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1. BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COURT OF G.R. No. 112392. February 29, 2000 2.





FACTS: Private respondents Eastern Plywood Corporation (Eastern) and Benigno D. Lim (Lim), an officer and stockholder of Eastern, held at least one joint bank account with the Commercial Bank and Trust Co. (CBTC), the predecessor-in-interest of petitioner Bank of the Philippine Islands (BPI). Sometime in March 1975, a joint checking account with Lim in the amount of P120,000.00 was opened by Mariano Velasco with funds withdrawn from the account of Eastern and/or Lim. Various amounts were later deposited or withdrawn from the joint account of Velasco and Lim. Velasco died on 7 April 1977. At the time of his death, the outstanding balance of the account stood at P662,522.87. On 5 May 1977, by virtue of an Indemnity Undertaking executed by Lim for himself and as President and General Manager of Eastern, onehalf of this amount was provisionally released and transferred to one of the bank accounts of Eastern with CBTC. Thereafter, on 18 August 1978, Eastern obtained a loan of P73,000.00 from CBTC as "Additional Working Capital," evidenced by the "Disclosure Statement on Loan/Credit Transaction" (Disclosure Statement) signed by CBTC through its branch manager. . The loan was payable on demand with interest at 14% per annum. For this loan, Eastern issued on the same day a negotiable promissory note for P73,000.00 payable on demand to the order of CBTC with interest at 14% per annum. In the Disclosure Statement, the box with the printed word "UNSECURED" was marked with "X" meaning unsecured, while the line with the words "this loan is wholly/partly secured by" is followed by the typewritten words "Hold-Out on a 1:1 on C/A No. 2310-001-42," which refers to the joint account of Velasco and Lim with a balance of P331,261.44. Eastern and Lim, and CBTC signed another document entitled "Holdout Agreement," dated 18 August 1978, wherein it was stated that "as security for the Loan have offered [CBTC] and the latter accepts a holdout on said [Current Account No. 2310011-42 in the joint names of Lim and Velasco] to the full extent of their alleged interests therein as these may appear as a result of final and definitive judicial action or a settlement between and among the contesting parties thereto." Sometime in 1980, CBTC was merged with BPI. On December 2, 1987, BPI filed with the RTC of Manila a complaint against Lim and Eastern demanding payment of the promissory note for P73,000.00. Defendants Lim and Eastern, in turn, filed a

counterclaim against BPI for the return of the balance in the disputed account subject of the Holdout Agreement and the interests thereon after deducting the amount due on the promissory note. the trial court ruled that "the promissory note in question is subject to the 'hold-out' agreement," and that based on this agreement, "it was the duty of plaintiff Bank [BPI] to debit the account of the defendants under the promissory note to set off the loan even though the same has no fixed maturity." As to the defendants' counterclaim, the trial court, recognizing the fact that the entire amount in question had been withdrawn by Velasco's heirs pursuant to the order of the intestate court in denied it because the "said claim cannot be awarded without disturbing the resolution" of the intestate court. On 23 January 1991, the Court of Appeals rendered a decision affirming the decision of the trial court. it ruled that the settlement of Velasco's estate had nothing to do with the claim of the defendants for the return of the balance of their account with CBTC/BPI as they were not privy to that case, and that the defendants, as depositors of CBTC/BPI, are the latter's creditors; hence, CBTC/BPI should have protected the defendants' interest in Sp. Proc. No. 8959 when the said account was claimed by Velasco's estate. It then ordered BPI "to pay defendants the amount of P331,261.44 representing the outstanding balance in the bank account of defendants." On 22 April 1992, BPI filed the instant petition alleging therein that the Holdout Agreement in question was subject to a suspensive condition the "P331,261.44 shall become a security for respondent Lim's promissory note only if respondents' Lim and Eastern Plywood Corporation's interests to that amount are established as a result of a final and definitive judicial action or a settlement between and among the contesting parties thereto. Issues: can BPI demand payment of the loan of P73,000.00 despite the existence of the Holdout Agreement and is BPI still liable to the private respondents on the account subject of the Holdout Agreement after its withdrawal by the heirs of Velasco. Decision: Yes The collection suit of BPI is based on the promissory note for P73,000.00. On its face, the note is an unconditional promise to pay the said amount, and as stated by the respondent Court of Appeals, further correctly ruled that BPI was not a holder in due course because the note was not indorsed to BPI by the payee, CBTC. Only a negotiation by indorsement could have operated as a valid transfer to make BPI a holder in due course. It acquired the note from CBTC by the contract of merger or sale between the two banks. BPI, therefore, took the note subject to the Holdout Agreement. It is clear from paragraph 02 thereof that CBTC, or BPI as its successor-in-interest, had every right to demand that Eastern and Lim settle their liability under the

