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Banking laws

The General Banking Law of 2000 (R.A 8791)

Section 2. Declaration of Policy. - The State recognizes the vital role of banks providing an environment conducive to the
sustained development of the national economy and the fiduciary nature of banking that requires high standards of
integrity and performance. In furtherance thereof, the State shall promote and maintain a stable and efficient banking
and financial system that is globally competitive, dynamic and responsive to the demands of a developing economy. (n)

DILIGENCE REQUIRED FROM BANKS

To exercise greater care and prudence before entering into a mortgage contract

Being in the business of extending loans secured by real estate mortgage, banks are
presumed to be familiar with the rules on land registration. Since the banking business·
is impressed with public interest, they are expected to be more cautious, to exercise a
PNB vs Villa higher degree of diligence, care and prudence, than private individuals in their dealings,
even those involving registered lands. Banks may not simply rely on the face of the
certificate of title. Hence, they cannot assume that

Consequently, the highest degree of diligence is expected, and high standards of

integrity and performance are even required, of it.

PNB clearly failed to observe the required degree of caution in readily approving the
loan and accepting the collateral offered by the Spouses Comista without first
ascertaining the real ownership of the property. It should not have simply relied on the
face of title but went further to physically ascertain the actual condition of the
property.

It must be remembered that public interest is intimately carved into the banking
Westmont bank vs Dela Rosa industry because the primordial concern here is the trust and confidence of the public.
Ramos This fiduciary nature of every bank’s relationship with its clients/depositors impels it to
exercise the highest degree of care, definitely more than that of a reasonable man or a
good father of a family.22 It is, therefore, required to treat the accounts and deposits of
these individuals with meticulous care. The rationale behind this is well-expressed in
Sandejas v. Ignacio

"a bank’s liability as an obligor is not merely vicarious, but primary"26 since they are
expected to observe an equally high degree of diligence, not only in the selection, but
also in the supervision of its employees

Although R.A. 8791 took effect only in the year 2000, the Court had already imposed on
Equitable PCI bank vs Tan banks the same high standard of diligence required under R.A. 8791 at the time of the
untimely debiting of respondent's account by petitioner in May 1992.

The diligence required of banks, therefore, is more than that of a good father of a
family.[17] 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.

Consolidated Bank vs CA and
Diaz
(solid bank failure to return the
passbook to calapre as the only
authorize agent by L.C Diaz
that made it possible for the
impostor to withdraw the
300,00 pesos)
PNB vs CA
(fictitious promisory note)
PNB vs Pike
(stolen passbook from Pike
who is a gay entertainer in
japan and the PNB allowed the
2 withdrawals on the same
bank)
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Proximate cause is that cause which, in a natural and continuous sequence, unbroken
by any efficient intervening cause, produces the injury, and without which the result
would not have occurred
The proximate cause is petitioner's own negligence in debiting the account of the
respondent prior to the date as appearing in the check, which resulted in the
subsequent dishonor of several checks issued by the respondent and the disconnection
by ASELCO and ANECO of his electric supply.
We hold that Solidbank is liable for breach of contract due to negligence, or culpa
contractual.
The law imposes on banks high standards in view of the fiduciary nature of banking.
Section 2 of Republic Act No. 8791 ("RA 8791"), 18 which took effect on 13 June 2000,
declares that the State recognizes the "fiduciary nature of banking that requires high
standards of integrity and performance." 19 This new provision in the general banking
law, introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting
with the 1990 case of Simex International v. Court of Appeals, 20 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
The bank must not only exercise "high standards of integrity and performance," it must
also insure that its employees do likewise because this is the only way to insure that the
bank will comply with its fiduciary duty. Solidbank failed to present the teller who had
the duty to return to Calapre the passbook, and thus failed to prove that this teller
exercised the "high standards of integrity and performance" required of Solidbank’s
employees.chanrob1es
The BANK is liable to Marcos for offsetting his time deposits with a fictitious promissory
note. The existence of Promissory Note No. 20-979-83 could have been easily proven
had the BANK presented the original copies of the promissory note and its supporting
evidence. In lieu of the original copies, the BANK presented the "machine copies of the
duplicate" of the documents. These substitute documents have no evidentiary value.
The BANK’s failure to explain the absence of the original documents and to maintain a
record of the offsetting of this loan with the time deposits bring to fore the BANK’s
dismal failure to fulfill its fiduciary duty to Marcos.
By the very nature of its business, the BANK should have had in its possession the
original copies of the disputed promissory note and the records and ledgers evidencing
the offsetting of the loan with the time deposits of Marcos. The BANK inexplicably failed
to produce the original copies of these documents. Clearly, the BANK failed to treat the
account of Marcos with meticulous care.
From the evidence that it received, the court is convinced that the bank was negligent
in the performance of its duties such that unauthorized withdrawals were made in the
deposit of plaintiff Norman Y. Pike
From the foregoing, the evidence clearly showed that the petitioner bank did not
exercise the degree of diligence that it ought to have exercised in dealing with their
clients

