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GENERAL BANKING LAW the tenor thereof, are liable for damages.

Based on the
provisions, a banking institution like Comsavings Bank is
(R.A 8791) obliged to exercise the highest degree of diligence as well as
high standards of integrity and performance in all its
transactions because its business is imbued with public
G.R. No. 118492. August 15, 2001. interest. As aptly declared in Philippine National Bank v. Pike,
470 SCRA 328 (2005): “The stability of banks largely depends
GREGORIO H. REYES and CONSUELO PUYAT-REYES,
on the confidence of the people in the honesty and efficiency of
petitioners, vs. THE HON. COURT OF APPEALS and FAR
banks.”
EAST BANK AND TRUST COMPANY, respondents.

Remedial Law; Petition for Review; Factual findings of the G.R. No. 142411. October 14, 2005.*
Court of Appeals are conclusive on the parties and not
reviewable by the Court—and they carry even more weight WINIFREDA URSAL, petitioner, vs. COURT OF APPEALS,
when the Court of Appeals affirms the factual findings of the THE RURAL BANK OF LARENA (SIQUIJOR), INC. and
trial court.—Section 1 of Rule 45 of the Revised Rules of Court SPOUSES JESUS MONESET and CRISTITA MONESET,
respondents.
provides that “(T)he petition (for review) shall raise only
questions of law which must be distinctly set forth.” Thus, we
Commercial Law; Banks and Banking; Mortgages; Banks
have ruled that factual findings of the Court of Appeals are
cannot merely rely on certificates of title in ascertaining the
conclusive on the parties and not reviewable by this Court— status of mortgaged properties; as their business is impressed
and they carry even more weight when the Court of Appeals with public interest, they are expected to exercise more care
affirms the factual findings of the trial court. and prudence in their dealings than private individuals.—
Banks cannot merely rely on certificates of title in ascertaining
Commercial Law; Banks and Banking; Negligence; The degree
the status of mortgaged properties; as their business is
of diligence required of banks is more than that of a good
impressed with public interest, they are expected to exercise
father of a family where the fiduciary nature of their
more care and prudence in their dealings than private
relationship with their depositors is concerned; The same
individuals. Indeed, the rule that persons dealing with
higher degree of diligence is not expected to be exerted by
banks in commercial transactions that do not involve their registered lands can rely solely on the certificate of title does
fiduciary relationship with their depositors.—With these not apply to banks.
established facts, we now determine the degree of diligence
that banks are required to exert in their commercial dealings. G.R. No. 180945. February 12, 2010.
In Philippine Bank of Commerce v. Court of Appeals
PHILIPPINE NATIONAL BANK, AS THE ATTORNEY-IN-
upholding a long standing doctrine, we ruled that the degree
FACT OF OPAL PORTFOLIO INVESTMENTS (SPV-AMC),
of diligence required of banks, is more than that of a good
INC., petitioner, vs. MERCEDES CORPUZ, REPRESENTED
father of a family where the fiduciary nature of their
BY HER ATTORNEY-IN-FACT VALENTINA CORPUZ,
relationship with their depositors is concerned. In other words
respondent.
banks are duty bound to treat the deposit accounts of their
depositors with the highest degree of care. But the said ruling Mortgages; Banks and Banking; Banks are expected to be more
applies only to cases where banks act under their fiduciary cautious than ordinary individuals in dealing with lands, even
capacity, that is, as depositary of the deposits of their registered ones, since the business of banks is imbued with
depositors. But the same higher degree of diligence is not public interest.—As a rule, the Court would not expect a
expected to be exerted by banks in commercial transactions mortgagee to conduct an exhaustive investigation of the
that do not involve their fiduciary relationship with their history of the mortgagor’s title before he extends a loan. But
depositors. petitioner PNB is not an ordinary mortgagee; it is a bank.
Banks are expected to be more cautious than ordinary
G.R. No. 170942. August 28, 2013.* individuals in dealing with lands, even registered ones, since
the business of banks is imbued with public interest. It is of
COMSAVINGS BANK (now GSIS FAMILY BANK), judicial notice that the standard practice for banks before
petitioner, vs. SPOUSES DANILO and ESTRELLA approving a loan is to send a staff to the property offered as
CAPISTRANO, respondents. collateral and verify the genuineness of the title to determine
the real owner or owners.
Mercantile Law; Banks and Banking; A banking institution is
obliged to exercise the highest degree of diligence as well as Same; Same; Anyone who deliberately ignores a significant
high standards of integrity and performance in all its fact that would create suspicion in an otherwise reasonable
transactions because its business is imbued with public person cannot be considered as an innocent mortgagee for
interest.—The liability of Comsavings Bank towards value.—One of the CA’s findings in this case is that in the
respondents was based on Article 20 and Article 1170 of the course of its verification, petitioner PNB was informed of the
Civil Code, viz.: Article 20. Every person who, contrary to law, previous TCTs covering the subject property. And the PNB has
willfully or negligently causes damage to another, shall not categorically contested this finding. It is evident from the
indemnify the latter for the same. Article 1170. Those who in faces of those titles that the ownership of the land changed
the perfor-mance of their obligations are guilty of fraud, from Corpuz to Bondoc, from Bondoc to the Palaganases, and
negligence, or delay, and those who in any manner contravene from the Palaganases to the Songcuans in less than three
months and mortgaged to PNB within four months of the last cleared for deposit. Again, this is in accordance with ordinary
transfer. The above information in turn should have driven the banking practices and with this Court’s pronouncement that
PNB to look at the deeds of sale involved. It would have then “the collecting bank or last endorser generally suffers the loss
discovered that the property was sold for ridiculously low because it has the duty to ascertain the genuineness of all prior
prices: Corpuz supposedly sold it to Bondoc for just endorsements considering that the act of presenting the check
P50,000.00; Bondoc to the Palaganases for just P15,000.00; and for payment to the drawee is an assertion that the party
the Palaganases to the Songcuans also for just P50,000.00. Yet making the presentment has done its duty to ascertain the
the PNB gave the property an appraised value of P781,760.00. genuineness of the endorsements.” The rule finds more
Anyone who deliberately ignores a significant fact that would meaning in this case where the check involved is drawn on a
create suspicion in an otherwise reasonable person cannot be foreign bank and therefore collection is more difficult than
considered as an innocent mortgagee for value. when the drawee bank is a local one even though the check in
question is a manager’s check.
G.R. No. 112392. February 29, 2000.*
Same; Same; Same; Words and Phrases; “Manager’s Check"
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. Explained; A manager’s check is like a cashier’s check which,
COURT OF APPEALS and BENJAMIN C. NAPIZA, in the commercial world, is regarded substantially to be as
respondents. good as the money it represents.—–A manager’s check is like a
cashier’s check which, in the commercial world, is regarded
Negotiable Instruments Law; Warranties of a person substantially to be as good as the money it represents (Tan v.
negotiating an instrument by delivery or by qualified Court of Appeals, G.R. No. 108555, 239 SCRA 310, 322 [1994]).
indorsement.—–Section 65, on the other hand, provides for the
following warranties of a person negotiating an instrument by Same; Same; In dealing with its depositors, a bank should
delivery or by qualified indorsement: (a) that the instrument is exercise its functions not only with the diligence of a good
genuine and in all respects what it purports to be; (b) that he father of a family but it should do so with the highest degree
has a good title to it; and (c) that all prior parties had capacity of care.—–Said ruling brings to light the fact that the banking
to contract. business is affected with public interest. By the nature of its
functions, a bank is under obligation to treat the accounts of its
Banks and Banking; Passbooks; The requirement of depositors “with meticulous care, always having in mind the
presentation of the passbook when withdrawing an amount fiduciary nature of their relationship.” As such, in dealing with
cannot be given mere lip service even though the person its depositors, a bank should exercise its functions not only
making the withdrawal is authorized by the depositor to do with the diligence of a good father of a family but it should do
so.—–The withdrawal slip contains a boxed warning that so with the highest degree of care.
