BANKING CASE DIGESTS | 12/5/16| 1

1.

SIMEX
INTERNATIONAL
(MANILA),
INCORPORATED, Petitioner, v. THE HONORABLE COURT OF
APPEALS and TRADERS ROYAL BANK, Respondents.

FACTS: SIMEX is a private corporation engaged in the exportation of

food products from various local suppliers. Most of its exports are
purchased on credit. SIMEX has a checking account in Traders Royal
Bank. On May 25, 1981, SIMEX deposited P100,000.00, its balance as of
that date amounting to P190,380.74.
Subsequently, SIMEX issued
several checks against its deposit but was surprised to learn later that
they had been dishonored for insufficient funds. As a consequence,
SIMEXs creditors sent letters of demand to SIMEX and also withheld
delivery of the order by SIMEX.
SIMEX complained to Traders bank- Investigation disclosed that the sum
of P100,000.00, deposited by SIMEX 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.SIMEX then
demanded reparation from the bank for its "gross and wanton
negligence." This demand was not met. This prompted SIMEX to file a
complaint for damages.
CFI: Moral and exemplary damages were not called for under the
circumstances. However, observing that SIMEXs right had been violated,
the bank was oredered to pay nominal damages.
CA: CFIs decision was affirmed in toto
ISSUE: WON SIMEX IS ENTITLED TO MORAL AND EXEMPLARY
DAMAGES
HELD:
(A)
MORAL
DAMAGESYES
It is not enough to say that the bank rectified its records and credited the
deposit in less than a month as if this were sufficient repentance. The
error should not have been committed in the first place. The bank has
not even explained why it was committed at all. It is true that the
dishonored checks were, "eventually" paid. However, this took almost a
month when, properly, the checks should have been paid immediately
upon presentment. Hence, the initial carelessness of the bank,
aggravated by the lack of promptitude in repairing its error,
justifies the grant of moral damages. This rather lackadaisical
(meaning:careless) attitude toward the complaining depositor constituted
the gross negligence, if not wanton bad faith.
SIMEX was prejudiced in this case. Its credit line was canceled and its
orders were not acted upon pending receipt of actual payment by the

suppliers. Its business declined. Its reputation was tarnished. Its

standing was reduced in the business community. All this was due to the
fault of the bank which was undeniably remiss in its duty to its client.
Article 2205, CC: actual or compensatory damages may be received" for
injury to the plaintiffs business standing or commercial credit." There is
no question that the SIMEX did sustain actual injury as a result of the
dishonored checks and that the existence of the loss having been
established "absolute certainty as to its amount is not required." Such
injury should bolster all the more the demand for moral damages.
(B)

EXEMPLARY

DAMAGES

YES

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.
The banking system is an indispensable institution in the modern world
and plays a vital role in the economic life of every civilized nation. Even
the humble wage-earner has not hesitated to entrust his lifes savings to
the bank of his choice, knowing that they will be safe in its custody and
will even earn some interest for him. The ordinary person, with equal
faith, usually maintains a modest checking account for security and
convenience in the settling of his monthly bills and the payment of
ordinary expenses. As for business entities, 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 dishonor of a
check without good reason can cause the depositor not a little
embarrassment if not also financial loss and perhaps even civil and
criminal
litigation.
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. Despite having been informed of its error in not
crediting the deposit in question to SIMEX, the bank did not immediately

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correct it but did so only one week later or twenty-three days after the
deposit was made. Also, the record does not contain any satisfactory
explanation of why the error was made in the first place and why it was
not corrected immediately after its discovery. Such ineptness comes
under the concept of the wanton manner contemplated in the Civil Code
that
calls
for
the
imposition
of
exemplary
damages.

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2. PHILIPPINE BANKING CORPORTATION VS COURT OF APPEALS

AND LEONILO MARCOS
G.R. No. 127469, January 15, 2004
Facts:
Leonilo Marcos filed in court a complaint for sum of money with damages
against Phil. Banking Corporation (PBC). Marcos allegedly made a time
deposit in 2 occasions the amt. of P664,897.67 and P764,897.67 through the
persuasion of his friend Pagsaligan, one of the banks officials. The bank
issued receipt for the first deposit while a letter-certification was issued for
his second deposit by Pagsaligan. Pagsaligan kept the various time deposit
certificates. Marcos claimed that from the time of the deposit, he had not
received the principal amount or its interest.
When Marcos wanted to withdraw his time deposit and its accumulated
interest Pagsaligan convinced him to keep his time deposits intact and
instead to open several letters of credit to the bank by executing 3 trust
receipts agreement. Since Marcos trusted the Bank and Pagsaligan, he signed
blank forms for domestic letter of credits, trust receipts agreements and
promissory notes. He was required to deposit 30% of the total amount of
credit and his time deposit will secure the remaining 70% of the letters of
credit.
He is now accusing the bank for unjustly collecting payment without
deducting the 30% of his down payment and charging him with accumulating
interests since his time deposit serves as collateral for his remaining
obligation. He further denied making a loan of P500,000 with 25% interest
per annum covered by a promissory note produced by the bank. The bank
explained that the promissory notes he executed are distinct from the trust
receipt agreement and denied falsifying the promissory note covering for the
loan of P500,000. The evidence presented on the promissory note however is
merely a machine copy of the document. The said loan was already paid by
offsetting it from his time deposit.
The Trial Court ruled in favor of Marcos and directed the PBC to return his
time deposit in the sum of 971, 2922.49 with interest thereon at the legal
rate until fully restituted.
The trial court noted the Banks defective
documentation of its transaction and attributed the Banks lapses to
Pagsaligans scheme to defraud Marcos of his time deposit.
The Court of Appeals, however, differed with the finding of the trial court as
to the amount of time deposits since the certification letter issued was the
aggregate or total amount of the time deposits of Marcos as of that date. CA
modified the decision of the trial court and a new judgment is rendered
ordering PBC to return the time deposit in the sum of P764,897.67 with
interest. Hence this petition.

Issue:
Whether or not the bank failed to take a proper account on Marcos deposits
and payment of his loans.
Held: YES
The SC held that the Bank is liable for offsetting the time deposit of Marcos
to the fictitious promissory note for the 500,000 loan. The court upheld the
findings of the lower court on the discrepancies shown by the machine copy
of the duplicate of the promissory note and the suspicious claim of the bank
that it could not produce the original copy thereof. The mere machine copy of
the document has no evidentiary value before the court. The court held that
the Bank did not forge the promissory note. Pagsaligan did to cover up his
failure to give the proper account of Marcos time deposits. This however
does not excuse the Bank to return to Marcos the correct amount of his time
deposit with interest. Bank has the fiduciary duty before its clients. The
fiduciary nature of banking requires banks to assume a degree higher
than that of a good father of a family. Thus, the banks fiduciary duty
imposes upon it a higher level of accountability than that expected of
depositor.
Its duty is to observe the highest standards of integrity and
performance. By the nature of its business, the Bank should have had in its
possession the copies of the disputed promissory note and the records and
ledgers evidencing the offsetting of the loan with the time deposits of Marcos.
The Bank inexplicably failed to produce the original copies of these
documents. Clearly, the Bank failed to treat the account of Marcos with
meticulous care.
Assuming Pagsaligan is responsible for the spurious promissory note the
court held that a Bank is liable for the wrongful acts of its officers. A banking
corporation is liable to innocent third persons where the representation is
made in the course of its business by an agent acting within the general
scope of his authority even though, in the particular case, the agent secretly
abusing his authority and attempting to perpetrate a fraud upon his principal
or some other person.
The SC affirmed the decision of the CA with modification. The court made the
proper account of the total amount due to Marcos ordering the bank to give
to him the same plus moral and exemplary damages.

