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General Banking Law Compilation

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BANKING LAWS (SET 1) GREGORIO H. REYES and CONSUELO PUYAT-REYES, vs. THE HON.

COURT OF APPEALS
and FAR EAST BANK AND TRUST COMPANY
G.R. No. 118492, August 15, 2001
DE LEON, JR., J.:

Doctrine:
The higher degree of diligence is not expected to be exerted by banks in
commercial transactions that do not involve fiduciary relationship.

Facts:
Petitioner applied with the respondent bank for a foreign exchange demand
draft in Australian Dollars. The Bank did not have an Australian dollar account in any
bank in Sydney so by way of accommodation the bank offered a roundabout way
which arrangement has been customarily resorted to since the 1960’s and the
procedure has proven to be problem-free; the respondent would draw a demand draft
against Westpac Bank in Sydney and have the latter reimburse itself from the US Dollar
Account of the respondent Bank in Westpac Bank in New York. The petitioner agreed
and a Foreign exchange demand draft was issued, however, the same was dishonored
twice in Australia when it was presented. Petitioner then filed a complaint for damages
before the RTC of Makati on the ground that the respondent bank should have
exercised a higher degree of diligence with the transaction.

Issue:
Whether or not the higher degree of diligence imposed upon banks is
applicable in this case.

Ruling:
No, the rule is the degree of diligence required of banks, is more than that of a
good father of a family where the fiduciary nature of their relationship with their
depositors is concerned, but the same higher degree of diligence is not expected to be
exerted by banks in commercial transactions that do not involve fiduciary relationship
with their depositors.Considering the foregoing, the respondent bank was not required
to exert more than the diligence of a good father of a family in regard to the sale and
issuance of the subject foreign exchange demand draft. The case at bar does not
involve the handling of petitioners’ deposit, if any, with the respondent bank. Instead,
the relationship involved was that of a buyer and seller, that is, between the respondent
bank as the seller of the subject foreign exchange demand draft, and PRCI as the buyer
of the same, with the 20th Asian Racing Conference Secretariat in Sydney, Australia as
the payee thereof.

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COMSAVINGS BANK vs. SPOUSES CAPISTRANOG.R. No. 170942. August 28, 2005.
DOCTRINE: URSAL vs. COURT OF APPEALS
A banking institution is obliged to exercise the highest degree of diligence as G.R. No. 142411. October 14, 2005
well as high standards of integrity and performance in all its transactions because its AUSTRIA-MARTINEZ, J.
business is imbued with public interest.
Doctrine:
FACTS: The business of the banks is impressed with public interest. They are expected
Respondent Spouses Danilo and Estrella Capistrano availed the Unified Home to exercise more care and prudence in their dealings than private individuals.
Lending Program (UHLP) implemented by the National Home Mortgage Finance
Corporation (NHMFC) through an accredited-originator Comsavings Bank. As part of Facts:
the requirements for the release of the loan, Comsavings Bank made Capistrano signed The spouses Jesus and Cristita Moneset (Monesets), the registered owners of the
various documents, including a ‘Certificate of House Completion and Acceptance.’ subject property, executed a “Contract to Sell Lot & House” in favor of petitioner
After compliance with the preliminary requirements of the UHLP, an interim financing Winifreda Ursal. Ursal paid the down payment and took possession of the property but
loan in the amount of ₱260,000.00, which amount was to be paid out of the proceeds after paying six monthly installments, petitioner stopped paying due to the Monesets’
from NHMFC, was approved and released to the construction contractor GCB Builders. failure to deliver to her the transfer certificate of title of the property as per their
Thereafter, while the construction is still ongoing and the house was still unfinished, agreement. Unknown to Ursal, the Monesets executed an absolute deed of sale in favor
Capistrano received a letter from NHMFC advising them to pay their monthly of Dr. Rafael Canora, Jr. over the said property and thereafter executed another sale,
amortizations for the said loan. Respondents protested to said demand contending that this time with pacto de retro with Restituto Bundalo, and was also mortgaged with
the ‘Certificate of Completion and Acceptance’ passed to NHMFC was only pre-signed respondent Rural Bank of Larena. For the failure of the Monesets to pay the loan, the
and the construction remained not completed, hence it prompted Capistrano to file a Bank served a notice of extrajudicial foreclosure. Ursal filed an action for declaration of
complaint against Comsavings Bank and GCB Builders for the breach of contract. non-effectivity of mortgage and damages against the Monesets, Bundalo and the
Bank.
ISSUE: Whether or not Comsavings Bank exercised the degree of diligence required of
a banking institution. Issue:
Whether or not banks can merely rely on the certificate of title of the
RULING: mortgaged property.
No, a banking institution like Comsavings Bank serving as an originating bank for
the Unified Home Lending Program (UHLP) of the Government owes a duty to observe Ruling:
the highest degree of diligence and a high standard of integrity and performance in all Banks cannot merely rely on certificates of title in ascertaining the status of
its transactions with its clients because its business is imbued with public interest, to which mortgaged properties; as their business is impressed with public interest, they are
it failed to do.In accordance with Article 20 and Article 1170 of the Civil Code, expected to exercise more care and prudence in their dealings than private individuals.
Comsavings Bank is liable for the damages for their misrepresentations in obtaining the Indeed, the rule that persons dealing with registered lands can rely solely on the
mortgage loan from NHMFC in the name of the respondents as it submitted false loan certificate of title does not apply to banks.
documents, such as photographs of the completed house, and made the respondent
signed the ‘Certificate of House Completion and Acceptance’ even if the construction
of the house had not yet started. Hence, it had prejudiced the respondents as they are
demanded payment for the loan despite the non-completion of the house. These acts
of Comsavings Bank were irregular per se and there is no question that it was grossly
negligent with its dealings with the respondents because it did not comply with is legal
obligation to exercise the required diligence and integrity.