states: “This receipt must be signed and presented with the
corresponding foreign currency savings passbook by the Same; Same; Same; Words and Phrases; “Negligence,”
depositor in person. For withdrawals thru a representative, Explained; Negligence is the omission to do something which a
depositor should accomplish the authority at the back.” The reasonable man, guided by those considerations which
requirement of presentation of the passbook when ordinarily regulate the conduct of human affairs, would do, or
withdrawing an amount cannot be given mere lip service even the doing of something which a prudent and reasonable man
though the person making the withdrawal is authorized by the would do.—–In the case at bar, petitioner, in allowing the
depositor to do so. This is clear from Rule No. 6 set out by withdrawal of private respondent’s deposit, failed to exercise
petitioner so that, for the protection of the bank’s interest and the diligence of a good father of a family. In total disregard of
as a reminder to the depositor, the withdrawal shall be entered its own rules, petitioner’s personnel negligently handled
in the depositor’s passbook. The fact that private respondent’s private respondent’s account to petitioner’s detriment. As this
passbook was not presented during the withdrawal is Court once said on this matter: “Negligence is the omission to
evidenced by the entries therein showing that the last do something which a reasonable man, guided by those
transaction that he made with the bank was on September 3, considerations which ordinarily regulate the conduct of human
1984, the date he deposited the controversial check in the affairs, would do, or the doing of something which a prudent
amount of $2,500.00. and reasonable man would do. The seventy-eight (78)-year-
old, yet still relevant, case of Picart v. Smith, provides the test
Same; Negotiable Instruments Law; Checks; A negotiable by which to determine the existence of negligence in a
instrument, such as a check, whether a manager’s check or particular case which may be stated as follows: Did the
ordinary check, is not legal tender.—–As correctly held by the defendant in doing the alleged negligent act use that
Court of Appeals, in depositing the check in his name, private reasonable care and caution which an ordinarily prudent
respondent did not become the outright owner of the amount person would have used in the same situation? If not, then he
stated therein. Under the above rule, by depositing the check is guilty of negligence. The law here in effect adopts the
with petitioner, private respondent was, in a way, merely standard supposed to be supplied by the imaginary conduct of
designating petitioner as the collecting bank. This is in the discreet pater familias of the Roman law. The existence of
consonance with the rule that a negotiable instrument, such as negligence in a given case is not determined by reference to the
a check, whether a manager’s check or ordinary check, is not personal judgment of the actor in the situation before him. The
legal tender. As such, after receiving the deposit, under its own law considers what would be reckless, blameworthy, or
rules, petitioner shall credit the amount in private respondent’s negligent in the man of ordinary intelligence and prudence
account or infuse value thereon only after the drawee bank and determines liability by that.”
shall have paid the amount of the check or the check has been
Same; Same; Same; Even after the lapse of the 35-day period, and caused damage to the depositor. Article 2180 of the New
the amount of a deposited check cannot be withdrawn in the Civil Code provides that the owners and managers of an
absence of a clearance thereon.—–From these facts on record, it establishment are responsible for damages caused by their
is at once apparent that petitioner’s personnel allowed the employees while performing their functions.
withdrawal of an amount bigger than the original deposit of
$750.00 and the value of the check deposited in the amount of Quasi-delicts; Contributory Negligence; Contributory
$2,500.00 although they had not yet received notice from the negligence is conduct on the part of the injured party,
clearing bank in the United States on whether or not the check contributing as a legal cause to the harm he has suffered,
was funded. Reyes’ contention that after the lapse of the 35- which falls below the standard to which he is required to
day period the amount of a deposited check could be conform for his own protection.—As to contributory
withdrawn even in the absence of a clearance thereon, negligence, the Court agrees with the RTC that the PNB failed
otherwise it could take a long time before a depositor could to substantiate its allegation that Anna Marie was guilty of
make a withdrawal, is untenable. Said practice amounts to a contributory negligence. Contributory negligence is conduct
disregard of the clearance requirement of the banking system. on the part of the injured party, contributing as a legal cause to
the harm he has suffered, which falls below the standard to
G.R. No. 202514. July 25, 2016. which he is required to conform for his own protection.
Whether contributory negligence transpired is a factual matter
ANNA MARIE L. GUMABON, petitioner, vs. PHILIPPINE that must be proven. In the present case, Anna Marie cannot be
NATIONAL BANK, respondent. Gumabon vs. Philippine held responsible for entrusting her account with Salvoro. As
National Bank, 798 SCRA 103, G.R. No. 202514 July 25, 2016 shown in the records, Salvoro was the bank’s time deposit
specialist. Anna Marie cannot thus be faulted if she engaged
Banks and Banking; A bank acts at its peril when it pays the bank’s services through Salvoro for transactions related to
deposits evidenced by a certificate of deposit, without its her time deposits. The Court also cannot accept the CA’s
production and surrender after proper indorsement.—The PNB conclusion that there was connivance between Anna Marie and
alleged that Anna Marie’s claim over FXCTD No. 993992 Salvoro. This conclusion is simply not supported by the
should only be limited to $5,857.79. It presented the manager’s records and is therefore baseless.
check, which admissibility we have heretofore discussed and
settled, and the miscellaneous tickets. We cannot absolve the Breach of Contracts; Damages; Moral Damages; In cases of
PNB from liability based on these miscellaneous tickets alone. breach of contract, moral damages are recoverable only if the
As the RTC correctly stated, the transactions allegedly defendant acted fraudulently or in bad faith, or is guilty of
evidenced by these tickets were neither posted at the back of gross negligence amounting to bad faith, or in clear disregard
Anna Marie’s certificate, nor recorded on her ledger to show of his contractual obligations.—In these lights, we hold that
that several withdrawals had been made on the account. At Anna Marie is entitled to moral damages of P100,000.00. In
this point, we remind the PNB of the negotiability of a cases of breach of contract, moral damages are recoverable
certificate of deposit as it is a written acknowledgment by the only if the defendant acted fraudulently or in bad faith, or is
bank of the receipt of a sum of money on deposit which the guilty of gross negligence amounting to bad faith, or in clear
bank promises to pay to the depositor, to the latter’s order, or disregard of his contractual obligations. Anna Marie was able
to some other person or the latter’s order. To discharge a debt, to establish the mental anguish and serious anxiety that she
the bank must pay to someone authorized to receive the suffered because of the PNB’s refusal to honor its obligations.
payment. A bank acts at its peril when it pays deposits
evidenced by a certificate of deposit, without its production Same; Same; Exemplary Damages; Banks and Banking; Banks
and surrender after proper indorsement. must treat the accounts of its depositors with meticulous care
and always have in mind the fiduciary nature of its
Same; Diligence Required of Banks; The bank is required to relationship with them. Having failed to observe these, the
assume a degree of diligence higher than that of a good father award of exemplary damages is justified.—Anna Marie is
of a family.—Section 2 of Republic Act No. 8791, declares the likewise entitled to exemplary damages of P50,000.00. Article
State’s recognition of the “fiduciary nature of banking that 2229 of the New Civil Code imposes exemplary damages by
requires high standards of integrity and performance.” It way of example or correction for the public good. To repeat,
cannot be overemphasized that the banking business is banks must treat the accounts of its depositors with meticulous
impressed with public interest. The trust and confidence of the care and always have in mind the fiduciary nature of its
public to the industry is given utmost importance. Thus, the relationship with them. Having failed to observe these, the
bank is under obligation to treat its depositor’s accounts with award of exemplary damages is justified.
meticulous care, having in mind the nature of their
relationship. The bank is required to assume a degree of Same; Same; Attorney’s Fees; Cost of Suit; As exemplary
diligence higher than that of a good father of a family. damages are awarded herein and as Anna Marie was
compelled to litigate to protect her interests, the award of
Same; Same; The bank is not absolved from liability by the attorney’s fees and expenses of litigation of P150,000.00 is
fact that it was the bank’s employee who committed the proper.—As exemplary damages are awarded herein and as
wrong and caused damage to the depositor.—The Court has Anna Marie was compelled to litigate to protect her interests,
established in a number of cases the standard of care required the award of attorney’s fees and expenses of litigation of
from banks, and the bank’s liability for the damages sustained P150,000.00 is proper.
by the depositor. The bank is not absolved from liability by the
fact that it was the bank’s employee who committed the wrong
Same; Same; Legal Interest; Pursuant to the Bangko Sentral ng G.R. No. 174134. July 30, 2008.*
Pilipinas-Monetary Board (BSP-MB) Circular No. 799, the
legal interest rate is six percent (6%) per annum effective July FIRST PLANTERS PAWNSHOP, INC., petitioner, vs.