BPI vs Lifetime Marketing
(Alice Laurel as one of the
agents of LMC made check
deposits with the named BPI
branches and, after the check
deposit slips were machine-
validated, requested the teller
to reverse the transactions,
Alice Laurel presented the
machine-validated deposit slips
to LMC which, on the strength
thereof, considered her
account paid)
BPI vs Casa Montessori
(forgery made by Leonardo T.
Yabut who worked as External
Auditor of CASA that caused
him to encash 9 checks under
the name of Ms Lebron)
Central Bank vs City Trust bank
(agent of city trust Flores who
signed the checks as Rosauro C.
Cayabyab not his signature but
a fictitious name and the teller
of Central bank Iluminada did
not notice it that what is
indicated is Rosauro Cayabyab,
Petitioner then debited the
amount of the checks totaling
P1,750,000 from Citytrust's
demand deposit account.)
China banking corporation vs
Padilla
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Notably, BPI's managers admitted in several correspondences with LMC that the
deposit transactions were cancelled without LMC's knowledge and consent and based
only upon the request of Alice Laurel and her husband.
BPI cannot escape liability because of LMC's failure to scrutinize the monthly
statements sent to it by the bank. This omission does not change the fact that were it
not for the wanton and reckless negligence of BPI's tellers in failing to require the
surrender of the machine-validated deposit slips before reversing the deposit
transactions, the loss would not have occurred. BPI's negligence is undoubtedly the
proximate cause of the loss. Proximate cause is that cause which, in a natural and
continuous sequence, unbroken by any efficient intervening cause, produces the injury,
and without which the result would not have occurred
The forged signatures are wholly inoperative, and CASA -- the drawer whose authorized
signatures do not appear on the negotiable instruments -- cannot be held liable
thereon. Neither is the latter precluded from setting up forgery as a real defense.
BPI contends that it has a signature verification procedure, in which checks are honored
only when the signatures therein are verified to be the same with or similar to the
specimen signatures on the signature cards. Nonetheless, it still failed to detect the
eight instances of forgery. Its negligence consisted in the omission of that degree of
diligence required of a bank. It cannot now feign ignorance, for very early on we have
already ruled that a bank is "bound to know the signatures of its customers; and if it
pays a forged check, it must be considered as making the payment out of its own funds,
and cannot ordinarily charge the amount so paid to the account of the depositor whose
name was forged."
Proximate cause "It 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."
This fiduciary relationship means that the bank's obligation to observe "high standards
of integrity and performance" is deemed written into every deposit agreement
between a bank and its depositor. The fiduciary nature of banking requires banks to
assume a degree of diligence higher than that of a good father of a family.
Citytrust's failure to timely examine its account, cancel the checks and notify petitioner
of their alleged loss/theft should mitigate petitioner's liability, in accordance with
Article 2179 of the Civil Code which provides that if the plaintiff's negligence was only
contributory, the immediate and proximate cause of the injury being the defendant's
lack of due care, the plaintiff may recover damages, but the courts shall mitigate the
damages to be awarded. For had Citytrust timely discovered the loss/theft and/or
subsequent encashment, their proceeds or part thereof could have been recovered.
if the foregoing allegations were true, the same were imputable to its branch manager
Emelina T. Quitan, who, in violation of the petitioner's Code of Ethics and Operations
Procedure and Policy Manual, exceeded her authority in the performance of her duties
as branch manager.
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(Branch manager of china bank

Emelina Quitan exceeded her
authority in violation of code of
ethics, china bank filed 3rd
party comply but failed to
comply with procedural
requirements that cause the
case to be dismissed.)
petitioner filed with the trial court a motion for leave of court to file a third-party
complaint against Quitan
Contents and filing of petition; effect of non-compliance with requirements
The failure of the petitioner to comply with any of the foregoing requirements shall be
sufficient ground for the dismissal of the petition.

Section 3. Definition and Classification of Banks.