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PHILIPPINE NATIONAL BANK (PNB) vs. JUAN F. VILLA ONOFRE ANDRES v. PHILIPPINE NATIONAL BANK
G.R. No. 213241, August 1, 2016 G.R. No. 173548, October 15, 2014
PEREZ, J. LEONEN, J.

DOCTRINE: DOCTRINE:
The banking system is an indispensable institution in the modern world and plays A bank that accepts a mortgage based upon a title which appears valid on its face and
a vital role in the economic life of every civilized nation. Hence, the highest degree of after exercising the requisite care, prudence, and diligence appropriate to the public interest
character of its business can be deemed a mortgagee in good faith. The subsequent
diligence is expected, and high standards of integrity and performance are even
consolidation of title in its name after a valid foreclosure shall be respected notwithstanding later
required, of it.
proof showing that the title was based upon a void transaction.
FACTS:
FACTS:
Spouses Reynaldo Comista and Erlinda Gamboa Comista (Spouses Comista)
Spouses Victor and Filomena Andres owns a parcel of land which was extrajudicially
are the previous owners of the foreclosed mortgaged real property that has been partitioned by his widow and his children upon the death of Victor and resulted to the cancellation
transferred to Juan F. Vila (Villa) by way of public auction. Despite the lapse of the of TCT No. NT-7267 and issuance of a new title under TCT No. NT-5773, in the name of Roman Andres,
redemption period and the fact of issuance of a Certificate of Final Sale to Villa, the one of the children and his wife, Lydia Echaus-Andres, who later mortagaged the property to PNB
Spouses were nonetheless allowed to buy back the subject property. Villa filed an action wherein no objection was made, even after the mortgage had been cancelled. Consequently,
for nullification of redemption, transfer of title and damages against the Spouses the Nueva Ecija RTC cancelled the guardianship and transferred ownership of the properties of the
Comista, the court ruled in favor of the respondent. However, the Sheriff could not deceased, Roman and Lydia Andres, to their only living heir, Reynaldo Andres, who used the title
successfully enforce the decision because the certificate of title covering the subject and mortgaged the property to PNB, without the consent of Onofre Andres. As a result, Petitioner
property was no longer registered under the names of the Spouses Comista, as it was Onofre Andres, uncle of Reynaldo filed a complaint for cancellation of title and reconveyance of
found out that during the interregnum the Spouses were able to secure a loan from the the property alleging that title in mortgagor's name was based on a falsified document
petitioner PNB using the same property subject of litigation as security. denominated as “Self-Adjudication of Sole Heir” executed by Reynaldo and his mother who is still
living at that time. PNB denied the material allegations in the complaint arguing that it conducted
ISSUE: an investigation on the property. The trial court ruled in favor of Onofre by voiding all derivative
Whether or not petitioner exercised greater care and prudence required to a titles from TCT No. NT-7267 while the Court of Appeals modified this decision by declaring as valid
bank by the law before it had entered into a mortgage contract. and existing titile in PNB’s name.

