G.R. No.
L-30511 February 14, 1980 over all doing business in the Philippines, but denies the petitioner's
MANUEL M. SERRANO, petitioner,
vs.
CENTRAL BANK OF THE PHILIPPINES;
Facts:
This is a case against respondent Central Bank of the Philippines and
Overseas Bank of Manila and its stockholders, on the alleged failure of the
Overseas Bank of Manila to return the time deposits made by petitioner and
assigned to him, on the ground that respondent Central Bank failed in its duty
to exercise strict supervision over respondent Overseas Bank of Manila to
protect depositors and the general public. 1
Undisputed pertinent facts are:
On October 13, 1966 and December 12, 1966, petitioner made a time deposit,
for one year with 6% interest, of One Hundred Fifty Thousand Pesos
(P150,000.00) with the respondent Overseas Bank of Manila. 3 Concepcion
Maneja also made a time deposit, for one year with 6-% interest, on March
6, 1967, of Two Hundred Thousand Pesos (P200,000.00) with the same
respondent Overseas Bank of Manila. 4
On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano,
assigned and conveyed to petitioner Manuel M. Serrano, her time deposit of
P200,000.00 with respondent Overseas Bank of Manila. 5
Notwithstanding series of demands for encashment of the aforementioned
time deposits from the respondent Overseas Bank of Manila, not a single one
of the time deposit certificates was honored by respondent Overseas Bank of
Manila. 6
Respondent Central Bank admits that it is charged with the duty of
administering the banking system of the Republic and it exercises supervision
allegation that the Central Bank has the duty to exercise a most rigid and
stringent supervision of banks, implying that respondent Central Bank has to
watch every move or activity of all banks, including respondent Overseas
Bank of Manila.
Respondent Central Bank claims that as of March 12, 1965, the Overseas
Bank of Manila, while operating, was only on a limited degree of banking
operations since the Monetary Board to prohibit the Overseas Bank of Manila
from making new loans and investments in view of its chronic reserve
deficiencies against its deposit liabilities.
Respondent Central Bank also denied that it is guarantor of the permanent
solvency of any banking institution as claimed by petitioner. It claims that
neither the law nor sound banking supervision requires respondent Central
Bank to advertise or represent to the public any remedial measures it may
impose upon chronic delinquent banks as such action may inevitably result to
panic or bank "runs
Respondent Central Bank likewise denied that a constructive trust was
created in favor of petitioner and his predecessor when their time deposits
were made with the respondent Overseas Bank of Manila as during that time
the latter was not an insolvent bank and its operation as a banking institution
was being salvaged by the respondent Central Bank. 9
Petitioner in this case filed a motion for judgment in this case, praying for a
decision on the merits, adjudging respondent Central Bank jointly and
severally liable with respondent Overseas Bank of Manila to the petitioner for
the P350,000 time deposit made with the latter bank, with all interests due
therein; and declaring all assets assigned or mortgaged by the respondents
Overseas Bank of Manila and the Ramos groups in favor of the Central Bank
as trust funds for the benefit of petitioner and other depositors. 13
ISSUE
Whether there was a constructive trust created in petitioners favor
when the respondent Overseas Bank of Manila increased its
collaterals in favor of respondent Central Bank for the former's
1
overdrafts and emergency loans, since these collaterals were acquired
by the use of depositors' money. No.

Ruling:

By the very nature of the claims and causes of action against respondents,
they in reality are recovery of time deposits plus interest from respondent
Overseas Bank of Manila, and recovery of damages against respondent
Central Bank for its alleged failure to strictly supervise the acts of the other
respondent Bank and protect the interests of its depositors by virtue of the
constructive trust created when respondent Central Bank required the other
respondent to increase its collaterals for its overdrafts said emergency loans,
said collaterals allegedly acquired through the use of depositors money.

Furthermore, both parties overlooked one fundamental principle in the nature

of bank deposits when the petitioner claimed that there should be created a
constructive trust in his favor when the respondent Overseas Bank of Manila
increased its collaterals in favor of respondent Central Bank for the former's
overdrafts and emergency loans, since these collaterals were acquired by the
use of depositors' money.

