Banking August 7.docx

BANKING COURSE OUTLINE PROF. ARLENE G. LAPUZ-URETA 1ST SEMESTER, 2018-2019

I. HISTORY OF BANKING Introduction, The General Banking Law Annotated, Banking Laws of the Philippines, Book II ("GBLA, BLP-Bk. II"), pp. 1-9. II.

THE GENERAL BANKING LAW OF 2000 Republic Act No. 8791, Chapter I GBLA, BLP-Book II, pp. 10-33 A. History of RA 8791 Republic Act No. 337 B. Role of Banks Simex International (Manila), Inc. v. Court of Appeals, 183 SCRA 360

SIMEX INTERNATIONAL (MANILA), INCORPORATED, vs. CA and TRADERS ROYAL BANK CRUZ, J.: 1. Question of damages, specifically moral and exemplary damages. 2. Negligence of the private respondent has already been established. 3. Petitioner – private corporation engaged in the exportation of food products (United States, Canada and the Middle East) - purchased by the petitioner on credit. It is also a depositor of the respondent bank and maintained a checking account in Romulo Avenue, Cubao, Quezon City. 4. May 25, 1981, PET deposited to P100,000.00, to balance of P190,380.74. 1 PET issued several checks against its deposit but was surprised to learn later that they had been dishonored for insufficient funds. 5. Checks are ff: a) May 29, 1981, in favor of California Manufacturing Company, Inc. for P16,480.00: b) May 28, 1981, in favor of the BIR in the amount of P3,386.73: c) June 4, 1981, in favor of Mr. Greg Pedreño in the amount of P7,080.00; d) June 5, 1981, in favor of Malabon Longlife Trading Corporation in the amount of P42,906.00: e) June 10, 1981, in favor of Malabon Longlife Trading Corporation in the amount of P12,953.00: f) June 9, 1981, in favor of Sea-Land Services, Inc. in the amount of P27,024.45: g) June 10, 1981, in favor of Baguio Country Club Corporation in the amount of P4,385.02: and h) June 9, 1981, in favor of Enriqueta Bayla in the amount of P6,275.00. 6. California Manufacturing Corporation sent on June 9, 1981, a letter of demand to the petitioner, threatening if the dishonored check issued to it was not made good and WITHHELD delivery of the order made by the petitioner.

1

7. Malabon Long Life Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10, 1981 8. The petitioner complained to the respondent bank on June 10, 1981. 9. Investigation disclosed that the sum of P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it. The error was rectified on June 17, 1981, and the dishonored checks were paid after they were re-deposited. 10. Petitioner demanded reparation from the respondent bank for its "gross and wanton negligence." This demand was not met. 11. The petitioner then filed a complaint in the then CFI RIZAL claiming from the private respondent MD of P1,000,000.00 and ED of P500,000.00, plus 25% attorney's fees, and costs. 12. CFI RULED that moral and exemplary damages were not called for under the circumstances. But SINCE plaintiff's right had been violated, he ordered the defendant to pay nominal damages in the amount of P20,000.00 plus P5,000.00 attorney's fees and costs 13. AFFIRMED BY CA – no MD proof of bad faith - It credited the said amount in favor of plaintiffappellant in less than a month. The dishonored checks were eventually paid. These circumstances negate any imputation or insinuation of malicious, fraudulent, wanton and gross bad faith and negligence on the part of the defendant-appellant. 14. SC SC disagrees on some conclusions. Negligence of Bank had been brushed off rather lightly as. 

ON MD o The error should not have been committed in the first place. o The respondent bank has not even explained why it was committed at all. It is true that the dishonored checks were, as the Court of Appeals put it, "eventually" paid. Took almost a month when, properly, the checks should have been paid immediately upon presentment. o The initial carelessness of the respondent bank, aggravated by the lack of promptitude in repairing its error, justifies the grant of moral damages. o Article 2205 of the Civil Code provides that actual or compensatory damages may be received "(2) for injury to the plaintiff s business standing or commercial credit." o Moral damages are not awarded to penalize the defendant but to compensate the plaintiff for the injuries he may have suffered. Here, the petitioner is seeking such damages for the prejudice sustained by it as a result of the private respondent's fault. o A corporation is not as a rule entitled to moral damages because, not being a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is where the corporation has a good reputation that is debased, resulting in its social humiliation. o PET did suffer injury because of the private respondent's negligence that caused the dishonor of the checks issued by it. o HENCE award of nominal damages in the sum of P20,000.00 was not the proper relief to which the petitioner was entitled. Under Article 2221 of the Civil Code, "nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him." PET has indeed incurred loss through the fault of the private respondent, the proper remedy is the award to it of moral damages, which we impose, in our discretion, in the same amount of P20,000.00.



ON EXEMPLARY (IMPORTANT) o Provisions  Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages.  Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.

2

o

o o

o o

o

BANKING is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, most of all, confidence. As for business entities like the petitioner, the bank is a trusted and active associate that can help in the running of their affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day transactions like the issuance or encashment of checks. 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. The point is that as a business affected with public interest and because of the nature of its functions, 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. HERE it is obvious that the respondent bank was remiss in that duty and violated that relationship. What is especially deplorable is that, having been informed of its error in not crediting the deposit in question to the petitioner, the respondent bank did not immediately correct it but did so only one week later or twenty-three days after the deposit was made SC IMPOSES ED of P50,000.00, "by way of example or correction for the public good," in the words of the law.

Phil. Banking Corp. v. CA, G.R. No. 127469, January 15, 2004

PHILIPPINE BANKING CORPORATION, vs. CA and LEONILO MARCOS CARPIO, J.: 1. On 30 August 1989, Leonilo Marcos filed with the trial court a Complaint for Sum of Money with Damages3 against petitioner Philippine Banking Corporation ("BANK") alleging that sometime in 1982, the BANK through Florencio B. Pagsaligan ("Pagsaligan"), one of the officials of the BANK and a close friend of Marcos, persuaded him to deposit money with the BANK. 2. Marcos made a time deposit with the BANK on two occasions. The BANK did not issue an official receipt for this time deposit but it acknowledged a deposit of this amount through a letter-certification Pagsaligan issued. The time deposits earned interest at 17% per annum and had a maturity period of 90 days. 3. Marcos alleged that Pagsaligan kept the various time deposit certificates on the assurance that the BANK would take care of the certificates, interests and renewals. Marcos did not received the principal amount or its interest. 4. March 1983, Marcos wanted to withdraw from the BANK his time deposits and the accumulated interests to buy materials for his construction business. However, the BANK through Pagsaligan convinced Marcos to keep his time deposits intact and instead to open several domestic letters of credit. Since Marcos trusted the BANK and Pagsaligan, he signed blank printed forms of the application for the domestic letters of credit, trust receipt agreements and promissory notes. 5. Marcos executed three Trust Receipt Agreements totalling P851,250, 6. Marcos believed that he and the BANK became creditors and debtors of each other. Marcos expected the BANK to offset automatically a portion of his time deposits and the accumulated interest with the amount covered by the three trust receipts totalling P851,250 less the 30% marginal deposit that he had paid. Marcos argued that if 3

7.

