I. SHORT TITLE: Dycoco, Jr. v.

Equitable PCI Bank

II. FULL TITLE: JESUS E. DYCOCO, JR., PETITIONER – VERSUS - EQUITABLE PCI
BANK (NOW BANCO DE ORO), RENE BUENAVENTURA AND SILES SAMALEA,
Respondents.; G.R. No. 188271; August 16, 2010.

III. PONENTE: Corona, CJ.

IV. TOPIC: General Banking Law

V. STATEMENT OF THE FACTS:

In February 1997, petitioner was hired by respondent bank as Assistant Manager and/or OIC

Branch Head of its Legazpi City Branch, Region V (Legazpi branch). Petitioner became Branch

Head and respondent bank underwent an internal reorganization. Pursuant thereto, petitioner

became the Personal Banking Manager (PBM) of the Legazpi branch. In June 2005, several clients

of the Legazpi branch filed complaints for alleged unauthorized abstractions of various trust funds,

treasury placements and deposits. Respondent bank promptly commenced an

investigation. Consequently, show cause letters were issued to the officers of the Legazpi branch.

In August 2006, respondent bank issued a second show cause letter to petitioner charging him with

involvement in alleged dollar-trading activities. Petitioner was preventively suspended from

September 20, 2006 to October 20, 2006.

Petitioner filed a complaint in the NLRC Regional Arbitration Branch No. V alleging constructive

dismissal and illegal suspension, and demanding reinstatement/separation pay and payment of

incentives, 13th month pay, bonuses, moral and exemplary damages and attorneys fees.

Respondent bank rendered a decision with respect to the first show cause letter finding petitioner
guilty of violating Articles IV (F) (Class C) (1), IV (D) (Class D) (1) and IV (E) (Class C) (13) of
the banks Code of Conduct, and Article 282 (b) of the Labor Code. The penalty of dismissal was

imposed on him. Petitioner was, however, exonerated from the charge of dollar-tradingas specified

in the second show cause letter.

VI. STATEMENT OF THE CASE:

The labor arbiter held that petitioner was illegally dismissed. He ordered respondent bank to pay
separation pay, backwages, incentives, bonuses, 13th month pay and attorneys fees in the total

amount of P1,147,216.00. On appeal, the NLRC reversed the labor arbiters decision. The CA

subsequently affirmed the NLRC.

NLRC ruled that petitioners dismissal was for just cause. He was guilty of serious misconduct,

willful disobedience and gross negligence for not performing his duty to complete the documentary

requirements in the opening of accounts pursuant to the banks internal procedures. This directly

resulted in the unauthorized abstraction of bank funds.

The CA affirmed the decision and resolution of the National Labor Relations Commission (NLRC)

in Jesus Dycoco, Jr. v. Equitable PCI Bank / Rene Buenaventura, et al., docketed as LAC No. 01-

000390-08. The NLRC, on the other hand, reversed and set aside the July 24, 2007 decision of the

labor arbiter of the Regional Arbitration Branch No. V, Legazpi City, in RAB-V Case No. 09-

00407-06 which held that petitioner was illegally dismissed by respondents Equitable PCI Bank

(now Banco de Oro), Rene Buenaventura and Siles Samalea.

VII. ISSUE:

(1) Whether or not Dyoco was illegally dismissed from his post in the Bank
VIII. RULING:

NO, there was no illegal dismissal.

By its very nature, the business of the petitioner bank is so impressed with public trust; banks are

mandated to exercise a higher degree of diligence in the handling of its affairs than that expected

of an ordinary business enterprise. Indeed, by the very nature of their work, the degree of

responsibility, care and trustworthiness expected of officials and employees of the bank is far

greater than those of ordinary officers and employees in the other business firms. As the banking

industry is impressed with public interest, all bank personnel are burdened with a high level of

responsibility insofar as care and diligence in the custody and management of funds are

concerned. Petitioner miserably failed to discharge this burden.

Petitioner violated his duties and responsibilities as PBM when he signed and approved the subject

transactions without the necessary signatures of the concerned clients. As PBM, it was his

obligation to ensure that all documentary requirements (were) complied with by clients being

handled and that the banks interest (was) at all times protected. It is significant that petitioner did

not even deny that it was he who signed, approved and facilitated the subject transactions relating

to the various abstractions committed by a bank employee. It was an implied admission that he
was the one who opened the door for the commission of the unlawful abstractions by failing to

ensure that all requirements for the opening of accounts were complied with. This constituted gross

negligence.

As a PBM, petitioner should have exercised much care in performing his functions. Petitioners

failure on three separate occasions to require clients to sign the requisite documents (a vital and

standard procedure in all banking transactions) was a clear manifestation of serial negligence.

Gross negligence connotes want of care in the performance of ones duties.[8] Petitioners failure to
observe basic procedure constituted gross negligence. His repeated failure to carefully observe his

duties as PBM clearly showed utter want of care.

After committing gross negligence, petitioner surprisingly still expects respondent bank to retain

him. Nothing can compel an employer to continue availing of the services of an employee guilty

of acts inimical to its interests as this is a ground for loss of confidence. Petitioners breach of

respondent banks policies intended to safeguard the bank and its clients funds was clearly inimical

to the interests of his employer. Loss of confidence and dismissal from employment were therefore

justified.

Loss of confidence applies to situations where the employee is routinely charged with the care and

custody of employers money or property. If the employees are cashiers, managers, supervisors,

salesmen or other personnel occupying positions of responsibility, the employers loss of trust and

confidence in said employees may justify termination of their employment.

IX. DISPOSITIVE PORTION:

WHEREFORE, the motion for reconsideration is DENIED with FINALITY. Costs against
petitioner. No further pleadings or motions shall be entertained. Let entry of judgment be made in
due course. SO ORDERED.