1, 2013. The new rate is applicable prospectively; thus, the COMMISSIONER OF INTERNAL REVENUE, respondent.
twelve percent (12%) per annum shall still apply until June 30,
2013.—We note that pursuant to the Bangko Sentral ng Same; Same; Same; Banks and Banking; General Banking Law
Pilipinas-Monetary Board Circular No. 799, the legal interest of 2000 (Republic Act No. 8791); Republic Act No. 8791
rate is 6% per annum effective July 1, 2013. The new rate is provides that banks shall refer to entities engaged in the
applicable prospectively; thus, the 12% per annum shall still lending of funds obtained in the form of deposits; Financial
apply until June 30, 2013. In the present case, Anna Marie filed intermediaries are defined as persons or entities whose
her complaint on August 12, 2004. PNB is therefore liable for principal functions include the lending, investing or placement
legal interest of 12% per annum from August 12, 2004 until of funds or evidences of indebtedness or equity deposited with
June 30, 2013, and 6% per annum from July 1, 2013, until its full them, acquired by them, or otherwise coursed through them,
either for their own account or for the account of others.—R.A.
satisfaction.
No. 337, as amended, or the General Banking Act characterizes
the terms banking institution and bank as synonymous and
G.R. No. 198756. January 13, 2015.*
interchangeable and specifically include commercial banks,
BANCO DE ORO, et al., vs. REPUBLIC OF THE saving bank, mortgage banks, development banks, rural
PHILIPPINES, THE COMMISSIONER OF INTERNAL banks, stock savings and loan associations, and branches and
REVENUE, BUREAU OF INTERNAL REVENUE, agencies in the Philippines of foreign banks. R.A. No. 8791 or
SECRETARY OF FINANCE, DEPARTMENT OF FINANCE, the General Banking Law of 2000, meanwhile, provided that
THE NATIONAL TREASURER and BUREAU OF banks shall refer to entities engaged in the lending of funds
TREASURY, respondents. obtained in the form of deposits. R.A. No. 8791 also included
cooperative banks, Islamic banks and other banks as
Deposit Substitutes; Words and Phrases; The term ‘deposit determined by the Monetary Board of the Bangko Sentral ng
substitutes’ shall mean an alternative form of obtaining funds Pilipinas in the classification of banks. Financial
from the public (the term ‘public’ means borrowing from intermediaries, on the other hand, are defined as “persons or
twenty [20] or more individual or corporate lenders at any one entities whose principal functions include the lending,
time) other than deposits, through the issuance, endorsement, investing or placement of funds or evidences of indebtedness
or acceptance of debt instruments for the borrower’s own or equity deposited with them, acquired by them, or otherwise
account, for the purpose of relending or purchasing of coursed through them, either for their own account or for the
receivables and other obligations, or financing their own needs account of others.”
or the needs of their agent or dealer.—The definition of deposit
substitutes was amended under the 1997 National Internal Same; Same; Same; Pawnshop Regulation Act (P.D. No. 114);
Revenue Code with the addition of the qualifying phrase for A pawnshop’s business and operations are governed by P.D.
public — borrowing from 20 or more individual or corporate No. 114 and Central Bank Circular No. 374 (Rules and
lenders at any one time. Under Section 22(Y), deposit Regulations for Pawnshops); It need not be elaborated that
substitute is defined thus: SEC. 22. Definitions.—When used in pawnshops are non-banks/banking institutions—the nature of
this Title: . . . . (Y) The term ‘deposit substitutes’ shall mean an their business activities partakes that of a financial
alternative form of obtaining funds from the public (the term intermediary in that its principal function is lending.—It need
‘public’ means borrowing from twenty (20) or more individual not be elaborated that pawnshops are non-banks/banking
or corporate lenders at any one time) other than deposits, institutions. Moreover, the nature of their business activities
through the issuance, endorsement, or acceptance of debt partakes that of a financial intermediary in that its principal
instruments for the borrower’s own account, for the purpose of function is lending. A pawnshop’s business and operations are
relending or purchasing of receivables and other obligations, governed by Presidential Decree (P.D.) No. 114 or the
or financing their own needs or the needs of their agent or Pawnshop Regulation Act and Central Bank Circular No. 374
dealer. These instruments may include, but need not be limited (Rules and Regulations for Pawnshops). Section 3 of P.D. No.
to, bankers’ acceptances, promissory notes, repurchase 114 defines pawnshop as “a person or entity engaged in the
agreements, including reverse repurchase agreements entered business of lending money on personal property delivered as
into by and between the Bangko Sentral ng Pilipinas (BSP) and security for loans and shall be synonymous, and may be used
any authorized agent bank, certificates of assignment or interchangeably, with pawnbroker or pawn brokerage.” The
participation and similar instruments with recourse: Provided, pawnshops are to be treated as non-bank financial
however, That debt instruments issued for interbank call loans intermediaries is further bolstered by the fact that pawnshops
with maturity of not more than five (5) days to cover are under the regulatory supervision of the Bangko Sentral ng
deficiency in reserves against deposit liabilities, including Pilipinas and covered by its Manual of Regulations for Non-
those between or among banks and quasi-banks, shall not be Bank Financial Institutions. The Manual includes pawnshops
considered as deposit substitute debt instruments. (Emphasis in the list of non-bank financial intermediaries.
supplied) Under the 1997 National Internal Revenue Code,
Congress specifically defined “public” to mean “twenty (20) or Same; Same; Same; Since petitioner pawnshop is a non-bank
more individual or corporate lenders at any one time.” Hence, financial intermediary, it is subject to 10% Value Added Tax
the number of lenders is determinative of whether a debt (VAT) for the tax years 1996 to 2002, but, with the levy,
instrument should be considered a deposit substitute and assessment and collection of VAT from non-bank financial
consequently subject to the 20% final withholding tax. intermediaries being specifically deferred by law, then it is not
liable for VAT during these tax years.—Coming now to the collecting bank to scrutinize checks deposited with it for the
issue at hand—Since petitioner is a non-bank financial purpose of determining their genuineness and regularity. The
intermediary, it is subject to 10% VAT for the tax years 1996 to collecting bank being primarily engaged in banking holds itself
2002; however, with the levy, assessment and collection of out to the public as the expert and the law holds it to a high
VAT from non-bank financial intermediaries being specifically standard of conduct. As collecting banks, the Bank and
deferred by law, then petitioner is not liable for VAT during Equitable-PCI Bank are both liable for the amount of the
these tax years. But with the full implementation of the VAT materially altered checks. Since Equitable-PCI Bank is not a
system on non-bank financial intermediaries starting January party to this case and the Bank allowed its account with
1, 2003, petitioner is liable for 10% VAT for said tax year. And Equitable-PCI Bank to be debited, it has the option to seek
beginning 2004 up to the present, by virtue of R.A. No. 9238, recourse against the latter in another forum.
petitioner is no longer liable for VAT but it is subject to
percentage tax on gross receipts from 0% to 5%, as the case Same; Same; Collecting Banks; Depositary Banks; A
may be. depositary/collecting bank may resist or defend against a
claim for breach of warranty if the drawer, the payee, or either
G.R. No. 176697. September 10, 2014.* the drawee bank or depositary bank was negligent and such
negligence substantially contributed to the loss from
CESAR V. AREZA and LOLITA B. AREZA, petitioners, vs. alteration.—The Bank cannot debit the savings account of
EXPRESS SAVINGS BANK, INC. and MICHAEL petitioners. A depositary/collecting bank may resist or defend
POTENCIANO, respondents. Areza vs. Express Savings against a claim for breach of warranty if the drawer, the payee,
Bank, Inc., 734 SCRA 588, G.R. No. 176697 September 10, or either the drawee bank or depositary bank was negligent
2014 and such negligence substantially contributed to the loss from
alteration. In the instant case, no negligence can be attributed
Same; Banks and Banking; Depositary Banks; Collecting to petitioners. We lend credence to their claim that at the time
Banks; Words and Phrases; A depositary bank is the first bank of the sales transaction, the Bank’s branch manager was
to take an item even though it is also the payor bank, unless present and even offered the Bank’s services for the processing
the item is presented for immediate payment over the counter; and eventual crediting of the checks. True to the branch
A collecting bank is defined as any bank handling an item for manager’s words, the checks were cleared three days later
collection except the bank on which the check is drawn.—A when deposited by petitioners and the entire amount of the
depositary bank is the first bank to take an item even though it checks was credited to their savings account.