8. 9. 10.

11.

12.

only the BANK applied his time deposits and the accumulated interest to his remaining obligation, which is 70% of the total amount of the letters of credit, he would have paid completely his debt. Marcos further pointed out that since he did not apply for a renewal of the trust receipt agreements, the BANK had no right to renew the same. BANK 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. Marcos also denied that he obtained another loan from the BANK for P500,000. The BANK denied the allegations in the complaint. The BANK believed that the suit was Marcos’ desperate attempt to avoid liability under several trust receipt agreements that were the subject of a criminal complaint. When Marcos defaulted in the payment of Promissory, the BANK debited his time deposits and applied the same to the obligation that is now considered fully paid.8 The BANK insisted that the Deed of Assignment authorized it to apply the time deposits in payment of Promissory Note. Trial court rendered its decision in favor of Marcos. Aggrieved, the BANK appealed to the Court of Appeals. a. The trial court noted the BANK’s "defective" documentation of its transaction with Marcos. First, the BANK was not in possession of the original copies of the documents like the loan applications. Second, the BANK did not have a ledger of the accounts of Marcos or of his various transactions with the BANK. Last, the BANK did not issue a certificate of time deposit to Marcos. Again, the trial court attributed the BANK’s lapses to Pagsaligan’s scheme to defraud Marcos of his time deposits. b. The trial court also took note of Pagsaligan’s demeanor on the witness stand. Pagsaligan evaded the questions by giving unresponsive or inconsistent answers compelling the trial court to admonish him. When the trial court ordered Pagsaligan to produce the documents, he "conveniently became sick"15 and thus failed to attend the hearings without presenting proof of his physical condition. c. The trial court disregarded the BANK’s assertion that the time deposits were converted into a savings account at 14% or 10% per annum upon maturity. The BANK never informed Marcos that his time deposits had already matured and these were converted into a savings account. As to the interest due on the trust receipts, the trial court ruled that there is no basis for such a charge because the documents do not stipulate any interest. On 10 December 1996, the Court of Appeals modified the decision of the trial court by reducing the amount of actual damages and deleting the attorney’s fees awarded to Marcos.

SC

The BANK’s Fiduciary Duty to its Depositor 



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 have no evidentiary value. 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 Appeals31 requiring banks to "treat the accounts 4





 





of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship." Although RA No. 8791 took effect only in the year 2000, 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. 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 people in the honesty and efficiency of banks. 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. Assuming Pagsaligan was behind the spurious promissory note, the BANK would still be accountable to Marcos. We have held that a bank is liable for the wrongful acts of its officers done in the interest of the bank or in their dealings as bank representatives but not for acts outside the scope of their authority.

The Existence of Promissory Note No. 20-979-83 was not Proven 

The BANK failed to produce the best evidence — the original copies of the loan application and promissory note. The Best Evidence Rule provides that the court shall not receive any evidence that is merely substitutionary in its nature, such as photocopies, as long as the original evidence can be had.

Total Amount Due to Marcos 





Marcos claimed that the certificates of time deposit were with Pagsaligan for safekeeping. Marcos was only able to present the receipt dated 11 March 1982 and the lettercertification dated 12 March 1982 to prove the total amount of his time deposits with the BANK. The total amount of time deposits of Marcos as of 12 March 1982 is P764,897.67, inclusive of the sum of P664,987.67 that Marcos placed on time deposit on 11 March 1982. This is plainly seen from the use of the word "aggregate." We modify the amount that the Court of Appeals ordered the BANK to return to Marcos. The appellate court did not offset Marcos’ outstanding debt with the BANK covered by the three trust receipt agreements even though Marcos admits his obligation under the three trust receipt agreements. The total amount of the trust receipts is P851,250 less the 30% marginal deposit of P255,375 that Marcos had already paid the BANK. This reduced Marcos’ total debt with the BANK to P595,875 under the trust receipts. The BANK and Marcos expressly agreed in writing on the payment of interest without, however, specifying the rate of interest. We, therefore, impose the legal interest of 12% per annum, the legal interest for the forbearance of money,47 on each of the three trust receipts.

5

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner Philippine Banking Corporation is ordered to return to private respondent Leonilo Marcos P500,404.11, the remaining principal amount of his time deposits, with interest at 17% per annum from 30 August 1989 until full payment. Petitioner Philippine Banking Corporation is also ordered to pay to private respondent Leonilo Marcos P211,622.96, the accumulated interest as of 30 August 1989, plus 12% legal interest per annum from 30 August 1989 until full payment. Petitioner Philippine Banking Corporation is further ordered to pay P100,000 by way of moral damages and P20,000 as exemplary damages to private respondent Leonilo Marcos.

