TEOFISTO GUINGONA, JR., ANTONIO I.

MARTIN, and TERESITA

SANTOS, Petitioners, v. THE CITY FISCAL OF MANILA, HON. JOSE B.
FLAMINIANO, ASST. CITY FISCAL FELIZARDO N. LOTA and CLEMENT
DAVID, Respondents.
David invested several deposits with the Nation Savings and Loan Association [NSLA].
He said that he was induced into making said investments by an Australian national who
was a close associate of the petitioners [NSLA officials]. On March 1981, NSLA was
placed under receivershipby the Central Bank, so David filed claims for his and his
sisters investments.
Guingona and Martin, upon Davids request, assumed the banks obligation
to David by executing a joint promissory note. David received a report that only a
portion of his investments was entered in the NSLA records.
David charged petitioners with estafa and violation of Central Bank Circular
No. 364 and related regulations on foreign exchange transactions.
Petitioners moved to dismiss the charges against them for lack of jurisdiction
because David's claims allegedly comprised a purely civil obligation, but the motion
was denied. After the presentation of David's principal witness, petitioners filed this
petition for prohibition and injunction because:
Guingona: the transactions between David and NSLA were simple loans (civil
obligations which were novated when Guingona and Martin assumed them)
A TRO was issued ordering the respondents to refrain from proceeding with
the preliminary investigation in I.S. No. 81-31938.
Held: It must be pointed out that when private respondent David invested his money on
nine. and savings deposits with the aforesaid bank, the contract that was perfected was a
contract of simple loan or mutuum and not a contract of deposit. Thus, Article 1980
provides that:. Fixed, savings, and current deposits of-money in banks and similar
institutions shall be governed by the provisions concerning simple loan.
In the case of Central Bank of the Philippines vs. Morfe, Fixed, savings, and current
deposits of money in banks and similar institutions are that true deposits. are considered
simple loans and, as such, are not preferred credits
In Serrano vs. Central Bank of the Philippines ruled that Bank deposits are in the nature
of irregular deposits. They are really 'loans because they earn interest. All kinds of bank
deposits, whether fixed, savings, or current are to be treated as loans and are to be
covered by the law on. Current and saving deposits, are loans to a bank because it can
use the same.
Hence, the relationship between the private respondent and the Nation Savings and Loan
Association is that of creditor and debtor; consequently, the ownership of the amount
deposited was transmitted to the Bank upon the perfection of the contract and it can make
use of the amount deposited for its banking operations, such as to pay interests on
deposits and to pay withdrawals. While the Bank has the obligation to return
the amount deposited, it has, however, no obligation to return or deliver the same
money that was deposited. And, the failure of the Bank to return the amount
deposited will not constitute estafa through misappropriation punishable under
Article 315, par. l(b) of the Revised Penal Code, but it will only give rise to civil
liability over which the public respondents have no- jurisdiction.

OVERSEAS BANK OF MANILA, petitioner, vs. COURT OF APPEALS and

NATIONAL WATERWORKS AND SEWERAGE AUTHORITY, respondents.
Facts: Bonifacio Regalado and NAWASA entered a in a contract of sale with
installments for various materials which the latter agreed to supply to the former. In
relation to a contract of sale between NAWASA, as vendor and Bonifacio Regalado, as
vendee, the amount corresponding to the first payment by Regalado was placed on a time
deposit with the Overseas Bank by the NAWASA Treasurer for a period of 6 months. A
second payment having been made by Regalado, another time deposit was made by the
NAWASA Treasurer with the Overseas Bank, this time in the amount representing the
balance of the purchase price due from Regalado. The period of this second deposit was
fixed 1 year. Subsequently, NAWASAs Acting General Manager wrote to the Overseas
Bank advising that (1) as regards the first time deposit which had already matured,
NAWASA wished to withdraw it immediately, and (2) with respect to the second time
deposit of, it intended to withdraw it 60 days thereafter as authorized by the parties
agreement set forth in the certificate of the deposit. Despite several letter requests,
nothing was heard from the Overseas Bank. It did however pay to NAWASA interest on
its time deposits.
After maturity of the second time deposit and Overseas Bank not responding to the letter
request of NAWASA for the remittance of the time deposits, NAWASA then wrote to the
Central Bank Governor about the matter. Apparently, even the Central Bank was ignored
by Overseas Bank. One last letter was written by NAWASA to the Overseas Bank,
reiterating its demand for the return of its money. Again the letter went
unheeded. NAWASA thus brought suit to recover its deposits and damages. CFI Manila
rendered judgment in favor of NAWASA and ordered the bank to pay. CA affirmed the
trial courts ruling. Hence this petition.
Overseas Bank: By reason of punitive action taken by the Central Bank, it had been
prevented from undertaking banking operations which would have generated funds to pay
not only its depositors and creditors but likewise the interests due on the deposits.
Issue: Whether or not Overseas Bank is liable to pay.
Held: The banks contention that the punitive actions taken by the Central Bank
prevented the bank from conducting its business is devoid of merit. There is absolutely
no evidence of these facts in the record. Moreover, the suspension of operations in 1968
could not possibly excuse non-compliance with the obligations in question which
matured in 1966. Again, the claim that the Central Bank, by suspending the Overseas
Banks banking operations, had made it impossible for the Overseas Bank to pay its
debts, whatever validity might be accorded thereto, or the further claim that it had fallen
into a distressed financial situation, cannot in any sense excuse it from its obligation to
the NAWASA, which had nothing whatever to do with the Central Banks actuations or
the events leading to the banks distressed state.