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3. G.R. No. 125585

June 8, 2005

HEIRS OF EDUARDO MANLAPAT, represented by GLORIA MANLAPATBANAAG

and
LEON
M.
BANAAG,
JR., Petitioners,
vs.
HON. COURT OF APPEALS, RURAL BANK OF SAN PASCUAL, INC., and
JOSE B. SALAZAR, CONSUELO CRUZ and ROSALINA CRUZ-BAUTISTA,
and the REGISTER OF DEEDS of Meycauayan, Bulacan,Respondents.

Tinga, J.:

Facts:

The controversy involves Lot No. 2204, a parcel of land with an area
of 1,058 square meters, located at Panghulo, Obando, Bulacan. The
property had been originally in the possession of Jose Alvarez,
Eduardos grandfather, until his demise in 1916. It remained
unregistered until 8 October 1976 when OCT No. P-153(M) was
issued in the name of Eduardo pursuant to a free patent issued in
Eduardos name3 that was entered in the Registry of Deeds of
Meycauayan, Bulacan.4 The subject lot is adjacent to a fishpond
owned by one Ricardo Cruz (Ricardo), predecessor-in-interest of
respondents Consuelo Cruz and Rosalina Cruz-Bautista (Cruzes).
Thereafter, two separate contract of sale was entered into by Eduardo
with Ricardo, constituting the area of 603 square meters of the lot,
the first 503 square meters was sold on 19 December 1954, before it
was titled, while the succeeding 50 square meters was sold on 18
March 1981, after it was titled.
In December 1981, Leon Banaag, Jr. (Banaag), as attorney-in-fact of
his father-in-law Eduardo, executed a mortgage with the Rural Bank
of San Pascual, Obando Branch (RBSP), for P100,000.00 with the
subject lot as collateral. Banaag deposited the owners duplicate
certificate of OCT No. P-153(M) with the bank.
Upon learning of their right to the subject lot, the Cruzes immediately
tried to confront petitioners on the mortgage and obtain the
surrender of the OCT. The Cruzes, however, were thwarted in their
bid to see the heirs. On the advice of the Bureau of Lands, NCR
Office, they brought the matter to the barangay captain of Barangay
Panghulo, Obando, Bulacan. During the hearing, petitioners were
informed that the Cruzes had a legal right to the property covered by

OCT and needed the OCT for the purpose of securing a separate title
to cover the interest of Ricardo. Petitioners, however, were unwilling
to surrender the OCT.
Secured copy of OCT from RBSP. Made a photocopy of the same OCT.
Showed the copy to the Registry of Deeds which advice them to
make a subdivision plan to segregate their interest in the whole
property.
They asked the opinion of Land Registration Officer, who agreed with
the advice given by the Registry of Deeds. Made a subdivision plan
with the help of 2 geodetic engineers. Presented the plan to the Land
Management Bureau who approved of the same plan.
After the Cruzes presented the owners duplicate certificate, along
with the deeds of sale and the subdivision plan, the Register of Deeds
cancelled the OCT and issued in lieu thereof TCT No. T-9326-P(M)
covering 603 square meters of Lot No. 2204 in the name of Ricardo
and TCT No. T-9327-P(M) covering the remaining 455 square meters
in the name of Eduardo.
On 9 August 1989, the Cruzes went back to the bank and
surrendered to Salazar TCT No. 9327-P(M) in the name of Eduardo
and retrieved the title they had earlier given as substitute collateral.
After securing the new separate titles, the Cruzes furnished
petitioners with a copy of TCT No. 9327-P(M) through
the barangay captain and paid the real property tax for 1989.
n October of 1989, Banaag went to RBSP, intending to tender full
payment of the mortgage obligation. It was only then that he learned
of the dealings of the Cruzes with the bank which eventually led to
the subdivision of the subject lot and the issuance of two separate
titles thereon. In exchange for the full payment of the loan, RBSP
tried to persuade petitioners to accept TCT No. T-9327-P(M) in the
name of Eduardo.
The trial court found that petitioners were entitled to the reliefs of
reconveyance and damages. On this matter, it ruled that petitioners
were bona fide mortgagors of an unclouded title bearing no
annotation of any lien and/or encumbrance. This fact, according to
the trial court, was confirmed by the bank when it accepted the
mortgage unconditionally on 25 November 1981. It found that
petitioners were complacent and unperturbed, believing that the title
to their property, while serving as security for a loan, was safely
vaulted in the impermeable confines of RBSP. To their surprise and
prejudice, said title was subdivided into two portions, leaving them a
portion of 455 square meters from the original total area of 1,058
square meters, all because of the fraudulent and negligent acts of

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respondents and RBSP. The trial court ratiocinated that even

assuming that a portion of the subject lot was sold by Eduardo to
Ricardo, petitioners were still not privy to the transaction between
the bank and the Cruzes which eventually led to the subdivision of
the OCT into TCTs No. T-9326-P(M) and No. T-9327-P(M), clearly to
the damage and prejudice of petitioners.
The CA reversed the RTC decision. The appellate court ruled that
petitioners were not bona fide mortgagors since as early as 1954 or
before the 1981 mortgage, Eduardo already sold to Ricardo a portion
of the subject lot with an area of 553 square meters. This fact, the
Court of Appeals noted, is even supported by a document of sale
signed by Eduardo Jr. and Engracia Aniceto, the surviving spouse of
Eduardo, and registered with the Register of Deeds of Bulacan. The
appellate court also found that on 18 March 1981, for the second
time, Eduardo sold to Ricardo a separate area containing 50 square
meters, as a road right-of-way. Clearly, the OCT was issued only after
the first sale. It also noted that the title was given to the Cruzes by
RBSP voluntarily, with knowledge even of the banks counsel. Hence,
the imposition of damages cannot be justified, the Cruzes themselves
being the owners of the property. Certainly, Eduardo misled the bank
into accepting the entire area as a collateral since the 603-square
meter portion did not anymore belong to him. The appellate court,
however, concluded that there was no conspiracy between the bank
and Salazar.

Where the party has knowledge of a prior existing interest which is

unregistered at the time he acquired a right to the same land, his knowledge
of that prior unregistered interest has the effect of registration as to him.

Issue: W/N the mortgage of the entire property, with the inclusion of the
disputed portion
of Ricardos interest, is valid

(3) That the persons constituting the pledge or mortgage have

the free disposal of their property, and in the absence thereof,
that they be legally authorized for the purpose.

Held:
A careful perusal of the evidence on record reveals that the Cruzes have
sufficiently proven their claim of ownership over the portion of Lot No. 2204
with an area of 553 square meters. The duly notarized instrument of
conveyance was executed in 1954 to which no less than Eduardo was a
signatory. The execution of the deed of sale was rendered beyond doubt by
Eduardos admission in his Sinumpaang Salaysay dated 24 April 1963.35These
documents make the affirmance of the right of the Cruzes ineluctable.
Registration is not a requirement for validity of the contract as between the
parties, for the effect of registration serves chiefly to bind third persons. The
principal purpose of registration is merely to notify other persons not parties
to a contract that a transaction involving the property had been entered into.