C. Nature of Business 1. Fiduciary in nature and Impressed with public interest Citibank v. Dinopol, G.R. No. 188412, November 22, 2010

CITIBANK, N.A., vs. ATTY. ERNESTO S. DINOPOL MENDOZA, J.: 1. December 1996, Atty. Dinopol availed of Citibank’s "Ready Credit Checkbooks" advertised offer. Citibank granted Atty. Dinopol a credit line limit of ₱30,000.00. For said reason, Atty. Dinopol received from Citibank a check booklet consisting of several checks with a letter stating that the account was "ready to use." Later, Citibank billed Atty. Dinopol the sum of ₱1,545.00 representing Ready Credit Documentary Stamp and Annual Membership Fee as reflected in his Statement of Account dated December 26, 1996. Thereafter, Citibank billed him the amount of ₱1,629.21 for interest and charges as well as late payment charges as stated in his Statement of Account dated January 26, 1997. Atty. Dinopol paid said interests and charges on February 26, 1997. 2. March 6, 1997, Atty. Dinopol issued a check using his credit checkbook account with Citibank in the amount of ₱30,000.00 in favor of one Dr. Marietta M. Geonzon (Dr. Geonzon) for investment purposes in her restaurant business. 3. However, when the check was deposited on March 12, 1997, it was dishonored for the reason, "Drawn Against Insufficient Funds" or "DAIF." Humiliated by the dishonor and the demand notice he received from Dr. Geonzon, 4. Atty. Dinopol filed a civil action for damages against Citibank before the RTC. 5. Citibank averred that it was completely justified in dishonoring Atty. Dinopol’s check because the account did not have sufficient funds at the time it was issued. Citibank explained that when said check in the amount of ₱30,000.00 was issued, his credit line was already insufficient to accommodate it. 6. His credit limit had been reduced by the interests and penalty charges imposed as a result of his late payment. 7. RTC rendered a decision against Citibank, the dispositive portion of which reads: 8. That Citibank failed to completely disclose the terms and conditions of its "Citybank Ready Credit Account" when Atty. Dinopol applied for it. Only the general provisions of the agreement were explained to him. The Standard Handbook Guide which would have guided him as to fees, charges and penalties that could be billed by the bank was never given to him. 9. RTC found that Atty. Dinopol was given a "go signal" by Citibank when he informed the latter that he was going to issue a check in the amount of ₱30,000.00. Citibank failed to advise him that he still had an outstanding balance of ₱58.33 as of February 26, 1997. Had he been informed, he could have paid such a small amount and avoided the 6

dishonor of his check. In fact, when he issued the check on March 6, 1997, no bill had yet been sent to him for the amount of ₱58.33 because he had just paid ₱1,629.00 on February 26, 1997. The billing statement, if any, would still be due on March 15, 1997. On March 11, 1997, when the check was presented for payment, Citibank could have called his attention and he could have immediately remitted the amount of ₱58.00 within the same banking day so that the check would be honored. 10. CA affirmed the RTC decision with modification. It increased the award of moral damages from ₱100,000.00 to ₱500,000.00 and awarded exemplary damages in the amount of ₱50,000.00. SC Position of the Petitioner 



Citibank asserts that the dishonor of the subject check was due to Atty. Dinopol’s failure to timely settle his outstanding obligations despite receipt of his statements of account. It cannot, therefore, be faulted because it was just exercising its legal right under the terms and conditions of the Ready Credit Facility. It did not act fradulently or in bad faith. No proof was shown that the dishonor of the subject check was carried out in an arbitrary, capricious, and malicious manner. Finally, Citibank advances that Atty. Dinopol, as a practising lawyer, is presumed to have carefully considered, known, and understood the provisions and legal effects of the contracts he entered into.

Position of the Respondent  



The bank failed to prove that a copy of the guidebook was sent to him. He also contends that the dishonor of the check due to the non-payment of the penalty charges and interests of ₱58.33 was uncalled for. The payment of said amount was not yet due on March 6, 1997 when the check was issued and even on March 12, 1997 when it was dishonored. The statement of account would show that the sum of ₱58.33 was due only on March 19, 1997. This only shows that his account was not yet delinquent, Lastly, Atty. Dinopol charges Citibank for having acted in bad faith when it dishonered the subject check for a meager amount of ₱58.33 and for imposing highly questionable charges against his credit facility account.

SC Citibank was liable to Atty. Dinopol for moral and exemplary damages and attorney’s fees.  



Except for its bare allegation, no other substantial proof was presented by Citibank that the guidebook was indeed sent to Atty. Dinopol. In fact, its witness, Hernando, admitted that the subject handbook was not at all delivered to him.1avvphi1 When Atty. Dinopol issued the subject check for the full amount of ₱30,000.00 and Citibank dishonored it because of insufficiency of funds by ₱58.33 representing the amount charged on his credit line for penalties and charges, the said amount was not yet overdue. Citibank failed to consider the fact that Atty. Dinopol issued the check on March 6, 1997 after paying the full amount of ₱1,629.21 and clearing with the bank if he could issue a check in the amount of ₱30,000.00. Citibank did not even refute the allegation that it gave Atty. Dinopol the go-signal to issue such a check.

7

SC cannot sanction the modification by the CA, under the circumstances attending the case. It is of the considered view that the award of the RTC would suffice subject, of course, to the payment of legal interest. In any event, Citibank should have been more cautious in dealing with its clients since its business is imbued with public interest. Banks must always act in good faith and must win the confidence of clients and people in general. It is irrelevant whether the client is a lawyer or not. It cannot be over emphasized that the banking business is impressed with public interest. Of paramount importance is the trust and confidence of the public in general in the banking industry. Consequently, the diligence required of banks is more than that of a Roman pater familias or a good father of a family. The highest degree of diligence is expected. In its declaration of policy, the General Banking Law of 2000 requires of banks the highest standards of integrity and performance. Needless to say, a bank is "under obligation to treat the accounts of its depositors with meticulous care." The fiduciary nature of the relationship between the bank and the depositors must always be of paramount concern.

Far East Bank v. Tentmakers, G.R. No. 171050, July 4, 2012

FAR EAST BANK AND TRUST COMPANY (now Bank of the Philippine Islands), vs. TENTMAKERS GROUP, INC., GREGORIA PILARES SANTOS and RHOEL P. SANTOS MENDOZA, J.: 1. The signatures of respondents, Gregoria Pilares Santos (Gregoria) and Rhoel P. Santos (Rhoel), President and Treasurer of respondent Tentmakers Group, Inc. (TGI) respectively, appeared on the three (3) promissory notes for loans contracted with petitioner Far East Bank and Trust Company (FEBTC), now known as Bank of the Philippine Islands (BPI). 2. On August 7, 1996, Promissory Note for ₱ 140,000.00, a thirty (30)-day note, was executed allegedly in the same manner as the first two promissory notes. 3. After a futile demand, FEBTC filed a Complaint before the RTC for the payment of the principal of the promissory notes which amounted to a total of ₱ 887,613.37 inclusive of interest, penalty charges and attorney’s fees. In the said complaint, Gregoria and Rhoel were impleaded to be jointly and severally liable with TGI for the unpaid promissory notes. 4. RESPS alleged that FEBTC had no right at all to demand from them the amount being claimed; that records would show the absence of any resolution coming from the Board of Directors of TGI, authorizing the signatories to receive the proceeds and the FEBTC to release any loan; that FEBTC violated the rules and regulations of the Central Bank as well as its own policy when it failed to require the respondents to submit the said board resolution, it allegedly being a condition sine qua non before granting a loan to a corporate entity, for the protection of the depositors/borrowers; that it was FEBTC’s branch manager, a certain Liza Liwanag, who represented to Gregoria and Rhoel that they could avail of additional working capital for TGI by having them sign the promissory notes in advance, which were blank at the time, so they would be ready for future use; that Liza Liwanag’s act of not requiring the aforesaid board resolution was against bank policy; that this irregularity caused damage to FEBTC with its own employee defrauding the bank; that the respondents had no knowledge that a loan had been taken out in its name; and that FEBTC could not present any proof that the 8

respondents duly received the various amounts reflected in the three (3) promissory notes.7 5. RTC rendered its decision in favor of FEBTC, a. It ruled that the liability of the individual respondents, Gregoria and Rhoel, was based on their having assumed personal and solidary liability for the amounts represented under the promissory notes as shown by their respective signatures appearing in the aforesaid documents. It upheld the validity and binding effect of the PNs as the respondents did not deny the due execution thereof or their signatures appearing therein. 6. CA reversed and set aside the RTC judgment. a. The CA, taking judicial notice of the usual banking practice involving loan agreements, held that although there were promissory notes, there was no board resolution/corporate secretary’s certificate designating the signatories for the corporation, and there was no disclosure that the signatories acted as agents thereof. b. There were no collaterals either to ensure the payment of the loan. In the conferment of such unsecured loans, FEBTC, its bank manager in particular, also failed to comply with the guidelines set forth under the Manual of Regulations for Banks, when it allegedly approved and released the subject loans to Gregoria and Rhoel. c. These deficiencies, according to the CA, cast doubt on the loan transaction which appeared more like an "inside job" with the branch manager or bank employee securing the signatures of Gregoria and Rhoel, after which the said manager/employee simply "filled in the blanks." SC ISSUE to be resolved is whether the CA rendered a decision that is grounded entirely on speculations, surmises, or conjectures when it ruled in favor of the respondents. 



FEBTC contends that the evidence on record showed its compliance with the banking rules and regulations through board resolutions issued by TGI fully authorizing Gregoria and Rhoel to transact business with it. It submits that the materiality of the said board resolutions was already ruled upon by the RTC. It argues that the inference of an "inside job" by the CA was a mere speculation not supported by any credible evidence. It further argues that the CA erred when it gave weight to the allegation that third persons had received the proceeds of the promissory notes because the proceeds were credited to the account of TGI. Respondents counter that they did not receive the proceeds of the three promissory notes. The same argument was reiterated in their Memorandum. That FEBTC miserably failed to present any check, voucher, or any document to show actual receipt by them of the aforementioned amounts from the bank. They argue that the RTC gravely erred in finding Gregoria and Rhoel personally liable for the amounts under the promissory notes, they being mere signatories of the company’s account, acting in behalf of TGI, which was the one principally transacting business with FEBTC. This, the respondents say, was very clear from the wordings of the Certificate of Board Resolution of TGI submitted to FEBTC.

SC IFO RESPONDENT 

Contrary to the claim of FEBTC, nowhere in the records of this case can one find a document evidencing that Gregoria and Rhoel, or TGI for that matter, received the proceeds of the three (3) promissory notes. Moreover, FEBTC violated the rules and regulations of the Bangko Sentral ng Pilipinas (BSP) by its failure to strictly follow the

9

guidelines in the conferment of unsecured loans set forth under the Manual of Regulations for Banks (MORB), to quote: o o

o

Sec. X319 Loans Against Personal Security. The following regulations shall govern credit accommodations against personal security granted by banks.24 § X319.1 General guidelines. Before granting credit accommodations against personal security, banks must exercise proper caution by ascertaining that the borrowers, co-makers, endorsers, sureties and/or guarantors possess good credit standing and are financially capable of fulfilling their commitments to the bank. For this purpose, banks shall keep records containing information on the credit standing and financial capacity of credit applicants. § X319.2 Proof of financial capacity of borrower. In addition to the usual personal information sheet about the borrower, banks shall require that an application for a credit accommodation against personal security be accompanied by: a) A copy of the latest income tax returns of the borrower and his co-maker duly stamped as received by the BIR; and b) If the credit accommodation exceeds ₱ 500,000.00, a copy of the borrower’s balance sheet duly certified by an Independent Certified Public Accountant (CPA), and in case he is engaged in business, also a copy of the profit and loss statement duly certified by a CPA.

The above documents shall be required to be submitted annually for as long as the credit accommodation is outstanding. 









A perusal of the evidentiary records discloses that none of the above-enumerated guidelines was complied with by FEBTC, particularly the bank manager. As the CA stated, banking institutions usually require the following documentations involving loan agreements to be presented before approving any loan or release of the proceeds thereof: In this case, although there were promissory notes, there was no proof of receipt by the respondents of the same amounts reflected in the said promissory notes. There was no Board Resolution/Corporate Secretary’s Certificate either, designating the authorized signatories for the corporation specifically for the loan covered by the Promissory Notes. Even granting arguendo that the two Board Resolutions (Exhibits "A" and "B") dated March 3, 1995 and April 11, 1995, respectively, authorizing Gregoria and Rhoel to transact business with FEBTC, were binding, still the petition would not prosper as there was no evidence of crediting of the proceeds of the promissory notes. Further, there were no collaterals, real estate mortgage, chattel mortgage or pledges to ensure the payment of the loan. The Court is in accord with the CA when the latter wrote: The bank was remiss in the surveillance of its people because the bank auditors could have easily "spotted" the anomaly that the loan transaction: (1) did not have any Board Resolution/Corporate Secretary’s Certificate; (2) did not have collateral/Real Estate Mortgage/Chattel Mortgage/Pledge and was given "clean;" and (3) there was no disclosure that TGI was the principal involved as borrower – all in violation of accepted banking rules and practices. Time and again, the Supreme Court has stressed that banking business is so impressed with public interest where the trust and confidence of the public in general is of paramount importance such that the appropriate standard of diligence must be very high, if not the highest degree of diligence. A bank’s liability as obligor is not merely vicarious but primary, wherein the defense of exercise of due diligence in the selection and supervision of its employees is of no moment. FEBTC miserably failed to present any document that would serve as basis for its claim that the proceeds of the three promissory notes were indeed credited to the account of the respondents. Indeed, the Court finds no evidentiary basis to sustain the RTC’s 10