promissory note. It cannot be compelled to retain and apply the deposit in Lim and Velasco's joint account to the payment of the note. What the agreement conferred on CBTC was a power, not a duty. Generally, a bank is under no duty or obligation to make the application. To apply the deposit to the payment of a loan is a privilege, a right of set-off which the bank has the option to exercise. Also, paragraph 05 of the Holdout Agreement itself states that notwithstanding the agreement, CBTC was not in any way precluded from demanding payment from Eastern and from instituting an action to recover payment of the loan. What it provides is an alternative, not an exclusive, method of enforcing its claim on the note. When it demanded payment of the debt directly from Eastern and Lim, BPI had opted not to exercise its right to apply part of the deposit subject of the Holdout Agreement to the payment of the promissory note for P73,000.00. Yes. The account was proved and established to belong to Eastern even if it was deposited in the names of Lim and Velasco. As the real creditor of the bank, Eastern has the right to withdraw it or to demand payment thereof. BPI cannot be relieved of its duty to pay Eastern simply because it already allowed the heirs of Velasco to withdraw the whole balance of the account. As early as 12 May 1979, CBTC was notified by the Corporate Secretary of Eastern that the deposit in the joint account of Velasco and Lim was being claimed by them and that one-half was being claimed by the heirs of Velasco. 23 Moreover, the order of the court in Sp. Proc. No. 8959 merely authorized the heirs of Velasco to withdraw the account. BPI was not specifically ordered to release the account to the said heirs; hence, it was under no judicial compulsion to do so. The authorization given to the heirs of Velasco cannot be construed as a final determination or adjudication that the account belonged to Velasco. We have ruled

CITYTRUST BANKING CORPORATION, petitioner, vs. THE INTERMEDIATE APPELLATE COURT and EMME HERRERO, respondents. G.R. No. 84281 May 27, 1994 FACTS: Emme Herrero In her complaintmade regular deposits, starting September of 1979, with petitioner Citytrust Banking Corporation at its Burgos branch in Calamba, Laguna. On 15 May 1980, she deposited with petitioner the amount of Thirty One Thousand Five Hundred Pesos (P31,500.00), in cash, in order to amply cover six (6) postdated checks. When presented for encashment upon maturity, all the checks were dishonored due to "insufficient funds." The last check No. 007400, however, was personally redeemed by private respondent in cash before it could be redeposited. Petitioner asserted that it was due to private respondent's fault that her checks were dishonored. It averred that instead of stating her correct account number, i.e., 29000823, in her deposit slip, she inaccurately wrote 2900823. The Regional Trial Court is rendered in favor of the defendant and against the plaintiff. Petitioner bank concedes that it is its obligation to honor checks issued by private respondent which are sufficiently funded, but, it contends, private respondent has also the duty to use her account in accordance with the rules of petitioner bank to which she has contractually acceded. Among such rules, contained in its "brochures" governing current account deposits. ISSUE: IS CITY TRUST BANKING CORPORATION LIABLE FOR DAMAGES? Decision:

We cannot uphold the position of defendant. For, even if it be true that there was error on the part of the plaintiff in omitting a "zero" in her account number, yet, it is a fact that her name, "Emme E. Herrero", is clearly written on said deposit slip This is controlling in determining in whose account the deposit is made or should be posted. This is so because it is not likely to commit an error in one's name than merely relying on numbers which are difficult to remember, especially a number with eight (8) digits as the account numbers of defendant's depositors. We view the use of numbers as simply for the convenience of the bank but was never intended to disregard the real name of its depositors. The bank is engaged in business impressed with public interest, and it is its duty to protect in return its many clients and depositors who transact business with it We are not persuaded that defendant bank was not free from blame for the fiasco. In the first place, the teller should not have accepted plaintiff's deposit without correcting the account number on the deposit slip which, obviously, was erroneous because, as pointed out by defendant, it contained only seven (7) digits instead of eight (8). Second, the complete name of plaintiff depositor appears in bold letters on the deposit slip (Exh. "B"). There could be no mistaking in her name, and that the deposit was made in her name, "Emma E. Herrero On the other hand, the depositors are not concerned with banking procedure. That is the responsibility of the bank and its employees. Depositors are only concerned with the facility of depositing their money, earning interest thereon, if any, and withdrawing therefrom, particularly businessmen, like plaintiff, who are supposed to be always "on-the-go". Plaintiff's account is a "current account" which should immediately be posted. After all, it does not earn interest. At least, the forbearance should be commensurated with prompt, efficient and satisfactory service. 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.

BPI FAMILY SAVINGS BANK, INC., petitioner, vs. FIRST METRO INVESTMENT CORPORATION, respondent. G.R. No. 132390 May 21, 2004 FACTS: On August 25, 1989, FMIC, through its Executive Vice President Antonio Ong, opened current account and deposited METROBANK check no. 898679 of P100 million with BPI Family Bank (BPI FB) . Ong made the deposit upon request of his friend, Ador de Asis, a close acquaintance of Jaime Sebastian, then Branch Manager of BPI FB San Francisco del Monte Branch. Sebastians aim was to increase the deposit level in his Branch. BPI FB, through Sebastian, guaranteed the payment of P14,667,687.01 representing 17% per annum interest of P100 million deposited by FMIC. The latter, in turn, assured BPI FB that it will maintain its deposit of P100 million for a period of one year on condition that the interest of 17% per annum is paid in advance. This agreement between the parties was reached through their communications in writing. Subsequently, BPI FB paid FMIC 17% interest or P14,667,687.01 upon clearance of the latters check deposit.

However, on August 29, 1989, on the basis of an Authority to Debit signed by Ong and Ma. Theresa David, Senior Manager of FMIC, BPI FB transferred P80 million from FMICs current account to the savings account of Tevesteco Arrastre Stevedoring, Inc. FMIC denied having authorized the transfer of its funds to Tevesteco, claiming that the signatures of Ong and David were falsified. Thereupon, to recover immediately its deposit, FMIC, on September 12, 1989, issued BPI FB check no. 129077 for P86,057,646.72 payable to itself and drawn on its deposit with BPI FB SFDM branch. But upon presentation for payment on September 13, 1989, BPI FB dishonored the check as it was "drawn against insufficient funds Consequently, FMIC filed A COMPLAINT against BPI FB. FMIC FILED an Information for estafa against Ong, de Asis, Sebastian and four others. However, the Information was dismissed on the basis of a demurrer to evidence filed by the accused.


2. Is the bank liable for the unauthorized transfer of respondents funds to Tevesteco? Decision: 1. We hold that the parties did not intend the deposit to be treated as a demand deposit but rather as an interest-earning time deposit not withdrawable any time. When respondent FMIC invested its money with petitioner BPI FB, they intended the P100 million as a time deposit, to earn 17% per annum interest and to remain intact until its maturity date one year thereafter. Ordinarily, a time deposit is defined as "one the payment of which cannot legally be required within such a specified number of days. In contrast, demand deposits are "all those liabilities of the Bangko Sentral and of other banks which are denominated in Philippine currency and are subject to payment in legal tender upon demand by the presentation of (depositors) checks. While it may be true that barely one month and seven days from the date of deposit, respondent FMIC demanded the withdrawal of P86,057,646.72 through the issuance