RULING: ISSUE:
No, before approving a loan application, it is a standard operating practice for Whether or not a valid title in favor of PNB can be derived from these void titles.
these institutions to conduct an ocular inspection of the property offered for mortgage
and to verify the genuineness of the title to determine the real owner thereof. Here, RULING:
Yes. While it is settled that a simulated deed of sale is null and void and therefore, does
petitioner PNB has failed to exercise the requisite due diligence in ascertaining the status
not convey any right that could ripen into a valid title, it has been equally ruled that, for reasons of
and condition of the property being offered to it as security for the loan before it
public policy, the subsequent nullification of title to a property is not a ground to annul the
approved the same.
contractual right which may have been derived by a purchaser, mortgagee or other transferee
who acted in good faith. The court upholds the Court of Appeals’ findings that PNB complied with
The banking system is an indispensable institution in the modern world and plays
the standard operating practice of banks, which met the requisite level of diligence, when it sent
a vital role in the economic life of every civilized nation. Whether as mere passive entities Gerardo Pestaño to conduct an ocular inspection of the property and verify the status of its
for the safekeeping and saving of money or as active instruments of business and ownership and title. Banks, as businesses impressed with public interest, must exercise greater care,
commerce, banks have become an ubiquitous presence among the people, who have prudence, and due diligence in all their property dealings. Consequently, PNB is a mortgagee in
come to regard them with respect and even gratitude and, most of all, confidence. good faith. The title resulting from the foreclosure sale, therefore, is to be protected. The bank is an
Consequently, the highest degree of diligence is expected, and high standards of innocent purchaser for value.
integrity and performance are even required, of it.

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PHILIPPINE NATIONAL BANK vs. CORPUZ
G.R. No. 180945. February 12, 2010. ANNA MARIE L. GUMABON vs. PHILIPPINE NATIONAL BANK
ABAD, J. G.R. No. 202514. July 25, 2016.
J. BRION

Doctrine: Doctrine:
Banks are expected to be more cautious than ordinary individuals in dealing Fiduciary Nature - A bank treats the accounts of its depositors with meticulous
with lands, even registered ones, since the business of banks is imbued with public care, always having in mind the fiduciary nature of their relationship. Fiduciary nature of
interest. banking that requires high standards of integrity and performance.

Facts: Facts:
Mercedes Corpuz delivered her owner’s duplicate copy of TCT 32815 to This case is a petition for review on certiorari filed by Anna Marie Gumabon
Dagupan City Rural Bank as security against any liability she might incur as its cashier, assailing the decision and resolution of the Court of Appeals. The CA reversed the
which she later left and went to United States, however, without Corpuz’s knowledge Regional Trial Court ruling favoring Anna Marie. Anna Marie filed a complaint for
and consent, Natividad Alano, the rural bank’s manager, turned over Corpuz’s title to recovery of sum of money and damages before the RTC against the Philippine National
Julita Camacho and Amparo Callejo. Alano, Camacho, and Callejo prepared a Bank and the PNB Delta branch manager Silverio Fernandez. The case stemmed from
falsified deed of sale, making it appear that Corpuz sold her land to one “Mary Bondoc” the PNB’s refusal to release Anna Marie’s money in a consolidated savings account and
and caused the registration of the deed of sale, resulting in the cancellation of TCT 32815 in two foreign exchange time deposits, evidenced by Foreign Exchange Certificates of
and the issuance of TCT 63262 in Bondoc’s name. Subsequent transfers were made to Time Deposit.
Rufo and Teresa Palaganas and to Virgilio and Elene Songcuan, which resulted in the
issuance of TCT 63528. Finally, the Songcuans took out a loan of P1.1 million from Issue:
petitioner Philippine National Bank (PNB) and, to secure payment, they executed a real Whether or not PNB is liable to Anna Marie for its negligent acts as a banking
estate mortgage on their title. institution.

A complaint was filed by Corpuz against Mary Bondoc, the Palaganases, the Ruling:
Songcuans, and petitioner PNB, asking for the annulment of the layers of deeds of sale Yes, PNB is liable for its negligence as a banking institution. The Court ruled that
covering the land, the cancellation of TCTs 63262, 63466, and 63528, and the Section 2 of Republic Act No. 8791 declares the State’s recognition of the "fiduciary
reinstatement of TCT 32815 in her name. nature of banking that requires high standards of integrity and performance." It cannot
be overemphasized that the banking business is impressed with public interest, hence,
Issue:Whether or not petitioner PNB is a mortgagee in good faith, entitling it to its lien on the trust and confidence of the public to the industry is given utmost importance. Thus,
the title to the property in dispute. the bank is under obligation to treat its depositor’s accounts with meticulous care,
having in mind the nature of their relationship. The bank is required to assume a degree
Ruling: of diligence higher than that of a good father of a family.
No, PNB is not a mortgagee in good faith. As a rule, the Court would not expect
a mortgagee to conduct an exhaustive investigation of the history of the mortgagor’s
title before he extends a loan. But petitioner PNB is not an ordinary mortgagee; it is a
bank. Banks are expected to be more cautious than ordinary individuals in dealing with
lands, even registered ones, since the business of banks is imbued with public interest. It
is of judicial notice that the standard practice for banks before approving a loan is to
send a staff to the property offered as collateral and verify the genuineness of the title
to determine the real owner or owners.

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BANCO DE ORO vs. REPUBLIC OF THE PHILIPPINES
SPOUSES CARBONELL vs. METROPOLITAN BANK AND TRUST COMPANY G.R. No. 198756 January 13, 2015
April 26, 2017; G.R. No. 178467 LEONEN, J.
BERSAMIN, J.
Doctrine:
Doctrine: The term ‘deposit substitutes’ shall mean an alternative form of obtaining funds
The General Banking Act of 2000 demands of banks the highest standards of from the public (the term 'public' means borrowing from twenty (20) or more individual
integrity and performance. or corporate lenders at any one time) other than deposits, through the issuance,
endorsement, or acceptance of debt instruments for the borrower’s own account, for
Facts: the purpose of relending or purchasing of receivables and other obligations, or
The petitioners initiated a civil case against the respondent of an action for financing their own needs or the needs of their agent or dealer.
damages, alleging that they had experienced emotional shock and public ridicule
during their trip to Thailand because of the respondent's act of releasing five US$ 100 Facts:
bills that later on turned out to be fake. Upon return to the Philippines, the counsel of the The case involves the proper tax treatment of the discount or interest income
petitioners had submitted the subject bills to the Bangko Sentral ng Pilipinas (BSP) for arising from the ₱35 billion worth of 10-year zero-coupon treasury bonds issued by the
examination; however, the BSP certified that the four US$100 bills were near perfect Bureau of Treasury on October 18, 2001 (denominated as the Poverty Eradication and
genuine notes. Having failed to enter into a compromise, civil case was filed against the Alleviation Certificates or the PEA Ce Bonds by the Caucus of Development NGO
respondent. The Regional Trial Court ruled in favor of the respondent. On appeal, the Networks). Wherein the BIR issued the assailed 2011 ruling, that orders the Bureau of
Court of Appeals affirmed the RTC. Hence, this case. Treasury to withheld the 20% tax on the said treasury bond, ascertaining that such is not
a substitute deposit, thus is not exempted from taxation. The trial court, upon motion,
Issue: issued the restraining order, however, BTr still withheld the 20% tax. Hence, present
Whether or not the respondent bank failed to exercise the degree of diligence petition.
required in handling the affairs of its clients
Issue:
Ruling: Whether the PEACe Bonds are "deposit substitutes" and thus subject to 20% final
No. The Supreme Court ruled that the General Banking Act of 2000 demands of withholding tax under the NIRC.
banks the highest standards of integrity and performance. In the instant case, the
respondent bank had exercised the diligence required by law in observing the standard Ruling:
operating procedure, in taking the necessary precautions for handling the US dollar bills No, the PEACe Bonds are not deposit substitute. Deposit substitutes’ shall mean
in question, and in selecting and supervising its employees. Moreover, the BSP even an alternative form of obtaining funds from the public (the term 'public' means
certified that the falsity of the US dollar notes in question, which were "near perfect borrowing from twenty (20) or more individual or corporate lenders at any one time)
genuine notes," could be detected only with extreme difficulty even with the exercise other than deposits, through the issuance, endorsement, or acceptance of debt
of due diligence as the security fibers and the printing were perfect except for some instruments for the borrower’s own account, for the purpose of relending or purchasing
microscopic defects, and that all lines were clear, sharp and well defined. The Supreme of receivables and other obligations, or financing their own needs or the needs of their
Court dismissed the petition. agent or dealer.