is also the payor bank, unless the item is presented for
immediate payment over the counter. It is also the bank to Same; Same; It is well-settled that the relationship of the
which a check is transferred for deposit in an account at such depositors and the Bank or similar institution is that of
bank, even if the check is physically received and indorsed first creditor-debtor.—It is well-settled that the relationship of the
by another bank. A collecting bank is defined as any bank depositors and the Bank or similar institution is that of
handling an item for collection except the bank on which the creditor-debtor. Article 1980 of the New Civil Code provides
check is drawn. that fixed, savings and current deposits of money in banks and
similar institutions shall be governed by the provisions
Same; Same; Same; Same; If any of the warranties made by the concerning simple loans. The bank is the debtor and the
depositary/collecting bank turns out to be false, then the depositor is the creditor. The depositor lends the bank money
drawee bank may recover from it up to the amount of the and the bank agrees to pay the depositor on demand. The
check.—A depositary/collecting bank where a check is savings deposit agreement between the bank and the depositor
deposited, and which endorses the check upon presentment is the contract that determines the rights and obligations of the
with the drawee bank, is an endorser. Under Section 66 of the parties. But as previously discussed, petitioners are not liable
Negotiable Instruments Law, an endorser warrants “that the for the deposit of the altered checks. The Bank, as the
instrument is genuine and in all respects what it purports to depositary and collecting bank ultimately bears the loss. Thus,
be; that he has good title to it; that all prior parties had capacity there being no indebtedness to the Bank on the part of
to contract; and that the instrument is at the time of his petitioners, legal compensation cannot take place.
endorsement valid and subsisting.” It has been repeatedly held
that in check transactions, the depositary/collecting bank or G.R. No. 156132. October 16, 2006.*
last endorser generally suffers the loss because it has the duty
to ascertain the genuineness of all prior endorsements CITIBANK, N.A. (Formerly First National City Bank) and
considering that the act of presenting the check for payment to INVESTORS’ FINANCE CORPORATION, doing business
the drawee is an assertion that the party making the under the name and style of FNCB Finance, petitioners, vs.
presentment has done its duty to ascertain the genuineness of MODESTA R. SABENIANO, respondent. Citibank, N.A.
the endorsements. If any of the warranties made by the (Formerly First National City Bank) vs. Sabeniano, 504 SCRA
depositary/collecting bank turns out to be false, then the 378, G.R. No. 156132 October 16, 2006
drawee bank may recover from it up to the amount of the
check. Banks and Banking; Checks; Manager’s Checks (MCs) are
drawn by the bank’s manager upon the bank itself and
Same; Same; Collecting Banks; The law imposes a duty of regarded to be as good as the money it represents.—It bears to
diligence on the collecting bank to scrutinize checks deposited emphasize that the proceeds of the loans were paid to
with it for the purpose of determining their genuineness and respondent in MCs, with the respondent specifically named as
regularity.—The law imposes a duty of diligence on the payee. MCs checks are drawn by the bank’s manager upon the
bank itself and regarded to be as good as the money it and finally, to the payment of the MCs by petitioner Citibank
represents. Moreover, the MCs were crossed checks, with the as the drawee bank of the said checks—are all private
words “Payee’s Account Only.” transactions which shall be presumed to have been fair and
regular to all the parties concerned. In addition, the banks
Same; Same; Crossed Checks; A crossed check cannot be involved in the foregoing transactions are also presumed to
presented to the drawee bank for payment in cash—the check have followed the ordinary course of business in the
can only be deposited with the payee’s bank which, in turn, acceptance of the crossed MCs for deposit in respondent’s
must present it for payment against the drawee bank in the accounts, submitting them for clearing, and their eventual
course of normal banking hours; The crossed check can only be payment and cancellation.
deposited and the drawee bank may only pay to another bank
in the payee’s or indorser’s account.—In general, a crossed Same; Same; Same; Same; Where checks crossed for payee’s
check cannot be presented to the drawee bank for payment in account only were actually deposited, cleared, and paid, then
cash. Instead, the check can only be deposited with the payee’s the presumption would be that the said checks were properly
bank which, in turn, must present it for payment against the deposited to the account of the payee, who was clearly named
drawee bank in the course of normal banking hours. The as such in the checks; The mere fact that the Manager’s Checks
crossed check cannot be presented for payment, but it can only (MCs) do not bear the payee’s signature at the back does not
be deposited and the drawee bank may only pay to another negate deposit thereof in her account.—Respondent denied
bank in the payee’s or indorser’s account. The effect of crossing ever receiving MCs No. 220701 and 226467. However,
a check was described by this Court in Philippine Commercial considering that the said checks were crossed for payee’s
International Bank v. Court of Appeals, 350 SCRA 446 (2001)— account only, and that they were actually deposited, cleared,
[T]he crossing of a check with the phrase “Payee’s Account and paid, then the presumption would be that the said checks
Only” is a warning that the check should be deposited in the were properly deposited to the account of respondent, who
account of the payee. Thus, it is the duty of the collecting bank was clearly named the payee in the checks. Respondent’s bare
PCI Bank to ascertain that the check be deposited in payee’s allegations that she did not receive the two checks fail to
account only. It is bound to scrutinize the check and to know convince this Court, for to sustain her, would be for this Court
its depositors before it can make the clearing indorsement “all to conclude that an irregularity had occurred somewhere from
prior indorsements and/or lack of indorsement guaranteed.” the time of the issuance of the said checks, to their deposit,
clearance, and payment, and which would have involved not
Same; Same; Same; Presumptions; Given that a check is more only petitioner Citibank, but also BPI, which accepted the
than just an instrument of credit used in commercial checks for deposit, and the Central Bank of the Philippines,
transactions for it also serves as a receipt or evidence for the which cleared the checks. It falls upon the respondent to
drawee bank of the cancellation of the said check due to overcome or dispute the presumption that the crossed checks
payment, then, the possession by the drawee bank of the said were issued, accepted for deposit, cleared, and paid for by the
Manager’s Checks (MCs), duly stamped “Paid” gives rise to banks involved following the ordinary course of their business.
the presumption that the said Manager’s Checks (MCs) were The mere fact that MCs No. 220701 and 226467 do not bear
already paid out to the intended payee.—The crossed MCs respondent’s signature at the back does not negate deposit
presented by petitioner Bank were indeed deposited in several thereof in her account. The liability for the lack of indorsement
different bank accounts and cleared by the Clearing Office of on the MCs no longer fall on petitioner Citibank, but on the
the Central Bank of the Philippines, as evidenced by the stamp bank who received the same for deposit, in this case, BPI
marks and notations on the said checks. The crossed MCs are Cubao Branch. Once again, it must be noted that the MCs were
already in the possession of petitioner Citibank, the drawee crossed, for payee’s account only, and the payee named in both
bank, which was ultimately responsible for the payment of the checks was none other than respondent. The crossing of the
amount stated in the checks. Given that a check is more than MCs was already a warning to BPI to receive said checks for
just an instrument of credit used in commercial transactions for deposit only in respondent’s account. It was up to BPI to verify
it also serves as a receipt or evidence for the drawee bank of whether it was receiving the crossed MCs in accordance with
the cancellation of the said check due to payment, then, the the instructions on the face thereof. If, indeed, the MCs were
possession by petitioner Citibank of the said MCs, duly deposited in accounts other than respondent’s, then the
stamped “Paid” gives rise to the presumption that the said respondent would have a cause of action against BPI.
MCs were already paid out to the intended payee, who was in
this case, the respondent. Same; Same; Same; A check, whether a manager’s check or
ordinary check, is not legal tender, and an offer of a check in
Same; Same; Same; Same; It is presumed that private payment of a debt is not a valid tender of payment and may be
transactions have been fair and regular, and that the ordinary refused receipt by the obligee or creditor.—Mr. Tan, in his
course of business has been followed.—This Court finds deposition, further explained that provisional receipts were
applicable herein the presumptions that private transactions issued when payment to the bank was made using checks,
have been fair and regular, and that the ordinary course of since the checks would still be subject to clearing. The purpose
business has been followed. There is no question that the loan for the provisional receipts was merely to acknowledge the
transaction between petitioner Citibank and the respondent is delivery of the checks to the possession of the bank, but not yet
a private transaction. The transactions revolving around the of payment. This bank practice finds legitimacy in the
crossed MCs—from their issuance by petitioner Citibank to pronouncement of this Court that a check, whether an MC or
respondent as payment of the proceeds of her loans; to its an ordinary check, is not legal tender and, therefore, cannot
deposit in respondent’s accounts with several different banks; constitute valid tender of payment. In Philippine Airlines, Inc.
to the clearing of the MCs by an independent clearing house; v. Court of Appeals, 181 SCRA 557 (1990), this Court
elucidated that: Since a negotiable instrument is only a the failure of the bank or petitioners Guingona and Martin to
substitute for money and not money, the delivery of such an pay the deposits of private respondent would not constitute a
instrument does not, by itself, operate as payment (Sec. 189, breach of trust but would merely be a failure to pay the
Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan Landon obligation as a debtor.