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
loans. 14 Current and savings deposit are loans to a bank because it can use
the same. The petitioner here in making time deposits that earn interests with
respondent Overseas Bank of Manila was in reality a creditor of the
respondent Bank and not a depositor. The respondent Bank was in turn a
debtor of petitioner. Failure of he respondent Bank to honor the time deposit is
failure to pay s obligation as a debtor and not a breach of trust arising from
Reyes vs. Court of Appeals G.R. No. 118492, August
depositary's failure to return the subject matter of the deposit 15, 2001

WHEREFORE, the petition is dismissed for lack of merit, with costs against The degree of extraordinary diligence applies only to cases where
petitioner. banks act under their fiduciary capacity, that is, as depositary of the
deposits of their depositors. But the same higher degree of diligence
SO ORDERED. is not expected to be exerted by banks in commercial transactions
that do not involve their fiduciary relationship with their depositors.

Facts: Godofredo, Casheir of the Philippine Racing Club (PCRI), went to

respondent bank to apply for a demand draft in the amount AU$1,610.00
payable to the order of the 20th Asian Racing Conference Secretariat of
Sydney, Australia. He was attended to by respondent banks assistant cashier,
Mr.Yasis, who at first denied the application for the reason that respondent

2
bank did not have an Australian dollar account in any bank in Sydney.
Godofredo asked if there could be a way for respondent bank to
accommodate PRCIs urgent need to remit Australian dollars to Sydney. Yasis
of respondent bank then informed Godofredo of a roundabout way of effecting
the requested remittance to Sydney thus: the respondent bank would draw a
demand draft against Westpac Bank in Sydney, Australia (Westpac-Sydney)
and have the latter reimburse itself from the U.S. dollar account of the
respondent in Westpac Bank in New York, U.S.A. (Westpac-New York).
However, upon due presentment of the foreign exchange demand draft, the
same was dishonored, with the notice of dishonor stating that there is No
account held with Westpac. Meanwhile, Wespac-New York sent a cable to
respondent bank informing the latter that its dollar account in the sum of AU$
1,610.00 was debited. In response to PRCIs complaint about the dishonor of
the said foreign exchange demand draft, respondent bank informed Westpac-
Sydney of the issuance of the said demand draft, drawn against the Wespac-
Sydney and informing the latter to be reimbursed from the respondent banks
dollar account in Westpac-New York. The respondent bank on the same day
likewise informed Wespac-New York requesting the latter to honor the
reimbursement claim of Wespac-Sydney. Upon its second presentment for
payment, the demand draft was again dishonored by Westpac-Sydney for the
same reason, that is, that the respondent bank has no deposit dollar account
with the draweeWespac-Sydney. Gregorio Reyes and Consuelo Puyat-Reyes
arrived in Sydney on a separate date and both were humiliated and
embarrassed in the presence of international audience after being denied
registration of the conference secretariat since the foreign exchange draft was
dishonored. Petitioners were only able to attend the conference after
promising to pay in cash instead which they fulfilled
Issue: Whether or not respondent bank is liable for damages due to the
dishonor of the foreign exchange demand drafts.
Held: Yes. The evidence also shows that the respondent bank exercised that
degree of diligence expected of an ordinary prudent person under the
circumstances obtaining; the respondent bank advised Westpac-New York to
honor the reimbursement claim of Westpac-Sydney and to debit the dollar
accountof respondent bank with the former. The degree of diligence required
of banks, is more than that of a good father of a family where the fiduciary
nature of their relationship with their depositors is concerned. In other words
banks are duty bound to treat the deposit accounts of their depositors with
the highest degree of care. But the said ruling applies only to cases where
banks act under their fiduciary capacity, that is, as depositary of the deposits
of their depositors. But the same higher degree of diligence is not expected to
be exerted by banks in commercial transactions that do not involve their
fiduciary relationship with their depositors. The case at bar does not involve
the handling of petitioners deposit, if any, with the respondent bank. Instead,
the relationship involved was that of a buyer and seller.
Phil. Banking Corp. vs CA GR. No. 127469
Facts:
Leonilo Marcos filed in court a complaint for sum of money with damages
against Phil. Banking Corporation (PBC). Marcos allegedly made a time deposit
in 2 occasions the amt. of P664,897.67 and P764,897.67 through the
persuasion of his friend Pagsaligan, one of the banks officials. The bank
issued receipt for the first deposit while a letter-certification was issued for his
second deposit by Pagsaligan. Pagsaligan kept the various time deposit