finding of actual receipt by TGI of the amounts stated in the promissory notes. Court affirms the CA decision for being more in accord with the facts and evidence on record. It cannot be over emphasized that the banking business is impressed with public interest. Of paramount importance is the trust and confidence of the public in general in the banking industry. Consequently, the diligence required of banks is more than that of a Roman pater familias or a good father of a family. The highest degree of diligence is expected.In handling loan transactions, banks are under obligation to ensure compliance by the clients with all the documentary requirements pertaining to the approval and release of the loan applications. For failure of its branch manager to exercise the requisite diligence in abiding by the MORB and the banking rules and practices, FEBTC was negligent in the selection and supervision of its employees.

BPI v. IAC, 206 SCRA 408

BANK OF THE PHILIPPINE ISLANDS, vs. IAC and SPS ARTHUR CANLAS and VIVIENE CANLAS GRIÑO-AQUINO, J.: 1. The respondent spouses, Arthur and Vivienne Canlas, opened a joint current account on April 25, 1977 in the Quezon City branch of the Commercial Bank and Trust Company of the Philippines (CBTC) with an initial deposit of P2,250. Prior thereto, Arthur Canlas had an existing separate personal checking account in the same branch. 2. Sps opened their joint current account, the "new accounts" teller of the bank pulled out from the bank's files the old and existing signature card of respondent Arthur Canlas for Current Account No. 210-442-41 for use as I D and reference. 3. By mistake, she placed the old personal account number of Arthur Canlas on the deposit slip for the new joint checking account of the spouses so that the initial deposit of P2,250 for the joint checking account was miscredited to Arthur's personal account. The spouses subsequently deposited other amounts in their joint account. 4. However, when respondent Vivienne Canlas issued a check for Pl,639.89 in April 1977 and another check for P1,160.00 on June 1, 1977, one of the checks was dishonored by the bank for insufficient funds and a penalty of P20 was deducted from the account in both instances. In view of the overdrawings, the bank tried to call up the spouses at the telephone number which they had given in their application form, but the bank could not contact them because they actually reside in Porac, Pampanga. 5. Sps filed a complaint for damages against CBTC in the Court of First Instance of Pampanga. 6. BPI and CBTC were merged. As the surviving corporation under the merger agreement and under Section 80 (5) of the Corporation Code of the Philippines, BPI took over 7. RTC of Pampanga rendered a decision against BPI. 8. Intermediate Appellate Court deleted the actual damages and reduced the other awards. SC 

The appellate court based its award of moral and exemplary damages, and attorney's fees on its finding that the mistake committed by the new accounts teller of the petitioner constituted "serious" negligence Said court further stressed that it cannot absolve the petitioner from liability for damages to the private respondents, even on the assumption of

11



 



an honest mistake on its part, because of the embarrassment that even an honest mistake can cause its depositors. There is no merit in petitioner's argument that it should not be considered negligent, much less held liable for damages on account of the inadvertence of its bank employee for Article 1173 of the Civil Code only requires it to exercise the diligence of a good father of family. In Simex International (Manila), Inc. vs. Court of Appeals (183 SCRA 360, 367), this Court stressed the fiduciary nature of the relationship between a bank and its depositors and the extent of diligence expected of it in handling the accounts entrusted to its care. The bank is not expected to be infallible but, as correctly observed by respondent Appellate Court, in this instance, it must bear the blame for not discovering the mistake of its teller despite the established procedure requiring the papers and bank books to pass through a battery of bank personnel whose duty it is to check and countercheck them for possible errors. Apparently, the officials and employees tasked to do that did not perform their duties with due care, as may be gathered from the testimony of the bank's lone witness, Antonio Enciso, who casually declared that "the approving officer does not have to see the account numbers and all those things. Those are very petty things for the approving manager to look into" (p. 78, Record on Appeal). Unfortunately, it was a "petty thing," like the incorrect account number that the bank teller wrote on the initial deposit slip for the newly-opened joint current account of the Canlas spouses, that sparked this half-a-million-peso damage suit against the bank. While the bank's negligence may not have been attended with malice and bad faith, nevertheless, it caused serious anxiety, embarrassment and humiliation to the private respondents for which they are entitled to recover reasonable moral damages (American Express International, Inc. vs. IAC, 167 SCRA 209). The award of reasonable attorney's fees is proper for the private respondents were compelled to litigate to protect their interest (Art. 2208, Civil Code). However, the absence of malice and bad faith renders the award of exemplary damages improper (Globe Mackay Cable and Radio Corp. vs. Court of Appeals, 176 SCRA 778).

2. Highest degree of Diligence Comsavings Bank v. Capistrano, G.R. No. 170942, August 28, 2013

COMSAVINGS BANK (NOW GSIS FAMILY BANK), vs. SPS DANILO AND ESTRELLA CAPISTRANO, BERSAMIN, J.: 1. A banking institution serving as an originating bank for the Unified Home Lending Program (UHLP) of the Government owes a duty to observe the highest degree of diligence and a high standard of integrity and performance in all its transactions with its clients because its business is imbued with public interest. 2. Respondents were the owners of a residential lot of the Infant Jesus Subdivision situated in Bacoor, Cavite. Desirous of building their own house on the lot, they availed themselves of the UHLP implemented by the National Home Mortgage Finance Corporation (NHMFC). 3. On May 28, 1992, they executed a construction contract with Carmencita Cruz-Bay, the proprietor of GCB Builders, for the total contract price of ₱265,000.00 with the latter undertaking to complete the construction within 75 days. To finance the construction, GCB Builders facilitated their loan application with Comsavings Bank, an NHFMC-accredited originator. They submitted their record of employment, the 12

4. 5.

6. 7.

8. 9.

10.

11. 12.

13.