Further, the heirs of Eduardo cannot be considered third persons for purposes
of applying the rule. The conveyance shall not be valid against any person
unless registered, except (1) the grantor, (2) his heirs and devisees, and (3)
third persons having actual notice or knowledge thereof. Not only are
petitioners the heirs of Eduardo, some of them were actually parties to
the Kasulatan executed in favor of Ricardo. Thus, the annotation of the
adverse claim of the Cruzes on the OCT is no longer required to bind the
heirs of Eduardo, petitioners herein.
The requirements of a valid mortgage are clearly laid down in Article 2085 of
the New Civil Code, viz:
ART. 2085. The following requisites are essential to the contracts of pledge
and mortgage:
(1) That they be constituted to secure the fulfillment of a principal
obligation;
(2) That the pledgor or mortgagor be the absolute owner of the
thing pledged or mortgaged;

Third persons who are not parties to the principal obligation may secure the
latter by pledging or mortgaging their own property. (emphasis supplied)
For a person to validly constitute a valid mortgage on real estate, he must be
the absolute owner thereof as required by Article 2085 of the New Civil
Code. The mortgagor must be the owner, otherwise the mortgage is void. In
a contract of mortgage, the mortgagor remains to be the owner of the
property although the property is subjected to a lien. A mortgage is regarded
as nothing more than a mere lien, encumbrance, or security for a debt, and
passes no title or estate to the mortgagee and gives him no right or claim to
the possession of the property. In this kind of contract, the property
mortgaged is merely delivered to the mortgagee to secure the fulfillment of

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the principal obligation. Such delivery does not empower the mortgagee to
convey any portion thereof in favor of another person as the right to dispose
is an attribute of ownership. The right to dispose includes the right to donate,
to sell, to pledge or mortgage. Thus, the mortgagee, not being the owner of
the property, cannot dispose of the whole or part thereof nor cause the
impairment of the security in any manner without violating the foregoing
rule. The mortgagee only owns the mortgage credit, not the property itself.

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4. G.R. No. 171460

July 24, 2007

LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN MERCADO,

JR., represented by their Attorney-In-Fact, ALFREDO M. PEREZ,
Petitioners,
vs.
ALLIED BANKING CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
FACTS:
Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her lifetime,
owned several pieces of real property situated in different provinces of the
Philippines.
Respondent, on the other hand, is a banking institution duly authorized as
such under the Philippine laws.
On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in favor of
her husband, Julian D. Mercado (Julian) over several pieces of real property
registered under her name, authorizing the latter to perform several acts.
On the strength of the aforesaid SPA, Julian, on 12 December 1996, obtained
a loan from the respondent in the amount of P3,000,000.00, secured by real
estate mortgage constituted on TCT No. RT-18206 (106338) which covers a
parcel of land with an area of 805 square meters, registered with the
Registry of Deeds of Quezon City (subject property).5
Still using the subject property as security, Julian obtained an additional loan
from the respondent in the sum of P5,000,000.00, evidenced by a Promissory
Note6 he executed on 5 February 1997 as another real estate mortgage
(REM).
It appears, however, that there was no property identified in the SPA as TCT
No. RT 18206 (106338) and registered with the Registry of Deeds of
Quezon City. What was identified in the SPA instead was the property covered
by TCT No. RT-106338 registered with the Registry of Deeds of Pasig.

Subsequently, Julian defaulted on the payment of his loan obligations. Thus,

respondent initiated extra-judicial foreclosure proceedings over the subject
property which was subsequently sold at public auction wherein the
respondent was declared as the highest bidder as shown in the Sheriffs
Certificate of Sale dated 15 January 1998.
PETITIONER:
On 23 March 1999, petitioners initiated with the RTC an action for the
annulment of REM constituted over the subject property on the ground that
the same was not covered by the SPA and that the said SPA, at the time the
loan obligations were contracted, no longer had force and effect since it was
previously revoked by Perla on 10 March 1993, as evidenced by the
Revocation of SPA signed by the latter.8
Petitioners likewise alleged that together with the copy of the Revocation of
SPA, Perla, in a Letter dated 23 January 1996, notified the Registry of Deeds
of Quezon City that any attempt to mortgage or sell the subject property
must be with her full consent documented in the form of an SPA duly
authenticated before the Philippine Consulate General in New York.
In the absence of authority to do so, the REM constituted by Julian over the
subject property was null and void; thus, petitioners likewise prayed that the
subsequent extra-judicial foreclosure proceedings and the auction sale of the
subject property be also nullified.
RESPONDENTS:
The SPA in favor of Julian included the subject property, covered by one of
the titles specified in paragraph 1(b) thereof, TCT No. RT- 106338 registered
with the Registry of Deeds of Pasig (now Makati). The subject property was
purportedly registered previously under TCT No. T-106338, and was only
subsequently reconstituted as TCT RT-18206 (106338). Moreover, TCT No. T106338 was actually registered with the Registry of Deeds of Quezon City
and not before the Registry of Deeds of Pasig (now Makati). Respondent
explained that the discrepancy in the designation of the Registry of Deeds in
the SPA was merely an error that must not prevail over the clear intention of
Perla to include the subject property in the said SPA. In sum, the property
referred to in the SPA Perla executed in favor of Julian as covered by TCT No.
106338 of the Registry of Deeds of Pasig (now Makati) and the subject
property in the case at bar, covered by RT 18206 (106338) of the Registry
of Deeds of Quezon City, are one and the same.
Respondent claims to have carefully verified Julians authority over the
subject property which was validly contained in the SPA. It stresses that the
SPA was annotated at the back of the TCT of the subject property. Finally,
after conducting an investigation, it found that the property covered by TCT
No. 106338, registered with the Registry of Deeds of Pasig (now Makati)
referred to in the SPA, and the subject property, covered by TCT No. 18206

BANKING CASE DIGESTS | 12/5/16| 8

(106338) registered with the Registry of Deeds of Quezon City, are one and
the same property. From the foregoing, respondent concluded that Julian was
indeed authorized to constitute a mortgage over the subject property.
RTC: rendered a Decision declaring the REM constituted over the subject
property null and void, for Julian was not authorized by the terms of the SPA
to mortgage the same. The court a quo likewise ordered that the foreclosure
proceedings and the auction sale conducted pursuant to the void REM be
nullified.
Respondent appealed before the CA.
CA: reversed the RTC Decision and upheld the validity of the REM constituted
over the subject property on the strength of the SPA. The appellate court
declared that Perla intended the subject property to be included in the SPA
she executed in favor of Julian, and that her subsequent revocation of the
said SPA, not being contained in a public instrument, cannot bind third
persons.
ISSUE I: WHETHER OR NOT THE RESPONDENT WAS A MORTGAGEEIN- GOOD FAITH
HELD:
NO. The property listed in the real estate mortgages Julian executed in favor
of PNB is the one covered by "TCT#RT-18206(106338)." On the other hand,
the Special Power of Attorney referred to TCT No. "RT-106338 805 Square
Meters of the Registry of Deeds of Pasig now Makati." The palpable difference
between the TCT numbers referred to in the real estate mortgages and
Julians SPA, coupled with the fact that the said TCTs are registered in the
Registries of Deeds of different cities, should have put respondent on guard.
Respondents claim of prudence is debunked by the fact that it had
conveniently or otherwise overlooked the inconsistent details appearing on
the face of the documents, which it was relying on for its rights as
mortgagee, and which significantly affected the identification of the property
being mortgaged.
A person dealing with registered lands [is not required] to inquire further
than what the Torrens title on its face indicates. This rule, however, is not
absolute but admits of exceptions. Thus, while its is true, x x x that a person
dealing with registered lands need not go beyond the certificate of title, it is
likewise a well-settled rule that a purchaser or mortgagee cannot close his
eyes to facts which should put a reasonable man on his guard, and then
claim that he acted in good faith under the belief that there was no defect in
the title of the vendor or mortgagor. His mere refusal to face up the fact that
such defect exists, or his willful closing of his eyes to the possibility of the

existence of a defect in the vendors or mortgagors title, will not make him
an innocent purchaser for value, if it afterwards develops that the title was in
fact defective, and it appears that he had such notice of the defect as would
have led to its discovery had he acted with the measure of precaution which
may be required of a prudent man in a like situation.
By putting blinders on its eyes, and by refusing to see the patent defect in
the scope of Julians authority, easily discernable from the plain terms of the
SPA, respondent cannot now claim to be an innocent mortgagee
In the case of Abad v. Guimba: While [the] one who buys from the registered
owner does not need to look behind the certificate of title, one who buys
from [the] one who is not [the] registered owner is expected to examine not
only the certificate of title but all factual circumstances necessary for [one] to
determine if there are any flaws in the title of the transferor, or in [the]
capacity to transfer the land. Although the instant case does not involve a
sale but only a mortgage, the same rule applies inasmuch as the law itself
includes a mortgagee in the term "purchaser."
Hence, considering that the property being mortgaged by Julian was not his,
and there are additional doubts or suspicions as to the real identity of the
same, the respondent bank should have proceeded with its transactions with
Julian only with utmost caution. As a bank, respondent must subject all its
transactions to the most rigid scrutiny, since its business is impressed with
public interest and its fiduciary character requires high standards of integrity
and performance.25 Where respondent acted in undue haste in granting the
mortgage loans in favor of Julian and disregarding the apparent defects in
the latters authority as agent, it failed to discharge the degree of diligence
required of it as a banking corporation.
As a banking institution, jurisprudence stringently requires that respondent
should take more precautions than an ordinary prudent man should, to
ascertain the status and condition of the properties offered as collateral and
to verify the scope of the authority of the agents dealing with these. Had
respondent acted with the required degree of diligence, it could have
acquired knowledge of the letter dated 23 January 1996 sent by Perla to the
Registry of Deeds of Quezon City which recorded the same. The failure of the
respondent to investigate into the circumstances surrounding the mortgage
of the subject property belies its contention of good faith.
ISSUE II:
WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED
OVER SUBJECT PROPERTY.
HELD: NO

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For a mortgage to be valid, Article 2085 of the Civil Code enumerates the
following essential requisites:
Art. 2085. The following requisites are essential to the contracts of pledge
and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing
pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be legally
authorized for the purpose.
In the case at bar, it was Julian who obtained the loan obligations from
respondent which he secured with the mortgage of the subject property. The
property mortgaged was owned by his wife, Perla, considered a third party to
the loan obligations between Julian and respondent. It was, thus, a situation
recognized by the last paragraph of Article 2085 of the Civil Code aforequoted. However, since it was not Perla who personally mortgaged her own
property to secure Julians loan obligations with respondent, we proceed to
determining if she duly authorized Julian to do so on her behalf.
In the SPA executed by Perla in favor of Julian on 28 May 1992, the latter
was conferred with the authority to "sell, alienate, mortgage, lease and deal
otherwise" the different pieces of real and personal property registered in
Perlas name.
After an examination of the literal terms of the SPA, we find that the subject
property was not among those enumerated therein. There is no obvious
reference to the subject property covered by TCT No. RT-18206 (106338)
registered with the Registry of Deeds of Quezon City.
In this case, we are not convinced that the property covered by TCT No.
106338 registered with the Registry of Deeds of Pasig (now Makati) is the
same as the subject property covered by TCT No. RT-18206 (106338)
registered with the Registry of Deeds of Quezon City. The records of the case
are stripped of supporting proofs to verify the respondents claim that the
two titles cover the same property. It failed to present any certification from
the Registries of Deeds concerned to support its assertion. Neither did
respondent take the effort of submitting and making part of the records of
this case copies of TCTs No. RT-106338 of the Registry of Deeds of Pasig
(now Makati) and RT-18206 (106338) of the Registry of Deeds of Quezon

City, and closely comparing the technical descriptions of the properties

covered by the said TCTs. The bare and sweeping statement of respondent
that the properties covered by the two certificates of title are one and the
same contains nothing but empty imputation of a fact that could hardly be
given any evidentiary weight by this Court.
Having arrived at the conclusion that Julian was not conferred by Perla with
the authority to mortgage the subject property under the terms of the SPA,
the real estate mortgages Julian executed over the said property are
therefore unenforceable.
ISSUE III:
WHETHER OR NOT THERE WAS A VALID REVOCATION OF THE SPA.
HELD: YES
In this case, the revocation of the agency or Special Power of Attorney is
expressed and by a public document executed on March 10, 1993.
The Register of Deeds of Quezon City was even notified that any attempt to
mortgage or sell the property covered by TCT No. [RT-18206] 106338 located
at No. 21 Hillside Drive, Blue Ridge, Quezon City must have the full consent
documented in the form of a special power of attorney duly authenticated at
the Philippine Consulate General, New York City, N.Y., U.S.A.
Given that Perla revoked the SPA as early as 10 March 1993, and that she
informed the Registry of Deeds of Quezon City of such revocation in a letter
dated 23 January 1996 and received by the latter on 7 February 1996, then
third parties to the SPA are constructively notified that the same had been
revoked and Julian no longer had any authority to mortgage the subject
property. Although the revocation may not be annotated on TCT No. RT18206 (106338), as the RTC pointed out, neither the Registry of Deeds of
Quezon City nor respondent denied that Perlas 23 January 1996 letter was
received by and filed with the Registry of Deeds of Quezon City. Respondent
would have undoubtedly come across said letter if it indeed diligently
investigated the subject property and the circumstances surrounding its
mortgage.
The instant petition is GRANTED. The Decision dated 12 October 2005 and its
Resolution dated 15 February 2006 rendered by the Court of Appeals in CAG.R. CV No. 82636, are hereby REVERSED. The Decision dated 23 September
2003 of the Regional Trial Court of Quezon City, Branch 220, in Civil Case No.
Q-99-37145, is hereby REINSTATED and AFFIRMED with modification that the
real estate mortgages constituted over TCT No. RT 18206 (106338) are not
null and void but UNENFORCEABLE.

BANKING CASE DIGESTS | 12/5/16| 10

5. Reyes vs. Court of Appeals

BANKING CASE DIGESTS | 12/5/16| 11

G.R. No. 118492, August 15, 2001

that the respondent bank has no deposit dollar account with

the drawee Wespac-Sydney. Gregorio Reyes and Consuelo

Facts: Godofredo, Casheir of the Philippine Racing Club

Puyat-Reyes arrived in Sydney on a separate date and both

(PCRI), went to respondent bank to apply for a demand draft

were

in the amount AU$1,610.00 payable to the order of the 20th

international audience after being denied registration of the

Asian Racing Conference Secretariat of Sydney, Australia. He

conference secretariat since the foreign exchange draft was

was attended to by respondent banks assistant cashier, Mr.

dishonored.

Yasis, who at first denied the application for the reason that

conference after promising to pay in cash instead which they

respondent bank did not have an Australian dollar account in

fulfilled. The petitioners filed a complaint for damages before

any bank in Sydney. Godofredo asked if there could be a way

the RTC of Makati against the respondent bank. The trial

for respondent bank to accommodate PRCIs urgent need to

court

remit Australian dollars to Sydney. Yasis of respondent bank

respondent bank. On appeal before the Court of Appeals, the

then informed Godofredo of a roundabout way of effecting

CA ruled to affirm the ruling of the trial court on the ground

the requested remittance to Sydney thus: the respondent

that the respondent bank exerted every effort for the subject

bank would draw a demand draft against Westpac Bank in

foreign

Sydney, Australia (Westpac-Sydney) and have the latter

according to the CA, it is the Westpac Sydney that should be

reimburse

itself

from

the

U.S.

dollar

account

of

humiliated

ruled

and

embarrassed

Petitioners

against

exchange

were

the

demand

only

in

able

petitioners

draft

to

the

and

be

presence

to

attend

absolved

honored.

of

the

the

Also,

the

held liable because of the wrongful reading of its employee of

respondent in Westpac Bank in New York, U.S.A. (Westpac-

the number 7 instead of number one 1in the cable message

New York).

number MT199.