Integrated Realty Corp vs PNB GR No. 60705, 28 June 1989 174 SCRA 295
FACTS
Raul Santos made a time deposit with OBM in the amount of P500H and
he was issued a certificate of time deposits. On another date, Santos again made a time
deposit with OBM in the amount of P200H, he was again issued a CTD. IRC, thru its
president Raul Santos, applied for a loan and/or credit line (P700H) with PNB. To secure
such, Santos executed a Deed of Assignment of the 2 time deposits. After due dates of the
time deposit certificates, OBM did not pay PNB. PNB then demanded payment from IRC
and Santos, but they replied that the loan was deemed paid with the irrevocable
assignment of the time deposit certificates.
PB then filed with RTC to collect from IRC and Santos with interest. The trial
court ruled in favor of PNB ordering IRC and Santos to pay PNB the total amount of
P700H plus interest of 9% PA, 2% additional interest and 1& PA penalty interest. On
appeal, the CA ordered OBM to pay IRC and Santos whatever amts they will to PNB
with interest.
IRC and Santos now claim that OBM should reimburse them for whatever amts
they may be adjudged to pay PNB by way of compensation for damages incurred.
ISSUE
Whether or not the claim of IRC and Santos will prosper.
HELD
It has been held that suspension of a bank which had fallen into a distressed
fi nancial situation by order of the Central Bank cannot excuse it from its obligations to
depositors who had nothing whatever to do with the Central Bank actuations or the events
leading to the banks distressed state. (Overseas Bank of
Manila vs. Court of Appeals, 172 SCRA 521 [1989].) But the bank may not be liable to
pay interest on the deposit during the period of suspension.
The Court held in the affirmative. The 2 time deposits matured on 11 January
1968 and 6 February 1968, respectively. However, OBM was not allowed and suspended
to operate only on 31 July 1968 and resolved on 2 August 1968. There was a yet no
obstacle to the faithful compliance by OBM of its liabilities. For having incurred in delay
in the performance of its obligation, OBM should be held for damages. OBM contends
that it had agreed to pay interest only up to the dates of maturity of the CTD and that
Santos is not entitled to interest after maturity dates had expired.
While it is true that under Article 1956 of the CC, no interest shall be due unless it
has been expressly stipulated in writing, this applies only to interest for the use of money.
It does not comprehend interest paid as damages. OBM is being required to pay such
interest, not as interest income stipulated in the CTD, but as damages fro failure and
delay in the payment of its obligations which thereby compelled IRC and Santos to resort
to the courts.
The applicable rule is that LI, in the nature of damages for non-compliance with
an obligation to puy sum of money, is recoverable from the date judicially or extrajudicially demand is made.
Integrated Realty Corporation vs. PNB 174 SCRA 295
Facts: Raul Santos was issued certificate of deposit totaling to P700, 000.00 by
OBM. IRC through Raul Santos applied a loan for P700, 000.00 with PNB . To
secure the loan, he executed a Deed of Assignment of the two Time Deposit in
favor of PNB. OBM after due dates did not pay.
Plaintiff- That the Trial Court erred in its judgment ordering them to pay for the
amount with additional penalty interest.