14.

amount of their income, and a clearance from the Social Security System (SSS) to the effect that they had no existing loans, among others. On May 28, 1992, they executed in favor of GCB Builders a deed of assignment of the amount of the ₱300,000.00 proceeds of the loan from Comsavings Bank. Comsavings Bank informed respondent Estrella Capistrano that she would have to sign various documents as part of the requirements for the release of the loan. Among the documents was a certificate of house completion and acceptance. Comsavings Bank handed Estrella a letter addressed to GCB Builders informing the latter that respondents had complied with the preliminary requirements of the UHLP, and were qualified to avail themselves of the loan amounting to ₱303,450.00 payable within 25 years at 16% per annum, subject to the following terms and conditions, namely: the signing of mortgage documents, 100% completion of the construction of the housing unit, original certificate of occupancy permit and certification of completion, and submission of house pictures signed by the borrower at the back. On August 10, 1992, Comsavings Bank informed respondents of the approval of an Comsavings Bank had released the total of ₱265,000.00 to GCB Builders as construction cost, respondents inquired from GCB Builder when their house would be completed considering that their contract stipulated a completion period of 75 days. CruzBay gave various excuses for the delay, such as the rainy season, but promised to finish the construction as soon as possible. The year 1992 ended with the construction of the house unfinished. On May 30, 1993, respondents received a letter from NHMFC advising that they should already start paying their monthly amortizations of ₱4,278.00 because their loan had been released on April 20, 1993 directly to Comsavings Bank. On June 1, 1993, Estrella Capistrano went to the construction site and found to her dismay that the house was still unfinished. Respondents sued GCB Builders and Comsavings Bank for breach of contract and damages, praying that defendants be ordered jointly and severally liable: (1) to finish the construction of the house according to the plans and specifications agreed upon at the price stipulated in the construction contract; and (2) to pay them ₱38,450.00 as the equivalent of the mortgage value in excess of the contract price; ₱25,000.00 as actual damages for the expenses incurred by reason of the breach of contract; ₱200,000.00 as moral damages; ₱30,000.00 as attorney’s fees; and ₱50,000.00 as exemplary damages. Respondents amended their complaint to implead NHMFC as ab additional defendant. GCB Builders, Comsavings Bank and NHMFC asserted that the complaint as amended stated no cause of action against them. On its part, GCB Builders claimed that the construction of the house had been completed a long time ago; that respondent had failed, despite demand, to occupy the house and to pay a balance of ₱46,849.94 as of August 23, 1993; and that it had received only ₱239,355.30 out of the ₱303,000.00 loan, inasmuch as the balance went to interim interest, originator fee, service charge and other bank charges. Comsavings Bank averred that respondents were estopped from assailing their signing of the certificate of house acceptance/completion on July 2, 1992 considering that they had the option not to pre-sign the certificate; and that it did not make any representation as to the conditions and facilitation of the loan with NHMFC when it submitted the certificate of house acceptance/completion to NHMFC after the completion of the house on April 20, 1993 because such representations were normal and regular requirements in loan processing of the conduit banks of NHMFC. RTC rendered a decision in favor of respondents. Specifically, it found that although the proceeds of the loan had been completely released, the construction of the house of respondents remained not completed; that the house had remained in the possession of GCB Builders, which had meanwhile leased it to another person; that GCB Builders did not comply with the terms and conditions of the construction contract; and that NHMFC approved the loan in the gross amount of ₱303,450.00, and released 13

₱289,000.00 of that amount to Comsavings Bank on April 20, 1993. It concluded that respondents were entitled to recover from all defendants 15. CA affirmed the RTC but modifying that NHMFC was absolved of liability, and that the moral and exemplary damages were reduced 16. By submitting false or forged documents to the NHMFC, appellant Comsavings Bank violated the warranties contained in the purchase of the loan agreement with appellant NHMFC. SC Issue: Erred in finding petitioner bank liable? 

Comsavings Bank insists on its non-liability, contending that it committed no misrepresentation when it made respondents sign the certificate of house acceptance/completion notwithstanding that the construction of the house had not yet started; that they agreed to pre-sign the certificate

SC DISAGREES 

 





The CA rightfully declared Comsavings Bank solidarily liable with GCB Builders for the damages sustained by respondents. However, we point out that such liability did not arise from Comsavings Bank’s breach of warranties under its purchase of loan agreement with NHMFC. Comsaving Bank’s liability was not based on its purchase of loan agreement with NHMFC but on Article 20 and Article 1170 of the Civil Code o Article 20. Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same. o Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. Based on the provisions, a banking institution like Comsavings Bank is obliged to exercise the highest degree of diligence as well as high standards of integrity and performance in all its transactions because its business is imbued with public interest. Gross negligence connotes want of care in the performance of one’s duties; it is a negligence characterized by the want of even slight care, acting or omitting to act in a situation where there is duty to act, not inadvertently but willfully and intentionally, with a conscious indifference to consequences insofar as other persons may be affected. It evinces a thoughtless disregard of consequences without exerting any effort to avoid them. Comsavings Bank was grossly negligent in its dealings with respondents because it did not comply with its legal obligation to exercise the required diligence and integrity. As a banking institution serving as an originator under the UHLP and being the maker of the certificate of acceptance/completion, it was fully aware that the purpose of the signed certificate was to affirm that the house had been completely constructed according to the approved plans and specifications, and that respondents had thereby accepted the delivery of the complete house. It should have desisted from presenting the certificate to respondents for their signature without such conditions having been fulfilled. Yet, it made respondents sign the certificate (through Estrella Capistrano, both in her personal capacity and as the attorney-in-fact of her husband Danilo Capistrano) despite the construction of the house not yet even starting. Its act was irregular per se because it contravened the purpose of the certificate. Worse, the pre-signing of the certificate was fraudulent because it was thereby enabled to gain in the process the amount of ₱17,306.83 in the form of several deductions from the proceeds of the loan on top of other benefits as an originator bank. 14

  

   

Contrary to the claim of Comsavings Bank, the records contain no showing that respondents had been given the option not to pre-sign the certificate of acceptance/completion. As to the damages that should be awarded to respondents, moral and exemplary damages were warranted. Anxiety and anguish over the incomplete and defective construction of their house, as well as the inconvenience he and his wife experienced because of this suit were not easily probable. The award of moral damages of ₱100,000.00 awarded by the CA as exemplary damages is proper.1âwphi1 With respect to exemplary damages, the amount of ₱50,000.00 awarded by the CA as exemplary damages is sustained. Relevantly, we have held that: However, the award of actual damages amounting to ₱25,000.00 is not warranted. Respondents did not submit any documentary proof, like receipts, to support their claim for actual damages. In lieu of actual damages, therefore, temperate damages of ₱25,000.00 are awarded. Such amount, in our view, is reasonable under the circumstances. Considering that exemplary damages were properly awarded here, and that respondents hired a private lawyer to litigate its cause, we agree with the RTC and CA that the ₱30,000.00 allowed as attorney’s fees were appropriate and reasonable.