However, upon due presentment of the foreign exchange

demand draft, the same was dishonored, with the notice of

Issue: Whether or not respondent bank is liable for damages

due to the dishonor of the foreign exchange demand drafts.

dishonor stating that there is No account held with Westpac.

Meanwhile, Wespac-New York sent a cable to respondent

Ruling: The SC ruled in the negative. According to the court,

bank informing the latter that its dollar account in the sum of

the respondent bank is not required to exert more than the

AU$ 1,610.00 was debited. In response to PRCIs complaint

diligence of a good father of a family in regard to the

about the dishonor of the said foreign exchange demand

issuance of the subject foreign exchange demand draft. The

draft, respondent bank informed Westpac-Sydney of the

court stated that the relationship between the respondent

issuance of the said demand draft, drawn against the

bank and the petitioner is not fiduciary in character because

Wespac-Sydney and informing the latter to be reimbursed

what is involved here is the buying and selling of the demand

from the respondent banks dollar account in Westpac-New

draft. The respondent bank cannot also be said liable because

York. The respondent bank on the same day likewise

it exerted its effort in order to avoid the dishonor of the

informed Wespac-New York requesting the latter to honor the

demand draft. It was the employee of the WestpacSydney

reimbursement claim of Wespac-Sydney. Upon its second

who caused the dishonor of the draft because of the

presentment for payment, the demand draft was again

misreading in the cable letter. Also, the court found out that

dishonored by Westpac-Sydney for the same reason, that is,

the respondent bank cannot be held liable because it has

BANKING CASE DIGESTS | 12/5/16| 12

sufficient dollar account in Westpac-New York to shoulder the

registration fees but it was the misreading of WestpacSydney's employee that caused the problem.

BANKING CASE DIGESTS | 12/5/16| 13

savings account (which is with Metrobank). The said check was however
presented to PCIB and PCIB accepted the same. PCIB then indorsed the
check for clearing to Citibank. Citibank cleared the check and paid PCIB
P4,746,114.41. CIR later informed Ford that it never received the tax
payment.
An investigation ensued and it was discovered that Fords accountant
Godofredo Rivera, when the check was deposited with PCIB, recalled the
check since there was allegedly an error in the computation of the tax to be
paid. PCIB, as instructed by Rivera, replaced the check with two of its
managers checks.
It was further discovered that Rivera was actually a member of a syndicate
and the managers checks were subsequently deposited with the Pacific
Banking Corporation by other members of the syndicate. Thereafter, Rivera
and the other members became fugitives of justice.
G.R. No. 128604
6.

Philippine Commercial International Bank vs Court of Appeals

(2001)

In July 1978 and in April 1979, Ford drew two checks in the amounts of
P5,851,706.37 and P6,311,591.73 respectively. Both checks are again for tax
payments. Both checks are for Payees account only or for the CIRs bank
savings account only with Metrobank. Again, these checks never reached the

FACTS: There are three cases consolidated here: G.R. No. 121413 (PCIB vs

CIR.

CA and Ford and Citibank), G.R. No. 121479 (Ford vs CA and Citibank and

In an investigation, it was found that these checks were embezzled by the

PCIB), and G.R. No. 128604 (Ford vs Citibank and PCIB and CA).

same syndicate to which Rivera was a member. It was established that an

G.R. No. 121413/G.R. No. 121479

employee of PCIB, also a member of the syndicate, created a PCIB account

under a fictitious name upon which the two checks, through high end

In October 1977, Ford Philippines drew a Citibank check in the amount of

manipulation, were deposited. PCIB unwittingly endorsed the checks to

P4,746,114.41 in favor of the Commissioner of the Internal Revenue (CIR).

Citibank which the latter cleared. Upon clearing, the amount was withdrawn

The check represents Fords tax payment for the third quarter of 1977. On

from the fictitious account by syndicate members.

the face of the check was written Payees account only which means that
the check cannot be encashed and can only be deposited with the CIRs

ISSUE: What are the liabilities of each party?

BANKING CASE DIGESTS | 12/5/16| 14

HELD: G.R. No. 121413/G.R. No. 121479

PCIB is liable for the amount of the check (P4,746,114.41). PCIB, as a
collecting bank has been negligent in verifying the authority of Rivera to
negotiate the check. It failed to ascertain whether or not Rivera can validly
recall the check and have them be replaced with PCIBs managers checks as
in fact, Ford has no knowledge and did not authorize such. A bank (in this
case PCIB) which cashes a check drawn upon another bank (in this case
Citibank), without requiring proof as to the identity of persons presenting it,
or making inquiries with regard to them, cannot hold the proceeds against
the drawee when the proceeds of the checks were afterwards diverted to the
hands of a third party. Hence, PCIB is liable for the amount of the embezzled
check.
G.R. No. 128604
PCIB and Citibank are liable for the amount of the checks on a 50-50 basis.
As a general rule, a bank is liable for the negligent or tortuous act of its
employees within the course and apparent scope of their employment or
authority. Hence, PCIB is liable for the fraudulent act of its employee who set
up the savings account under a fictitious name.
Citibank is likewise liable because it was negligent in the performance of its
obligations with respect to its agreement with Ford. The checks which were
drawn against Fords account with Citibank clearly states that they are
payable to the CIR only yet Citibank delivered said payments to PCIB.
Citibank however argues that the checks were indorsed by PCIB to Citibank
and that the latter has nothing to do but to pay it. The Supreme Court cited
Section 62 of the Negotiable Instruments Law which mandates the Citibank,
as an acceptor of the checks, to engage in paying the checks according to the
tenor of the acceptance which is to deliver the payment to the payees
account only.

But the Supreme Court ruled that in the consolidated cases, that PCIB and
Citibank are not the only negligent parties. Ford is also negligent for failing to
examine its passbook in a timely manner which could have avoided further
loss. But this negligence is not the proximate cause of the loss but is merely
contributory. Nevertheless, this mitigates the liability of PCIB and Citibank
hence the rate of interest, with which PCIB and Citibank is to pay Ford, is
lowered from 12% to 6% per annum.

BANKING CASE DIGESTS | 12/5/16| 15

owners duplicate certificate each had possession of during the period

material covering said lot. One held TCT No. 9780, supra, and the
other, TCT No. 9780(693), supra. The technical description of the land
appearing in one copy corresponds exactly with that in the other. The
date June 14, 1944 appears on the face of both copies as a common date
of entry. One, however, contained certain features, markings, and/or entries
not found in the other and vice versa.

On April 17, 1979, Garaygay of Cebu executed a deed of sale concerning

subject lot in favor of his nephew Joselito. The sale notwithstanding, the
owners duplicate

certificate

remained for some

time

in

the

sellers

possession.
8. [G.R. No. 128122. March 18, 2005]
PREMIERE DEVELOPMENT BANK, petitioner, vs. HON. COURT OF
APPEALS, LIBERATO G. YAMBAO, JESUS B. RODRIGUEZ and JESUS D.
MORALES, respondents.
[G.R. No. 128184. March 18, 2005]
LILIAN M. TOUNDJIS, petitioner, vs. HON. COURT OF APPEALS,
LIBERATO G.YAMBAO, et al., and JOSELITO GARAYGAY, ET
AL., respondents.
[G.R. No. 128229. March 18, 2005]
JOSELITO P. GARAYGAY, CENTURY REALTY and DEVELOPMENT
CORPORATION, petitioners, vs. HON. COURT OF APPEALS, LIBERATO
G.
YAMBAO,
JESUS
B.
RODRIGUEZ
and
JESUS
D.
MORALES, respondents.

(3 consolidated cases to)

In another transaction, Garaygay of Rizal sold to Yambao and Rodriguez

the same property. Buyers Yambao and Rodriquez would later sell a portion
of their undivided interests on the land to Morales.

Then came the June 11, 1988 fire that gutted a portion of the Quezon City
hall and destroyed in the process the original copy of TCT No. 9780
(693) on file with the Registry of Deeds of Quezon City. Barely a month later,
a certain Engr. Hobre filed an application, signed by Garaygay of Cebu, for
the reconstitution of the burned original on the basis of the latters owners
duplicate certificate. One Engr. Cortez of the LRA did the follow-up on the
application. After due proceedings, the LRA issued an order of reconstitution,

FACTS: 2 different persons with exactly the same name, i.e., Vicente T.
Garaygay, each claimed exclusive ownership of Lot 23 by virtue of an

by virtue of which Garaygay of Cebu acquired a reconstituted title.

BANKING CASE DIGESTS | 12/5/16| 16

Meanwhile, or on May 26, 1989, the deed of sale executed by Garaygay of

surrounding the reconstitution of TCT 9780 (693), the more disturbing of

Cebuin favor of his nephew Joselito was registered, paving the issuance in

which is the admitted participation of LRA personnel in the reconstitution

the latters name. Thereafter, thru the efforts of same Engr. Cortez, Lot 23

process.

was subdivided into three (3) lots. Joselito posthaste sold the first lot
to Toundjiswho, pursuant to a Contract to Sell undertook to pay Joselito
the P.5 Million balance of the P2.5 Million purchase price once she is placed in
possession of a fenced-off property. And, for shares of stock, Joselito
assigned

the

other

two

(2)

lots

to Century Realty which,

after

securing TCTs therefor, mortgaged the same to Premiere Bank to secure

a loan.

Clashing claims of ownership first came to a head when, sometime in May

In time, herein petitioners appealed to the CA, which affirmed in toto the
appealed decision of the trial court.

Their motion for reconsideration having been denied by the appellate court
petitioners have separately come to the Supreme Court.
separate

petitions

were,

upon

private

respondents

the three (3)

motion,

ordered

consolidated.

ISSUE:

1990, Yambao and his agents forcibly prevented Joselitos hired hands from
concrete-fencing the subject property. The police and eventually the National

Bureau of Investigation (NBI) entered into the picture.

ofGaraygay of Cebu, as the real owner of Lot 23.

2

In the meantime, Yambao, Rodriquez and Morales as pro indiviso buyers

WON the same court erred in finding Garaygay of Rizals owners copy,
TCT No. 9780, instead of the Garaygay of Cebus copy, TCT No. 9780

of the subject lot, caused the of their respective adverse claims on Joselitos
TCT They then filed with the Regional Trial Court at Quezon City suit

WON the Court of Appeals erred in holding Garaygay of Rizal, instead

(693), as the authentic title covering Lot 23.

3

WON Toundjis and Premiere bank are buyers in good faith

againstJoselito, Century Realty and Premiere Bank for quieting of title

and annulment of said defendants fake titles with prayer for damages.

Eventually, the trial court rendered judgment finding for the plaintiffs and

HELD: The instant petitions are DENIED and the impugned Decision of the

against the defendants, declaring Joselitos TCT No. 9780 (693) and all

CA AFFIRMED.

subsequent titles traceable to it and transactions involving its derivatives as

null and void. The trial court further observed dubious circumstances

BANKING CASE DIGESTS | 12/5/16| 17

Both

defining documents, Exhibit 1[cebu] and Exhibit B [rizal],

The courts finding that Garaygay of Rizal is an authentic person, once

appear to have been issued by the appropriate Registry of Deeds and as such

residing in and a registered voter of Angono, Rizal has adequate evidentiary

would ordinarily enjoy the guarantees flowing from the legal presumption of

support in his voters ID, the COMELEC and barangay certifications

regularity of issuance. But how and precisely when the legal aberration

aforementioned and the testimony of an occupant of Lot 23.

occurred where two (2) owners duplicate certificates ended up in the hands
of two (2) distinct persons, complete strangers to each other, are questions
which the records do not provide clear answer. It may not be idle to
speculate, though, that fraud or other improper manipulations had been
employed along the way, with likely the willing assistance of land registry
official/s, to secure what for the nonce may be tagged as the other title.
Consistent with the presumption of regularity of issuance, however, the
authenticity of one copy has to be recognized. And necessarily, one of the
two (2) outstanding owners copies has to be struck down as wrongly issued,
if not plainly spurious, under the governing Torrens system of land
registration

Moreover, facts and reasonable inferences drawn therefrom point to Exhibit

1 as being spurious, necessarily leaving Exhibit B as the authentic
duplicate copy. For starters, there is the appearance and physical condition of
the owners copies in question which would help in determining which is
genuine and which is sham. As aptly observed by the appellate court,
rationalizing its conclusion adverted to above, Exhibit B has no defect,
except for its partly being torn. Respondents explanation for the defective
state of Exhibit B, as related to them by Garaygay of Rizal, i.e., it was
due to exposure of the document to the elements during the Japanese
occupation, merited approval from the trial court and the CA Both courts,
being in a better position to pass upon the credibility of petitioners witness

The categorical conclusion of the Court of Appeals confirmatory of

and appreciate his testimony respecting the less than usual appearance of

that of the trial court is that Exhibit B is genuine and

Exhibit B, their findings command the respect of this Court.

that Garaygay of Rizal is a real person. On the other hand, Exhibit

1 was adjudged spurious. These factual determinations as a matter
of long and sound appellate practice must be accorded great weight,
and, as rule, should not be disturbed on appeal, save for the
most compelling and cogent reasons.

However, unlike Exhibit B, Exhibit 1 contained entries and other

uncommon markings or features which could not have existed without human
intervention. Although any one of them may perhaps not be appreciable in
isolation, these features and/or markings, taken together, indeed put the
integrity of Exhibit 1 under heavy cloud and indeed cast doubt on its
genuineness.

BANKING CASE DIGESTS | 12/5/16| 18

In the same token, the payment by Garaygay of Cebu of land taxes on Lot

neither JOSELITO nor his uncle, Vicente T. Garaygay of Cebu acted ante litem

23 does not also necessary detract from the spurious nature of his title. After

motam like the true owners they claim to be in their respective times.

all, any one can pay real estate taxes on a given property without being
quizzed by the local treasury whether or not the payor owns the real property
in question.

Several questions confound the Courts curiosity. Why were some LRA
officials so interested in the speedy reconstitution and in the subdivision of
the land in excess of their bureaucratic duties? Where did Vicente T.

Other than paying taxes from 1949 to 1990, however, Garaygay of Cebu

Garaygay of Cebu get his owners copy, Exh. 1? Why was JOSELITO so

and this holds true for his nephew Joselito did not appear before the

evasive about his cousin in the LRA as shown in his examination?

current stand-off to have exercised dominion over Lot 23. For one, it has not
been shown that Garaygay of Cebu was at any time in possession of the
property in question, unlike his namesake from Rizal who managed to place
the property under the care of certain individuals who built semi-permanent
structure-dwelling houses thereon without so much of a protest from
Garaygay of Cebu or his nephew Joselito after the latter purportedly bought
the property. For another, neither Garaygay of Cebu nor his nephew Joselito
ever instituted any action to eject or recover possession from the occupants
of Lot 23. This passivity bespeaks strongly against their claim of ownership.
Not lost on this Court are circumstances noted by the trial court which

As the Court sees it, the Deed of Sale was a simulated transaction because
both JOSELITO and his uncle admit this was a joint venture to sell the
property in question. However, the facts suggest that the joint venture was
not limited to the two of them. The persons who prepared and filed the
application for reconstitution, and those officers in the LRA who followed it up
and who thereafter subdivided the land into three lots for easier sale, those
at the NBI who tried to persuade Yambao and Morales to settle the dispute . .
. are apparently part of the joint venture or stand to profit from it

NOTES:

negatively reflect on Garaygay of Cebus and his nephews claim of

ownership.

1. Petitioners insistence that the inscription on Garaygay of Cebus copy of

the deed of mortgage and the discharge of mortgage he constituted over Lot

In short, it appears to the Court that without doing anything, Vicente T.

Garaygay of Cebu has his title (Exh. 1) reconstituted. On the other hand,
without knowing anything, JOSELITO obtained TCT 12183 in his name and
had the land subdivided and sold.These circumstances demonstrate that

23 in favor of Meralco Employees Savings and Loan Association proves the

authenticity of the latters owner duplicate is valid to a point. But, to suggest
that such inscription could not have been possible were his title spurious is
altogether a different matter. We need not cite cases memorialized in books

BANKING CASE DIGESTS | 12/5/16| 19

of jurisprudence where land dealings are annotated on reconstituted

Even for these two (2) reasons alone, which should have placed Toundjis on

certificates secured thru fraud or otherwise issued irregularly. Stated a little

guard respecting Joselitos title, her claim of being a bona fide purchaser for

differently, an annotation of what is otherwise a bona-fide land transaction is

value must fail.

not a peremptory argument against the spurious character, if that be the

case, of the document on which it is annotated.

Likewise acceptable is the appellate courts holding, citing Republic vs. Court
of Appeals, that a purchaser of a property cannot be in good faith

This brings us to the core of Toundjis and Premiere Banks petitions. The

where the title thereof shows that it was reconstituted. Noted with

first asserts the rights of a purchaser and the other, that of a mortgagee, in

approval, too, is the appellate courts observation that the contract to sell

good faith and for value of Lot 23, a status respectively denied them by the

which is unregistered and not annotated at the back of the title of the

appellate court.

property [cannot adversely affect appellees] for the reason that under Sec.
51 of PD 1529 (Property Registration Act), the act of registration shall be the

The rule that a subsequent declaration of a title as null and void is not a
ground for nullifying the contractual right of a purchaser, rmortgagee or other

operative act to convey or affect the land in so far (sic) as third parties are
concerned.

transferees in good faith, with the exceptions thereto, is well-settled. Tested

by the above norm, may Toundjis be considered, as she has claimed, an

Premiere Bank cannot also be accorded the status of an innocent

innocent purchaser for value?

mortgagee for value vis--vis the mortgage of the lots constituted in its favor
by CenturyRealty. Apart from the annotations that said titles are only

The Court of Appeals rejected the claim of Toundjis, and rightly so.

A study of the record shows that the TCT Lot. 23-A that Toundjis contracted
to buy from Joselito carried an annotation that it was administratively
reconstituted. Records also indicate that Toundjis knew at the time of the
sale that Joselito did not have possession of the lot inasmuch as she agreed
to pay the balance of the purchase price as soon as the seller can fence off
the property and surrender physical possession thereof to her.

administratively reconstituted, the appellate court provided the ensuing

compelling reasons:

Premiere inspected the property to be mortgaged The adverse claim of

Jesus Rodriguez was cancelled on March 26, 1991 xxx Hence, when Premiere
inspected the property xxx, it was aware of the existence of Rodriquez
adverse claim. . The adverse claim of Rodriquez annotated at the back of
the TCTs declares that he is the vendee of the land described.

BANKING CASE DIGESTS | 12/5/16| 20

There are buildings of strong material on the land in disputePremiere is

The contention is far from tenable. An action for quieting of title, as here,

aware of the existence of these structures as can be seen in its real estate

is equivalent to an action for reconveyance of title wrongfully or

report But despite the existence of alleged shanties which are in fact and

erroneously registered in anothers name. The successful outcome of

in truth big structures Premiere Bank proceeded in the execution of the

such action would in most cases necessarily entail the cancellation of existing

mortgage contract. xxx.

title wrongly issued to another, which in turn requires the action of the LRA
and/or the proper Register of Deeds. As in the past, this Court, to obviate

If the land mortgaged is in the possession of a person other than the

mortgagor, the mortgagee is required to go beyond the certificate of title and

multiplicity of suits, had ordered the LRA or the RD, albeit not impleaded
below, to cancel such erroneously issued titles.

make inquiries as to the rights of the actual possessors. Failure to do so

would make him a mortgagee in bad faith.

Before writing finis to this ponencia, two (2) peripheral matters raised need
to be addressed.

It cannot be overemphasized that Premiere Bank, being in the business of

extending loans secured by real estate mortgage, is familiar with rules on
land registration. As such, it was, as here, expected to exercise more care
and prudence than private individuals in their dealing with registered lands.
That Premiere Bank accepted in mortgage the property in question
notwithstanding the existence of structures on the property and which were
in actual, visible and public possession of a person other than the mortgagor,
constitutes gross negligence amounting to bad faith. Premier Bank is thus not
entitled to have its lien annotated on the genuine title.

2. A final consideration: Petitioners maintain that the appellate court erred in

annulling the LRA order of reconstitution even if such relief was not prayed
for in private respondents amended complaint and notwithstanding the fact
that the LRA was not impleaded as an indispensable party.

BANKING CASE DIGESTS | 12/5/16| 21

9. PHILIPPINE NATIONAL BANK, Petitioner, v. HON. ROMULO S.

QUIMPO, Presiding Judge, Court of First Instance of Rizal,
Branch XIV, and FRANCISCO S. GOZON II, Respondents.
FACTS: Francisco S. Gozon II, a depositor of PNB Caloocan Branch, went to
the bank in his car accompanied by his friend Ernesto Santos whom he left in
the car while he transacted business in the bank. When Santos saw that
Gozon left his check book he took a check therefrom, filled it up for the
amount of P5,000.00, forged the signature of Gozon, and thereafter
encashed the check on the same day. The account of Gozon was debited the
said amount. Upon discovery, Gozon asked that the said amount of
P5,000.00 should be returned to his account as his signature on the check
was forged but the bank refused.
Santos was apprehended and upon investigation, admitted that he stole the
check of Gozon, forged his signature and encashed the same with the Bank.
Hence, Gozon filed the complaint for recovery of the amount of P5,000.00.
CFI: in favor of Gozon. Hence, this petition.
ISSUE: WON the amount of 5000php should be returned to Gozon YES
PNBs contention: Gozon is precluded to raise the defense of forgery for it
was his negligence that caused the loss.
SC: The act of Gozon in leaving his checkbook in the car while he went out
for a short while cannot be considered negligence sufficient to excuse PNB
from its own negligence. Santos was a classmate and a friend. Gozon
brought him along in his car to the bank and he left his personal belongings
in the car. Santos however removed and stole a check from his check book
without the knowledge and consent of Gozon. No doubt that GOzon cannot
be considered negligent under the circumstances of the case.
As to PNBs liability: 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 change the amount
so paid to the account of the depositor whose name was forged.

BANKING CASE DIGESTS | 12/5/16| 22

The prime duty of a bank is to ascertain the genuineness of the signature of

the drawer or the depositor on the check being encashed. It is expected to
use reasonable business prudence in accepting and cashing a check
presented to it.
A comparison of the signature on the forged check and the sample signatures
of Gozon show marked differences as the graceful lines in the sample
signature which is completely different from those of the signature on the
forged check. Indeed the NBI handwriting expert indicated the marked
differences between the signature of Gozon on the sample signatures and the
questioned signature.
Obviously, PNB was negligent in encashing said forged check without
carefully examining the signature which shows marked variation from the
genuine signature of Gozon.

10. CONSOLIDATED BANK AND TRUST CORPORATION VS. COURT OF

APPEALS
G.R. No. 138569, September 11, 2003

Facts:

Solidbank is a domestic banking corporation while private respondent L.C.