3.1. "Banks" shall refer to entities engaged in the lending of funds obtained in the form of deposits. (2a)

3.2. Banks shall be classified into:

(a) Universal banks;

(b) Commercial banks;

(c) Thrift banks, composed of:

(i) Savings and mortgage banks,

(ii) Stock savings and loan associations, and

(iii) Private development banks, as defined in the Republic Act No. 7906 (hereafter the "Thrift Banks Act");

(d) Rural banks, as defined in Republic Act No. 73S3 (hereafter the "Rural Banks Act");

(e) Cooperative banks, as defined in Republic Act No 6938 (hereafter the "Cooperative Code");

(f) Islamic banks as defined in Republic Act No. 6848, otherwise known as the "Charter of Al Amanah Islamic Investment
Bank of the Philippines"; and

(g) Other classifications of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas. (6-Aa)

AUTHORITY OF THE BANGKO SENTRAL

Section 4. Supervisory Powers. The operations and activities of banks shall be subject to supervision of the Bangko
Sentral. "Supervision" shall include the following:

4.1. The issuance of rules of, conduct or the establishment standards of operation for uniform application to all
institutions or functions covered, taking into consideration the distinctive character of the operations of institutions and
the substantive similarities of specific functions to which such rules, modes or standards are to be applied;

4.2 The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant as
determined by the Monetary Board;

4.3 Overseeing to ascertain that laws and regulations are complied with;

4.4 Regular investigation which shall not be oftener than once a year from the last date of examination to determine
whether an institution is conducting its business on a safe or sound basis: Provided, That the deficiencies/irregularities
found by or discovered by an audit shall be immediately addressed;
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4.5 Inquiring into the solvency and liquidity of the institution (2-D); or

4.6 Enforcing prompt corrective action. (n) The Bangko Sentral shall also have supervision over the operations of and
exercise regulatory powers over quasibanks, trust entities and other financial institutions which under special laws are
subject to Bangko Sentral supervision.

(2-Ca) For the purposes of this Act, "quasi-banks" shall refer to entities engaged in the borrowing of funds through the
issuance, endorsement or assignment with recourse or acceptance of deposit substitutes as defined in Section 95 of
Republic Act No. 7653 (hereafter the "New Central Bank Act") for purposes of re-lending or purchasing of receivables
and other obligations. (2-Da)

Section 4. Supervisory powers

Bank of commerce vs Planters
Development bank
(ownership over the Central
Bank bills)
True, the BSP exercises supervisory powers (and regulatory powers) over banks
(and quasi banks). The issue presented before the Court, however, does not
concern the BSP’s supervisory power over banks as this power is understood under
the General Banking Law. In fact, there is nothing in the PDB’s petition (even
including the letters it sent to the BSP) that would support the BSP’s jurisdiction
outside of CB Circular No. 28, under its power of supervision, over conflicting claims
to the proceeds of the CB bills.

BSP has quasi-judicial powers over a class of cases which does not include the
adjudication of ownership of the CB bills in question

What the law grants the BSP is a continuing role to shape and carry out the
country’s monetary policy – not the authority to adjudicate competing claims of
ownership over the securities it has issued – since this authority would not fall
under the BSP’s purposes under its charter.

Spouses Serfino vs Far East the Bangko Sentral ng Pilipinas, which is the agency that supervises the operations
Bank and activities of banks, and which has the power to issue "rules of conduct or the
establishment of standards of operation for uniform application to all institutions or
( functions covered"

As current laws provide, the banks contractual relations are with its depositor, not
with the third party; "a bank is under obligation to treat the accounts of its
depositors with meticulous care and always to have in mind the fiduciary nature of
its relationship with them." In the absence of any positive duty of the bank to an
adverse claimant, there could be no breach that entitles the latter to moral
damages.

Equitable PCI bank vs Tan

(post dated check that
encashed early on the said
date)

Section 5. Policy Direction; Ratios, Ceilings and Limitations. – The Bangko Sentral shall provide policy direction in the
areas of money, banking and credit. (n)
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For this purpose, the Monetary Board may prescribe ratios, ceilings, limitations, or other forms of regulation on the
different types of accounts and practices of banks and quasi-banks which shall, to the extent feasible, conform to
internationally accepted standards, including of the Bank for International Settlements (BIS). The Monetary Board may
exempt particular categories of transactions from such ratios, ceilings. and limitations, but not limited to exceptional
cases or to enable a bank or quasi-bank under rehabilitation or during a merger or consolidation to continue in business,
with safety to its creditors, depositors and the general public. (2-Ca)

Section 6. Authority to Engage in Banking and Quasi-Banking Functions. - No person or entity shall engage in banking
operations or quasi-banking functions without authority from the Bangko Sentral: .Provided, however, That an entity
authorized by the Bangko Sentral to perform universal or commercial banking functions shall likewise have the authority
to engage in quasi-banking functions.