Contention of the Respondent: - The plaintiff should pay additional penalty

interest.
Issues: Whether or not OBM is liable to pay the 6.5% interest
Ruling: While it is true that under Art 1956, no interest shall be due unless it has
been expressly stipulated in writing, this applies only to interest for the use of
money. It does not comprehend interest paid as damages.
FIDELITY SAVINGS AND MORTGAGE BANK, petitioner, vs. HON. PEDRO D.
CENZON, in his capacity as Presiding Judge of the Court of First Instance of
Manila (Branch XL) and SPOUSES TIMOTEO AND OLIMPIA
SANTIAGO, respondents.
SPOUSES TIMOTEO AND OLIMPIA SANTIAGO who deposited with the
defendant Fidelity Savings Bank the amount of P50,000.00 under Savings Account; and
another P50,000.00 under Certificate of Time Deposit that the aggregate amount of
deposits of the petitioners with Fidelity Savings and Mortgage Bank is P100,000.00; On
February 18, 1969, petitioner Fidelity Savings Bank was placed under insolvency. On
February 19, 1969 and up to the date that the petition for review is filed with the Supreme
Court, the Superintendent of Banks has been taking charge of the assets of defendant
Fidelity Savings and Mortgage Bank In pursuant to Resolution No. 350, as issued by the
Monetary Board; On October 10, 1969 the PDIC paid the plaintiffs the amount of TEN
THOUSAND PESOS (P10,000.00) on the aggregate deposits of P100,000.00 pursuant to
Republic Act No. 5517, thereby leaving a deposit balance of P90,000.00; On December
9, 1969, the Monetary Board issued its Resolution No. 2124 directing the liquidation of
the affairs of defendant Fidelity Savings Bank; On January 25, 1972, the OSG filed a
"Petition for Assistance and Supervision in Liquidation" of the affairs of Fidelity Savings
and Mortgage Bank. The liquidation proceeding has not been terminated and is still
pending up to the time that the petition is filed before the Supreme Court; On October 3,
1972, the Liquidation Court promulgated the Bank Rules and Regulations to govern the
liquidation of the affairs of defendant Fidelity Savings and Mortgage Bank; The
petitioners through their counsel, sent demand letters to respondents, demanding
the immediate payment of the aforementioned savings and time deposits; On August
10, 1973, private respondents instituted action for a sum of money with damages against
Fidelity Savings and Mortgage Banket.al.
Issue: Whether or not an insolvent bank like the Fidelity Savings and Mortgage Bank
may be adjudged to pay interest on unpaid deposits even after its closure by the Central
Bank by reason of insolvency without violating the provisions of the Civil Code on
preference of credits
Held: Banking institution which has been declared insolvent and subsequently ordered
closed by the Central Bank of the Philippines cannot be held liable to pay interest on
bank deposits which accrued during the period when the bank is actually closed and nonoperational.
Petitioner Fidelity Savings and Mortgage Bank is hereby declared liable to pay
private respondents Timoteo and Olimpia Santiago the sum of P90,000.00, with accrued
interest in accordance with the terms of Savings Account Deposit No. 16-0536 (Exhibit
A) and Certificate of Time Deposit No. 0210 (Exhibit B) until February 18, 1969.

BANCO DE ORO-EPCI, INC., vs. JAPRL DEVELOPMENT CORPORATION,

RAPID FORMING CORPORATION and JOSE U. AROLLADO
Facts: Banco de Oro extended financial facilities to JAPRL Development
Corporation (JAPRL) amounting to P230,000,000 with co-respondents Rapid
Forming Corporation (RFC) and Jose Arollado acting as sureties. JAPRL defaulted
in the payment of four trust receipts. Petitioner bank subsequently found out that
JAPRL altered and falsified its financial statements to project itself as a viable
investment. Because the demand for payment was unheeded, petitioner bank sued
JAPRL and the sureties for payment of the balance due on the trust receipts in RTC
Makati. Respondents then hastily filed a petition for rehabilitation and stay order in
Calamba of RTC which were granted. As a result, the complaint was dismissed with
respect to JAPRL and RFC. Arollado remained as defendant. Respondents filed a
petition for certiorari before the CA, contending that the trial court did not acquire
jurisdiction over them as the summons were served on a mere administrative
assistant. CA granted the petition and dismissed petitioners motion for
reconsideration.
Issue: Whether or not BDO may annul the credit accommodations it extended to
JAPRL and demand immediate payment due to the alteration and falsification of
JAPRLs financial statement.
Held: Respondents abused procedural technicalities (albeit unsuccessfully) for
the sole purpose of preventing, or at least delaying, the collection of their legitimate
obligations. Their reprehensible scheme impeded the speedy dispensation of justice.
More importantly, however, considering the amount involved, respondents utterly
disregarded the significance of a stable and efficient banking system to the national
economy.
Banks are entities engaged in the lending of funds obtained
through deposits from the public. They borrow the publics excess money (i.e.,
deposits) and lend out the same. Banks therefore redistribute wealth in the economy
by channeling idle savings to profitable investments. Banks operate (and earn
income) by extending credit facilities financed primarily by deposits from the
public.[48] They plough back the bulk of said deposits into the economy in the form
of loans.[49] Since banks deal with the publics money, their viability depends
largely on their ability to return those deposits on demand. For this reason, banking
is undeniably imbued with public interest. Consequently, much importance is given
to sound lending practices and good corporate governance. Protecting the
integrity of the banking system has become, by large, the responsibility of banks.
The role of the public, particularly individual borrowers, has not been emphasized.
Nevertheless, we are not unaware of the rampant and unscrupulous practice of
obtaining loans without intending to pay the same.
In this case, petitioner alleged that JAPRL fraudulently altered and falsified its
financial statements in order to obtain its credit facilities. Considering the amount
of petitioners exposure in JAPRL, justice and fairness dictate that the Makati RTC

hear whether or not respondents indeed committed fraud in securing the credit
accommodation. The protective remedy of rehabilitation was never intended to be a
refuge of a debtor guilty of fraud.
Section 40 of the General Banking Law which states:
Requirement for Grant of Loans or Other Credit Accommodations.
Before granting a loan or other credit accommodation, a bank must ascertain that
the debtor is capable of fulfilling his commitments to the bank.
Under this provision, banks have the right to annul any credit accommodation or
loan, and demand the immediate payment thereof, from borrowers proven to be
guilty of fraud. Petitioner would then be entitled to the immediate payment of
P194,493,388.98 and other appropriate damages.