of a check payable to itself, the same was made as a result of the fraudulent and unauthorized transfer by petitioner BPI FB of its P80 million deposit to Tevestecos savings account. Certainly, such was a normal reaction of respondent as a depositor to petitioners failure in its fiduciary duty to treat its account with the highest degree of care. Under this circumstance, the withdrawal of deposit by respondent FMIC before the one-year maturity date did not change the nature of its time deposit to one of demand deposit. We have held that if a corporation knowingly permits its officer, or any other agent, to perform acts within the scope of an apparent authority, holding him out to the public as possessing power to do those acts, the corporation will, as against any person who has dealt in good faith with the corporation through such agent, be estopped from denying such authority. Petitioner maintains that respondent should have first inquired whether the deposit of P100 Million and the fixing of the interest rate were pursuant to its (petitioners) internal procedures. Petitioners stance is a futile attempt to evade an obligation clearly established by the intent of the parties. What transpires in the corporate board room is entirely an internal matter. Hence, petitioner may not impute negligence on the part of respondents representative in failing to find out the scope of authority of petitioners Branch Manager. Indeed, the public has the right to rely on the trustworthiness of bank managers and their acts. Obviously, confidence in the banking system, which necessarily includes reliance on bank managers, is vital in the economic life of our society Significantly, the transaction was actually acknowledged and ratified by petitioner when it paid respondent in advance the interest for one year. Thus, petitioner is estopped from denying that it authorized its Branch Manager to enter into an agreement with respondents Executive Vice President concerning the deposit with the corresponding 17% interest per annum. 2. Yes. We uphold the finding of both lower courts that petitioner failed to exercise that degree of diligence required by the nature of its obligations to its depositors. A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such account consists only of a few hundred pesos or of million of pesos.10 Here, petitioner cannot claim it exercised such a degree of care required of it and must, therefore, bear the consequence.

JOSEPH E. ESTRADA, petitioner, vs. HON. ANIANO A. DESIERTO G.R. No. 156160 December 9, 2004 Facts: On 23 January 2001, the Bureau of Internal Revenue (BIR) placed petitioner's foreign currency deposit account at Citibank Greenhills Branch under constructive distraint; Contending that the BIR action was unlawful, petitioner filed on 31 January 2001 a complaint against respondent BIR before the Office of the Ombudsman for allegedly violating (a) Section 8 of the Foreign Currency Deposits Act (Republic Act No. 6426); (b) Article 177 of the Revised Penal Code; and (c) Section 3(e) of the Anti-Graft and Corrupt Practices Act (Rep. Act No. 3019); On 17 September 2001, the Evaluation and Preliminary Investigation Bureau (EPIB) of the Office of the Ombudsman issued a Resolution recommending the dismissal of the

aforesaid complaint for want of probable cause to indict respondent bank and BIR officials; On 19 November 2001, Paul Elmer Clemente, Legal Counsel, Acting DirectorOffice of the Chief Legal Counsel (OCLC), issued a Memorandum approving EPIB's recommendation, a copy of which was received by petitioner on 01 February 2002; On 15 February 2002, petitioner filed a Motion for Reconsideration of said Resolution, upon the ground that errors of fact and law were committed prejudicial to the interest of petitioner; On 26 February 2002, respondents EPIB officers issued an order, approved by respondent Desierto, denying petitioner's Motion for Reconsideration, a copy of which was received by petitioner on 06 June 2002;On 12 July 2002, petitioner filed a petition for certiorari under Rule 654 before the Court of Appeals; On 29 July 2002, the Court of Appeals promulgated the assailed resolution dismissing the petition on the ground that it did not fall under its jurisdiction pursuant to Rep. Act No. 6770. The Court of Appeals held Issue: Did BIR violated Section 8 of the Foreign Currency Deposits Act (Republic Act No. 6426)? Decision:

this office in its previous Order dated 20 February 2001, ruled that the absolute confidentiality of foreign currency deposit account provided for under R.A. 6426 does not apply to the foreign currency deposit accounts of herein complainant, since the protection under the said law is intended only for depositors who are non residents and are not engaged in trade and business in the Philippines. In coming out with such ruling, this office has as its basis one of the Whereas clauses of P.D. 1246 which amended Sec. 8 of R.A. 6426. For emphasis, the pertinent provision of the said law is hereby quoted: WHEREAS, in order to assure the development and speedy growth of the Foreign Currency Deposit System and offshore Banking System in the Philippines, certain incentives were provided for under the two systems such as confidentiality of deposits subject to certain exceptions and tax exemptions on the interest of the income of depositors who are nonresidents and are not engaged in trade or business in the Philippines.