Co. v. American Bank, 7 Phil. 255; Tan Sunco, v. Santos, 9 Phil.
44; 21 R.C.L. 60, 61). A check, whether a manager’s check or Same; Same; Same; Novation of contract of deposit will
ordinary check, is not legal tender, and an offer of a check in prevent criminal liability where it occurs before filing of
payment of a debt is not a valid tender of payment and may be information.—Moreover, while it is true that novation does
refused receipt by the obligee or creditor. Mere delivery of not extinguish criminal liability, it may however, prevent the
checks does not discharge the obligation under a judgment. rise of criminal liability as long as it occurs prior to the filing of
The obligation is not extinguished and remains suspended the criminal information in court.
until the payment by commercial document is actually realized
(Art. 1249, Civil Code, par. 3). Same; Same; Same; Same.—It may be observed in this regard
that novation is not one of the means recognized by the Penal
G.R. No. L-60033. April 4, 1984.* Code whereby criminal liability can be extinguished; hence,
the role of novation may only be to either prevent the rise of
TEOFISTO GUINGONA, JR., ANTONIO L. MARTIN, and criminal liability or to cast doubt on the true nature of the
TERESITA SANTOS, petitioners, vs. THE CITY FISCAL OF original basic transaction, whether or not it was such that its
MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY breach would not give rise to penal responsibility, as when
FISCAL FELIZARDO N. LOTA and CLEMENT DAVID, money loaned is made to appear as a deposit, or other similar
respondents. Guingona, Jr. vs. City Fiscal of Manila, 128 disguise is resorted to (cf. Abeto vs. People, 90 Phil. 581; U.S.
SCRA 577, No. L-60033 April 4, 1984 vs. Villareal, 27 Phil. 481).

Banks; Criminal Law; Contracts; A bank time or savings Same; Same; Central Bank; Petitioners’ contention that they
deposit constitutes a simple loan, not a contract of deposit. did not engage in prohibited dollar transactions is meritorious
Non-payment of the said bank deposit does not constitute as Clement David’s dollar draft was first converted to pesos
estafa.—It must be pointed out that when private respondent before the money was accepted as bank deposit.—It appears
David invested his money on time and savings deposits with from the records that when respondent David was about to
the aforesaid bank, the contract that was perfected was a make a deposit of a bank draft issued in his name in the
contract of simple loan or mutuum and not a contract of amount of US$50,000.00 with the Nation Savings and Loan
deposit. Association, the same had to be cleared first and converted
into Philippine currency. Accordingly, the bank draft was
Same; Same; Same; Same.—Hence, the relationship between endorsed by respondent David to petitioner Guingona, who in
the private respondent and the Nation Savings and Loan turn deposited it to his dollar account with the Security Bank
Association is that of creditor and debtor; consequently, the and Trust Company. Petitioner Guingona merely
ownership of the amount deposited was transmitted to the accommodated the request of the Nation Savings and Loan
Bank upon the perfection of the contract and it can make use of Association in order to clear the bank draft through his dollar
the amount deposited for its banking operations, such as to account because the bank did not have a dollar account.
pay interests on deposits and to pay withdrawals. While the Immediately after the bank draft was cleared, petitioner
Bank has the obligation to return the amount deposited, it has, Guingona authorized Nation Savings and Loan Association to
however, no obligation to return or deliver the same money withdraw the same in order to be utilized by the bank for its
that was deposited, And, the failure of the Bank to return the operations.
amount deposited will not constitute estafa through
misappropriation punishable under Article 315, par. 1(b) of the Same; Same; Same; Same.—It is safe to assume that the U.S.
Revised Penal Code, but it will only give rise to civil liability dollars were converted first into Philippine pesos before they
over which the public respondents have no jurisdiction. were accepted and deposited in Nation Savings and Loan
Association, because the bank is presumed to have followed
Same; Same; Same; Same; Where a bank’s obligation to a the ordinary course of the business which is to accept deposits
depositor was assumed by another, the trust relationship is in Philippine currency only, and that the transaction was
converted into creditor-debtor relationship which cannot give regular and fair, in the absence of a clear and convincing
rise to estafa.—But even granting that the failure of the bank evidence to the contrary (see paragraphs p and q, Sec. 5, Rule
to pay the time and savings deposits of private respondent 131, Rules of Court).
David would constitute a violation of paragraph 1 (b) of
Article 315 of the Revised Penal Code, nevertheless any G.R. No. 138569. September 11, 2003.*
incipient criminal liability was deemed avoided, because when
the aforesaid bank was placed under receivership by the THE CONSOLIDATED BANK and TRUST
Central Bank, petitioners Guingona and Martin assumed the CORPORATION, petitioner, vs. COURT OF APPEALS and
obligation of the bank to private respondent David, thereby L.C. DIAZ and COMPANY, CPA’s, respondents.
resulting in the novation of the original contractual obligation
arising from deposit into a contract of loan and converting the Banks and Banking; Loans; The contract between a bank and
original trust relation between the bank and private its depositor is governed by the provisions of the Civil Code on
respondent David into an ordinary debtor-creditor relation simple loan.—The contract between the bank and its depositor
between the petitioners and private respondent. Consequently, is governed by the provisions of the Civil Code on simple loan.
Article 1980 of the Civil Code expressly provides that “x x x does not convert a simple loan into a trust agreement because
savings x x x deposits of money in banks and similar banks do not accept deposits to enrich depositors but to earn
institutions shall be governed by the provisions concerning money for themselves.—The fiduciary nature of a bank-
simple loan.” There is a debtor-creditor relationship between depositor relationship does not convert the contract between
the bank and its depositor. The bank is the debtor and the the bank and its depositors from a simple loan to a trust
depositor is the creditor. The depositor lends the bank money agreement, whether express or implied. Failure by the bank to
and the bank agrees to pay the depositor on demand. The pay the depositor is failure to pay a simple loan, and not a
savings deposit agreement between the bank and the depositor breach of trust. The law simply imposes on the bank a higher
is the contract that determines the rights and obligations of the standard of integrity and performance in complying with its
parties. obligations under the contract of simple loan, beyond those
required of non-bank debtors under a similar contract of
Same; Same; General Banking Act of 2000 (R.A. No. 8791); The simple loan. The fiduciary nature of banking does not convert
new provision in the general banking law, that the State a simple loan into a trust agreement because banks do not
recognizes the “fiduciary nature of banking that requires high accept deposits to enrich depositors but to earn money for
standards of integrity and performance,” introduced in 2000, is themselves. The law allows banks to offer the lowest possible
a statutory affirmation of Supreme Court decisions, starting interest rate to depositors while charging the highest possible
with the 1990 case of Simex International v. Court of Appeals, interest rate on their own borrowers. The interest spread or
183 SCRA 360.—The law imposes on banks high standards in differential belongs to the bank and not to the depositors who
view of the fiduciary nature of banking. Section 2 of Republic are not cestui que trust of banks. If depositors are cestui que
Act No. 8791 (“RA 8791”), which took effect on 13 June 2000, trust of banks, then the interest spread or income belongs to
declares that the State recognizes the “fiduciary nature of the depositors, a situation that Congress certainly did not
banking that requires high standards of integrity and intend in enacting Section 2 of RA 8791.
performance.” This new provision in the general banking law,
introduced in 2000, is a statutory affirmation of Supreme Court Same; Negligence; Bank tellers must exercise a high degree of
decisions, starting with the 1990 case of Simex International v. diligence in insuring that they return the passbook only to the
Court of Appeals, holding that “the bank is under obligation to depositor or to his authorized representative.—Likewise,
treat the accounts of its depositors with meticulous care, Solidbank’s tellers must exercise a high degree of diligence in
always having in mind the fiduciary nature of their insuring that they return the passbook only to the depositor or
relationship.” his authorized representative. The tellers know, or should
know, that the rules on savings account provide that any
Same; Same; Same; The fiduciary relationship means that the person in possession of the passbook is presumptively its
bank’s obligation to observe “high standards of integrity and owner. If the tellers give the passbook to the wrong person,
performance” is deemed written into every deposit agreement they would be clothing that person presumptive ownership of
between a bank and its depositor; Although RA 8791 took the passbook, facilitating unauthorized withdrawals by that
effect almost nine years after the unauthorized withdrawal in person. For failing to return the passbook to Calapre, the
the instant case, jurisprudence at the time of the withdrawal authorized representative of L.C. Diaz, Solidbank and Teller
already imposed on banks the same high standard of diligence
No. 6 presumptively failed to observe such high degree of
required under R.A. 8791.—This fiduciary relationship means
diligence in safeguarding the passbook, and in insuring its
that the bank’s obligation to observe “high standards of
return to the party authorized to receive the same.
integrity and performance” is deemed written into every
deposit agreement between a bank and its depositor. The
G.R. No. 148582. January 16, 2002.*
fiduciary nature of banking requires banks to assume a degree
of diligence higher than that of a good father of a family. FAR EAST BANK AND TRUST COMPANY, petitioner, vs.