X. PREPARED BY: Alyanna Jasmine D. Torio

I. BPI Family Savings Bank v. First Metro Investment Corp

II. FULL TITLE: BPI FAMILY SAVINGS BANK, INC., petitioner, vs. FIRST METRO
INVESTMENT CORPORATION, respondent.; G.R. No. 132390; May 21, 2004.

III. PONENTE: SANDOVAL-GUTIERREZ, J.

IV. TOPIC: General Bamking Law

V. STATEMENT OF THE FACTS:

First Metro Investment Corporation (FMIC), respondent, is an investment house organized under
Philippine laws. Petitioner, Bank of Philippine Islands Family Savings Bank, Inc. is a banking
corporation also organized under Philippine laws.
On August 25, 1989, FMIC, through its Executive Vice President Antonio Ong, opened current
account and deposited a check of P100 million with BPI Family Bank* (BPI FB). Ong made the
deposit upon request of his friend, Ador de Asis, a close acquaintance of Jaime Sebastian, then
Branch Manager of BPI FB. The latter guaranteed the payment of P14,667,687.01 representing
17% per annum interest of P100 million deposited by FMIC. The latter, in turn, assured BPI FB
that it will maintain its deposit of P100 million for a period of one year on condition that the interest
of 17% per annum is paid in advance.
However, on August 29, 1989, on the basis of an Authority to Debit signed by Ong and Ma.
Theresa David, Senior Manager of FMIC, BPI FB transferred P80 million from FMICs current
account to the savings account of Tevesteco Arrastre Stevedoring, Inc. (Tevesteco). FMIC denied
having authorized the transfer of its funds to Tevesteco, claiming that the signatures of Ong and
David were falsified.
FMIC issued BPI FB check for P86,057,646.72 payable to itself and drawn on its deposit with BPI
FB SFDM branch. But upon presentation for payment, BPI FB dishonored the check as it was
drawn against insufficient funds (DAIF). Consequently, FMIC filed with the Regional Trial Court,
Branch 146, Makati City against BPI FB. FMIC likewise caused the filing by the Office of the
State Prosecutors of an Information for estafa against Ong, de Asis, Sebastian and four
others. However, the Information was dismissed on the basis of a demurrer to evidence filed by
the accused.
VI. STATEMENT OF THE CASE:
The Trial Court rendered its decision in favor of plaintiff, ordering defendant to pay the amount
of P80 million with interest at the legal rate from the time this complaint was filed
less P14,667,678.01 On appeal by both parties, the Court of Appeals rendered a Decision affirming
the assailed Decision with modification adjudging BPI Family Bank liable to First Metro
Investment Corporation for the amount of P65,332,321.99 plus interest at 17% per annum.
VII. ISSUES:
(1) Whether or not the transaction between FMIC and BPI was a time deposit
(2) Whether or not the bank is liable for the act of its Manager who overstepped its authority

VIII. RULING:
1. YES. The parties did not intend the deposit to be treated as a demand deposit but rather as an
interest-earning time deposit not withdrawable any time. The parties agreed that the deposit
of P100 million was non-withdrawable for one year upon payment in advance of the 17% per
annum interest. Clearly, when respondent FMIC invested its money with petitioner BPI FB, they
intended the P100 million as a time deposit, to earn 17% per annum interest and to remain intact
until its maturity date one year thereafter.
Ordinarily, a time deposit is defined as one the payment of which cannot legally be required
within such a specified number of days. In contrast, demand deposits are all those liabilities of
the Bangko Sentral and of other banks which are denominated in Philippine currency and
are subject to payment in legal tender upon demand by the presentation of (depositors) checks.[4]
While it may be true that barely one month and seven days from the date of deposit, respondent
FMIC demanded the withdrawal of P86,057,646.72 through the issuance of a check payable to
itself, the same was made as a result of the fraudulent and unauthorized transfer by petitioner BPI
FB of its P80 million deposit to Tevestecos savings account. Certainly, such was a normal reaction
of respondent as a depositor to petitioners failure in its fiduciary duty to treat its account with the
highest degree of care.
Under this circumstance, the withdrawal of deposit by respondent FMIC before the one-year
maturity date did not change the nature of its time deposit to one of demand deposit.
2. YES. If a corporation knowingly permits its officer, or any other agent, to perform acts within
the scope of an apparent authority, holding him out to the public as possessing power to do those
acts, the corporation will, as against any person who has dealt in good faith with the corporation
through such agent, be estopped from denying such authority.
Under the doctrine in Prudential Bank vs. Court of Appeals, a bank holding out its officers and
agent as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled
to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its
responsibility for such frauds, even though no benefit may accrue to the bank
therefrom. Accordingly, a banking corporation is liable to innocent third persons where the
representation is made in the course of its business by an agent acting within the general scope of
his authority even though the agent is secretly abusing his authority and attempting to perpetrate a
fraud upon his principal or some other person for his own ultimate benefit.
What transpires in the corporate board room is entirely an internal matter. Hence, petitioner may
not impute negligence on the part of respondents representative in failing to find out the scope of
authority of petitioners Branch Manager. Indeed, the public has the right to rely on the
trustworthiness of bank managers and their acts. Obviously, confidence in the banking system,
which necessarily includes reliance on bank managers, is vital in the economic life of our society.
Significantly, the transaction was actually acknowledged and ratified by petitioner when it
paid respondent in advance the interest for one year. Thus, petitioner is estopped from denying
that it authorized its Branch Manager to enter into an agreement with respondents Executive Vice
President concerning the deposit with the corresponding 17% interest per annum.

IX. DISPOSITIVE PORTION:

WHEREFORE, the petition is DENIED. The assailed Decision dated July 4, 1997 and the
Resolution dated January 28, 1998 of the Court of Appeals in CA-G.R. CV No. 44986 are hereby
AFFIRMED. Costs against petitioner. SO ORDERED.