Cagungun v. Planters Development Bank, G.R. No. 158674 October 17, 2005

LAPRECIOSISIMA CAGUNGUN, REMEDIOS L. CAGUNGUN, JESUS L. CAGUNGUN, VICENTE L. CAGUNGUN, JR., RICARDO L. CAGUNGUN, EDUARDO L. CAGUNGUN, ROWENA L. CAGUNGUN, ALVIN L. CAGUNGUN and ALMA L. CAGUNGUN, vs. PLANTERS DEVELOPMENT BANK CHICO-NAZARIO, J.: 1. Sps Vicente Cagungun and Lapreciosisima Cagungun (or the Cagungun spouses) filed suit with the RTC Olongapo City against the Country Development Bank (or COUNTRY). 2. It was claimed by the Cagungun spouses and testified to by them and their daughter-in-law Sarah Cagungun, that because of the exigencies of their businesses that required daily deposits of the proceeds and of the trust that they have reposed with COUNTRY and its personnel, they entrusted and left with them their said savings pass books. 3. At least once a day the Branch manager Ruperto Reyes or a certain Bong and Ding would come to get their funds and with the agreement that these would be rounded off and deposited to their account while the odd remainder would be applied to their loan. 4. March 1981 when the Cagungun spouses received a letter from COUNTRY telling them that their loan is past due and payment was demanded. This prompted them to investigate, but this was tedious and difficult because of lack of cooperation and even resistance from COUNTRY. 5. the Cagungun spouses were able to access and pry information that in the year 1979 on the dates of October 8, 18, 20 and 31 and November 15, and December 4 and 8, with the use of withdrawal slips a total of ₱220,000.00 was withdrawn from their Savings Passbook No. 12241-16. These withdrawals were invalid for no such withdrawal was authorized, made or received by the depositors, and the signatures of Vicente Cagungun on the slips were forgeries. 15

6. The lower court ruled, among other things, that the withdrawals from Savings Account No. 12241-16 through seven (7) withdrawal slips4 amounting to ₱220,000.00 were not made by petitioners as the alleged signatures of Vicente Cagungun, Jr. appearing therein were falsified as confirmed by the NBI Handwriting Expert Arcadio Ramos. 7. Lower court held respondent liable to pay moral damages. 8. CA agreed that money was withdrawn from the deposits of petitioners without their authority or knowledge, but held that petitioners are not free from the obligation to pay the admitted loan (₱58,297.16) for though the same was not paid for failure of respondent to comply with the instruction to apply the remainder of the sums deposited to their loan, it remained admittedly an unpaid obligation. It removed the awards for moral and exemplary damages and reduced the awards for attorney’s fees and litigation SC On MD and ED  





 

 

From the foregoing reasons advanced by respondent bank, it is apparent that it is trying to pass all the blame on petitioners for the unauthorized withdrawals amounting to ₱220,000.00 and the non-applications of deposits to their loan. SC disagrees with the bank. The fact that petitioners left the custody of their passbooks to respondent, through its employee O-I-C Ruperto Reyes, and that they entrusted to Bong or Ding their deposits will not excuse respondent from being liable. Petitioners did these things because they trusted and depended on respondent to take care of their accounts with it. If respondent bank was really strict in enforcing the banking rule that the passbook must be kept by the depositor, why did it not do so? For its failure, any anomaly or damage that might result therefrom should be borne by it. The bank was indeed grossly negligent when it allowed the sum of ₱220,000.00 to be withdrawn through falsified withdrawal slips without petitioners’ authority and knowledge and its failure to comply with petitioners’ instruction to apply their deposits on their loan. In so doing, respondent bank breached the trust that petitioners reposed on it. We agree in the findings of the two courts below that the unauthorized transactions were committed by one or some of the employees of respondent bank for which it should be liable. The evidence showed that respondent did not exercise the degree of diligence it ought to have exercised in dealing with its clients -- diligence higher than that of a good father of a family. If only respondent exercised such diligence, no anomaly or irregularity would have happened. Though passed long after the unauthorized withdrawals in this case, the aforequoted provision is a statutory affirmation of Supreme Court decisions already in esse at the time of such withdrawals. In the case at bar, the failure of the bank to prevent seven unauthorized withdrawals from the deposits of petitioners and its non-compliance with petitioners’ instructions regarding the loan payments constitute gross negligence which justifies the award of moral damages. As employer, respondent is liable for the negligence or misdeed of its employees which caused petitioners to have sleepless nights thinking about the threatened foreclosure of their house and lot. In addition, the way respondent gave petitioners a hard time in securing copies of their withdrawal slips and ledgers of their deposits is an indication of bad faith. SC find the sum of f ₱100,000.00 as moral damages is reasonable and is in accord with our rulings in similar cases involving banks’ negligence with regard to the accounts of their depositors. SC disagrees on CA removal of of exemplary damages, we find the same to be not in order and find ₱50,000.00 reasonable.

16



There should be an award of attorney’s fees and litigation expenses. However, the awards of ₱50,000.00 for attorney’s fees and ₱50,000.00 for litigation expenses by the RTC are too much, while the award of ₱30,000.00 of the Court of Appeals for both is too small. In as much as this case has been pending for more than twenty (20) years, the award of ₱25,000.00 for each will be sufficient.