Article 1172 of the Civil Code states that the degree of ESTRELLA O. QUERIMIT, respondent.
diligence required of an obligor is that prescribed by law or
contract, and absent such stipulation then the diligence of a Banks and Banking; A bank acts at its peril when it pays
good father of a family. Section 2 of RA 8791 prescribes the deposits evidenced by a certificate of deposit, without its
statutory diligence required from banks—that banks must production and surrender after proper indorsement; Debtor has
observe “high standards of integrity and performance” in the burden of showing with legal certainty that the obligation
servicing their depositors. Although RA 8791 took effect has been discharged by payment.—The principle that payment,
almost nine years after the unauthorized withdrawal of the in order to discharge a debt, must be made to someone
P300,000 from L.C. Diaz’s savings account, jurisprudence at the authorized to receive it is applicable to the payment of
time of the withdrawal already imposed on banks the same certificates of deposit. Thus, a bank will be protected in making
high standard of diligence required under RA No. 8791. payment to the holder of a certificate indorsed by the payee,
unless it has notice of the invalidity of the indorsement or the
Same; Same; Same; The fiduciary nature of a bank-depositor holder’s want of title. A bank acts at its peril when it pays
relationship does not convert the contract between the bank deposits evidenced by a certificate of deposit, without its
and its depositors from a simple loan to a trust agreement, production and surrender after proper indorsement. As a rule,
whether express or implied—the law simply imposes on the one who pleads payment has the burden of proving it. Even
bank a higher standard of integrity and performance in where the plaintiff must allege non-payment, the general rule
complying with its obligations under the contract of simple is that the burden rests on the defendant to prove payment,
loan, beyond those required of non-bank debtors under a rather than on the plaintiff to prove payment. The debtor has
similar contract of simple loan; The fiduciary nature of banking
the burden of showing with legal certainty that the obligation lease under Article 1643 because the full and absolute
has been discharged by payment. possession and control of the safety deposit box Was not given
to the joint renters.
Same; Same; A bank is under obligation to treat the accounts
of its depositors with meticulous care whether such accounts Same; Same; Same; Same; Primary function of banking
consist only of a few hundred pesos or of millions of pesos.— institutions authorized to rent out safety deposit box, within
Because the business of banks is impressed with public the parameters of contract of deposit in accord with General
interest, the degree of diligence required of banks is more than Banking Act which adopts prevailing rule in American
that of a good father of the family or of an ordinary business jurisprudence.—In the context of our laws which authorize
firm. The fiduciary nature of their relationship with their banking institutions to rent out safety deposit boxes, it is clear
depositors requires them to treat the accounts of their clients that in this jurisdiction, the prevailing rule in the United States
with the highest degree of care. A bank is under obligation to has been adopted. Section 72 of the General Banking Act
treat the accounts of its depositors with meticulous care pertinently provides: xxx Note that the primary function is still
whether such accounts consist only of a few hundred pesos or found within the parameters of a contract of deposit. i.e., the
of millions of pesos. Responsibility arising from negligence in receiving in custody of funds, documents and other valuable
the performance of every kind of obligation is demandable. objects for safekeeping. The renting out of the safety deposit
boxes is not independent from, but related to or in conjunction
G.R. No. 173134. September 2, 2015.* with, this principal function.

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. Same; Same; Same; Same; Any stipulation exempting
TARCILA FERNANDEZ, respondent, depository from liability for loss of thing deposited on
account of fraud, negligence or delay considered void for being
contrary to law and public policy.—The depositary's
responsibility for the safekeeping of the objects deposited in
Mercantile Law; Banks and Banking; Certificate of Deposit; the case at bar is governed by Title I, Book IV of the Civil Code.
Words and Phrases; A certificate of deposit is defined as a Accordingly, the depositary would be liable if, in perform: ng
written acknowledgment by a bank or banker of the receipt of its obligation, it is found guilty of fraud, negligence, delay or
a sum of money on deposit which the bank or banker promises contravention of the tenor of the agreement. In the absence of
to pay to the depositor, to the order of the depositor, or to any s tipulation prescribing the degree of diligence required,
some other person or his order, whereby the relation of debtor that of a good father of a family is to be observed. Hence, any
and creditor between the bank and the depositor is created.—A stipulation exempting ng the depositary from any liability
certificate of deposit is defined as a written acknowledgment arising from the loss of the thing deposited on account of
by a bank or banker of the receipt of a sum of money on fraud, negligence or delay would be void for being contrary to
deposit which the bank or banker promises to pay to the law and public policy.
depositor, to the order of the depositor, or to some other
person or his order, whereby the relation of debtor and Same; Same; Same; Same; Liability of lessor in contract of
creditor between the bank and the depositor is created. In lease of safety deposit box can be limited by stipulation but
particular, the certificates of deposit contain provisions on the any stipulation for exemption shall be held ineffective.—With
amount of interest, period of maturity, and manner of respect to property deposited in a safe-deposit box by a
termination. Specifically, they stressed that endorsement and customer of a safety deposit company, the parties, since the
presentation of the certificate of deposit is indispensable to relation is a contractual one, may by special contract define
their termination. In other words, the accounts may only be their respective duties or provide for increasing or limiting the
terminated upon endorsement and presentation of the liability of the deposit company, provided such contract is not
certificates of deposit. Without the requisite presentation of the in violation of law or public policy. xxx The company, in
certificates of deposit, BPI may not terminate them. renting safe-deposit boxes, cannot exempt itself from liability
for loss of the contents by its own fraud or negligence or that of
G.R. No. 90027. March 3, 1993.* its agents or servants, and if a provision of the contract may be
construed as an attempt to do so, it will be held ineffective for
CA AGRO-INDUSTRIAL DEVELOPMENT CORP., the purpose. Although it has been held that the lessor of a safe-
petitioner, vs. THE HONORABLE COURT OF APPEALS deposit box cannot limit its liability for loss of the contents
and SECURITY BANK AND TRUST COMPANY, thereof through its own negligence, the view has been taken
respondents. that such a lessor may limit its liability to some extent by
agreement or stipulation.
Civil Law; Deposit; Commercial Law; Banks and Banking; A
contract for the rent of a safety deposit box is not an ordinary Same; Same; Same; Same; Bank's exoneration from liability
contract of lease but a special kind of deposit.—We agree with not by virtue of characterization of impugned contract as a
the peti tioner's contention that the contract for the rent of the contract of lease but by reason of the absence of proof as to its
safety deposi t box is not an ordinary contract of lease as knowledge about existing\agreement between the other
defined in Article 1643 of the Civil Code. However, We do not parties, as well as, that the loss of certificates not attributable
fully subscribe to its view that the same is a contract of deposit to its negligence or fraud.—In the instant case, the respondent
that is to be strictly governed by the provisions in the Civil Bank's exoneration cannot, contrary to the holding of the Court
Code on deposit; the contract in the case at bar is a special kind of Appeals, be based on or proceed from a characterization of
of deposit. It cannot be characterized as an ordinary contract of the impugned contract as a contract of lease, but rather on the
fact that no competent proof was presented to show that Box No. 54 was located. In view thereof, it should have lost no
respondent Bank was aware of the agreement between the time in notifying the petitioner in order that the box could
petitioner and the Pugaos to the effect that the certificates of have been opened to retrieve the stamps, thus saving the same
title were withdrawable from the safety deposit box only upon from further deterioration and loss. In this respect, it failed to
both parties' joint signatures, and that no evidence was exercise the reasonable care and prudence expected of a good
submitted to reveal that the loss of the certificates of title was father of a family, thereby becoming a party to the aggravation
due to the fraud or negligence of the respondent Bank. This in of the injury or loss. Accordingly, the aforementioned fourth
turn flows re om this Court's determination that the contract characteristic of a fortuitous event is absent x x x The
involved was one of deposit. destruction or loss of the stamp collection which was, in the
language of the trial court, the “product of 27 years of patience
G.R. No. 102970. May 13, 1993.* and diligence” caused the petitioner pecuniary loss; hence, he
must be compensated therefore.