X. PREPARED BY: Alyanna Jasmine D. Torio

I. SHORT TITLE: Philippine Banking Corporation v. CIR

II. FULL TITLE: PHILIPPINE BANKING CORPORATION (NOW: GLOBAL BUSINESS

BANK, INC.), Petitioner, - versus- COMMISSIONER OF INTERNAL REVENUE,
Respondent; G.R. No. 170574; January 30, 2009.

III. PONENTE: CARPIO, J.

IV. TOPIC: General Banking Law

V. STATEMENT OF FACTS:

Petitioner is a domestic corporation duly licensed as a banking institution. For the taxable years
1996 and 1997, petitioner offered its SSDA to its depositors. The SSDA is a form of a savings
deposit evidenced by a passbook and earning a higher interest rate than a regular savings account.
Petitioner believes that the SSDA is not subject to Documentary Stamp Tax (DST) under Section
180 of the 1977 NIRC. Respondent sent petitioner a Final Assessment Notice assessing deficiency
DST based on the outstanding balances of its SSDA in the total sum of P17,595,488.75 for 1996
and P47,767,756.24 for 1997.

Petitioner claims that the SSDA is in the nature of a regular savings account since both types of
accounts have the following common features. Petitioner alleges that the only difference between
the regular savings account and the SSDA is that the SSDA is for depositors who maintain savings
deposits with a substantial average daily balance, and as an incentive, they are given higher interest
rates than regular savings accounts.

Petitioner maintains that the tax assessments are erroneous because Section 180 of the 1977 NIRC
does not include deposits evidenced by a passbook among the enumeration of instruments subject
to DST. Petitioner also argues that even on the assumption that a passbook evidencing the SSDA
is a certificate of deposit, no DST will be imposed because only negotiable certificates of deposits
are subject to tax under Section 180 of the 1977 NIRC. Petitioner reasons that a savings passbook
is not a negotiable instrument and it cannot be denied that savings passbooks have never been
taxed as certificates of deposits.

VI. STATEMENT OF THE CASE:

The CTA ruled that a deposit account with the same features as a time deposit, i.e., a fixed term in
order to earn a higher interest rate, is subject to DST imposed in Section 180 of the 1977 NIRC.
Citing Far East Bank and Trust Company v. Querimit, a certificate of deposit is a written
acknowledgment by a bank or banker of the receipt of a sum of money on deposit which the bank
or banker promises to pay to the depositor, to the order of the depositor, or some other person or
his order, whereby the relation of debtor and creditor between the bank and the depositor is created.
For as long as there is some written memorandum of the fact that the bank accepted a deposit of a
sum of money from a depositor, the writing constitutes a certificate of deposit. The CTA held that
a passbook representing an interest-earning deposit account issued by a bank qualifies as a
certificate of deposit drawing interest

The CTA emphasized that Section 180 of the 1977 NIRC imposes DST on documents, whether
the documents are negotiable or non-negotiable. The requirement of negotiability pertains to
promissory notes only. Furthermore, CTA stated that the fact that the SSDA is evidenced by a
passbook is immaterial because in determining whether certain instruments are subject to DST,
substance would control over form and labels.

VII. ISSUE:

Whether or not SSDA is subject to documentary stamp tax under Section 180 of the 1977 NIRC
VIII. RULING:

YES. SSDAs are subject to Documentary Stamp Tax because they are certificate of deposits
drawing interest as used in Section 180 of the 1997 NIRC.

As the Bureau of Internal Revenue (BIR) explained in Revenue Memorandum Circular No. 16-
2003, the distinct features of a certificate of deposit from a technical point of view are as follows:

a. Minimum deposit requirement;

b. Stated maturity period;
c. Interest rate is higher than the ordinary savings account;
d. Not payable on sight or demand, but upon maturity or in case of pre-termination, prior notice is
required; and
e. Early withdrawal penalty in the form of partial loss or total loss of interest in case of pre-
termination.

The SSDA is for depositors who maintain savings deposits with substantial average daily balance
and which earn higher interest rates. The holding period of an SSDA floats at the option of the
depositor at 30, 60, 90, 120 days or more and for maintaining a longer holding period, the depositor
earns higher interest rates. There is no pre-termination of accounts in an SSDA because the account
is simply reverted to an ordinary savings status in case of early or partial withdrawal or if the
required holding period is not met. Based on the foregoing, the SSDA has all of the distinct features
of a certificate of deposit.

A passbook representing an interest earning deposit account issued by a bank qualifies as a

certificate of deposit drawing interest and should be subject to DST. The Court added that a
document to be deemed a certificate of deposit requires no specific form as long as there is some
written memorandum that the bank accepted a deposit of a sum of money from a depositor.

Based on these features, it is clear that the SSDA is a certificate of deposit drawing interest subject
to DST even if it is evidenced by a passbook and non-negotiable in character. In International
Exchange Bank v. Commissioner of Internal Revenue,[54] we held that:

A document to be deemed a certificate of deposit requires no specific form as long

as there is some written memorandum that the bank accepted a deposit of a sum of
money from a depositor. What is important and controlling is the nature or meaning
 conveyed by the passbook and not the particular label or nomenclature attached to
it, inasmuch as substance, not form, is paramount.

However, DST is one of the taxes covered by the Tax Amnesty Program under RA
9480. Petitioner, as the absorbed corporation, can avail of the tax amnesty benefits granted to
Metrobank.

Records show that Metrobank, a qualified tax amnesty applicant, has duly complied with the
requirements enumerated in RA 9480, as implemented by DO 29-07 and RMC 19-
2008.[65] Considering that the completion of these requirements shall be deemed full compliance
with the tax amnesty program, the law mandates that the taxpayer shall thereafter be immune from
the payment of taxes, and additions thereto, as well as the appurtenant civil, criminal or
administrative penalties under the NIRC of 1997, as amended, arising from the failure to pay any
and all internal revenue taxes for taxable year 2005 and prior years.[67]

IX. DISPOSITIVE PORTION:

WHEREFORE, we GRANT the petition, and SET ASIDE the Court of Tax Appeals Decision
dated 23 November 2005 in CTA EB No. 63 solely in view of petitioners availment of the Tax
Amnesty Program. SO ORDERED.

