors, the BSP, and
the PDIC.

The bank money (amounting to ₱8 million) which came to

the possession of petitioner was money held in trust or
administration by him for the bank, in his fiduciary capacity
as the President of said bank. It is not accurate to say that
petitioner became the owner of the ₱8 million because it was
the proceeds of a loan. That would have been correct if the
bank knowingly extended the loan to petitioner himself. But
that is not the case here. According to the information for
estafa, the loan was supposed to be for another person, a
certain "Enrico Carlos"; petitioner, through falsification,
made it appear that said "Enrico Carlos" applied for the loan
when in fact he ("Enrico Carlos") did not. Through such
fraudulent device, petitioner obtained the loan proceeds and
converted the same. Under these circumstances, it cannot be
said that petitioner became the legal owner of the ₱8 million.
Thus, petitioner remained the bank’s fiduciary with respect
to that money, which makes it capable of misappropriation
or conversion in his hands.

Whether there can also be, at the same time, a charge for
DOSRI violation in such a situation wherein the accused
bank officer did not secure a loan in his own name, but
was alleged to have used the name of another person in
order to indirectly secure a loan from the bank.

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

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. The information in Criminal Case 238-M-2001
alleges that petitioner "in his capacity as President of Rural
Bank of San Miguel – San Ildefonso branch x x x indirectly
borrow[ed] or secure[d] a loan with [RBSM] x x x knowing
fully well that the same has been done by him without the
written consent and approval of the majority of the board of
directors x x x, and which consent and approval the said
accused deliberately failed to obtain and enter the same
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upon the records of said banking institution and to transmit
a copy thereof to the supervising department of the said
bank x x x by using the name of one depositor Enrico
Carlos x x x, the latter having no knowledge of the said
loan, and once in possession of the said amount of eight
million pesos (₱8 million), [petitioner] converted the
same to his own personal use and benefit".

The foregoing information describes the manner of securing

the loan as indirect; names petitioner as the benefactor of
the indirect loan; and states that the requirements of the law
were not complied with. It contains all the required elements
for a violation of Section 83, even if petitioner did not secure
the loan in his own name.

The broad interpretation of the prohibition in Section 83 is

justified by the fact that it even expressly covers loans to
third parties where the third parties are aware of the
transaction (such as principals represented by the DOSRI),
and where the DOSRI’s interest does not appear to be
beneficial but even burdensome (such as in cases when the
DOSRI acts as a mere guarantor or surety). If the law finds it
necessary to protect the bank and the banking system in
such situations, it will surely be illogical for it to exclude a
case like this where the DOSRI acted for his own benefit,
using the name of an unsuspecting person. A contrary
interpretation will effectively allow a DOSRI to use dummies
to circumvent the requirements of the law.

In sum, the informations filed against petitioner do not

negate each other.

SORIANO vs. PEOPLE OF THE PHILIPPINES

G.R. No. 240458 January 8, 2020

FACTS:

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In this case, two separate Informations were filed against
Hilario P. Soriano, president of Rural Bank of San Miguel
Bulacan. Petitioner was charged of securing an indirect loan
from Rural Bank of San Miguel (RBSM) while being an officer
thereof by falsifying loan documents and making it appear
that a certain Virgilio Malang (Malang) obtained the same,
and thereafter, converting the proceeds for his personal gain
and benefit.

Malang denied having applied for and received any proceeds

of the said loan. However, he was encouraged by Soriano to
apply for a loan and gave him documents to fill up and sign.
He, however, withdrew the application later on due to his
wife's objection thereto, and also due to their lawyer's
advice that the loan will not be granted because of the
insufficient collateral. He was, thus, surprised to discover
that the loan proceeds were deposited to his purported
current account with RBSM, when he does not have one.

ISSUE:
Whether or not petitioner violated the DOSRI law.

RULING:
YES, petitioner was guilty beyond reasonable doubt of
violating the DOSRI law, as well as of the complex crime
of estafa through falsification of commercial documents.

Section 83 of R.A. No. 337, as amended, states:

SEC. 83. No director or officer of any banking institution

shall, either directly or indirectly, for himself or as the
representative or agent of others, borrow any of the deposits
of funds of such bank, nor shall he become a guarantor,
indorser, or surety for loans from such bank to others, or in
any manner be an obligor for moneys borrowed from the
bank or loaned by it, except with the written approval of the
majority of the directors of the bank, excluding the director
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concerned. Any such approval shall be entered upon the
records of the corporation and a copy of such entry shall be
transmitted forthwith to the Superintendent of Banks. The
office of any director or officer of a bank who violates the
provisions of this section shall immediately become vacant
and the director or officer shall be punished by
imprisonment of not less than one year nor more than ten
years and by a fine of not less than one thousand nor more
than ten thousand pesos.