certificates. When Marcos wanted to withdraw his time deposit and its
accumulated interest Pagsaligan encouraged him to open a letter of credit to
the bank by executing 3 trust receipts agreement. He signed blank forms for
domestic letter of credits, trust receipts agreements and promissory notes. He
was required to deposit 30% of the total amount of credit and his time deposit
will secure the remaining 70% of the letters of credit.
He is now accusing the bank for unjustly collecting payment without
deducting the 30% of his down payment and charging him with accumulating
interests since his time deposit serves as collateral for his remaining
obligation. He further denied making a loan of P500,000 with 25% interest per
annum covered by a promissory note produced by the bank. The bank
explained that the promissory notes he executed are distinct from the trust
receipt agreement and denied falsifying the promissory note covering for the
loan of P500,000. The evidence presented on the promissory note however is
merely a machine copy of the document. The said loan was already paid by
offsetting it from his time deposit.
Issue:
Whether or not the bank failed to take a proper account on Marcos deposits
and payment of his loans?
Ruling:
The court held that the bank is liable for offsetting the time deposit of Marcos
to the fictitious promissory note for the 500,000 loan. The court upheld the
findings of the lower court on the discrepancies shown by the machine copy of
the duplicate of the promissory note and the suspicious claim of the bank that
it could not produce the original copy thereof. The mere machine copy of the
document has no evidentiary value before the court. The court held that the
bank did not forge the promissory note. Pagsaligan did to cover up his failure
to give the proper account of Marcos time deposits. This however does not
excuse the bank to return to Marcos the correct amount of his time deposit
with interest. Bank has the fiduciary duty before its clients. Its duty is to
observe the highest standards of integrity and performance. Assuming
Pagsaligan is responsible for the spurious promissory note the court held that
a bank is liable for the wrongful acts of its officers. The court made the proper
account of the total amount due to Marcos ordering the bank to give to him
the same plus moral and exemplary damages.
The BANKs Fiduciary Duty to its Depositor
The BANK is liable to Marcos for offsetting his time deposits with a fictitious
promissory note. The existence of Promissory Note No. 20-979-83 could have
been easily proven had the BANK presented the original copies of the
3
promissory note and its supporting evidence. In lieu of the original copies, the
BANK presented the machine copies of the duplicate of the documents. These
substitute documents have no evidentiary value. The BANKs failure to explain
the absence of the original documents and to maintain a record of the
offsetting of this loan with the time deposits bring to fore the BANKs dismal
failure to fulfill its fiduciary duty to Marcos.
Section 2 of Republic Act No. 8791 (General Banking Law of 2000) expressly
imposes this fiduciary duty on banks when it declares that the State
recognizes the fiduciary nature of banking that requires high standards of
integrity and performance. This statutory declaration merely echoes the
earlier pronouncement of the Supreme Court in Simex International (Manila)
Inc. v. Court of Appeals[31] requiring banks to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of
their relationship.[32] The Court reiterated this fiduciary duty of banks in
subsequent cases.[33]
Although RA No. 8791 took effect only in the year 2000,[34] at the time that
the BANK transacted with Marcos, jurisprudence had already imposed on
banks the same high standard of diligence required under RA No. 8791.[35]
This fiduciary relationship means that the banks obligation to observe high
standards of integrity and performance is deemed written into every deposit
agreement between a bank and its depositor.
The fiduciary nature of banking requires banks to assume a degree of
diligence higher than that of a good father of a family. Thus, the BANKs
fiduciary duty imposes upon it a higher level of accountability than that
expected of Marcos, a businessman, who negligently signed blank forms and
entrusted his certificates of time deposits to Pagsaligan without retaining
copies of the certificates.
The business of banking is imbued with public interest. The stability of banks
largely depends on the confidence of the people in the honesty and efficiency
of banks. In Simex International (Manila) Inc. v. Court of Appeals[36] we
pointed out the depositors reasonable expectations from a bank and the
banks corresponding duty to its depositor, as follows:
In every case, the depositor expects the bank to treat his account with the
utmost fidelity, whether such account consists only of a few hundred pesos or
of millions. The bank must record every single transaction accurately, down to
the last centavo, and as promptly as possible. This has to be done if the