X. PREPARED BY: Alyanna Jasmine D. Torio

I. SHORT TITLE: PBTC v. Liwayway Abasolo

II. FULL TITLE: PRUDENTIAL BANK AND TRUST COMPANY (now BANK OF THE
PHILIPPINE ISLANDS, Petitioner, - versus- Liwayway Abasolo, Respondent; G.R. No.
186738; September 27, 2010.

III. PONENTE: Carpio Morales, J.

IV. TOPIC: General Banking Law

V. STATEMENT OF THE FACTS:

Leonor Valenzuela-Rosales inherited two parcels of land situated in Laguna. After she passed

away, her heirs executed a Special Power of Attorney in favor of Liwayway Abasolo (respondent)

empowering her to sell the properties. Corazon Marasigan (Corazon) wanted to buy the properties

which were being sold for P2,448,960, but as she had no available cash, she broached the idea of

first mortgaging the properties to petitioner Prudential Bank and Trust Company (PBTC), the

proceeds of which would be paid directly to respondent. Respondent agreed to the proposal.

On Corazon and respondents consultation with PBTCs Head Office, its employee, Norberto

Mendiola (Mendiola), allegedly advised respondent to issue an authorization for Corazon to

mortgage the properties, and for her (respondent) to act as one of the co-makers so that the proceeds

could be released to both of them. To guarantee the payment of the property, Corazon executed a

Promissory Note for P2,448,960 in favor of respondent. Mendiola advised respondent to transfer

the properties first to Corazon for the immediate processing of Corazons loan application with

assurance that the proceeds thereof would be paid directly to her (respondent), and the obligation
would be reflected in a bank guarantee.
Respondent later got wind of the approval of Corazons loan application and the release of its
proceeds to Corazon who, despite repeated demands, failed to pay the purchase price of the
properties. Respondent eventually accepted from Corazon partial payment in kind consisting of
one owner type jeepney and four passenger jeepneys plus installment payments.

Respondent filed a complaint for collection of sum of money and annulment of sale and mortgage
with damages, against Corazon and PBTC (hereafter petitioner), before the Regional Trial Court
(RTC) of Sta. Cruz, Laguna.

VI. STATEMENT OF THE CASE:

Corazon denied that there was an agreement that the proceeds of the loan would be paid directly
to respondent. And she claimed that the vehicles represented full payment of the properties, and
had in fact overpaid P76,040.

On pre-trial, the parties stipulated that petitioner was not a party to the contract of sale between
respondent and Corazon; that there was no written request that the proceeds of the loan should be
paid to respondent; and that respondent received five vehicles as partial payment of the properties.
Despite notice, Corazon failed to appear during the trial to substantiate her claims.

RTC rendered judgment in favor of respondent and against Corazon who was made directly liable
to respondent, and against petitioner who was made subsidiarily liable in the event that Corazon
fails to pay. Petitioner also breached its understanding to release the proceeds of the loan to
respondent. Court of Appeals affirmed the lower court’s decision.

VII. ISSUE:

(1) Whether or not Petitioner is subsidiarily liable

VIII. RULING:

NO. In the absence of a lender-borrower relationship between petitioner and Liwayway, there is
no inherent obligation of petitioner to release the proceeds of the loan to her. To a banking
institution, well-defined lending policies and sound lending practices are essential to perform its
lending function effectively and minimize the risk inherent in any extension of credit.

In order to identify and monitor loans that a bank has extended, a system of documentation is
necessary. Under this fold falls the issuance by a bank of a guarantee which is essentially a promise
to repay the liabilities of a debtor, in this case Corazon. It would be contrary to established banking
practice if Mendiola issued a bank guarantee, even if no request to that effect was made.

Under the Principle of Relativity of Contracts in Article 1311 of the Civil Code, a clear and
deliberate act of conferring a favor upon her must be present. A written request would have
sufficed to prove this, given the nature of a banking business, not to mention the amount
involved. Therefore, Liwayways’ claim should only be directed against Corazon. Petitioner cannot
thus be held subisidiarily liable.

The trial Courts reliance on the doctrine of apparent authority that the principal, in this case
petitioner, is liable for the obligations contracted by its agent, in this case Mendiola, does not
lie. The onus probandi that attempt to commit fraud attended petitioners employee Mendiolas acts
and that he abused his authority lies on Liwayway. She, however, failed to discharge the onus. It
bears noting that Mendiola was not privy to the approval or disallowance of Corazons application
for a loan nor that he would benefit by the approval thereof.

Aside from Liwayways bare allegations, evidence is wanting to show that there was collusion
between Corazon and Mendiola to defraud her. Even in Liwayways Complaint, the allegation of
fraud is specifically directed against Corazon.[17]

IX. DISPOSITIVE PORTION:

WHEREFORE, the Decision of January 14, 2008 of the Court of Appeals, in so far as it holds
petitioner, Prudential Bank and Trust Company (now Bank of the Philippine Islands), subsidiary
liable in case its co-defendant Corazon Marasigan, who did not appeal the trial courts decision,
fails to pay the judgment debt, is REVERSED and SET ASIDE. The complaint against petitioner
is accordingly DISMISSED. SO ORDERED.

X. PREPARED BY: Alyanna Jasmine D. Torio

I. SHORT TITLE: PCIB v. CA and Lim
II. FULL TITLE: PHILIPPINE COMMERCIAL INTERNATIONAL BANK, petitioner,

vs. COURT OF APPEALS and RORY W. LIM, respondents; G.R. No. 97785; March 29,

1996.