LUZAN SIA, petitioner, vs. COURT OF APPEALS and
SECURITY BANK AND TRUST COMPANY, respondents. G.R. No. 179096. February 6, 2013.*

Civil Law; Deposit; Contract for the use of safety deposit box JOSEPH GOYANKO, JR., as administrator of the Estate of
is a special kind of deposit and the relationship between the Joseph Goyanko, Sr., petitioner, vs. UNITED COCONUT
parties thereto, with respect to the contents of the box, is that PLANTERS BANK, MANGO AVENUE BRANCH,
of a bailor and bailee, the bailment being for hire and mutual respondent.
benefit.—In the recent case of CA Agro-Industrial
Development Corp. vs. Court of Appeals, this Court explicitly Same; Same; Savings Deposit; United Coconut Planters Bank
rejected the contention that a contract for the use of a safety (UCPB) did not become a trustee by the mere opening of the
deposit box is a contract of lease governed by Title VII, Book account. While this may seem to be the case, by reason of the
IV of the Civil Code. Nor did We fully subscribe to the view fiduciary nature of the bank’s relationship with its depositors,
that it is a contract of deposit to be strictly governed by the this fiduciary relationship does not “convert the contract
Civil Code provision on deposit; it is, as We declared, a special between the bank and its depositors from a simple loan to a
kind of deposit. The prevailing rule in American trust agreement, whether express or implied;” It simply means
jurisprudence—that the relation between a bank renting out that the bank is obliged to observe “high standards of
safe deposit boxes and its customer with respect to the integrity and performance” in complying with its obligations
contents of the box is that of a bailor and bailee, the bailment under the contract of simple loan. Per Article 1980 of the Civil
being for hire and mutual benefit has been adopted in this Code, a creditor-debtor relationship exists between the bank
jurisdiction. and its depositor.―Contrary to the petitioner’s position, UCPB
did not become a trustee by the mere opening of the
Same; Same; Same; Conditions in a “Lease Agreement” ACCOUNT. While this may seem to be the case, by reason of
covering a safety deposit box which exempt the bank from any the fiduciary nature of the bank’s relationship with its
liability for damage, loss or destruction of the contents thereof depositors, this fiduciary relationship does not “convert the
arising from its own or its agent’s fraud, negligence or delay contract between the bank and its depositors from a simple
are considered null and void, for being contrary to law and loan to a trust agreement, whether express or implied.” It
public policy.—Assayed in the light of Our aforementioned simply means that the bank is obliged to observe “high
pronouncements in CA Agro-Industrial Development Corp., it standards of integrity and performance” in complying with its
is not at all difficult to conclude that both conditions No. 9 and obligations under the contract of simple loan. Per Article 1980
No. 13 of the “Lease Agreement” covering the safety deposit of the Civil Code, a creditor-debtor relationship exists between
box in question (Exhibits “A” and “1”) must be stricken down the bank and its depositor. The savings deposit agreement is
for being contrary to law and public policy as they are meant between the bank and the depositor; by receiving the deposit,
to exempt SBTC from any liability for damage, loss or the bank impliedly agrees to pay upon demand and only upon
destruction of the contents of the safety deposit box which may the depositor’s order.
arise from its own or its agents’ fraud, negligence or delay.
Accordingly, SBTC cannot take refuge under the said G.R. No. 205705. August 5, 2015.*
conditions.
DOMINADOR M. APIQUE, petitioner, vs. EVANGELINE
Same; Same; Same; Same; Although flooding could be APIQUE FAHNENSTICH, respondent.
considered a fortuitous event, failure of the bank to give notice
to the renter of such fact makes it liable for damages, its Banks and Banking; Joint Accounts; A joint account is one
negligence caused to aggravate injury or damage to the renter; that is held jointly by two (2) or more natural persons, or by
Case at bar.—Unfortunately, however, the public respondent two or more juridical persons or entities.—A joint account is
failed to consider that in the instant case, as correctly held by one that is held jointly by two or more natural persons, or by
the trial court, SBTC was guilty of negligence. The facts two or more juridical persons or entities. Under such setup, the
constituting negligence are enumerated in the petition and depositors are joint owners or co-owners of the said account,
have been summarized in this ponencia. SBTC’s negligence and their share in the deposits shall be presumed equal, unless
aggravated the injury or damage to the petitioner which the contrary is proved, pursuant to Article 485 of the Civil
resulted from the loss or destruction of the stamp collection. Code, which provides: Art. 485. The share of the co-owners, in
SBTC was aware of the floods of 1985 and 1986; it also knew the benefits as well as in the charges, shall be proportional to
that the floodwaters inundated the room where Safe Deposit their respective interests. Any stipulation in a contract to the
contrary shall be void. The portions belonging to the co- partnership. Vitug vs. Court of Appeals, 183 SCRA 755, G.R.
owners in the co-ownership shall be presumed equal, unless No. 82027 March 29, 1990
the contrary is proved.
G.R. No. 181426. July 13, 2015.*
Same; Same; The common banking practice is that regardless
of who puts the money into the account, each of the named GAMES AND GARMENTS DEVELOPERS, INC., petitioner,
account holder has an undivided right to the entire balance, vs. ALLIED BANKING CORPORATION, respondent.
and any of them may deposit and/or withdraw, partially or
wholly, the funds without the need or consent of the other,
during their lifetime.—The common banking practice is that
regardless of who puts the money into the account, each of the Civil Law; Guaranty; Suretyship; Banks and Banking; Section
named account holder has an undivided right to the entire 74 of the General Banking Act, as amended, proscribes banks
balance, and any of them may deposit and/or withdraw, from entering into “any contract of guaranty or suretyship”
partially or wholly, the funds without the need or consent of without providing definitions of such contracts.—It is
the other, during their lifetime. Nevertheless, as between the undisputed that Mercado wrote two “letters of guaranty”
account holders, their right against each other may depend on dated August 22, 1996 and January 27, 1997. Although
what they have agreed upon, and the purpose for which the Mercado’s letters used the words “guarantee” and “guaranty,”
account was opened and how it will be operated. the same do not constitute contracts of guaranty covered by
the prohibition under Section 74 of the General Banking Act, as
G.R. No. 82027. March 29, 1990.* amended. Section 74 of the General Banking Act, as amended,
proscribes banks from entering into “any contract of guaranty
ROMARICO G. VITUG, petitioner, vs. THE HONORABLE or suretyship” without providing definitions of such contracts.
COURT OF APPEALS and ROWENA FAUSTINO- Consequently, we rely on the general definitions of contracts of
CORONA, respondents. guaranty and suretyship under Article 2047 of the Civil Code:
ART. 2047. By guaranty a person, called the guarantor, binds
Civil Law; Contracts; Conveyance in question is not one of himself to the creditor to fulfill the obligation of the principal
mortis causa which should be embodied in a will; Definition of debtor in case the latter should fail to do so. If a person binds
a Will.—The conveyance in question is not, first of all, one of himself solidarily with the principal debtor, the provisions of
mortis causa, which should be embodied in a will. A will has Section 4, Chapter 3, Title I of this Book shall be observed. In
been defined as “a personal, solemn, revocable and free act by such case the contract is called a suretyship.
which a capacitated person disposes of his property and rights
and declares or complies with duties to take effect after his Same; Same; Same; Same; While a surety undertakes to pay if
death.” In other words, the bequest or device must pertain to the principal does not pay, the guarantor only binds himself to
the testator. In this case, the monies subject of savings account pay if the principal cannot pay. The former is the insurer of the
No. 35342-038 were in the nature of conjugal funds. debt, the latter an insurer of the solvency of the debtor.—While
a surety undertakes to pay if the principal does not pay, the
Same; Same; Same; Same; Survivorship agreements are guarantor only binds himself to pay if the principal cannot
permitted by the Civil Code.—The validity of the contract pay. The former is the insurer of the debt, the latter an insurer
seems debatable by reason of its “survivor-take-all” feature, of the solvency of the debtor. We further expounded on the
but in reality, that contract imposed a mere obligation with a nature of a contract of guaranty (vis-à-vis a contract of surety)
term, the term being death. Such agreements are permitted by in E. Zobel, Inc. v. Court of Appeals, 290 SCRA 1 (1998), thus:
the Civil Code. A contract of surety is an accessory promise by which a person
binds himself for another already bound, and agrees with the
Same; Same; Same; Same; Same; Although the survivorship creditor to satisfy the obligation if the debtor does not. A
agreement is per se not contrary to law its operation or effect contract of guaranty, on the other hand, is a collateral
may be violative of the Law.—But although the survivorship undertaking to pay the debt of another in case the latter does
agreement is per se not contrary to law its operation or effect not pay the debt. Strictly speaking, guaranty and surety are
may be violative of the law. For instance, if it be shown in a nearly related, and many of the principles are common to both.