account is to reflect at any given time the amount of money the depositor can
dispose of as he sees fit, confident that the bank will deliver it as and to
whomever he directs.
As the BANKs depositor, Marcos had the right to expect that the BANK was
accurately recording his transactions with it. Upon the maturity of his time
deposits, Marcos also had the right to withdraw the amount due him after the
BANK had correctly debited his outstanding obligations from his time deposits.
By the very nature of its business, the BANK should have had in its possession
the original copies of the disputed promissory note and the records and
ledgers evidencing the offsetting of the loan with the time deposits of Marcos.
The BANK inexplicably failed to produce the original copies of these
documents. Clearly, the BANK failed to treat the account of Marcos with
meticulous care.
The BANK claims that it is a reputable banking institution and that it has no
reason to forge Promissory Note No. 20-979-83. The trial court and appellate
court did not rule that it was the bank that forged the promissory note. It was
Pagsaligan, the BANKs branch manager and a close friend of Marcos, whom
the trial court categorically blamed for the fictitious loan agreements. The trial
court held that Pagsaligan made up the loan agreement to cover up his
inability to account for the time deposits of Marcos.
Whether it was the BANKs negligence and inefficiency or Pagsaligans misdeed
that deprived Marcos of the amount due him will not excuse the BANK from its
obligation to return to Marcos the correct amount of his time deposits with
interest. The duty to observe high standards of integrity and performance
imposes on the BANK that obligation. The BANK cannot also unjustly enrich
itself by keeping Marcos money.
Assuming Pagsaligan was behind the spurious promissory note, the BANK
would still be accountable to Marcos. We have held that a bank is liable for
the wrongful acts of its officers done in the interest of the bank or in their
dealings as bank representatives but not for acts outside the scope of their
authority.[37] Thus, we held:
A bank holding out its officers and agents 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 (10 Am Jur 2d, p. 114). 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, in the particular case, 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.[38]
BPI vs. IAC [G.R. No. 69162 February 21, 1992]
Facts:
Spouses Arthur & Vivienne Canlas opened a joint account in Commercial Bank
& Trust Comp (CBTC) with initial deposit of P2,250. Arthur Canlas had an
existing separate personal account in the same branch. Upon opening the
joint account, the new accounts teller pulled out form the banks files the
old and existing signature card of Arthur Canlas, for ID and reference. By
mistake, she placed the old personal account number of Arthur Canlas on the
deposit slip for the new joint checking account of the spouses so that the
4
initial deposit of P2,250 for the joint checking account was miscredited to
Arthur's personal account. The spouses subsequently deposited other
amounts in their joint account.
As a consequence, two checks were dishonored which the Canlas had issued
against their joint account. The bank was unable to contract the spouses
because of a wrong address.
Spouses Canlas filed a complaint for damages against CBTC in CFI Pampanga.
During the pendency of the case, the Bank of the Philippine Islands (BPI) and
CBTC were merged. As the surviving corporation under the merger agreement
and under Section 80 (5) of the Corporation Code of the Philippines, BPI took
over the prosecution and defense of any pending claims, actions or
proceedings by and against CBTC.
RTC Pampanga rendered a decision against BPI, ordering them to pay actual
damages (P5,000), moral damages (P300,000), and exemplary damages
(P150,000). On appeal, the IAC deleted the actual damages and reduced the
other awardsactual damages (P50,000), moral damages (P50,000) and
exemplary damages (P50,000).
Issue:
Whether or not BPI is guilty of gross negligence in the handling of the spouses
Canlas bank account.
Held:
YES. IAC decision modified by deleting the award of exemplary damages.
The bank is not expected to be infallible but it must bear the blame for not
discovering the mistake of its teller despite the established procedure
requiring the papers and bank books to pass through a battery of bank
personnel whose duty it is to check and countercheck them for possible
errors. Apparently, the officials and employees tasked to do that did not
perform their duties with due care, as may be gathered from the testimony of
the bank's lone witness, Antonio Enciso, who casually declared that "the
approving officer does not have to see the account numbers and all those
things. Those are very petty things for the approving manager to look into."
Unfortunately, it was a "petty thing," like the incorrect account number that
the bank teller wrote on the initial deposit slip for the newly-opened joint
current account of the Canlas spouses that sparked this half-a-million-peso