, public respondents relied on the "whereas" clause of P.D. No. 1246 which amended Rep. Act No. 6426 and on the Salvacion case to conclude that only non-residents who are not engaged in trade and business are under the mantle of protection of Section 8 of Rep. Act. No. 6426. Assuming that such reliance is erroneous as contended by petitioner, this Court, on petition for certiorari, cannot correct the same as the error is not of a degree that would amount to a clear case of abuse of discretion of the grave

and malevolent kind. It is axiomatic that not every erroneous conclusion of law or fact is abuse of discretion. As adverted to earlier, this Court will interfere in the Ombudsman's findings of fact and conclusions of law only in clear cases of grave abuse of discretion.

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COURT OF APPEALS and BENJAMIN C. NAPIZA, respondents. G.R. No. 112392. February 29, 2000 Facts: On September 3, 1987, private respondent deposited in Foreign Currency Deposit Unit (FCDU) Savings Account No. 028-187[3] which he maintained in petitioner banks Buendia Avenue Extension Branch, Continental Bank Managers Check No. 00014757[4] dated August 17, 1984, payable to "cash" in the amount of Two Thousand Five Hundred Dollars ($2,500.00) and duly endorsed by private respondent on its dorsal side . It appears that the check belonged to a certain Henry Chan who went to the office of private respondent and requested him to deposit the check in his dollar account by way of accommodation and for the purpose of clearing the same. Private respondent acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with the understanding that as soon as the check is cleared, both of them would

go to the bank to withdraw the amount of the check upon private respondents presentation to the bank of his passbook. Using the blank withdrawal slip given by private respondent to Chan, on October 23, 1984, one Ruben Gayon, Jr. was able to withdraw the amount of $2,541.67 from FCDU Savings Account .Notably, the withdrawal slip shows that the amount was payable to Ramon A. de Guzman and Agnes C. de Guzman and was duly initialed by the branch assistant manager, Teresita Lindo On November 20, 1984, petitioner received communication from the Wells Fargo Bank International of New York that the said check deposited by private respondent was a counterfeit check. Consequently, Mr. Ariel Reyes, the manager of petitioners Buendia Avenue Extension Branch, instructed one of its employees, Benjamin D. Napiza IV, who is private respondents son, to inform his father that the check bounced Reyes himself sent a telegram to private respondent regarding the dishonor of the check. In turn, private respondents son wrote to Reyes stating that the check had been assigned "for encashment" to Ramon A. de Guzman and/or Agnes C. de Guzman after it shall have been cleared upon instruction of Chan. He also said that upon learning of the dishonor of the check, his father immediately tried to contact Chan but the latter was out of town Private respondents son undertook to return the amount of $2,500.00 to petitioner bank. On December 18, 1984, Reyes reminded private respondent of his sons promise and warned that should he fail to return that amount within seven (7) days, the matter would be referred to the banks lawyers for appropriate action to protect the banks interest. ISSUE: WAS PETITIONER GROSSLY NEGLIGENT IN ALLOWING THE WITHDRAWAL? Decision:

Yes. In Banco Atlantico v. Auditor General The Court held that the encashment of the checks without prior clearance is "contrary to normal or ordinary banking practice specially so where the drawee bank is a foreign bank and the amounts involved were large." Accordingly, the Court approved the Auditor Generals denial of Banco Atlanticos claim for payment of the value of the checks that was withdrawn by Boncan. In the case at bar, petitioner, in allowing the withdrawal of private respondents deposit, failed to exercise the diligence of a good father of a family. Petitioner violated its own rules by allowing the withdrawal of an amount that is definitely over and above the aggregate amount of private respondents dollar deposits that had yet to be cleared. The banks ledger on private respondents

account shows that before he deposited $2,500.00, private respondent had a balance of only $750.00 From these facts on record, it is at once apparent that petitioners personnel allowed the withdrawal of an amount bigger than the original deposit of $750.00 and the value of the check deposited in the amount of $2,500.00 although they had not yet received notice from the clearing bank in the United States on whether or not the check was funded. While it is true that private respondents having signed a blank withdrawal slip set in motion the events that resulted in the withdrawal and encashment of the counterfeit check, the negligence of petitioners personnel was the proximate cause of the loss that petitioner sustained. Proximate cause, which is determined by a mixed consideration of logic, common sense, policy and precedent, is "that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred.