[G.R. NO. 112392. FEBRUARY 29, 2000]
67 from his dollar savings
BANK OF THE PHILIPPINE ISLANDS, PETITIONER, VS. COURT
OF APPEALS AND BENJAMIN C. NAPIZA, RESPONDENTS.
FACTS:
Respondent, Benjamin Napiza (Napiza), deposited in a
Foreign Currency Deposit Unit Savings Account which he
maintained in petitioner banks, a managers check payable to
cash in the amount of 2500 dollars and duly endorsed by
Napizat on its dorsal side.
The said check appears to be owned by a certain Henry Chan
who went to the office of Benjamin Napiza and requested
him to deposit the check in his dollar account by way of
accommodation and for the purpose of clearing the same.
Napiza acceded, and agreed to deliver to Chan a signed blank
withdrawal slip, with the understanding that as soon as the
check is cleared, both of them would go to the bank to
withdraw the amount of the check upon private respondent’s
presentation to the bank of his passbook.
Napiza thus endorsed the check and deposited it in a Foreign
Currency Deposit Unit (FCDU) Savings Account he maintained
with BPI.
Thereafter, using the blank withdrawal slip given by private
respondent to Chan, one Ruben Gayon, Jr. was able to
withdraw the amount of $2,541.67 from Napiza's FCDU
account payable to a certain Ramon A. De Guzman and Agnes
De Guzman and was duly initialed (signed) by the branch
assistant manager of the bank. However it turned that the
said check was a counterfeit check.
And so the petitioner bank demanded for the return of the
withdrawn amount and warned Napiz that should he fail to
return the said amount it would file appropriate action to
protect its interest
Napiz did not able to return the said amount and a complaint
was lodged against the latter.
According to the petitioner by having his signature affixed at
the dorsal side of the check, he should be liable for the
amount in accordance with Sec. 66 of the Negotiable
Instruments Law
Private respondent filed his answer, admitting that he indeed
signed a "blank" withdrawal slip with the understanding that
the amount deposited would be withdrawn only after the
check in question has been cleared. He likewise alleged that
he instructed the party to whom he issued the signed blank
withdrawal slip to return it to him after the bank drafts
clearance so that he could lend that party his passbook for
the purpose of withdrawing the amount of $2,500.00.
However, without his knowledge, said party was able to
withdraw the amount of $2,541.
account through collusion with one of petitioner’s
employees.
REGIONAL TRIAL COURT
The lower court dismissed the complaint and ruled that it was
incumbent upon the petitioner to credit the value of the
check in question to the account of the private
respondent only upon receipt of the notice of final
payment and should not have authorized the withdrawal
from the latter’s account of the value or proceeds of the
check xxxx petitioner should suffer the resultant loss.
COURT OF APPEALS
On appeal affirmed the lower court’s decision and ruled that
the petitioner committed “clear gross negligence” xxx The
check still had to be cleared and its proceeds can only be
withdrawn upon presentation of a passbook in accordance
with the banks rules and regulations.
ISSUE:
Whether or not Napiza is under obligation to return the said
amount to the petitioner being the general indorser.
RULING:
No, Napiza is not liable, the Supreme Court ruled
that the propriety of the withdrawal should be gauged by
compliance with the rules thereon that both petitioner bank
and its depositors are duty-bound to observe.
As provided under the rules of withdrawal of the
bank, to be able to withdraw from the savings account
deposit under the Philippine foreign currency deposit system,
two requisites must be presented to petitioner bank by the
person withdrawing an amount: (a) a duly filled-up
withdrawal slip, and (b) the depositors passbook.
xxxx The petitioner bank by allowing the said withdrawal
despite the absence of the presentation of the respondent’s
passbook and by allowing the withdrawal of an amount that
is definitely over and above the aggregate amount of private
respondents dollar deposits that had yet to be cleared. xxxx
Failed to exercise the diligence of a good father of a family. In
total disregard of its own rules, petitioners personnel
negligently handled private respondents account to
petitioners detriment.
xxxx By the nature of its functions, a bank is under obligation
to treat the accounts of its depositors "with meticulous care,
always having in mind the fiduciary nature of their
relationship." As such, in dealing with its depositors, a bank
should exercise its functions not only with the diligence of a
good father of a family but it should do so with the highest
degree of care.
JULY 25, 2016
G.R. NO. 202514
ANNA MARIE L. GUMABON, PETITIONER
VS.
PHILIPPINE NATIONAL BANK, RESPONDENT
FACTS
Anna Marie made two deposits with PNB for which they were
issued Foreign Exchange Certificates of Time Deposit (FXCTD)
Nos. A-993902 and A-993992
Anna Marie also maintained 8 savings accounts which she
decided to consolidate and to withdraw
P 2,727 235.85. At first the respondent was informed that she
could not withdraw from the savings account since her bank
records were missing. But after a month the savings accounts
were finally consolidated and issued passbook for Savings
Account No. 6121200. The PNB also confirmed that the total
deposits amounted to P 2, 734, 207.36. The petitioner and
respondent executed a Deed of waiver and quitclaim to settle
all questions regarding the consolidation of the savings
accounts.
After withdrawals, the balance of her consolidated savings
account was ₱250,741.82.
Thereafter, PNB informed the petitioner that the former
refused to honor its obligation under FXCTD no. 993902 and
993992 and that it withheld the release of the remaining
balance in the consolidated savings accounts for the reason
that Anna Marie pre-terminated, withdrew and/or debited
sum against her deposits.
Thus a complaint was filed by Anna Marie for sum of money
and damages.
The PNB, in its answer argued that
1. Petitioner is not entitled to the balance of the consolidated
savings account based on solution indebiti for according to
the bank the petitioner already withdrew a total of 251,
249.81 from the account and used the withdrawn amount to
purchased manager’s check.
Photocopies of the PNB’s miscellaneous ticket and managers
check were offered as evidence
2. Petitioner is not entitled to the amount covered by FXCTD
No. 993902 for it was pre-terminated by the petitioner.
The PNB presented a facsimile copy Statement of Account
(SOA) from the PNB Bank to prove that the amount covered
by FXCTD No. 993902 was already paid.
3. Anna Marie is only entitled to receive $10,718.87 instead
of the full amount of $17,235.41 covered by FXCTD No.
993992 because the amount was used to purchase the
manager’s check, credited to the account of Anna Marie’s
Aunt
RFGIONAL TRIAL COURT
The Lower Court ruled in Anna Marie’s favor stating that PNB
by submitting mere photocopies of SOA, miscellaneous ticket,
manager’s check failed the best evidence rule
COURT OF APPEALS
However on appeal, the CA relied on PNB’s investigation and
reversed the RTC’s ruling.
ISSUE:
Whether or not Anna Marie is entitled to the payment of
the amount covered by FXCTD 993902, 993992 and the
remaining of her savings account
RULING:
Yes, the Supreme court grant the petition and reverse the
CA’s ruling
Stating that the CA considered pieces of evidence which are
inadmissible under the Rules of Court, particularly the
manager’s check and the corresponding miscellaneous ticket,
Anna Rose’s SOA, and the affidavit of the PNB New York’s
bank officer.
The PNB cannot simply substitute the mere photocopies of the
subject documents for the original copies without showing the court
that any of the exceptions under Section 3 of Rule 130 of the Rules
of Court applies. The PNB’s failure to give a justifiable reason for the
absence of the original documents and to maintain a record of Anna
Marie’s transactions only shows the PNB’s dismal failure to fulfill its
fiduciary duty to Anna Marie. The Court expects the PNB to "treat
the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship." The Court explained
in Philippine Banking Corporation v. CA, the fiduciary nature of the
bank’s relationship with its depositors, to wit:
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 we pointed out the depositor’s reasonable
expectations from a bank and the bank’s 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.
Consequently, the CA should not have admitted the subject
documents even if the PNB tendered the excluded evidence.
G.R. No. 112576 October 26, 1994
(CA-GR CV No. 26571)
METROPOLITAN BANK AND TRUST COMPANY, petitioner,
vs.
THE HON. COURT OF APPEALS, RURAL BANK OF PADRE
GARCIA, INC. and ISABEL R. KATIGBAK, respondents
FACTS
Metropolitan Bank and Trust Company is the
depository bank of Rural Bank of Padre Garcia, Isabel
Katigbak being the president and director of the said bank.
The dispute arises when MBTC received from the
Central Bank a credit memo that its demand deposit account
was credited with P 304,000 for the account of RBPG. On the
basis of the said memo, Katigbak issued checks against it
account with MTBC payable to Sps. Roque.
When the checks were forwarded to MBTC, they were
returned by the latter with annotations DAIF-TNC (Drawn
against insufficient funds—try next clearing).
After the checks were dishonored twice, Mr. Roque went to
the office of Antonio Katigbak and chide him for the bouncing
checks.
Thereafter, Mrs. Katigbak who was in Hong Kong, informed
Mrs. San Juan Katigbak to request defendant BTC to check
and verify the records regarding the aforementioned Central
Bank Credit Memo as she was certain that the check were
sufficiently covered. But Mrs. San Juan informed Mrs.
Katigbak receive an insulting call from the Assistant Cashier of
MBTC ("Bakit kayo nag-issue ng tseke na wala namang
pondo, Three Hundred Thousand na." After several request
from Mrs Katigbak to verify the records which also prompted
her to cut short her stayin Hong Kong to have make the
request personally , MBTC employees arrogantly brushed
aside her request.
Thus RBPG and Isabel Katigbak filed a civil case against MBTC.
MBTC, in its answer, stated that their messenger received
from Central Bank several credit advices which included that
of RBPG; that due to the inadvertence of said messenger, the
credit advice issued in favor of RBPG was not delivered to the
department in charge of processing the same which resulted
to dishonor the issued checks by RBPG.
xxxx MBTC extending their apologies to RBPG for the former’s
negligence in misrouting the credit advice resulting in the
return of the check in question. xxxx
REGIONAL TRIAL COURT
Ruling on the issue of RBPG’s entitlement to recover
damages, the lower court rendered decision in favor of RBPG.
Court of APPEALS
On appeal, the appellate court affirmed the decision of the
Trial Court.
ISSUE
Whether the respondent Rural Bank is allowed to recover
damages from the petitioner.
RULING:
Yes, As borne out by the records, the dishonoring of the
respondent's checks committed through negligence by the
petitioner bank on April 6, 1982 was rectified only on April
15, 1992 or nine (9) days after receipt of the credit memo.
Clearly, petitioner bank was remiss in its duty and obligation
to treat private respondent's account with the highest degree
of care, considering the fiduciary nature of their relationship.
The bank is under obligation to treat the accounts of its
depositors with meticulous care, whether such account
consists only of a few hundred pesos or of millions.
It must bear the blame for failing to discover the mistake of
its employee despite the established procedure requiring
bank papers to pass through bank personnel whose duty it is
to check and countercheck them for possible
errors.4 Responsibility arising from negligence in the
performance of every kind of obligation is
demandable.5 While the bank's negligence may not have
been attended with malice and bad faith, nevertheless, it
caused serious anxiety, embarrassment and humiliation to
private respondents for which they are entitled to recover
reasonable moral damages.
[G.R. NO. 116181. APRIL 17, 1996]
PHILIPPINE NATIONAL BANK, PETITIONER, VS. COURT OF
APPEALS AND CARMELO H. FLORES, RESPONDENTS
Carmelo H. Flores, a businessman and VIP client of
the petitioner bank, purchased from the latter, 2 manager’s
check worth P 500,000 each. A receipt was issued by the
petitioner .
plaintiff, it endeavored to prove that the actual amount
involved in the entire transaction is only P900,000.00 that is
P450,000.00 managers check and P450,000.00 cash by
submitting in evidence, the application forms filled up by the
plaintiff, Exhibits 1, 2, 3 and 4. As may be readily seen these
application forms relied upon by the defendant have no
probative value for they do not yield any direct proof of
payment.

When the respondent presented the said checks at
the Baguio Hyatt Casino unit of petitioner, the latter refuses
at first to encash the checks, but after lengthy discussions and
when Flores agreed that one of the checks be broken down
to 5 manager’s check of 100,000 each. But the petitioner
deferred to encash one of the five checks.
Upon his return to Manila he made representations to
petitioner through it s Malate Branch so that the remaining
check be encashed but to no avail.
Left with no other choice, Flores filed a case with the Regional
Trial Court of Quezon
The petitioner, in its answer, insisted that only
P900,000.00 and P40.00 bank charges were actually paid
by Flores when he purchased the two (2) managers checks
worth P1,000,000.00. It alleged that due to Flores demanding
attitude and temper, petitioners money counter, Rowena
Montes, who, at that time was still new at her job, made an
error in good faith in issuing the receipt for
P1,000,040.00.9 The actuations of Flores allegedly distracted
the personnel manning the unit
And to proved the amount the bank presented the
application forms filled up by the plaintiff, actual
denominations of the money it received and the testimony of
its employee.
Besides defendant even failed to adduce concrete
evidence showing that these forms which were crumpled and
retrieved from the waste basket were made the basis of the
approval of the purchased (sic) made. At any rate, the Court
finds such pieces of evidence not only unconvincing but also
self-defeating in the light of the receipt, the accuracy,
correctness and due execution of which was indubitably
established. It is a cardinal rule in the law on evidence that
the best proof of payment is the receipt.
Since there is no doubt as to the fact that the
plaintiff purchased from the defendant bank two (2)
managers check worth P500,000.00 each as this was
evidenced by an official receipt, then, following the above
jurisprudential ruling, the existence of the managers check
created as fiduciary relationship between the defendant bank
and the plaintiff and therefore any breach thereof must be
borne by the negligent party. In this case, the money counter
who, among her other duties, is in charge of counting the
money received from a client purchasing a managers check
did not perform her duty with diligence and due care.

REGIONAL TRIAL COURT

The trial court rendered in favor of the herein plaintiff
and against the defendant bank ordering the defendant to
pay the plaintiff for the remaining dishonored check and
damages.

COURT OF APPEALS
On appeal, the appellate court, affirmed the decision of
the lower court

ISSUE
Whether or not PNB is liable

RULING
Yes, the petitioner is liable, after having thoroughly
evaluated the evidences on record, the Court finds and so
believes that plaintiff indeed paid defendant the amount of P
1,000,040.00 when he purchased the two (2) managers
checks worth
P 1,000,000.00.
This is clearly manifested from the receipt issued by
the defendant wherein it explicitly admits that the amount
stated therein is what plaintiff actually paid. While the
defendant does not dispute the receipt it issued to the
LOTTO RESTAURANT CORPORATION vs.BPI FAMILY SAVINGS
BANK, INC.
G.R. No. 177260; 30 March 2011
Various stipulations in a contract must be read together and
given effect as their meanings warrant.
TOPIC: Interest Rate Stipulation
FACTS: Petitioner Lotto Restaurant Corporation (Lotto) got a
loan of ₱3,000,000.00 from the DBS Bank (DBS) at an interest
rate of 11.5% per annum. To secure payment of the loan,
Lotto, mortgaged to DBS its condominium unit. Lotto, after
paying for 12 months, DBS increased the interest to 19% per
annum. Lotto contested the increase and stopped paying the
loan. After respondent BPI Family Savings Bank, Inc. (BPI)
acquired DBS, Lotto tried to negotiate with BPI for reduction
of interest but the latter agreed to reduce it to only 14.7% per
annum. BPI then foreclosed the mortgage on Lotto’s
condominium unit to satisfy its unpaid claims and other fees.
RTC’S RULING:Lotto filed with the RTCan action for
reformation or annulment of real estate mortgage with
prayer for a temporary restraining order (TRO) and
preliminary injunction.The RTC granted Lotto’s prayer
enjoining the foreclosure sale. RTC ruled in Lotto’s
favor,finding that DBS breached the stipulations in the
promissory note when increased the interest rate on its loan
from 11.5% to 19% per annum.
CA’S RULING:CA, reversed the RTC Decision. The note
provided that, upon the lapse of that period, the loan would
already bear an interest based on the prevailing market rate.
The increase from 11.5% to 19% for the subsequent period
was thus valid.
ISSUE: Whether or not DBS, now BPI, validly adjusted the rate
of interest on Lotto’s loan from 11.5% to 19% per annum
beginning on December 24, 2000; and
RULING:Yes. It is plainly clear from the promissory note that
the 11.5% per annum interest was to apply to the period
December 24, 1999 to December 24, 2000. Additionally, the
statement of applicable interest rate bears an asterisk sign,
which footnoted the information that interest to be based on
prevailing market rate. This means that the rate of interest
would be adjusted to the prevailing market rate after
December 24, 2000.
Lotto’s interpretation would have a ridiculous implication
since that "180 months" is the statement of the payout
period for the loan. The loan would have been paid after 180
months and, therefore, there would be no occasion for
charging Lotto a new rate of interest on a past loan.Various
stipulations in a contract must be read together and given
effect as their meanings warrant. Taken together, it intended
the 11.5% interest rate to apply only to the first year of the
loan.
FLORANTE VITUG vs. EVANGELINE A. ABUDA
G.R. No. 201264, January 11, 2016
The freedom to stipulate intetrestsis granted based on the
premise that parties arrive at interest rates that they are
willing but are not compelled to take either by force of
another person or by force of circumstances.
TOPIC: Interest rate stipulation
FACTS: Abuda loaned P250,000.00 to Vitug and his wife,
NarcisaVitug. As security for the loan, Vitug mortgaged to
Abuda his property in Tondo, Manila.The property was then
subject of a conditional Contract to Sell between the National
Housing Authority and Vitug.That, upon consummation and
completion of the sale by the NHA of said property, the title-
award thereof, shall be received by the Mortgagee by virtue
of a Special Power of Attorney, executed by Mortgagor in her
favor. The parties executed a "restructured"mortgage
contract on the property to secure the amount of
P600,000.00 representing the original P250,000.00 loan,
additional loans, and subsequent credit
accommodations given by Abuda to Vitug with an interest of
five (5) percent per month. By then, the property was
covered by Transfer Certificate of Title under Vitug's
name.Spouses Vitug failed to pay their loans despite Abuda's
demands.Abuda filed a Complaint for Foreclosure of Property
before the Regional Trial Court of Manila.
RTC RULING: RTC ruled in favor of Abuda ordering the
defendant to pay the principal sum of P600,000.00 with
interest at 5% per month.
CA RULING: On appeal Vitugaffirmed RTC’s decision with
the modifications. CA found that the interest rates imposed
on Vitug's loan were "iniquitous, unconscionable and
exorbitant. It instead ruled that a legal interest of 1% per
month or 12% per annum should apply from the judicial
demand.
ISSUE:Whether or not CA correctly found that the interest
rates of 5% or 10% per month imposed on petitioner's loan
were unconscionable.
RULING: Yes. Parties are free to stipulate interest rates in
their loan contracts in view of the suspension of the
implementation of the Usury Law ceiling on interest. The
freedom is granted based on the premise that parties arrive
at interest rates that they are willing but are not compelled to
take either by force of another person or by force of
circumstances.However, the lender has more commanding
power to set the price of borrowing than the borrower has
the freedom to negotiate for a lower interest rate.Hence,
there are instances when the state must step in to correct
market imperfections resulting from unequal bargaining
positions of the parties.

The imposition of an unconscionable rate of interest on a
money debt, even if knowingly and voluntarily assumed, is
immoral and unjust. It is tantamount to a repugnant
spoliation and an iniquitous deprivation of property, repulsive
to the common sense of man. It has no support in law, in
principles of justice, or in the human conscience nor is there
any reason whatsoever which may justify such imposition as
righteous and as one that may be sustained within the sphere
of public or private morals.
Thus, the interest rate for petitioner's loan should be further
reduced to 6% per annum from July 1, 2013 until full
satisfaction.
VICENTE D. CABANTING AND LALAINE V. CABANTING vs. BPI
FAMILY SAVINGS BANK, INC.
G.R. No. 201927, February 17, 2016
Rates found to be iniquitous or unconscionable are void, as if
it there were no express contract thereon.
FACTS:Cabanting bought a Mitsubishi Adventure from
Diamond Motors on installment basis. He also executed a
Promissory note with Chattel Mortgage on the vehicle in
favor of Diamond Motors wherein the parties stipulated that
in case of failure to pay “the entire sum outstanding under
this note shall immediately become due and payable without
the necessity of notice or demand which I/We hereby
waive." On the same day, Diamond motors assigned to BPI
Bank all its right, title and interest to the Promissory note.
When Cabanting failed to pay his monthly amortizations, BPI
filed a case for Replevin and damages against Cabanting.
RTC RULING:RTC rendered a decision in favor of BPI and
ordering Cabantingto pay the unpaid balance, with interest at
the rate of 24% per annumfrom the filing of the Complaint,
until its full satisfaction.
CA RULING:The decision was affirmed with modifications by
the CA on appeal fixing the interest rate of 12% per
annum from the filing of the Complaint, until its full
satisfaction
ISSUE: Whether or not CA is correct that the interest rate
being charged by respondent under the Promissory Note with
Chattel Mortgage is quite unreasonable.
RULING:Yes. Rates found to be iniquitous or unconscionable
are void, as if it there were no express contract thereon.
Above all, it is undoubtedly against public policy to charge
excessively for the use of money." However, pursuant to
prevailing jurisprudence and banking regulations, the Court
must modify the lower court's award of legal interest.
When an obligation, regardless of its source, i.e., law,
contracts, quasi- contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages.
The provisions under Title XVIII on "Damages" of the Civil
Code govern in determining the measure of recoverable
damages.
Thus, legal interest, effective July 1, 2013, was set at six
percent (6%) per annum in accordance with BangkoSentral ng
Pilipinas - Monetary Board Circular No. 799, Series of 2013.
LUCIA R. SINGSON vs. CALTEX (PHILIPPINES), INC.
G.R. No. 137798; 4 October 2000
The supervening of extraordinary inflation is never assumed.
The party alleging it must lay down the factual basis
for the application of Article 1250.
TOPIC: Inflation
FACTS: Petitioner and respondent entered into a contract of
lease over a parcel of land to be used by respondent as a
gasoline service station.
The contract of lease provides that the lease shall run
for a period of twenty (20) years. The monthly rental was
fixed at P3,500.00 for the first ten years, and at P4,200.00 for
the succeeding ten years of the lease.
On June 23, 1983, or five years before the expiration of
the lease contract, petitioner asked respondent to adjust or
increase the amount of rentals citing that the country was
experiencing extraordinary inflation. Respondent refused and
declared that the terms of the lease contract are clear as to
the rental amounts therein provided being "the maximum
rental which the lessor may collect during the term of the
lease.” Petitioner instituted a complaint before the RTC
praying forthe payment by respondent of adjusted rentals
based on the value of the Philippine peso at the time the
contract of lease was executed.
RTC and CA RULING: The RTC dismissed the complaint for
lack of merit. This judgment was affirmed by the CA. Both
courts found that petitioner was unable to prove the
existence of extraordinary inflation from 1968 to 1983 (or
from the year of the execution of the contract up to the year
of the filing of the complaint before the RTC) as to justify an
adjustment or increase in the rentals based upon the
provisions of Article 1250 of the Civil Code.
ISSUE: Whether or not there existed an extraordinary
inflation during the period 1968 to 1983 that would call for
the application of Article 1250 of the Civil Code and justify an
adjustment or increase of the rentals between the parties.
SC RULING:Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the
time of the establishment of the obligation shall be the basis
of payment, unless there is an agreement to the contrary.
We have held extraordinary inflation to exist when there is a
decrease or increase in the purchasing power of the
Philippine currency which is unusual or beyond the common
fluctuation in the value of said currency, and such increase or
decrease could not have been reasonably foreseen or was
manifestly beyond the contemplation of the parties at the
time of the establishment of the obligation.
The supervening of extraordinary inflation is never assumed.
The party alleging it must lay down the factual basis for the
application of Article 1250."Erosion" is indeed an accurate
description of the trend of decline in the value of the peso in
the past three to four decades. Unfortunate as this trend may
be, it is certainly distinct from the phenomenon
contemplated by Article 1250.Moreover, this Court has held
that the effects of extraordinary inflation are not to be
applied without an official declaration thereof by competent
authorities.
FIRST PLANTERSPAWNSHOP, INC., versus COMMISSIONER
OFINTERNAL REVENUE
(G.R. No. 174134July 30, 2008)
TOPIC: Tax treatment; Pawnshops as non – bank financial
intermediaries
FACTS:
In a Pre-Assessment Notice, petitioner was informed by the
BIR that it has an existing tax deficiency on its VAT and DST liabilities
for the year 2000. Petitioner protested the assessment for lack of legal
and factual bases.Petitioner subsequently received a Formal
Assessment Notice directing payment of VAT deficiency in the
amount of P541,102.79 and DST deficiency in the amount
of P24,747.13. Petitioner filed a protest, which was denied by Acting
Regional Director Anselmo G. Adriano per Final Decision on Disputed
Assessment. Petitioner then filed a petition for review with the Court
of Tax Appeals (CTA). In a Decision, the 2nd Division of the CTA upheld
the deficiency assessment.Petitioner appealed to the CTA En
Banc which rendered a Decision denying the Petition for Review for
lack of merit. Hence, the present petition for review.
ISSUE:
Whether or not Pawnshops, as non – bank financial
intermediaries, is subject to VAT and DST liabilities.
HELD:
The Supreme Court PARTIALLY GRANTED the
petition. The court finds that pawnshops are not subject to
VAT but is subject to DST liabilities.
On the issue of VAT Liabilities:
The tax treatment of pawnshops as non-bank financial intermediaries
is not without basis.
Under, R.A. No. 337, as amended, or the General Banking
Act characterizes the terms banking institution and bank as
synonymous and interchangeable and specifically include commercial
banks, savings bank, mortgage banks, development banks, rural
banks, stock savings and loan associations, and branches and agencies
in the Philippines of foreign banks. R.A. No. 8791 or the General
Banking Law of 2000, meanwhile, provided that banks shall refer to
entities engaged in the lending of funds obtained in the form of
deposits.R.A. No. 8791 also included cooperative banks, Islamic banks
and other banks as determined by the Monetary Board of
the Bangko Sentral ngPilipinas in the classification of bank.
Financial intermediaries, on the other hand, are defined as persons or
entities whose principal functions include the lending, investing or
placement of funds or evidences of indebtedness or equity deposited
with them, acquired by them, or otherwise coursed through them,
either for their own account or for the account of others.
It need not be elaborated that pawnshops are non-banks/banking
institutions. Moreover, the nature of their business activities partakes
that of a financial intermediary in that its principal function is lending.A
pawnshop's business and operations are governed by Presidential
Decree (P.D.) No. 114 or the Pawnshop Regulation Act and Central
Bank Circular No. 374 (Rules and Regulations for Pawnshops). Section
3 of P.D. No. 114 defines pawnshop as a person or entity engaged in
the business of lending money on personal property delivered as
security for loans and shall be synonymous, and may be used
interchangeably, with pawnbroker or pawn brokerage.
That pawnshops are to be treated as non-bank financial
intermediaries is further bolstered by the fact that pawnshops are
under the regulatory supervision of
the BangkoSentral ng Pilipinas and covered by its Manual of
Regulations for Non-Bank Financial Institutions. Ultimately, R.A. No.
9238 categorically confirmed the classification of pawnshops as non-
bank financial intermediaries.
Since petitioner is a non-bank financial intermediary, it is subject to
10% VAT for the tax years 1996 to 2002; however, with the levy,
assessment and collection of VAT from non-bank financial
intermediaries being specifically deferred by law, then petitioner is not
liable for VAT during these tax years. But with the full implementation
of the VAT system on non-bank financial intermediaries
starting January 1, 2003, petitioner is liable for 10% VAT for said tax
year. And beginning 2004 up to the present, by virtue of R.A. No.
9238, petitioner is no longer liable for VAT but it is subject to
percentage tax on gross receipts from 0% to 5 %, as the case may be.
On the issue of DST Liabilities:
There is no law specifically and expressly exempting pledges
entered into by pawnshops from the payment of DST. Section 199 of
the NIRC enumerated certain documents which are not subject to
stamp tax; but a pawnshop ticket is not one of them. Hence,
petitioner’s nebulous claim that it is not subject to DST is without
merit. It cannot be over-emphasized that tax exemption represents a
loss of revenue to the government and must, therefore, not rest on
vague inference. Exemption from taxation is never presumed. For tax
exemption to be recognized the grant must be clear and express; it
cannot be made to rest on doubtful implications.
PHILIPPINE DEPOSIT INSURANCE CORPORATION versus
CITIBANK
(G.R. No. 170290 April 11, 2012)
TOPIC: Foreign Bank and its branches
FACTS:
Petitioner Philippine Deposit Insurance
Corporation (PDIC) is a government instrumentality created
by virtue of Republic Act (R.A.) No. 3591, as amended by R.A.
No. 9302.Respondent Citibank, N.A. (Citibank) is a banking
corporation while respondent Bank of America, S.T. &
N.A. (BA) is a national banking association, both of which are
duly organized and existing under the laws of the United
States of America and duly licensed to do business in
the Philippines, with offices in Makati City.
In 1977, PDIC conducted an examination of the
books of account of Citibank. It discovered that Citibank, in
the course of its banking businessreceived from its head
office and other foreign branches a total
of P11,923,163,908.00 (11 Billion) in dollars, covered by
Certificates of Dollar Time Deposit that were interest-bearing
with corresponding maturity dates. These funds, which were
lodged in the books of Citibank under the account Their
Account-Head Office/Branches-Foreign Currency, were not
reported to PDIC as deposit liabilities that were subject to
assessment for insurance. As such, PDIC assessed Citibank for
deficiency in the sum of P1,595,081.96.Similarly, sometime in
1979, PDIC examined the books of accounts of BA which
revealed that BA received from its head office and its other
foreign branches a total of P629,311,869.10 in dollars,
covered by Certificates of Dollar Time Deposit that were
interest-bearing with corresponding maturity dates and
lodged in their books under the account Due to Head
Office/Branches. Because BA also excluded these from its
deposit liabilities, PDIC wrote to BA seeking the remittance
of P109,264.83 representing deficiency premium assessments
for dollar deposits.Believing that litigation would inevitably
arise from this dispute, Citibank and BA each filed a petition
for declaratory relief before the Court of First Instance (now
the Regional Trial Court) of Rizal. In their petitions, Citibank
and BA sought a declaratory judgment stating that the money
placements they received from their head office and other
foreign branches were not deposits and did not give rise to
insurable deposit liabilities under R.A. No. 3591 (the PDIC
Charter) and, as a consequence, the deficiency assessments
made by PDIC were improper and erroneous.
The Regional Trial Court Pasig City promulgated its
Decision in favor of Citibank and BA, ruling that the subject
money placements were not deposits and did not give rise to
insurable deposit liabilities, and that the deficiency
assessments issued by PDIC were improper and
erroneous. Therefore, Citibank and BA were not liable to pay
the same. Aggrieved, PDIC appealed to the CA which affirmed
the ruling of the RTC. In so ruling, the CA found that the
money placements were received as part of the banks
internal dealings by Citibank and BA as agents of their
respective head offices. This showed that the head office and
the Philippine branch were considered as the same
entity. Thus, no bank deposit could have arisen from the
transactions between the Philippine branch and the head
office because there did not exist two separate contracting
parties to act as depositor and depositary.Hence, this
petition.
ISSUES:
Whether or not the funds placed in the Philippine
branch by the head office and foreign branches of Citibank
and BA are insurable deposits under the PDIC Charter and, as
such, are subject to assessment for insurance premiums.
HELD:
NO. The Court rules in the negative.The Court begins
by examining the manner by which a foreign corporation can
establish its presence in the Philippines. It may choose to
incorporate its own subsidiary as a domestic corporation, in
which case such subsidiary would have its own separate and
independent legal personality to conduct business in the
country. In the alternative, it may create a branch in
the Philippines, which would not be a legally independent
unit, and simply obtain a license to do business in
the Philippines.
In the case of Citibank and BA, it is apparent that
they both did not incorporate a separate domestic
corporation to represent its business interests in
the Philippines. Their Philippine branches are, as the name
implies, merely branches, without a separate legal personality
from their parent company, Citibank and BA. Thus, being one
and the same entity, the funds placed by the respondents in
their respective branches in the Philippines should not be
treated as deposits made by third parties subject to deposit
insurance under the PDIC Charter.In addition, Philippine
banking laws also support the conclusion that the head office
of a foreign bank and its branches are considered as one legal
entity.Section 75 of R.A. No. 8791 (The General Banking Law
of 2000) and Section 5 of R.A. No. 7221 (An Act Liberalizing
the Entry of Foreign Banks) both require the head office of a
foreign bank to guarantee the prompt payment of all the
liabilities of its Philippine branch.
Based on the foregoing, it is clear that the head office of a
bank and its branches are considered as one under the eyes
of the law. While branches are treated as separate business
units for commercial and financial reporting purposes, in the
end, the head office remains responsible and answerable for
the liabilities of its branches which are under its supervision
and control. As such, it is unreasonable for PDIC to require
the respondents, Citibank and BA, to insure the money
placements made by their home office and other
branches. Deposit insurance is superfluous and entirely
unnecessary when, as in this case, the institution holding the
funds and the one which made the placements are one and
the same legal entity.
CESAR V. AREZA and LOLITA B. AREZA versus EXPRESS
SAVINGS BANK, INC. and MICHAEL POTENCIANO
(G.R. No. 176697 September 10, 2014)
TOPIC: Nature of Bank Deposits; Legal Compensation
FACTS:
Petitioners Areza were engaged in the business of
"buy and sell" of brand new and second-hand motor vehicles.
They received an order from a certain Gerry Mambuay. The
buyer, Mambuay, paid petitioners with nine (9) Philippine
Veterans Affairs Office (PVAO) checks payable to different
payees and drawn against the Philippine Veterans Bank
(drawee), each valued at Two Hundred Thousand Pesos
(₱200,000.00) for a total of One Million Eight Hundred
Thousand Pesos (₱1,800,000.00).
About this occasion, petitioners claimed that
Michael Potenciano, the branch manager of respondent
Express Savings Bank (the Bank) was present during the
transaction and immediately offered the services of the Bank
for the processing and eventual crediting of the said checks to
petitioners’ account. On the other hand, Potenciano
countered that he was prevailed upon to accept the checks
by way of accommodation of petitioners who were valued
clients of the Bank. Petitioners deposited the said checks in
their savings account with the Bank. The Bank, inturn,
deposited the checks with its depositary bank, Equitable-PCI
Bank, in Biñan,Laguna. Equitable-PCI Bank presented the
checks to the drawee, the Philippine Veterans Bank, which
honored the checks.Thus, the entire amount of
₱1,800,000.00 was credited to petitioners’ savings account.
Based on this information, petitioners released the two cars
to the buyer.
Sometime in July 2000, the subject checks were
returned by PVAO to the drawee on the ground that the
amount on the face of the checks was altered. The Bank was
informed by Equitable-PCI Bank that the drawee dishonored
the checks on the ground of material alterations. Equitable-
PCI Bank initially filed a protest with the Philippine Clearing
House. The latter ruled in favor of the drawee Philippine
Veterans Bank. Equitable-PCI Bank, in turn, debited the
deposit account of the Bank in the amount of ₱1,800,000.00.
Then, Petitioners issued a check in the amount of
₱500,000.00. Said check was dishonored by the Bank for the
reason "Deposit Under Hold." According topetitioners, the
Bank unilaterally and unlawfully put their account with the
Bank on hold. Petitioners’ counsel sent a demand letter
asking the Bank to honor their check. The Bank refused to
heed their request and instead, closed the Special Savings
Account of the petitioners with a balance of ₱1,179,659.69
and transferred said amount to their savings account. The
Bank then withdrew the amount of
₱1,800,000.00representing the returned checks from
petitioners’ savings account.Acting on the alleged arbitrary
and groundless dishonoring of their checks and the unlawful
and unilateral withdrawal from their savings account,
petitioners filed a Complaint for Sum of Money with Damages
against the Bank and Potenciano with the RTC of Calamba.
The RTC ruled in favor of petitioners. On appeal, the Court of
Appeals affirmed the ruling of the trial court. Hence,
Petitioners filed the present petition for review.
ISSUES:
Whether or not the Bank had the right to debit
₱1,800,000.00 from petitioners’ accounts.
HELD:
NO. The Bank cannot debit the savings account of
petitioners. A depositary/collecting bank may resist or defend
against a claim for breach of warranty if the drawer, the
payee, or either the drawee bank or depositary bank was
negligent and such negligence substantially contributed tothe
loss from alteration. In the instant case, no negligence can be
attributed to petitioners. We lend credence to their claim
that at the time of the sales transaction, the Bank’s branch
manager was present and even offered the Bank’s services
for the processing and eventual crediting of the checks. True
to the branch manager’s words, the checks were cleared
three days later when deposited by petitioners and the entire
amount ofthe checks was credited to their savings account.
Moreover, The Bank cannot set-off the amount it
paid to Equitable-PCI Bank with petitioners’ savings account.
Under Art. 1278 of the New Civil Code, compensation shall
take place when two persons, in their own right, are creditors
and debtors of each other. It is well-settled that the
relationship of the depositors and the Bank or similar
institution is that of creditor-debtor. The bank is the
debtorand the depositor is the creditor. The depositor lends
the bank money and the bank agrees to pay the depositor on
demand. The savings deposit agreement between the bank
and the depositor is the contract that determines the rights
and obligations of the parties.But as previously discussed,
petitioners are not liable for the deposit of the altered
checks. The Bank, asthe depositary and collecting bank
ultimately bears the loss. Thus, there being no indebtedness
to the Bank on the part of petitioners, legal compensation
cannot take place.
To recap, the drawee bank, Philippine Veterans Bank in this
case, is only liable to the extent of the check prior to
alteration.Since Philippine Veterans Bank paid the altered
amount of the check, it may pass the liability back as it did, to
Equitable-PCI Bank,the collecting bank. The collecting banks,
Equitable-PCI Bank and the Bank, are ultimately liable for the
amount of the materially altered check. It cannot further pass
the liability back to the petitioners absent any showing in the
negligence on the part of the petitioners which substantially
contributed to the loss from alteration.
Based on the foregoing, we affirm the Pozasdecision only
insofar as it ordered respondents to jointly and severally pay
petitioners ₱1,800,000.00, representing the amount
withdrawn from the latter’s account. We do not conform
with said ruling regarding the finding of bad faith on the part
of respondents, as well as its failure toobserve the 24-hour
clearing rule.
CITIBANK, N.A. (Formerly First National City Bank) and
INVESTORS’ FINANCE CORPORATION, doing business under
the name and style of FNCB Finance vs.
MODESTA R. SABENIANO
(G.R. No. 156132 February 6, 2007)
TOPIC: Legal Compensation
FACTS:
RespondentSabeniano was a client of petitioners.
She had several deposits and market placements with
petitioners, among which were her savings account with the
local branch of petitioner Citibank (Citibank-Manila); money
market placements with petitioner FNCB Finance; and dollar
accounts with the Geneva branch of petitioner Citibank
(Citibank-Geneva). At the same time, respondent had
outstanding loans with petitioner Citibank, incurred at
Citibank-Manilaall of which had become due and demandable
by May 1979. Despite repeated demands by petitioner
Citibank, respondent failed to pay her outstanding loans.
Thus, petitioner Citibank used respondent’s deposits and
money market placements to off-set and liquidate her
outstanding obligations
Respondent, however, denied having any
outstanding loans with petitioner Citibank. She likewise
denied that she was duly informed of the off-setting or
compensation thereof made by petitioner Citibank using her
deposits and money market placements with petitioners.
Hence, respondent sought to recover her deposits and money
market placements.Respondent instituted a complaint for
"Accounting, Sum of Money and Damages" against
petitioners before the Regional Trial Court (RTC) of Makati
City. After trial proper, the RTC rendered a Decision declaring
as illegal, null and void the setoff effected by Citibank of
Respondent Sabeniano’s dollar deposit with Citibank,
Switzerland. The trial court also declared that Respondent
Sabeniano indebted to Citibank and ordering her to pay the
said amount. All the parties appealed the afore-mentioned
RTC Decision to the Court of Appeal the appellate court
promulgated its Decision ruling entirely in favor of
respondent. Hence, this present petition for review.
ISSUE:
Whether or not the off – setting or compensation of
respondent’s outstanding loan balance with her dollar
deposits in Citibank – Geneva is valid?
HELD:
YES. The off – setting or compensation is valid.