Hence, the number of lenders is determinative of whether a debt instrument


should be considered a deposit substitute and consequently subject to the 20% final
withholding tax.

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PHILIPPINE DEPOSIT INSURANCE CORPORATION vs. CITIBANK
FIRST PLANTERS PAWNSHOP, INC., vs. CIR G.R. No. 170290, April 11, 2012
G.R. No. 174134, July 30, 2008, MENDOZA, J.
AUSTRIA-MARTINEZ, J.
Doctrine:
Doctrine: Foreign banks; A branch has no separate legal personality from the parent
It need not be elaborated that pawnshops are non-banks/banking institutions. bank.
Moreover, the nature of their business activities partakes that of a financial intermediary
in that its principal function is lending. Facts:
Philippine Deposit Insurance Corporation (PDIC), a government instrumentality,
Facts: conducted an examination of the books of account of Citibank and Bank of America
First Planters Pawnshop, Inc. (petitioner) contests the deficiency value-added (BA) which are both duly organized and existing under the laws of the United States of
tax imposed upon it by the Bureau of Internal Revenue (BIR) for the year 2000. The core America and duly licensed to do business in the Philippines. During the examination of
of petitioner's argument is that it is not a lending investor within the purview of Section the books, PDIC discovered that both banks received from their head offices huge
108(A) of the National Internal Revenue Code (NIRC), as amended, and therefore not amount of dollars which were not reported to PDIC as deposit liabilities subject to
subject to value-added tax (VAT). assessment for insurance. Believing that litigation would inevitably arise from this dispute,
Citibank and BA each filed a petition for declaratory relief, stating that the money
In a Pre-Assessment Notice petitioner was informed by the BIR that it has an placements they received from their head office and other foreign branches were not
existing tax deficiency on its VAT liabilities for the year 2000, the deficiency assessment deposits and did not give rise to insurable deposit liabilities under Sections 3 and 4 of
was at P541,102.79 for VAT Petitioner protested the assessment for lack of legal and R.A. No. 3591 (the PDIC Charter) and, as a consequence, the deficiency assessments
factual bases. Petitioner subsequently received a Formal Assessment Notice directing made by PDIC were improper and erroneous. The cases were then consolidated. RTC
payment. Petitioner sought reconsideration but this was denied by the CTA En Banc. ruled in favor of the Citibank and BA, which was affirmed by the Court of Appeals,
hence, the present case.
Issue:
Whether petitioner, engaged in pawnshop business, is liable to pay the Issue:
deficiency assessment atP541,102.79 for VAT? Whether the funds placed in the Philippine branch by the head office and
foreign branches are insurable deposits under the PDIC Charter and, are subject to
Ruling: assessment for insurance premiums.
No, R.A. No. 9238 classified pawnshops as Other Non-bank Financial
Intermediaries. Ruling:
No. The Court explained the manner by which a foreign corporation can
The nature of their business activities partakes that of a financial intermediary in establish its presence in the Philippines – it may choose to incorporate its own subsidiary
that its principal function is lending. That pawnshops are to be treated as non-bank as a domestic corporation, in which case such subsidiary would have its own separate
financial intermediaries is further bolstered by the fact that pawnshops are under the and independent legal personality to conduct business in the country. In the alternative,
regulatory supervision of the Bangko Sentral ng Pilipinas and covered by its Manual of it may create a branch in the Philippines, which would not be a legally independent
Regulations for Non-Bank Financial Institutions. Coming now to the issue at hand - Since unit, and simply obtain a license to do business in the Philippines.
petitioner is a non-bank financial intermediary, it is subject to 10% VAT for the tax years
1996 to 2002; however, with the levy, assessment and collection of VAT from non-bank In the case of Citibank and BA, it is apparent that they both did not
financial intermediaries being specifically deferred by law, then petitioner is not liable incorporate a separate domestic corporation to represent its business interests in
for VAT during these tax years and beginning 2004 up to the present, by virtue of R.A. the Philippines. Thus, being one and the same entity, the funds placed by the
No. 9238, petitioner is no longer liable for VAT but it is subject to percentage tax on gross respondents in their respective branches in the Philippines should not be treated as
receipts from 0% to 5 %, as the case may be. deposits made by third parties subject to deposit insurance under the PDIC Charter.

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