D. What constitutes Banking Republic v. Security Credit and Acceptance Corp., et al., 19 SCRA 58 (1967)

REPUBLIC OF THE PHILIPPINES, vs. SECURITY CREDIT AND ACCEPTANCE CORPORATION, ROSENDO T. RESUELLO, PABLO TANJUTCO, ARTURO SORIANO, RUBEN BELTRAN, BIENVENIDO V. ZAPA, PILAR G. RESUELLO, RICARDO D. BALATBAT, JOSE SEBASTIAN and VITO TANJUTCO JR., CONCEPCION, C.J.: 1. This is an original quo warranto proceeding, initiated by the Solicitor General, to dissolve the Security and Acceptance Corporation for allegedly engaging in banking operations without the authority required therefor by the General Banking Act (Republic Act No. 337). Named as respondents in the petition are, in addition to said corporation, the following, as alleged members of its Board of Directors and/or Executive Officers (above) 2. The record shows that the Articles of Incorporation of defendant corporation1 were registered with the Securities and Exchange Commission on March 27, 1961; that the next day, the Board of Directors of the corporation adopted a set of by-laws,2 which were filed with said Commission on April 5, 1961; 3. That on September 19, 1961, the Superintendent of Banks of the Central Bank of the Philippines asked its legal counsel an opinion on whether or not said corporation is a banking institution, within the purview of Republic Act No. 337; that, acting upon this request, on October 11, 1961, said legal counsel rendered an opinion resolving the query in the affirmative; 4. That in a letter, dated January 15, 1962, addressed to said Superintendent of Banks, the corporation through its president, Rosendo T. Resuello, one of defendants herein, sought a reconsideration of the aforementioned opinion, which reconsideration was denied on March 16, 1962; 5. That, prior thereto, or on March 9, 1961, the corporation had applied with the Securities and Exchange Commission for the registration and licensing of its securities under the Securities Act; that, before acting on this application, the Commission referred it to the Central Bank, which, in turn, gave the former a copy of the above-mentioned opinion, in line with which, the Commission advised the corporation on December 5, 1961, to comply with the requirements of the General Banking Act; 6. That, upon application of members of the Manila Police Department and an agent of the Central Bank, on May 18, 1962, the Municipal Court of Manila issued Search Warrant No. A-1019; that, pursuant thereto, members of the intelligence division of the Central Bank and of the Manila Police Department searched the premises of the corporation and seized documents and records thereof relative to its business operations; 7. That, upon examination and evaluation of said documents and records, the intelligence division of the Central Bank submitted, to the Acting Deputy Governor thereof, a memorandum dated September 10, 1962, finding that the corporation is: a) Performing banking functions, without requisite certificate of authority from the Monetary Board of the Central Bank, in violation of Secs. 2 and 6 of Republic 17



Act 337, in that it is soliciting and accepting deposit from the public and lending out the funds so received; b) Soliciting and accepting savings deposits from the general public when the company's articles of incorporation authorize it only to engage primarily in financing agricultural, commercial and industrial projects, and secondarily, in buying and selling stocks and bonds of any corporation, thereby exceeding the scope of its powers and authority as granted under its charter; consequently such acts are ultra-vires: c) Soliciting subscriptions to the corporate shares of stock and accepting deposits on account thereof, without prior registration and/or licensing of such shares or securing exemption therefor, in violation of the Securities Act; and d) That being a private credit and financial institution, it should come under the supervision of the Monetary Board of the Central Bank, by virtue of the transfer of the authority, power, duties and functions of the Secretary of Finance, Bank Commissioner and the defunct Bureau of Banking, to the said Board, Section 2 of Republic Act No. 337, otherwise known as the General Banking Act, defines the term, "banking institution" as follows: o Sec. 2. Only duly authorized persons and entities may engage in the lending of funds obtained from the public through the receipts of deposits or the sale of bonds, securities, or obligations of any kind and all entities regularly conducting operations shall be considered as banking institutions and shall be subject to the provisions of this Act, of the Central Bank Act, and of other pertinent laws. ...

ANSWER 



In their answer, defendants admitted practically all of the allegations of fact made in the petition. They, however, denied that defendants Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran, Zapa, Balatbat and Sebastian, are directors of the corporation, as well as the validity of the opinion, ruling, evaluation and conclusions, rendered, Defendants averred that, as of July 7, 1961, the Board of Directors of the corporation was composed of defendants Rosendo T. Resuello, Aquilino L. Illera and Pilar G. Resuello; that on July 11, 1962, the corporation had filed with the Superintendent of Banks an application for conversion into a Security Savings and Mortgage Bank, with defendants Zapa, Balatbat, Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran and Sebastian as proposed directors, in addition to the defendants first named above, with defendants Rosendo T. Resullo, Zapa, Pilar G. Resuello, Balatbat and Sebastian as proposed president, vice-president, secretary-treasurer, auditor and legal counsel, respectively; that said additional officers had never assumed their respective offices because of the pendency of the approval of said application for conversion; that defendants Soriano, Beltran, Sebastian, Vito Tanjutco Jr. and Pablo Tanjutco had subsequently withdrawn from the proposed mortgage and savings bank;

Plaintiff 

Plaintiff throug photostat copy, attached to said pleading, of the anniversary publication of defendant corporation showed that defendants Pablo Tanjutco, Arturo Soriano, Ruben Beltran, Bienvenido V. Zapa, Ricardo D. Balatbat, Jose R. Sebastian and Vito Tanjutco Jr. are officers and/or directors thereof; that this is confirmed by the minutes of a meeting of stockholders of the corporation, held on September 27, 1962,



Moreover, it has been held that:

SC

18

An investment company which loans out the money of its customers, collects the interest and charges a commission to both lender and borrower, is a bank. (Western Investment Banking Co. vs. Murray, 56 P. 728, 730, 731; 6 Ariz 215.) o ... any person engaged in the business carried on by banks of deposit, of discount, or of circulation is doing a banking business, although but one of these functions is exercised. (MacLaren vs. State, 124 N.W. 667, 141 Wis. 577, 135 Am. S.R. 55, 18 Ann. Cas. 826; 9 C.J.S. 30.) o Accordingly, defendant corporation has violated the law by engaging in banking without securing the administrative authority required in Republic Act No. 337. That the illegal transactions thus undertaken by defendant corporation warrant its dissolution is apparent from the fact that the foregoing misuser of the corporate funds and franchise affects the essence of its business, that it is willful and has been repeated 59,463 times, and that its continuance inflicts injury upon the public, owing to the number of persons affected thereby. In the case at bar, there is, however, no dispute as to the principal facts or acts performed by the corporation in the conduct of its business. The main issue here is one of law, namely, the legal nature of said facts or of the aforementioned acts of the corporation. For this reason, and because public interest demands an early disposition of the case, we have deemed it best to determine the merits thereof. Wherefore, the writ prayed for should be, as it is hereby granted and defendant corporation is, accordingly, ordered dissolved. o







E. Classification of Banks Rafael A. Morales, The Philippine General Banking Law (Annotated), pp. 1-15

19