From the foregoing, the following elements must be present

to constitute a violation of the above-quoted provision: (1)
the offender is a director or officer of any banking
institution; (2) the offender, either directly or indirectly, for
himself or as a representative or agent of another, performs
any of the following acts: (a) he borrows any of the deposits
or funds of such bank; or (b) he becomes a guarantor,
indorser, or surety for loans from such bank to others; or (c)
he becomes in any manner an obligor for money borrowed
from bank or loaned by it; and (3) the offender has
performed any of such acts without the written approval of
the majority of the directors of the bank, excluding the
offender, as the director concerned.

The essence of the crime is becoming an obligor of the bank

without securing the necessary written approval of the
majority of the bank's directors. The DOSRI law was enacted
as the Congress deemed it essential to impose certain
restrictions on the borrowings undertaken by directors and
officers in order to protect the public, especially the
depositors. Such restriction is necessary because of the
advantage these bank officers have because of their position,
in acquiring loans or borrowing funds from the bank funds.
Indeed, 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.

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As borne by the records, the aforecited elements were
established beyond reasonable doubt in this case. There is
no question that petitioner was a director and officer of
RBSM, being the president thereof. It was also established
that the subject loan had no approval from RBSM's board of
directors. Petitioner, however, questions the existence of the
second element. Petitioner argues that the evidence of the
prosecution was not able to prove that the subject loan
under Malang's name, was his indirect loan as the
prosecution evidence pertained to a different loan; nor was
the prosecution able to establish that the alleged proceeds of
said loan inured to his benefit to make him an obligor
thereof.

Indeed, petitioner was charged and convicted under the

DOSRI law because of his indirect loan under Malang's name.
This was established through the testimonies of the
prosecution witnesses, found credible by the trial court and
the CA, coupled with the documentary evidence presented.
Evidence on record clearly establish that petitioner
orchestrated the release of the subject fictitious loan under
Malang's name, the proceeds thereof were used to pay
petitioner's other irregular loans from RBSM. The
prosecution witnesses testified that the whole process - from
the loan application, the purported approval thereof, the
release, up to the use of the proceeds were made to happen
through the direct instructions of petitioner.

Jose Apolinario, Jr., vs. People of the Philippines

G.R. No. 242977 October 13, 2021

DOCTRINE: Banking institutions are corporations

imbued with public interest. They are required to exercise
the highest degree of diligence. By their nature, banks
operate within certain restrictions and limitations, one of
which is the issuance of loans to its directors, officers,
stockholders, and related interests (DOSRI). The
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requirements under the General Banking Law are
straightforward. If all the elements provided by the law
are present, erring directors and officers can be held
criminally liable for violating the DOSRI law.

FACTS:
Apolinario, Winefredo T. Capilitan together with Motohiko
Hagasika, and Elmer Magpantay, directors and officers of the
Unitrust Development Bank, were charged for violation of
the DOSRI Law (Section 36 of the General Banking Law), in
relation to Section 36 of the New Central Bank Act.

In the complaint, it alleged that they obtained, granted,

released a personal loan to their co-accused Winefredo
Capilitan, Director/Corporate Secretary of the UDB in the
amount of P1,000,000.00, without the written approval of all
the directors of the UDB, and that the same were not entered
upon the records of the UDB and failed to transmit it to the
appropriate supervising and examining department of the
Bangko Sentral ng Pilipinas.

In the separate complaint, it alleged that the same officers

granted a loan amounting to P13,000,000.00 to G. Cosmos
Philippines, as evidenced by a Promissory Note, signed by
co-accused Winefredo Capilitan, and in his personal capacity,
without the written approval of the majority of all the
directors of UDB.

Based on their collective testimonies, Capilitan applied for a

personal loan of P1,000,000 and a P27,000,000 loan for G.
Cosmos. All of the Board Resolutions were simulated.

Bangko Sentral ng Pilipinas then filed a case against the

Unitrust directors and officers before the Department of
justice. The Department of Justice found probable cause
against Capilitan, Hagisaka, Apolinario, Magpantay, Quilatan,
and Vasquez for violation of DOSRI laws.
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Apolinario testified that he was hired as Vice President for
Legal Affairs and was not a stockholder of Unitrust. He
contended that the Stockholder's Meeting dated December
18, 2001 was simulated, and that he could not have been
validly elected as Chairman of the Board as he was not a
shareholder of Unitrust. He pointed to Vasquez and Atty.
Gutierrez as the persons responsible for endorsing and
recommending the loans' approval to the Unitrust Board.

He admitted receiving the Bangko Sentral ng Pilipinas letter

but only after the loans' proceeds had been released. He
recalled that in his capacity as Unitrust's Acting President, he
wrote a letter to the PDIC President offering his assistance in
the investigation of Unitrust's bank run, which, according to
him, showed good faith on his part.