MACLARING M. LUCMAN, in his capacity as the Manager of the LAND BANK

OF THE PHILIPPINES, Marawi City, petitioner, vs. ALIMATAR MALAWI,
ABDUL-KHAYER PANGCOGA, SALIMATAR SARIP, LOMALA CADAR,
ALIRIBA S. MACARAMBON and ABDUL USMAN, respondents.
Petitioners are barangay chairman of Pagawayan, Lanao del Sur they claim that they were
deprived of their Internal Revenue Allotment (IRA) for the 2 nd and 3rd quarters of 1997.
Beginning with the second quarter of 1997, LBP was selected as the government
depository bank for the IRAs of the said barangays. 5 Being a new government depositary
bank for the IRA funds, the authorized public officials had to open new accounts in
behalf of their government units with the proper LBP branch from which they could
withdraw the IRAs.6
After the failed 12 May 1997 elections, respondents attempted to open their respective
barangays' IRA bank accounts but were refused by petitioner because respondents needed
to show their individual certifications showing their right to continue serving as Barangay
Chairmen and the requisite Municipal Accountant's Advice giving respondents the
authority to withdraw IRA deposits.7 The requirement for the Accountant's Advice
stemmed from Commission on Audit Circular No. 94-004.8
Respondents were eventually allowed to open accounts for their barangays except for
Lomala Cadar and Abdul Usman of barangays Mapantao-Ingud and Rangiran,
respectively, because the accounts for these barangays were previously opened by two
persons who presented themselves as the duly proclaimed Barangay Chairmen for these
same barangays.9

In any event, all respondents were not allowed to withdraw the IRA funds from the
opened accounts, owing to the absence of the requisite Accountant's Advice. 10
Then on 4 August 1997, five (5) other persons presented themselves before petitioner as
the newly proclaimed Punong Barangays of the five barangays concerned, 11 each of them
presenting a certification of his election as Punong Barangay issued by the provincial
director of the DILG-ARMM and another Certification issued by the Local Government
Operations Officer attesting, among others, to the revocation of the certification
previously issued to respondents.12 Without verifying the authenticity of the certifications
presented by these third persons, petitioner proceeded to release the IRA funds for the
2nd and 3rd quarters of 1997 to them.13
Respondents filed a special civil action to compel petitioner to allow them to open and
maintain deposit accounts covering the IRAs of their respective barangays and to
withdraw therefrom.
Lucman: Respondents have no cause of action against him since they failed to present
valid certifications showing their respective right to continue serving as Punong
Barangay as well as the requisite Municipal Accountant's Advice. LBP Marawi Branch
had already released the contested IRAs to the Barangay Treasurers who were acting in
conjunction with the duly recognized Punong Barangays, thereby making the petition for
mandamus moot and academic. These are factual issues that are generally beyond the
review of this Court.
Held: By virtue of the deposits, there exists between the barangays as depositors and LBP
a creditor-debtor relationship. Fixed, savings, and current deposits of money in banks and
similar institutions are governed by the provisions concerning simple loan. 33 In other
words, the barangays are the lenders while the bank is the borrower.
The relationship being contractual in nature, mandamus is therefore not an available
remedy since mandamus does not lie to enforce the performance of contractual
obligations.37
This brings us to the second core issue. The IRA funds for which the bank accounts
were created belong to the barangays headed by respondents. The barangays are
the only lawful recipients of these funds. Consequently, any transaction or claim
involving these funds can be done only through the proper authorization from the
barangays as juridical entities.

CITIBANK, N.A., Petitioner, vs. SPS. LUIS and CARMELITA CABAMONGAN

and their sons LUISCABAMONGAN, JR. and LITO
CABAMONGAN, Respondents.
Facts:
1. The Cabamongan spouses Luis and Carmelita are both based in California, USA. The
spouses opened a foreign currency time deposit account for their children with petitioner
CityBank with a 180-day term. An impostor who claimed to be Carmelita (wife)
succeeded to preterminate the time deposit after presenting passport, credit card and other
identification.
2. The bank personnel who attended to the transaction ignored several red flags which
could have alerted the bank as to the real identity of the person claiming to be 'Carmelita'.
For one, she failed to present the certificate of time deposit, there was also a discrepancy
in her signature with that in the signature cards of the bank. Finally, the photo in the
bank's file did not look like this person claiming to be Carmelita. Despite all these
irregularities, the bank went through with the transaction, which only took 40 minutes.
The document waiver which the impostor signed was also not notarized, as required
under bank's procedures.
3. To the aghast of the spouses, they only came to learn of the incident through a
daughter-in-law who called them up in the US. Apparently, a break-in occurred
previously in their US residence and several important documents were lost to the thief.
The spouses demanded payment from the bank who refused. Hence the filing of the suit
against petitioner bank.
4. The spouses presented a PNP Document Examiner expert who analysed the signature
and concluded that the signature was forged, hence the discrepancy between the signature
of the impostor and the one written in the signature cards held by the bank.
4. The trial court ruled in favor of the spouses Cabamongan, held the bank negligent and
awarded actual, moral and exemplary damages. The bank appealed to the CA which
affirmed the lower court's decision. Both parties filed a petition for review on certiorari
before the SC where the petitioner insisted that it Carmela who preterminated the TD
despite claims to the contrary, while the Cabamongan spouses contended that Citybank's
negligence was established by evidence.
Cabomongan: Citibank's negligence has been established by evidence.
Citibank: they were not negligent since the said courts failed to appreciate the extra
diligence of a good father of a family exercised by Citibank thru San Pedro.
The bank avers that the claim of the Cabamongan spouses does not constitute a
loan or forbearance of money and therefore, the interest rate of 6%, not 12%, applies.
Issue: Whether or not the bank is negligent and therefor should be held liable when
it allowed the pretermination of the TD in favor of the impostor