The determination of whether a person or entity is performing banking or quasi-banking functions without Bangko
Sentral authority shall be decided by the Monetary Board. To resolve such issue, the Monetary Board may; through the
appropriate supervising and examining department of the Bangko Sentral, examine, inspect or investigate the books and
records of such person or entity. Upon issuance of this authority, such person or entity may commence to engage in
banking operations or quasi-banking function and shall continue to do so unless such authority is sooner surrendered,
revoked, suspended or annulled by the Bangko Sentral in accordance with this Act or other special laws. The department
head and the examiners of the appropriate supervising and examining department are hereby authorized to administer
oaths to any such person, employee, officer, or director of any such entity and to compel the presentation or production
of such books, documents, papers or records that are reasonably necessary to ascertain the facts relative to the true
functions and operations of such person or entity. Failure or refusal to comply with the required presentation or
production of such books, documents, papers or records within a reasonable time shall subject the persons responsible
therefore to the penal sanctions provided under the New Central Bank Act. Persons or entities found to be performing
banking or quasi-banking functions without authority from the Bangko Sentral shall be subject to appropriate sanctions
under the New Central Bank Act and other applicable laws. (4a)

Nature of Deposits

Metropolitan bank and trust
company vs Rosales
(Hold out order issued by the
Metropolitan bank to
respondent’s account and
refusal to release deposits of
respondent rosales)
The "Hold Out" clause applies only if there is a valid and existing obligation arising
from any of the sources of obligation enumerated in Article 115779 of the Civil
Code, to wit: law, contracts, quasi-contracts, delict, and quasidelict. In this case,
petitioner failed to show that respondents have an obligation to it under any law,
contract, quasicontract, delict, or quasi-delict. And although a criminal case was
filed by petitioner against respondent Rosales, this is not enough reason for
petitioner to issue a "Hold Out" order as the case is still pending and no final
judgment of conviction has been rendered against respondent Rosales

In view of the foregoing, we find that petitioner is guilty of breach of contract

when it unjustifiably refused to release respondents’ deposit despite demand.
Having breached its contract with respondents, petitioner is liable for damages
The contractual relationship between banks and their depositors is governed by
PNB vs Santos the Civil Code provisions on simple loan.73 Once a person makes a deposit of his
or her money to the bank, he or she is considered to have lent the bank that

(PNB allowed the withdrawal of
time deposits of the deceased
father of respondents other
than them, when such person
presented documents that are
not complied with what the PNB
is asking.)
Allied bank vs Lim Sio Wan
(a person claiming to be Lim Sio
Wan called up Cristina So, an
officer of Allied, and instructed
the latter to pre-terminate Lim
Sio Wan's money market
placement, to issue a manager's
check representing the proceeds
of the placement, and to give
the check to one Deborah Dee
Santos who would pick up the
check.
The check was crosschecked
"For Payee's Account Only" and
given to Santos.9 Thereafter,
the manager's check was
deposited in the account of
Filipinas Cement Corporation
(FCC) at respondent
Metropolitan Bank and Trust Co.
(Metrobank),10 with the forged
signature of Lim Sio Wan as
indorser.)
Associated bank vs Tan
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money. The bank becomes his or her debtor, and he or she becomes the creditor
of the bank, which is obligated to pay him or her on demand.
In Simex International (Manila), Inc. v. Court of Appeals,88 this court described the
nature of banks’ functions and the attitude expected of banks in handling their
depositors’ accounts, thus: 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 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.
Art. 1980. Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan.
Thus, we have ruled in a line of cases that a bank deposit is in the nature of a
simple loan or mutuum. More succinctly, in Citibank, N.A. (Formerly First National
City Bank) v. Sabeniano, this Court ruled that a money market placement is a
simple loan or mutuum. Further, we defined a money market in Cebu International
Finance Corporation v. Court of Appeals, as follows: [A] money market is a market
dealing in standardized short-term credit instruments (involving large amounts)
where lenders and borrowers do not deal directly with each other but through a
middle man or dealer in open market. In a money market transaction, the investor
is a lender who loans his money to a borrower through a middleman or dealer. In
the case at bar, the money market transaction between the petitioner and the
private respondent is in the nature of a loan.
Payment made by the debtor to a wrong party does not extinguish the obligation
as to the creditor, if there is no fault or negligence which can be imputed to the
latter.
an act of accommodation to a valued client, petitioner allowed the withdrawal of
the face value of the deposited check prior to its clearing. That act certainly
disregarded the clearance requirement of the banking system. Such a practice is
unusual, because a check is not legal tender or money; and its value can properly
be transferred to a depositor’s account only after the check has been cleared by
the drawee bank.
petitioner should not have authorized the withdrawal by respondent of P240,000
on October 1, 1990, as this amount was over and above his outstanding cleared
balance of P196,793.45
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