ISSUE:
Whether or not Apolinario violated the DOSRI Law.

RULING:
YES, Apolinario violated the DOSRI Law when he allowed the
loans’ release without the requisite approval and
documentation. It noted that Apolinario signed the Minutes
of the Board Meetings despite his knowledge that no board
meetings were held approving the two loans.

Like any other corporation, banks act through their

directors, officers, and employees. It follows, therefore, that
the degree of diligence required of banks also applies to
their directors and officers.

Considering that banks can only act through their officers

and employees, the fiduciary obligation laid down for these
institutions necessarily extends to their employees. Thus,
banks must ensure that their employees observe the same
high level of integrity and performance for it is only through
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this that banks may meet and comply with their own
fiduciary duty. It has been repeatedly held that "a bank's
liability as an obligor is not merely vicarious, but primary"
since they are expected to observe an equally high degree of
diligence, not only in the selection, but also in the
supervision of its employees. Thus, even if it is their
employees who are negligent, the bank's responsibility to its
client remains paramount making its liability to the same to
be a direct one.

CAPITAL EXPENDITURE LIMIT

Benguet Management vs. Keppel Bank
G.R. No. 153571 September 18, 2003

FACTS:
Benguet Management Corporation (BMC) 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.

BMC defaulted, thus, KBPI filed an application for

extrajudicial foreclosure. BMC claimed that the application
should be denied because it is insufficient in form and
substance and there is no need to proceed with the
foreclosure of its properties situated in Laguna because it
was willing to execute a dacion en pago in place of the
mortgaged properties.

Both the trial court and the Court of Appeals ruled in favor of
KBPI.

BMC contends that Section 47 of the General Banking Act,

which reduced the period of redemption for extrajudicially
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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 duly
discriminatory and therefore unconstitutional.

ISSUE:
Whether Section 47 of the General Banking Act, abrogating
the right to one year redemption period of corporate
mortgagors is unconstitutional.

RULING:
In this case, the resolution of the constitutionality of Section
47 of the General Banking Act (Republic Act No. 8791) 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 vs. PAMPANGA

G.R. No. 168088 April 3, 2007

FACTS:
Respondent Pampanga Omnibus Development Corporation
(PODC) secured two loans from petitioner and Masantol
Rural Bank, Inc. (MRBI) on April 15, 1990. The loans were
evidenced by separate promissory notes executed by
Federico R. Mendoza and Anastacio E. de Vera. To secure
payment of the loans, respondent 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
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real estate mortgage may be extrajudicially foreclosed in
accordance with Act No. 3135, as amended.

On March 27, 1992, Eliza M. Garbes, PODC President and

daughter of Federico Mendoza, together with her husband,
secured a P950,000 loan from petitioner. Mendoza signed as
co-borrower in the promissory note executed by the
spouses. The spouses also executed a chattel mortgage over
their personal property as security for the payment of their
loan account.

When PODC failed to pay its loan obligation to the petitioner,

MRBI commenced an extrajudicial foreclosure wherein it
emerged as the winning bidder on April 23, 2001. The
certificate of Sale executed on May 9, 2001 stated that the
period of redemption shall expire one (1) year after
registration in the Register of Deeds but MRBI did not file a
petition for a writ of possession during the redemption
period.

Consequently, Garbes executed a notarized deed of

assignment in favor of Aquino over its right to redeem the
property, with the authority of petitioner’s board of
directors. The property was eventually redeemed by the
latter despite offers rejected by the MRBI.

The Ex-Officio Sheriff computed the redemption price based

on the General Banking Act and The Rural Bank Act. Official
Receipt was issued on May 31, 2002 and Certificate of
Redemption was issued on June 7, 2002.

On June 10 of the same year, MRBI executed an Affidavit of

Consolidation over the property, alleging that PODC did not
exercise their right to repurchase within one (1) year or
within the redemption period.

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ISSUE:
Whether or not PODC had the right to redeem the property.

RULING:
Section 47 of R.A. No. 8791. The provision reads:

Notwithstanding Act 3135, juridical persons whose property

is being sold pursuant to an extrajudicial foreclosure, shall
have the right to redeem the property in accordance with
this provision until, but not after, the registration of the
certificate of foreclosure sale with the applicable Register of
Deeds which in no case shall be more than three (3) months
after foreclosure, whichever is earlier. Owners of property
that has been sold in a foreclosure sale prior to the
effectivity of this Act shall retain their redemption rights
until their expiration.

We need not rule on the issue of whether respondent Aquino

had lawfully redeemed the property as provided in Section
47 of R.A. No. 8791. This issue shall be passed upon by the
RTC in Civil Case No. 12785 after the parties present their
testimonial and documentary evidence.

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