Without the Declaration of Pledge, petitioner Citibank had no
authority to demand the remittance of respondent’s dollar
accounts with Citibank-Geneva and to apply them to her
outstanding loans. It cannot effect legal compensation under
Article 1278 of the Civil Code since, petitioner Citibank itself
admitted that Citibank-Geneva is a distinct and separate
entity. As for the dollar accounts, respondent was the
creditor and Citibank-Geneva is the debtor; and as for the
outstanding loans, petitioner Citibank was the creditor and
respondent was the debtor. The parties in these transactions
were evidently not the principal creditor of each other.
Petitioners maintain that respondent’s Declaration
of Pledge, by virtue of which she supposedly assigned her
dollar accounts with Citibank-Geneva as security for her loans
with petitioner Citibank, is authentic and, thus, valid and
binding upon respondent. Alternatively, petitioners aver that
even without said Declaration of Pledge, the off-setting or
compensation made by petitioner Citibank using
respondent’s dollar accounts with Citibank-Geneva to
liquidate the balance of her outstanding loans with Citibank-
Manila was expressly authorized by respondent herself in the
promissory notes (PNs) she signed for her loans, as well as
sanctioned by Articles 1278 to 1290 of the Civil Code. This
alternative argument is anchored on the premise that all
branches of petitioner Citibank in the Philippines and abroad
are part of a single worldwide corporate entity and share the
same juridical personality. In connection therewith,
petitioners deny that they ever admitted that Citibank-Manila
and Citibank-Geneva are distinct and separate entities.
It is the petitioners’ contention that the term
"Citibank, N.A." used therein should be deemed to refer to all
branches of petitioner Citibank in the Philippines and abroad;
thus, giving petitioner Citibank the authority to apply as
payment for the PNs even respondent’s dollar accounts with
Citibank-Geneva. Still proceeding from the premise that all
branches of petitioner Citibank should be considered as a
single entity, then it should not matter that the respondent
obtained the loans from Citibank-Manila and her deposits
were with Citibank-Geneva. Respondent should be
considered the debtor (for the loans) and creditor (for her
deposits) of the same entity, petitioner Citibank. Since
petitioner Citibank and respondent were principal creditors
of each other, in compliance with the requirements under
Article 1279 of the Civil Code, then the former could have
very well used off-setting or compensation to extinguish the
parties’ obligations to one another. And even without the
PNs, off-setting or compensation was still authorized because
according to Article 1286 of the Civil Code, "Compensation
takes place by operation of law, even though the debts may
be payable at different places, but there shall be an
indemnity for expenses of exchange or transportation to the
place of payment."

TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and
TERESITA SANTOS vs.THE CITY FISCAL OF MANILA, HON.
JOSE B. FLAMINIANO, ASST. CITY FISCAL FELIZARDO N. LOTA
and CLEMENT DAVID
(G.R. No. L-60033 April 4, 1984)
TOPIC: Nature of Bank Deposits
FACTS:
From March 20, 1979 to March, 1981, private
respondent David, together with his sister, Denise
Kuhne, invested with the Nation Savings and Loan
Association. Then, when the aforesaid bank was placed
under receivership, petitioners Guingona and Martin
assumed the obligation of the bank to private
respondent David by executing a joint promissory note
in favor of private respondent acknowledging an
indebtedness of Pl,336,614.02 and US$75,000.00. This
promissory note was based on the statement of
account prepared by the private respondent. The
amount of indebtedness assumed appears to be bigger
than the original claim because of the added interest
and the inclusion of other deposits of private
respondent's sister in the amount of P116,613.20.
Thereafter, petitioners Guingona and Martin agreed to
divide the said indebtedness, and petitioner Guingona
executed another promissory note whereby he
personally acknowledged indebtedness in favor of
private respondent. The aforesaid promissory notes
were executed as a result of deposits made by Clement
David and Denise Kuhne with the Nation Savings and
Loan Association. Thus, Respondent David filed a
complaint for estafa and violation of Central Bank
Circular No. 364 and related regulations regarding
foreign exchange transactions before the Office of the
City Fiscal of Manila. Petitioners filed the herein petition
for prohibition and injunction with a prayer for
immediate issuance of restraining order and/or writ of
preliminary injunction to enjoin the public respondents
to proceed with the preliminary investigation on the
ground that the petitioners’ obligation is civil in nature.
ISSUE:
Whether the contract between NSLA and David is a
contract of depositor a contract of loan, which answer
determines whether the City Fiscal has the jurisdiction
to file a case for estafa
HELD:
NO. The City Fiscal of Manila has no jurisdiction.
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. 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. 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 but it will only give rise to civil liability over
which the public respondents have no jurisdiction.
But even granting that the failure of the bank to pay the time
and savings deposits of private respondent David would
constitute Estafa nevertheless any incipient criminal liability
was deemed avoided, because when the aforesaid bank was
placed under receivership by the Central Bank, petitioners
Guingona and Martin assumed the obligation of the bank to
private respondent David, thereby resulting in the novation
of the original contractual obligation arising from deposit into
a contract of loan and converting the original trust relation
between the bank and private respondent David into an
ordinary debtor-creditor relation between the petitioners and
private respondent. Consequently, the failure of the bank or
petitioners Guingona and Martin to pay the deposits of
private respondent would not constitute a breach of trust but
would merely be a failure to pay the obligation as a debtor.
Moreover, while it is true that novation does not extinguish
criminal liability, it may however, prevent the rise of criminal
liability as long as it occurs prior to the filing of the criminal
information in court. In the case at bar, there is no dispute
that petitioners Guingona and Martin executed a promissory
note assuming the obligation of the bank to private
respondent David; while the criminal complaint for estafa
was filed with the Office of the City Fiscal. Hence, it is clear
that novation occurred long before the filing of the criminal
complaint with the Office of the City Fiscal. Consequently, as
aforestated, any incipient criminal liability would be avoided
but there will still be a civil liability on the part of petitioners
Guingona and Martin to pay the assumed obligation.