HELD: YES. The bank was indeed negligent as it failed to exercise the highest degree of
care and diligence required of it. The banking business is impressed with public interest
and of paramount importance thereto is the trust and confidence of the public in general.
The Court has held that the bank "is bound to know the signatures of its customers; and if
it pays a forged check, it must be considered as making payment out of its own funds,
and cannot ordinarily charge the amount so paid to the account of the depositor whose
name
was
forged."(San
Carlos
Milling
Ltd.
vs.
BPI).
It has been sufficiently shown that the signatures of Carmelita in the pretermination were
forged. The petitioner, even with its signature verification procedure failed to detect the
forgeries. Citybank cannot label its negligence as mere error. For not exercising the
degree of diligence required of banking institutions, it is liable for damages.
The time deposit subject matter of herein petition is a simple loan. The
provisions of the New Civil Code on simple loan govern the contract between a bank and
its depositor. Specifically, Article 1980 thereof categorically provides that ". . . savings . .
. deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan." Thus, the relationship between a bank and its depositor is that
of a debtor-creditor, the depositor being the creditor as it lends the bank money, and the
bank is the debtor which agrees to pay the depositor on demand.
JOSEPH GOYANKO, JR., as administrator of the Estate of Joseph
Goyanko, Sr., Petitioner, vs. UNITED COCONUT PLANTERS BANK, MANGO
AVENUE BRANCH, Respondent.
the late Joseph Goyanko, Sr. (Goyanko) invested P2,000,000.00 with Philippine
Asia Lending Investors, Inc. Pending the investigation of the conflicting claims,
PALII deposited the proceeds of the investment with UCPB under the name "Phil
Asia: ITF (In Trust For) The Heirs of Joseph Goyanko, Sr." (ACCOUNT). On
September 27, 1997, the deposit under the ACCOUNT was P1,509,318.76.
UCPB allowed PALII to withdraw P1,500,000.00 from the Account, leaving a
balance of only P9,318.76. When UCPB refused the demand to restore the
amount withdrawn plus legal interest from December 11, 1997, the petitioner filed
a complaint before the RTC. In its answer to the complaint, UCPB admitted,
among others, the opening of the ACCOUNT under the name "ITF (In Trust For)
The Heirs of Joseph Goyanko, Sr.," (ITF HEIRS) and the withdrawal on
December 11, 1997.
Goyanko: an express trust was created. PALII is clearly the trustor as it created
the trust; UCPB is the trustee as it is the party in whom confidence is reposed as
regards the property for the benefit of another; and the HEIRS are the
beneficiaries as they are the persons for whose benefit the trust is
created.11 UCPB was negligent and in bad faith in allowing the withdrawal and in
failing to inquire into the nature of the ACCOUNT.

UCPB: the ACCOUNT involves an ordinary deposit contract between PALII and
UCPB only, which created a debtor-creditor relationship obligating UCPB to
return the proceeds to the account holder-PALII. Thus, it was not negligent in
handling the ACCOUNT when it allowed the withdrawal. The mere designation of
the ACCOUNT as "ITF" is insufficient to establish the existence of an express
trust or charge it with knowledge of the relation between PALII and the HEIRS.
Issue: The issue before us is whether UCPB should be held liable for the amount
withdrawn because a trust agreement existed between PALII and UCPB, in favor
of the HEIRS, when PALII opened the ACCOUNT with UCPB.
Held: Contrary to the petitioners position, UCPB did not become a trustee
by the mere opening of the ACCOUNT.1wphi1While this may seem to be
the case, by reason of the fiduciary nature of the banks relationship with
its depositors,37 this fiduciary relationship does not "convert the contract
between the bank and its depositors from a simple loan to a trust
agreement, whether express or implied."38 It simply means that the bank is
obliged to observe "high standards of integrity and performance" in
complying with its obligations under the contract of simple loan.39 Per
Article 1980 of the Civil Code,40 a creditor-debtor relationship exists between the
bank and its depositor.41 The savings deposit agreement is between the bank
and the depositor;42 by receiving the deposit, the bank impliedly agrees to pay
upon demand and only upon the depositors order.43
Equitable PCI vs Ng Sheung Ngor
On October 7, 2001, respondents Ng Sheung Ngor, [4] Ken Appliance Division, Inc. and
Benjamin E. Go filed an action for annulment and/or reformation of documents and
contracts[5] against petitioner Equitable PCI Bank (Equitable) and its
employees. They claimed that Equitable induced them to avail of its peso and dollar
credit facilities by offering low interest rates[7] so they accepted Equitable's proposal and
signed the bank's pre-printed promissory notes on various dates beginning 1996. They,
however, were unaware that the documents contained identical escalation clauses
granting Equitable authority to increase interest rates without their consent.
After trial, the RTC held that because the business reputation of respondents was
(allegedly) severely damaged when Equitable froze their accounts, the trial court awarded
moral and exemplary damages to them.[
The respondents did not pay Equitable the interest due on February 9, 2001 (or any
month thereafter prior to the maturity of the loan) or the amount due (principal plus
interest) due on July 9, 2001. Consequently, Equitable applied respondents' deposits to
their loans upon maturity.
Equitable PCI: the set-off is right, because Sheung defaulted in payment of his loan
Held: In culpa contractual or breach of contract, moral damages are recoverable only if
the defendant acted fraudulently or in bad faith or in wanton disregard of his contractual