III. PONENTE: Francisco, J.

IV. TOPIC: General Banking Law

V. STATEMENT OF THE FACTS:

Private respondent Rory Lim delivered to his cousin Lim Ong Tian PCIB Check in the amount of

P200,000.00 for the purpose of obtaining a telegraphic transfer from petitioner PCIB in the same

amount. The money was to be transferred to Equitable Banking Corporation, and credited to

private respondents account at the said bank. Upon purchase of the telegraphic transfer, petitioner

issued the corresponding receipt which contained the assailed provision that in case of fund

transfer, the undersigned hereby will be made without any responsibility on the part of the BANK,

or its correspondents, for any loss occasioned by errors, or delays in the transmission of message

by telegraph or cable companies or by the correspondents or agencies, necessarily employed by

this BANK in the transfer of this money, all risks for which are assumed by the undersigned.

Subsequent to the purchase of the telegraphic transfer, petitioner in turn issued and delivered eight

(8) Equitable Bank checks to his suppliers as payment for the merchandise. When the checks were

presented for payment, five of them bounced for insufficiency of funds, while the remaining three

were held overnight for lack of funds upon presentment. Such happening came to private

respondents’ attention only when Equitable Bank notified him of the penalty charges and after
receiving letters from his suppliers that his credit was being cut-off due to the dishonor of the

checks he issued.

Aggrieved, private respondent demanded from petitioner PCIB that he be compensated for the

resulting damage that he suffered due to petitioners failure to make the timely transfer of funds

which led to the dishonor of his checks. Petitioner refused to heed private respondents demand

prompting the latter to file a complaint for damages with

the Regional Trial Court of Gingoog City.

VI. STATEMENT OF THE CASE:

Petitioner denied any liability to private respondent and interposed alleged the lack of privity
between it and private respondent as it was not private respondent himself who purchased the
telegraphic transfer from petitioner. Additionally, petitioner pointed out that private respondent is
nevertheless bound by the stipulation in the telegraphic transfer application/form receipt.
The Regional Trial Court held petitioner liable for breach of contract. The provision amounted to
a contract of adhesion wherein the objectionable portion was unilaterally inserted by petitioner in
all its application forms without giving any opportunity to the applicants to question the same and
express their conformity thereto. The Court of Appeals affirmed with modifications the judgment
of the trial court.

VII. ISSUE:
(1) Whether or not petitioner is exempt from liability in the loss resulting from errors or delays
in the transfer of funds

VIII. RULING:
YES. A contract of adhesion is defined as one in which one of the parties imposes a ready-made
form of contract, which the other party may accept or reject, but which the latter cannot modify.
One party prepares the stipulation in the contract, while the other party merely affixes his signature
or his adhesion thereto, giving no room for negotiation and depriving the latter of the opportunity
to bargain on equal footing. Nevertheless, these types of contracts have been declared as binding
as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it
entirely. It has been declared that a contract of adhesion may be struck down as void and
unenforceable, for being subversive to public policy, only when the weaker party is imposed upon
in dealing with the dominant bargaining party and is reduced to the alternative of taking it or
leaving it, completely deprived of the opportunity to bargain on equal footing.
Having established that petitioner acted fraudulently and in bad faith, we find it implausible to
absolve petitioner from its wrongful acts on account of the assailed provision exempting it from
any liability. In Geraldez vs. Court of Appeals, it was unequivocally declared that notwithstanding
the enforceability of a contractual limitation, responsibility arising from a fraudulent act cannot be
exculpated because the same is contrary to public policy. Freedom of contract is subject to the
limitation that the agreement must not be against public policy and any agreement or contract made
in violation of this rule is not binding and will not be enforced.
Undoubtedly, the services being offered by a banking institution like petitioner are imbued with
public interest. The use of telegraphic transfers have now become commonplace among
businessmen because it facilitates commercial transactions. Any attempt to completely exempt one
of the contracting parties from any liability in case of loss notwithstanding its bad faith, fault or
negligence, as in the instant case, cannot be sanctioned for being inimical to public interest and
therefore contrary to public policy.

IX. DISPOSITIVE PORTION:

WHEREFORE, subject to the foregoing modification reducing the amount awarded as moral
damages to the sum of Two Hundred Thousand Pesos (P200,000.00), the appealed decision is
hereby AFFIRMED. SO ORDERED.

X. PREPARED BY: Alyanna Jasmine D. Torio

I. SHORT TITLE: PNB v. CA and Lapez

II. FULL TITLE: PHILIPPINE NATIONAL BANK, petitioner, vs. THE COURT OF

APPEALS and RAMON LAPEZ,[1] doing business under the name and style SAPPHIRE

SHIPPING, respondents; G.R. No. 108052; July 24, 1996.

III. PONENTE: Panganiban, J.

IV. TOPIC: General Banking Law

V. STATEMENT OF THE FACTS:

The defendant applied/appropriated the amounts of $2,627.11 and P34,340.38 from remittances of

the plaintiff's principals abroad. These were admitted by the defendant, subject to the affirmative

defenses of compensation for what is owing to it on the principle of solution indebiti. The plaintiff

made a written demand upon the defendant for remittance of the equivalent of P2,627.11. There

were indeed two instances in the past when the plaintiff's account was doubly credited with the

equivalents of $5,679.23 and $5,885.38, respectively. The defendant's evidence were never refuted

nor impugned by the plaintiff. He claims, however, that plaintiffs claim has prescribed.

Defendant PNB made a demand upon the plaintiff for refund of the double or duplicated credits

erroneously made on plaintiff's account. The deduction of P34,340.38 was made by the defendant

not without the knowledge and consent of the plaintiff. Two erroneous double payments made to

plaintiff's accounts in 1980 and 1981 created an extra-contractual obligation on the part of the
plaintiff in favor of the defendant, under the principle of solutio indebiti (Article 2154, Civil Code

of the Phil.)