Diaz and Company, CPAs (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.
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. After trial, the trial court rendered a

BANKING CASE DIGESTS | 12/5/16| 23

decision absolving Solidbank and dismissing the complaint. Court of Appeals

reversed the decision of the trial court.
Issues:
1

Whether or not Solidbank must be held liable for the

fraudulent withdrawal on private respondents account.

Held: Yes. Solidbanks tellers must exercise a high degree of diligence in

insuring that they return the passbook only to the depositor or his authorized
representative. The tellers know, or should know, that the rules on savings
account provide that any person in possession of the passbook is
presumptively its owner. If the tellers give the passbook to the wrong
person, they would be clothing that person presumptive ownership of the
passbook, facilitating unauthorized withdrawals by that person. For failing to
return the passbook to Calapre, the authorized representative of L.C. Diaz,
Solidbank and Teller No. 6 presumptively failed to observe such high degree
of diligence in safeguarding the passbook, and in insuring its return to the
party authorized to receive the same. However, L.C. Diaz was guilty of
contributory negligence in allowing a withdrawal slip signed by its authorized
signatories to fall into the hands of an impostor. Thus, the liability of
Solidbank should be reduced. Hence, the liability of Solidbank for actual
damages was reduced to only 60%, the remaining 40% was borne by private
respondent.
The contract between the bank and its depositor is governed by the
provisions of the Civil Code on simple loan. There is a debtor-creditor
relationship between the bank and its depositor. The bank is the debtor and
the depositor is the creditor. The law imposes on banks high standards in
view of the fiduciary nature of banking. RA 8791 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 meticulous care, always having in mind the fiduciary nature
of their relationship.
2. Whether or not the relations between Solidbank and LC Diaz,
the depositor, is governed by quasi-delict in determining the
liability of Solidbank.

Held: No. Solidbank is liable for the loss of the P300k but its liability is
grounded on culpa contractual.
The contract between the bank and its depositor is governed by the
provisions of the Civil Code on simple loan (Article 1980, Civil Code). There is
a debtor-creditor relationship between the bank and its depositor. The bank
is the debtor and the depositor is the creditor. The depositor lends the bank
money and the bank agrees to pay the depositor on demand. The savings
deposit agreement between the bank and the depositor is the contract that
determines the rights and obligations of the parties.
Under their contract, it is the duty of L.C. Diaz to secure its passbook.
However, this duty is also applicable to Solidbank when it gains possession of
said passbook which it did when the messenger left it to the banks
possession through the banks teller. The act of the teller returning the
passbook to someone else other than Calapre, the firms authorized
messenger, is a clear breach of contract. Such negligence binds the bank
under the principle of respondeat superior or command responsibility.

No contract of trust between bank and depositor

The Supreme Court emphasized that the contractual relation between the
bank and the depositor is that of a simple loan. This is despite the wording of
Section 2 of Republic Act 8791 (The General Banking Law of 2000) which
states that the State recognizes the fiduciary nature of banking that requires
high standards of integrity and performance. 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.
This fiduciary relationship means that the banks 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.

BANKING CASE DIGESTS | 12/5/16| 24

However, the fiduciary nature of a bank-depositor relationship does not

convert the contract between the bank and its depositors from a simple loan
to a trust agreement, whether express or implied. Failure by the bank to pay
the depositor is failure to pay a simple loan, and not a breach of trust.
In short, the General Banking Act simply 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. The General Banking Law in no way
modified Article 1980 of the Civil Code.

12. EQUITABLE PCI BANK V. ARCELITO B. TAN

G.R. NO. 165339
FACTS:

AUGUST 23, 2010

Respondent Arcelito B.Tan maintained a current and savings account

with petitioner Equitable PCI Bank. On May 13, 1992, Tan issued PCIB Check
No. 275100 postdated May 30, 1992 in the amount of P34,588.72 in favor of
Sulpicio Lines, Inc. As of May 14, 1992, respondent's balance with PCIB was
P35,147.59. On May 14, 1992, Sulpicio Lines, Inc. deposited the aforesaid
check to its account with Solid Bank, Carbon Branch, Cebu City. After
clearing, the amount of the check was immediately debited by PCIB from
Tan's account leaving him with a balance of only P558.87. However, from May
9 to 16, 1992, Tan issued three checks, specifically: PCIB Check No. 275080
dated May 9, 1992, payable to Agusan del Sur Electric Cooperative Inc.
(ASELCO) for the amount of P6,427.68; PCIB Check No. 275097 dated May
10, 1992 payable to Agusan del Norte Electric Cooperative Inc., (ANECO) for
the amount of P6,472.01; and PCIB Check No. 314104 dated May 16, 1992
payable in cash for the amount of P10,000.00. Thus, when presented for
payment, the three checks were dishonored for being drawn against

BANKING CASE DIGESTS | 12/5/16| 25

insufficient funds. As a result of the dishonored checks payable to ASELCO

and ANECO, the electric power supply for the two mini-sawmills owned and
operated by Tan was cut off and was restored only after several days. This
prompted Tan to file with the RTC of Cebu a complaint against PCIB for the
payment of losses consisting of unrealized income together with other claims,
contending that Check No. 275100 was a postdated check in payment of Bills
of Lading Nos. 15, 16 and 17, and that his account with PCIB would have had
sufficient funds to cover payment of the three other checks were it not for
the negligence of the bank in immediately debiting from his account Check
No. 275100, in the amount of P34,588.72, even as the said check was
postdated to May 30, 1992. PCIB, on the other hand, averred that the
questioned check was postdated May 30, 1992 and claimed that it was a
current check dated May 3, 1992. The bank alleged that the disconnection of
the electric supply to respondent's sawmills was not due to the dishonor of
the checks, but for other reasons not attributable to the bank.
DOCTRINE/LAWS RELATED TO THE CASE:
The diligence required of banks is more than that of a good father of
a family. 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 bank on which the check is drawn, known as the drawee bank,
is under strict liability to pay to the order of the payee in accordance with the
drawers instructions as reflected on the face and by the terms of the check.
Thus, payment made before the date specified by the drawer is clearly
against the drawee bank's duty to its client.
ISSUE: WHETHER OR NOT PCIB ACTED NEGLIGENTLY IN DEALING
WITH TANS ACCOUNT.
DECISION OF THE RTC:

The RTC ruled in favor of PCIB, holding that it did not act negligently
and dismissed the complaint. Tan appealed.
DECISION OF THE CA:
The CA reversed the decision of RTC and directed PCIB to pay
respondent the sum of P1,864,500.00 actual damages, P50,000.00 moral
damages, P50,000.00 exemplary damages and attorney's fees of
P30,000.00.
PCIB filed a motion for reconsideration, which the CA denied.
SC RULING:
The SC affirmed with modifications the decision of CA, holding that
PCIB acted negligently. However, the award of moral damages was deleted
and added the award of temperate damages.
The Court had already imposed on banks the same high standard of
diligence required under R.A. 8791 at the time of the untimely debiting of
Tan's account by PCIB. In Simex International (Manila), Inc. v. Court of
Appeals, the Court held 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. The diligence required of banks,
therefore, is more than that of a good father of a family. 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.
Based on the facts, it is clear that PCIB did not exercise the degree of
diligence that it ought to have exercised in dealing with its client.
Furthermore, the bank on which the check is drawn, known as the drawee
bank, is under strict liability to pay to the order of the payee in accordance
with the drawers instructions as reflected on the face and by the terms of
the check. Thus, payment made before the date specified by the drawer is
clearly against the drawee bank's duty to its client. As such, the Court finds
that PCIBs negligence is the proximate cause of Tans loss.