obligations.[83] The breach must be wanton, reckless, malicious or in bad faith, and
oppressive or abusive.[84]
The relationship between a bank and its depositor is that of creditor and debtor. For
this reason, a bank has the right to set-off the deposits in its hands for the payment of a
depositor's indebtedness.
Respondents indeed defaulted on their obligation. For this reason, Equitable had
the option to exercise its legal right to set-off or compensation. However, the RTC
mistakenly (or, as it now appears, deliberately) concluded that Equitable acted
fraudulently or in bad faith or in wanton disregard of its contractual obligations despite
the absence of proof. The undeniable fact was that, whatever damage respondents
sustained was purely the consequence of their failure to pay their loans. There was
therefore absolutely no basis for the award of moral damages to them.
BPI vs Franco
Facts: Franco opened 3 accounts with BPI with the total amount of P2,000,000.00. The
said amount used to open these accounts is traceable to a check issued by Tevesteco. The
funding for the P2,000,000.00 check was part of the P80,000,000.00 debited by BPI from
First Metro Investment Corporations account (with a deposit of P100,000,000.00) and
credited to Tevestecos account pursuant to an Authority to Debit which was allegedly
forged as claimed by FMIC.
Tevesteco effected several withdrawals already from its account amounting to
P37,455,410.54 including the P2,000,000.00 paid to Franco.
Franco issued two checks which were dishonoured upon presentment for payment due to
garnishment of his account filed by BPI.
BPI claimed that it had a better right to the amounts which consisted of part of the money
allegedly fraudulently withdrawn from it by Tevesteco and ending up in Francos
account. BPI urges us that the legal consequence of FMICs forgery claim is that the
money transferred by BPI to Tevesteco is its own, and considering that it was able to
recover possession of the same when the money was redeposited by Franco, it had the
right to set up its ownership thereon and freeze Francos accounts.
BPI-FB contends that its position is not unlike that of an owner of personal property who
regains possession after it is stolen, and to illustrate this point, BPI-FB gives the
following example: where Xs television set is stolen by Y who thereafter sells it to Z,
and where Z unwittingly entrusts possession of the TV set to X, the latter would have the
right to keep possession of the property and preclude Z from recovering possession
thereof. To bolster its position, BPI-FB cites Article 559 of the Civil Code, which
provides:
Article 559. The possession of movable property acquired in good faith is
equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully
deprived thereof, may recover it from the person in possession of the same.
Held: BPI-FBs argument is unsound. It bears emphasizing that money bears no
earmarks of peculiar ownership,[34] and this characteristic is all the more manifest in the
instant case which involves money in a banking transaction gone awry. Its primary
function is to pass from hand to hand as a medium of exchange, without other evidence

of its title. Money, which had passed through various transactions in the general course of
banking business, even if of traceable origin, is no exception.
There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but
not as a legal consequence of its unauthorized transfer of FMICs deposits to Tevestecos
account. The deposit of money in banks is governed by the Civil Code provisions on
simple loan or mutuum. As there is a debtor-creditor relationship between a bank and its
depositor, BPI-FB ultimately acquired ownership of Francos deposits, but such
ownership is coupled with a corresponding obligation to pay him an equal amount on
demand.[37] Although BPI-FB owns the deposits in Francos accounts, it cannot prevent
him from demanding payment of BPI-FBs obligation by drawing checks against his
current account, or asking for the release of the funds in his savings account. Thus, when
Franco issued checks drawn against his current account, he had every right as creditor to
expect that those checks would be honored by BPI-FB as debtor.
In every case, the depositor expects the bank to treat his account with the utmost
fidelity. 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 directs. A blunder on the part of the
bank, such as the dishonor of the check without good reason, can cause the depositor not
a little embarrassment if not also financial loss and perhaps even civil and criminal
litigation.
Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to
know the signatures of its customers. Having failed to detect the forgery in the Authority
to Debit and in the process inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB
cannot now shift liability thereon to Franco and the other payees of checks issued by
Tevesteco, or prevent withdrawals from their respective accounts without the appropriate
court writ or a favorable final judgment.
Metropolitan Bank and Trust Company vs. Marias
G.R. No. 179105; 26 July 2010
Facts: Larry Marias (Marias) opened a personal dollar savings account with
Metropolitan Bank and Trust Company (Metrobank) and used his Foreign Currency
Deposit accounts as security for loans. Marias later discovered that Metrobank made
deductions from his accounts which were all depleted. He demanded a complete
accounting and a restoration of his dollar deposits without deductions. Marias filed a
case for Damages against Metrobank.
Metrobank: explained that the deductions were used to pay for the interest due on his
loans. It added that such deductions were authorized by Marias through the Deeds of
Assignment with Power of Attorney which he voluntarily executed and under which he
gave Metrobank a general lien on, and/or a right of set-off, and/or the right to apply to his
loan account, all his rights, title and interest in any of his deposit accounts held by
Metrobank.