VI. STATEMENT OF THE CASE:

The trial court held that the parties are not both principally bound with respect to the $2,627.11

neither are they at the same time principal creditor of the other. Therefore, their obligations are not

subject to compensation or set off under Art. 1279 of the Civil Code, for the reason that the

defendant is not a principal debtor nor is the plaintiff a principal creditor insofar as the amount of

$2,627.11 is concerned. They are debtor and creditor only with respect to the double payments;

but are trustee-beneficiary as to the fund transfer of $2,627.11. Only the plaintiff is principally

bound as a debtor of the defendant to the extent of the double credits. On the other hand, the

defendant was an implied trustee, who was obliged to deliver to the Citibank for the benefit of the

plaintiff the sum of $2,627.11. The court also held that the defendant's actuation in intercepting

the amount of $2,627.11 supposed to be remitted to another bank is not only improper but erode

the trust and confidence of the international banking community in the banking system of the

country.Moreover, plaintiffcommunicated his unequivocal and unconditional consent to the reten

tion and application of the amount in question.

On the issue of prescription, the Court believes that Art. 1149 as cited by the plaintiff is not

applicable in this case. Rather, the applicable law is Art. 1145, which fixes the prescriptive period

for actions upon a quasi-contract (such as solutio indebiti) at six years.

The respondent Court affirmed the trial court's holding.

VII. ISSUE:

(1) Whether or not the respondent court erred in not ruling that legal compensation has taken
place

VIII. RULING:

NO. We find no reversible error whatsoever in rulings of both courts, and see no need to add to
the extensive discussions already made regarding the non-existence of all the requisites for legal
compensation to take place.

According to petitioner bank, is effectively saying is that since the respondent Court of Appeals
ruled that petitioner bank could not do a shortcut and simply intercept funds being coursed through
it, for transmittal to another bank, and eventually to be deposited to the account of an individual
who happens to owe some amount of money to the petitioner, and because respondent Court
ordered petitioner bank to return the intercepted amount to said individual, who in turn was found
by the appellate Court to be indebted to petitioner bank, THEREFORE, there must now be legal
compensation of the amounts each owes the other, and hence, there is no need for petitioner bank
to actually return the amount, and finally, that petitioner bank ends up in exactly the same position
as when it first took the improper and unwarranted shortcut by intercepting the said money transfer,
notwithstanding the assailed Decision saying that this could not be done.
We see in this petition a clever ploy to use this Court to validate or legalize an improper act of the
petitioner bank, with the not impossible intention of using this case as a precedent for similar acts
of interception in the future. This piratical attitude of the nation's premier bank deserves a warning
that it should not abuse the justice system in its collection efforts, particularly since we are aware
that if the petitioner bank had been in good faith, it could have easily disposed of this controversy
in ten minutes flat by means of an exchange of checks with private respondent for the same
amount. The litigation could have ended there, but it did not. Instead, this plainly unmeritorious
case had to clog our docket and take up the valuable time of this Court.

IX. DISPOSITIVE PORTION:

WHEREFORE, the instant petition is herewith DENIED for being plainly unmeritorious, and the
assailed Decision is AFFIRMED in toto. Costs against petitioner. SO ORDERED.

X. PREPARED BY: Alyanna Jasmine D. Torio

I. SHORT TITLE: Metrobank. v. Centro Development Corp.

II. FULL TITLE: Metropolitan Bank and Trust Company, Petitioner - versus- Centro

Development Corporation, Chongking Kehyeng, Manuel Co Kehyeng and Quirino

Kehyeng, Respondents; G.R. No. 180974; June 13, 2012.

III. PONENTE: Sereno, J.

IV. TOPIC: General Banking Law

V. STATEMENT OF THE FACTS:

On 20 March 1990, in a special meeting of the board of directors of respondent Centro

Development Corporation (Centro), its president Go Eng Uy was authorized to mortgage its

properties and assets to secure the medium-term loan of ₱84 million of Lucky Two Corporation

and Lucky Two Repacking. This authorization was subsequently approved on the same day by the

stockholders. Thus, respondent Centro, represented by Go Eng Uy, executed a Mortgage Trust

Indenture (MTI) with the Bank of the Philippines Islands (BPI). To secure these obligations from

different creditors, respondent Centro constituted a continuing mortgage on all or substantially all

of its properties and assets in favor of BPI, the trustee. Should respondent Centro or any of its
affiliates fail to pay their obligations when due, the trustee shall cause the foreclosure of the

mortgaged property.

On 31 March 1993, Centro and BPI amended the MTI to allow an additional loan of ₱36 million

and to include San Carlos Milling Company, Inc. (San Carlos) as a borrower in addition to Centro,

Lucky Two Corp. and Lucky Two Repacking. Meanwhile, respondent Centro, represented by Go

Eng Uy, approached petitioner Metrobank and proposed that the latter assume the role of

successor-trustee of the existing MTI. Petitioner and respondent Centro then executed the assailed

MTI, amending the previous agreements by appointing the former as the successor-trustee of BPI.

Respondents herein, Chongking Kehyeng, Manuel Co Kehyeng and Quirino Kehyeng, allegedly

discovered that the properties of respondent Centro had been mortgaged, and that the MTI that had

been executed appointing petitioner as trustee. Notably, respondent Chongking Kehyeng had been

a member of the board of directors of Centro, while the two other respondents, Manuel Co

Kehyeng and Quirino Keyheng, had been stockholders. The Kehyengs allegedly questioned the

mortgage of the properties and that they were not aware of any board or stockholders meeting.

Respondents demanded a copy of the minutes of the meeting held on that date, but received no

response. Meanwhile, San Carlos obtained loans from petitioner Metrobank and failed to pay these

outstanding obligations despite demand. Thus, petitioner, as trustee of the MTI, enforced the

conditions thereof and initiated foreclosure proceedings.