damage suit against the bank.
While the bank's negligence may not have been attended with malice and bad
faith, nevertheless, it caused serious anxiety, embarrassment and humiliation
to the private respondents for which they are entitled to recover reasonable
moral damages.
However, the absence of malice and bad faith renders the award of exemplary
damages improper.
Banas vs. Asia Pacific Finance Corporation G.R. No.
128703, October 18, 2000
An investment company refers to any issuer which is or holds itself out as
being engaged or proposes to engage primarily in the business of investing,
reinvesting or trading in securities. As defined in Revised Securities Act,
securities shall include commercial papers evidencing indebtedness of any
person, financial or non-financial entity, irrespective of maturity, issued,
endorsed, sold, transferred or in any manner conveyed to another with or
without recourse, such as promissory notes. Clearly, the transaction between
petitioners and respondent was one involving not a loan but purchase of
receivables at a discount, well within the purview of investing, reinvesting or
trading in securities which an investment company, like ASIA PACIFIC, is
authorized to perform and does not constitute a violation of the General
Banking Act.
Facts:
TeodoroBaas executed a Promissory Note in favor of C. G. Dizon Construction
whereby for value received he promised to pay to the order of C. G. Dizon
Construction the sum of P390,000.00 in installments of P32,500.00 every
25th day of the month starting from September 25, 1980 up to August 25,
1981.Later, C. G. Dizon Construction endorsed with recourse the Promissory
Note to ASIA PACIFIC, and to secure payment thereof, C. G. Dizon
Construction, through its corporate officers, CenenDizon, President, and
Juliette B. Dizon, Vice President and Treasurer, executed a Deed of Chattel
Mortgage covering three heavy equipment units of Caterpillar Bulldozer
Crawler Tractors Moreover, CenenDizon executed a Continuing Undertaking
wherein he bound himself to pay the obligation jointly and severally with C. G.
Dizon Construction.
In compliance thereof, C. G. Dizon Construction made three installment
payments to ASIA PACIFIC for a total of P130,000.00. Thereafter, however, C.
G. Dizon Construction defaulted in the payment of the remaining installments,
prompting ASIA PACIFIC to send a Statement of Account to CenenDizon for the
unpaid balance of P267,737.50 inclusive of interests and charges, and
P66,909.38 representing attorneys fees. As the demand was unheeded, ASIA
PACIFIC filed a complaint for a sum of money with prayer for a writ of replevin
against TeodoroBaas, C. G. Dizon Construction and CenenDizon. The trial
court issued a writ of replevin against defendant C. G. Dizon Construction for
the surrender of the bulldozer crawler tractors. Of the three bulldozer crawler
tractors, only two were actually turned over by defendants which units were
subsequently foreclosed by ASIA PACIFIC to satisfy the obligation. The two
bulldozers were sold both to ASIA PACIFIC as the highest bidder.
Petitioners insist that ASIA PACIFIC was organized as an investment house
which could not engage in the lending of funds obtained from the public
through receipt of deposits. The disputed Promissory Note, Deed of Chattel
Mortgage and Continuing Undertaking were not intended to be valid and
5
binding on the parties as they were merely devices to conceal their real
intention which was to enter into a contract of loan in violation of banking
laws. The Regional Trial Court ruled in favor of ASIA PACIFIC holding the
defendants jointly and severally liable for the unpaid balance of the obligation
under the Promissory Note. The Court of Appeals affirmed the decision of the
trial court
Issues:
Whether the disputed transaction between ASIA PACIFIC was engaged in
banking activities.
Held:
An investment company refers to any issuer which is or holds itself out as
being engaged or proposes to engage primarily in the business of investing,
reinvesting or trading in securities. As defined in Revised Securities Act,
securities shall include commercial papers evidencing indebtedness of any
person, financial or non-financial entity, irrespective of maturity, issued,
endorsed, sold, transferred or in any manner conveyed to another with or
without recourse, such as promissory notes Clearly, the transaction between
petitioners and respondent was one involving not a loan but purchase of
receivables at a discount, well within the purview of investing, reinvesting or
trading in securities which an investment company, like ASIA PACIFIC, is
authorized to perform and does not constitute a violation of the General
Banking Act.
What is prohibited by law is for investment companies to lend funds obtained
from the public through receipts of deposit, which is a function of banking
institutions. But here, the funds supposedly lent to petitioners have not
been shown to have been obtained from the public by way of deposits, hence,
the inapplicability of banking laws. Wherefore, the assailed decision of the
Court of Appeals was affirmed.