Metrobank: the deductions were valid but Metrobank and the Branch Manager should
account for and return the US$30,000.00 and US$25,000.00 deposits since these were not
assigned to answer for the loans. Issue: Whether or not Metrobanks deductions from
Marias dollar accounts were valid.
Marinas, CA: petitioner has culpability for making unlawful deductions from
respondents dollar accounts without the latters consent.
Held: Metrobank was empowered to make lawful deductions from Marias accounts for
such amounts due it. This was authorized in the Promissory Notes and Deeds of
Assignment with Power of Attorney executed by Marias, under which he gave
Metrobank a general lien on, and/or a right of set-off and/or the right to apply to his loan
account, all his rights, title and interest in any of his deposit accounts held by Metrobank.
As provided in Article 1159 of the Civil Code, obligations arising from contract have
the force of law between the contracting parties and should be complied with in good
faith. Verily, parties may freely stipulate their duties and obligations which perforce
would be binding on them. Not being repugnant to any legal proscription, the said
stipulation must be respected and given the force of law between the parties.
While it is conceded that petitioner had the right to offset the unpaid interests
due it against the deposits of respondent, the issue of whether it acted judiciously is an
entirely different matter.[29] As business affected with public interest, and because of the
nature of their functions, banks are under obligation to treat the accounts of their
depositors with meticulous care, always having in mind the fiduciary nature of their
relationship.
Pursuant to the above disquisition, it is clear that despite such authority,
petitioner should still account for whatever excess deductions made on respondents
deposits and return to respondent such amounts taken from him. To be sure, respondent
had interest-earning deposits with petitioner in accordance with their agreement. On the
other hand, after respondent paid the principal on April 21, 1999 and May 10, 1999 on
the two loans which he obtained from petitioner, the latter had the authority to make
deductions for the payment of interest as stipulated in respondents promissory notes.
SPOUSES GODFREY and GERARDINA SERFINO vs. FAR EAST BANK AND
TRUST COMPANY, INC., now BPI
FACTS: By way of settlement approved by the RTC Bacolod, the Spouses Serfino and
Spouses Cortez executed a compromise agreement where the spouses Cortez,
acknowledged their debt. To satisfy their debt, Magdalena Cortez bound herself to pay
the debt in full out of her retirement benefits from the GSIS. In case of default, the debt
maybe executed against any of their properties. No payment was made on that date, and
Godfrey Serfino discovered that Magdalena deposited her retirement benefits in the
FEBTC savings account of her daughter in law, Grace Cortez. That same day, spouses
Serfinos counsel sent 2 letters to FEBTC informing them that the deposit in Graces
name was owned by the spouses by virtue of an assignment made in their favor by the
spouses Cortez. They asked that the bank prevent the delivery of the said amount to either
Grace or the spouses Cortez until its actual ownership has been resolved in court. An
action to recover the money on deposit and payment for damages was filed by Serfino,
with a prayer for preliminary attachment, but the next day, Grace withdrew P150,000

from her account. RTC ruled that the spouses Cortez and Grace liable for fraudulently
diverting the amount due, but absolved FEBTC from any liability, declaring that the bank
was not party to the compromise judgment.
Spouses Serfino contend this ruling, on the grounds of the virtue of the assignment of
credit, they claim ownership of the deposit, and that FEBTC was duty bound to protect
their right by preventing the withdrawal of the deposit since the bank had been notified of
the assignment and of their claim. Citing Article 1988 of the Civil Code, the depository is
not obliged to return the thing to the depositor if notified of a third partys adverse claim.
By allowing Grace to withdraw the deposit that is due them under the compromise
judgment, the spouses Serfino claim that FEBTC committed an actionable wrong
that entitles them to the payment of actual and moral damages.
FEBTC: It claims that it is not bound by the compromise judgment, but only by its
contract of loan with its depositor. As a loan, the bank deposit is owned by the bank;
hence, the spouses Serfinos claim of ownership over it is erroneous.
ISSUE: Whether or not FEBTC is obligated to a third party who claims rights over a
bank deposit standing in the name of another person who is their depositor
RULING: Claim for moral damages not meritorious because no duty exists on the part
of the bank to protect interest of third person claiming deposit in the name of another
The Bank is not liable for damages as there is no law or legal right abused by it. Absent a
law or a legal ruling of the Court, it has no option but to uphold the existing policy that
recognizes the fiduciary nature of banking. It likewise rejects the adoption of a judiciallyimposed rule giving third parties with unverified claims against the deposit of another a
better right over the deposit. As current laws provide, the banks contractual relations are
with its depositor, not with the third party. 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