The bone of contention in Civil Case No. 00-942 was that since the mortgaged properties

constituted all or substantially all of the corporate assets, the amendment of the MTI failed to meet

the requirements of Section 40 of the Corporation Code. Under this provision, in order for a

corporation to mortgage all or substantially all of its properties and assets, it should be authorized

by the vote of its stockholders representing at least 2/3 of the outstanding capital stock in a meeting

held for that purpose. Furthermore, there must be a written notice of the proposed action and of

the time and place of the meeting. Thus, respondents alleged, the representation of Go Eng Uy that

he was authorized by the board of directors and/or stockholders of Centro was false.

VI. STATEMENT OF THE CASE:

RTC dismissed the Complaint. It held that the evidence presented by respondents was insufficient

to support their claim that there were no meetings held authorizing the mortgage of Centros

properties. It noted that the stocks of respondents Kehyeng constituted only 30% of the outstanding

capital stock, while the Go family owned the majority 70%, which represented more than the 2/3

vote required by Section 40 of the Corporation Code. The RTC also held that laches had attached,

considering that eight (8) years had lapsed before respondents questioned the mortgage executed

in 1990. On 19 May 2004, the CA issued a Resolution denying the application for the issuance of

a writ of preliminary injunction.

Respondents Centro and San Carlos filed a Complaint before the RTC of Makati City. The

appellate court subsequently held that the 2/3 vote required by Section 40 was not met. It ruled

that the minority stockholders were deprived of their right to dissent from or to approve the

proposed mortgage, considering that they had not been notified in writing of the meeting in which

the corporate action was to be discussed. Regarding the issue of whether laches had already

attached, the CA ruled that the MTI could not be ratified, considering that the requirements of the

Corporation Code were not complied with.

VII. ISSUE:

(1) Whether or not the requirements of Section 40 of the Corporation Code was complied with
in the execution of the MTI

(2) Whether or not petitioner was negligent or failed to exercise due diligence

VIII. RULING:

1. NO. Section 40 of the Corporation Code finds no application in the present case, as there
was no new mortgage to speak of under the assailed directors Resolution. Nevertheless,
while the Court upholds the validity of the stockholders Resolution appointing Metrobank
as successor-trustee, it is not to say that the Court also upholds the validity of the
extrajudicial foreclosure of the mortgage.

Reading carefully the Secretary’s Certificate, it is clear that the main purpose of the
directors Resolution was to appoint petitioner as the new trustee of the previously executed
and amended MTI. Going through the original and the revised MTI, the Court finds no
substantial amendments to the provisions of the contract. The act of appointing a new
trustee of the MTI was a regular business transaction. The appointment necessitated only
a decision of at least a majority of the directors present at the meeting in which there was
a quorum, pursuant to Section 25 of the Corporation Code.

It is worthy to note that respondents do not assail the previous MTI executed with BPI.
They do not question the validity of the mortgage constituted over all or substantially all
 of respondent Centro’s assets nor do they question the additional loans increasing the value
of the mortgage to ₱144 million; or the use of Centro’s properties as collateral for the loans
of San Carlos, Lucky Two Corporation, and Lucky Two Repacking.

Thus, Section 40 of the Corporation Code finds no application in the present case, as there
was no new mortgage to speak of under the assailed directors Resolution. Petitioner failed
to establish its right to be entitled to the proceeds of the MTI. There is no evidence that
petitioner, as creditor or as trustee, had a cause of action to move for the extrajudicial
foreclosure of the subject properties mortgaged under the MTI.

2. YES. Republic Act No. 8971, or the General Banking Law of 2000, recognizes the vital
role of banks in providing an environment conducive to the sustained development of the
national economy and the fiduciary nature of banking; thus, the law requires banks to have
high standards of integrity and performance. The fiduciary nature of banking requires banks
to assume a degree of diligence higher than that of a good father of a family.

Petitioner itself was negligent in the conduct of its business when it extended unsecured
loans to the debtors. Worse, it was in serious breach of its duty as the trustee of the MTI. It
was not able to protect the interests of the parties and was even instrumental in violating the
terms of the MTI, to the detriment of the parties thereto. Thus, petitioner has only itself to
blame for being left with insufficient recourse under the assailed MTI.

IX. DISPOSITIVE PORTION:

WHEREFORE, in view of the foregoing, the Petition is hereby PARTLY GRANTED. The
Mortgage Trust Indenture is declared VALID. Nonetheless, for reasons stated herein, the Decision
of the Court of Appeals in CA-G.R. CV No. 80778, declaring the foreclosure proceedings in
Foreclosure No. S-04-011 over TCT Nos. 139880 and 139881 of no force and effect,
is AFFIRMED. Likewise, the cancellation of the Certificates of Title in the name of petitioner
Metropolitan Bank and Trust Company and the denial of the payment of damages are
also AFFIRMED. SO ORDERED.

X. PREPARED BY: Alyanna Jasmine D. Torio

I. SHORT TITLE: Philippine Banking Corp. v. DY

II. FULL TITLE: PHILIPPINE BANKING CORPORATION, Petitioner, v. ARTURO DY,

BERNARDO DY, JOSE DELGADO AND CIPRIANA DELGADO, Respondents; G.R.

No. 183774; November 14, 2012.

III. PONENTE: PERLAS-BERNABE, J.

IV. TOPIC: General Banking Law

V. STATEMENT OF THE FACTS:

Cipriana was the registered owner of a 58,129-square meter lot, situated in Cebu. She and her

husband, respondent Jose Delgado (Jose), entered into an agreement with a certain Cecilia Tan

(buyer) for the sale of the said property for a consideration of P10.00/sq.m. It was agreed that the

buyer shall make partial payments from time to time and pay the balance when Cipriana and Jose

(Sps. Delgado) are ready to execute the deed of sale and transfer the title to her. At the time of

sale, the buyer was already occupying a portion of the property where she operates a noodle (bihon)

factory while the rest was occupied by tenants which Sps. Delgado undertook to clear prior to full

payment.

After paying the total sum of P147,000.00 and being then ready to pay the balance, the buyer

demanded the execution of the deed, which was refused. Eventually, the buyer learned of the sale
of the property to the Dys and its subsequent mortgage to petitioner Philippine Banking

Corporation (Philbank), prompting the filing of the Complaint for annulment of certificate of title,

specific performance and/or reconveyance with damages against Sps. Delgado, the Dys and

Philbank.

Sps. Delgado, while admitting receipt of the partial payments made by the buyer, claimed that

there was no perfected sale because the latter was not willing to pay their asking price of

P17.00/sq.m. They also interposed a cross-claim against the Dys averring that the deeds of absolute

sale were fictitious and merely intended to enable them (the Dys) to use the said properties as

collateral for their loan application with Philbank. Sps. Delgado, thus, prayed for the dismissal of

the complaint, with a counterclaim for damages and a cross-claim against the Dys for the payment

of the balance of the purchase price plus damages.

On the other hand, Philbank asserts that it is an innocent mortgagee for value without notice of the

defect in the title of the Dys. It filed a cross-claim against Sps. Delgado and the Dys for all the

damages that may be adjudged against it in the event they are declared seller and purchaser in bad

faith, respectively. In answer to the cross-claim, Sps. Delgado insisted that Philbank was not a

mortgagee in good faith for having granted the loan and accepted the mortgage despite knowledge

of the simulation of the sale to the Dys and for failure to verify the nature of the buyers’ physical

possession.

VI. STATEMENT OF THE CASE

The RTC dismissed the cross-claims of Sps. Delgado against the Dys and Philbank. They failed to

adduce competent evidence to support their claim. On the other hand, the Dys presented a cash
voucher duly signed by Sps. Delgado acknowledging receipt of the total consideration for the two

lots. The RTC also observed that Sps. Delgado notified Philbank of the purported simulation of

the sale to the Dys only after the execution of the loan and mortgage documents and the release of

the loan proceeds to the latter, negating their claim of bad faith. Moreover, they subsequently

notified the bank of the Dys' full payment for the two lots mortgaged to it.

However, on appeal, the CA set aside the RTC's decision and ordered the cancellation of the Dys'

certificates of title and the reinstatement of Cipriana's title. It ruled that there were no perfected

contracts of sale between Sps. Delgado and the Dys. Being merely simulated, the contracts of sale

were, thus, null and void. The CA also declared Philbank not to be a mortgagee in good faith for

its failure to ascertain how the Dys acquired the properties and to exercise greater care when it

conducted an ocular inspection thereof. It thereby canceled the mortgage over the two lots.

VII. ISSUE:

(1) Whether or not Philbank is a mortgagee in good faith

VIII. RULING:

YES. Philbank's mortgage rights over the subject properties shall be maintained. While it is settled
that a simulated deed of sale is null and void and therefore, does not convey any right that could
ripen into a valid title, it has been equally ruled that, for reasons of public policy, the subsequent
nullification of title to a property is not a ground to annul the contractual right which may have
been derived by a purchaser, mortgagee or other transferee who acted in good faith.

Primarily, doctrine of "mortgagee in good faith" is based on the rule that all persons dealing with
property covered by a Torrens Certificate of Title are not required to go beyond what appears on
the face of the title. In the case of banks and other financial institutions, however, greater care and
due diligence are required since they are imbued with public interest, failing which renders the
mortgagees in bad faith. Thus, before approving a loan application, it is a standard operating
practice for 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(s) thereof. The apparent
purpose of an ocular inspection is to protect the "true owner" of the property as well as innocent
third parties with a right, interest or claim thereon from a usurper who may have acquired a
fraudulent certificate of title thereto. l
In this case, while Philbank failed to exercise greater care in conducting the ocular inspection of
the properties offered for mortgage, its omission did not prejudice any innocent third parties. In
particular, the buyer did not pursue her cause and abandoned her claim on the property. On the
other hand, Sps. Delgado were parties to the simulated sale in favor of the Dys which was intended
to mislead Philbank into granting the loan application. Thus, no amount of diligence in the conduct
of the ocular inspection could have led to the discovery of the complicity between the ostensible
mortgagors (the Dys) and the true owners (Sps. Delgado). In fine, Philbank can hardly be deemed
negligent under the premises since the ultimate cause of the mortgagors' (the Dys') defective title
was the simulated sale to which Sps. Delgado were privies.

To be sure, fraud comprises "anything calculated to deceive, including all acts, omissions, and
concealment involving a breach of legal duty or equitable duty, trust, or confidence justly reposed,
resulting in damage to another, or by which an undue and unconscientious advantage is taken of
another." In this light, the Dys' and Sps. Delgado's deliberate simulation of the sale intended to
obtain loan proceeds from and to prejudice Philbank clearly constitutes fraudulent conduct. As
such, Sps. Delgado cannot now be allowed to deny the validity of the mortgage executed by the
Dys in favor of Philbank as to hold otherwise would effectively sanction their blatant bad faith to
Philbank's detriment.

Accordingly, in the interest of public policy, fair dealing, good faith and justice, the Court accords
Philbank the rights of a mortgagee in good faith whose lien to the securities posted must be
respected and protected. In this regard, Philbank is entitled to have its mortgage carried over or
annotated on the titles of Cipriana Delgado over the said properties.

IX. DISPOSITIVE PORTION:

WHERFORE, the assailed January 30, 2008 Decision of the Court of Appeals in CA-G.R. CV No.
51672 is hereby AFFIRMED with MODIFICATION upholding the mortgage rights of petitioner
Philippine Banking Corporation over the subject properties. SO ORDERED.

X. PREPARED BY: Alyanna Jasmine D. Torio