Goodman vs. Lichauco 71 Phil. 237

Facts: Edward Mitchell, proprietor of New Plaza Hotel in Manila, was declared insolvent.
Lichauco was nominated a receiver of the insolvency (new proprietor). Goodman was
accommodated in the hotel, thus, depositing his personal properties. Goodman did not
pay the rent. Controversy arises when during the insolvency proceedings, Goodman
wants the return of his personal properties but the respondent Lichauco refused.
Contention of the parties
Goodman: + I want my personal belonging back to me. I only deposited it to you and
therefore it should be exempt from sequestration.
Lichauco: + We are in a true insolvency of money. Your debt is more valuable than your
personal properties. We could not return it until you pay us with your debt.
Ruling:
The court ruled that inn-keepers have the obligation to receive travelers and for the safety
of their effects. However, the law establishes a presumption that inn-keepers have the
right of pledge in the effects brought in. Hence, if one owes for the accommodation to a
proprietor of hotel, this one has a right to retain it as a token until he pays his debt for
accommodation. Also under Art.2004 of the CC states that: The hotel keeper has the

right to retain the things brought into the hotel by the guest, as security for credits on
account of lodging and supplies usually furnish to the guests.
Durban Apartments Corporation v Pioneer Insurance and Surety Corporation
Facts: Pioneer Insurance and Surety Corporation, by right of subrogation, filed a
Complaint for Recovery of Damages against Durban Apartment Corporation. Pioneer
Insurance and Surety Corporation is the insurer of Jeffrey S. See,s 2001 Suzuki Grand
Vitara. Loss occured when Sees Vitara was carnapped while it was in the possession of
petitioner Durban Apartment Hotel.
Issue: WON there exist a contract of deposit
Held: there exist a contract of necessary deposit Article 1962, in relation to Article 1998,
of the Civil Code defines a contract of deposit and a necessary deposit made by persons
in hotels or inns: Art. 1962. A deposit is constituted from the moment a person receives a
thing belonging to another, with the obligation of safely keeping it and returning the
same. If the safekeeping of the thing delivered is not the principal purpose of the contract,
there isno deposit but some other contract.
Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded
as necessary. The keepers of hotels or inns shall be responsible for them as depositaries,
provided that notice was given to them, or to their employees, of the effects brought by
the guests and that, on the part of the latter, they take the precautions which said hotelkeepers or their substitutes advised relative to the care and vigilance of their effects.
Facts shows that the contract of deposit was perfected from Sees delivery, when he
handed over to Justimbaste the keys to his vehicle, which Justimbaste receive with the
obligation of the safely keeping and returning it. Evidence was show that Justimbaste
issued a valet parking customer claim stub.
MAKATI SHANGRI-LA vs. HARPER
G.R. No. 189998. August 29, 2012
PONENTE: Bersamin
DOCTRINE:
Negligence Article 2176 0f the New Civil Code provides Whoever by act or omission
causes damage to another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing contractual relation
between the parties, is called a quasi-delict and is governed by the provisions of this
Chapter.
The hotel business is imbued with public interest. Hotelkeepers are bound to provide not
only lodging for their guests but also security to their persons and belongings to their
guest. The twin duty constitutes the essence of the business (Arts 2000-2001 New Civil
Code).
Hotel owner is liable for civil damages to surviving heirs of hotel guest whom strangers
murder inside his hotel room.

FACTS:
Christian Harper was a Norweigian who came to Manila on a business trip. He stayed at
Makati Shangri-la Hotel, but he was murdered in his hotel room [Specifically Room
1428. His ghost can be found there].
It was found that the muderer, a caucasian male, was able to trespass into the hotel room
of the victim and was then able to murder and rob the victim. The heirs of the victim
blame the hotel's gross negligence in providing the most basic security system of its
guests.
The RTC held in favor of the heirs and ordered Shangri-la to pay damages. CA affirmed.
ISSUE: WON Shangri-la Hotel is liable for damages.
HELD:
Yes. Shangri-la is liable due to its own negligence.
The testimony revealed that the management practice of the hotel prior to the death of the
victim was to deploy only one security or roving guard for every three or four floors of
the hotel, which is inadequate because the hotel is L-shaped that rendered hallways not
visible end to end. That there was a recommendation to increase security to one guard per
floor but this was not followed. This ommission is critical. The hotel business is imbued
with public interest. Hotelkeepers are bound to provide not only lodging for their guests
but also security to their persons and belongings to their guest. The twin duty constitutes
the essence of the business.
Therefore, the hotel has a greater degree of care and responsibility for its guests ,
otherwise the hotelkeepers would just stand idly by while strangers have unrestricted
access to all hotel rooms on the pretense of being visitors of the guests which is absurd.
Note: The decision of the CA was reproduced in the decision to which the SC concurred.
The CA discussed the test of negligence as:
The test of negligence is objective. WE measure the act or ommission of the tortfeasor
with a perspective as that of an ordinary reasonable person who is similarly situated. The
test, as applied to the extant case, is whether or not [Shangri-la Hotel], under the
attendant circumstances, used that reasonable care and caution which an ordinary person
would have used in the same situation.