given case that such agreement is a mere cloak to hide an However, under our civil law, they may be distinguished thus:
inofficious donation, to transfer property in fraud of creditors, A surety is usually bound with his principal by the same
or to defeat the legitime of a forced heir, it may be assailed and instrument, executed at the same time, and on the same
annulled upon such grounds. No such vice has been imputed consideration. He is an original promissor and debtor from the
and established against the agreement involved in this case. beginning, and is held, ordinarily, to know every default of his
principal. Usually, he will not be discharged, either by the
Same; Same; Same; Same; Same; Same; No demonstration here mere indulgence of the creditor to the principal, or by want of
that survivorship agreement had been executed for unlawful
notice of the default of the principal, no matter how much he
purposes or as held by the respondent court in order to
may be injured thereby. On the other hand, the contract of
frustrate our laws on wills, donations and conjugal
guaranty is the guarantor’s own separate undertaking, in
partnership.—There is no demonstration here that the
which the principal does not join. It is usually entered into
survivorship agreement had been executed for such unlawful
before or after that of the principal, and is often supported on a
purposes, or, as held by the respondent court, in order to
separate consideration from that supporting the contract of the
frustrate our laws on wills, donations, and conjugal
principal. The original contract of his principal is not his
contract, and he is not bound to take notice of its
nonperformance. He is often discharged by the mere to reactivate the credit card. When she did not promptly settle
indulgence of the creditor to the principal, and is usually not her outstanding balance, BPI Express Credit sent a message on
liable unless notified of the default of the principal. March 19, 1992 demanding payment with the warning that her
failure to pay would force it to temporarily suspend her credit
Banks and Banking; Doctrine of Apparent Authority; In card effective March 31, 1992. It then sent another demand
Prudential Bank v. Court of Appeals, 223 SCRA 350 (1993), letter dated March 31, 1992 requesting her to settle her
wherein the Supreme Court (SC) particularly applied the obligation in order to lift the suspension of her credit card and
doctrine of apparent authority to banks, it stressed that the prevent its cancellation. In April 1992, she paid her obligation.
[a]pplication of these principles is especially necessary In the context of the contemporaneous and subsequent acts of
because banks have a fiduciary relationship with the public the parties, the only condition for the reinstatement of her
and their stability depends on the confidence of the people in credit card was the payment of her outstanding obligation.
their honesty and efficiency.—In Prudential Bank v. Court of Had it intended otherwise, BPI Express Credit would have
Appeals, 223 SCRA 350 (1993), wherein we particularly surely informed her of the additional requirement in its letters
applied the doctrine of apparent authority to banks, we of March 19, 1992 and March 31, 1992. That it did not do so
stressed that the “[a]pplication of these principles is especially confirmed that they did not agree on having her submit the
necessary because banks have a fiduciary relationship with the new application form as the condition to reactivate her credit
public and their stability depends on the confidence of the card.
people in their honesty and efficiency. Such faith will be
eroded where banks do not exercise strict care in the selection
G.R. No. 162336. February 1, 2010.*
and supervision of its employees, resulting in prejudice to their
depositors.” A bank is liable to innocent third persons where HILARIO P. SORIANO, petitioner, vs. PEOPLE OF THE
representation is made in the course of its normal business by PHILIPPINES, BANGKO SENTRAL NG PILIPINAS (BSP),
an agent like Mercado as Branch Manager, even though such PHILIPPINE DEPOSIT INSURANCE CORPORATION
agent is abusing his authority. Clearly, persons dealing with (PDIC), PUBLIC PROSECUTOR ANTONIO C. BUAN, and
Mercado could not be blamed for believing that he was STATE PROSECUTOR ALBERTO R. FONACIER,
authorized to transact business for and on behalf of the bank. respondents.

G.R. No. 163654. October 8, 2014.* Criminal Law; Estafa Through Falsification of Commercial
Documents; The bank money (amounting to Php. 8 million)
BPI EXPRESS CARD CORPORATION,** petitioner, vs. MA. which came to the possession of petitioners was money held in
ANTONIA R. ARMOVIT, respondent. trust or administration by him for the bank in his fiduciary
capacity as the President of said bank.—The bank money
Credit Cards; The relationship between the credit card issuer (amounting to P8 million) which came to the possession of
and the credit card holder is a contractual one that is governed petitioner was money held in trust or administration by him
by the terms and conditions found in the card membership for the bank, in his fiduciary capacity as the President of said
agreement.—The relationship between the credit card issuer bank. It is not accurate to say that petitioner became the owner
and the credit card holder is a contractual one that is governed of the P8 million because it was the proceeds of a loan. That
by the terms and conditions found in the card membership would have been correct if the bank knowingly extended the
agreement. Such terms and conditions constitute the law loan to petitioner himself. But that is not the case here.
between the parties. In case of their breach, moral damages According to the information for estafa, the loan was supposed
may be recovered where the defendant is shown to have acted to be for another person, a certain “Enrico Carlos”; petitioner,
fraudulently or in bad faith. Malice or bad faith implies a through falsification, made it appear that said “Enrico Carlos”
conscious and intentional design to do a wrongful act for a applied for the loan when in fact he (“Enrico Carlos”) did not.
dishonest purpose or moral obliquity. However, a conscious or Through such fraudulent device, petitioner obtained the loan
intentional design need not always be present because proceeds and converted the same. Under these circumstances,
negligence may occasionally be so gross as to amount to malice it cannot be said that petitioner became the legal owner of the
or bad faith. Hence, bad faith in the context of Article 2220 of P8 million. Thus, petitioner remained the bank’s fiduciary with
the Civil Code includes gross negligence. respect to that money, which makes it capable of
misappropriation or conversion in his hands.
Remedial Law; Evidence; Parol Evidence Rule; Considering
that the terms and conditions nowhere stated that the card Same; Same; Prohibition in Section 83 is broad enough to
holder must submit the new application form in order to cover various modes of borrowing.—The prohibition in Section
reactivate her credit card, to allow BPI Express Credit to 83 is broad enough to cover various modes of borrowing. It
impose the duty to submit the new application form in order covers loans by a bank director or officer (like herein
to enable Armovit to reactivate the credit card would petitioner) which are made either: (1) directly, (2) indirectly, (3)
contravene the Parol Evidence Rule.—Considering that the for himself, (4) or as the representative or agent of others. It
terms and conditions nowhere stated that the card holder must applies even if the director or officer is a mere guarantor,
submit the new application form in order to reactivate her indorser or surety for someone else’s loan or is in any manner
credit card, to allow BPI Express Credit to impose the duty to an obligor for money borrowed from the bank or loaned by it.
submit the new application form in order to enable Armovit to The covered transactions are prohibited unless the approval,
reactivate the credit card would contravene the Parol Evidence reportorial and ceiling requirements under Section 83 are
Rule. Indeed, there was no agreement between the parties to complied with. The prohibition is intended to protect the
add the submission of the new application form as the means public, especially the depositors, from the overborrowing of
bank funds by bank officers, directors, stockholders and obligations with funds obtained from the public as provided in
related interests, as such overborrowing may lead to bank the General Banking Act under Section 2-A (a); and, to lend,
failures. It has been said that “banking institutions are not invest or place funds deposited with them, acquired by them
created for the benefit of the directors [or officers]. While or otherwise coursed through them, either for their own
directors have great powers as directors, they have no special account or for the account of others under Section 2-D(c).
privileges as individuals. They cannot use the assets of the
bank for their own benefit except as permitted by law. Same; Same; Redemption; The amounts to be paid to redeem a
Stringent restrictions are placed about them so that when foreclosed property are the amounts due under the mortgage
acting both for the bank and for one of themselves at the same deed plus interest and expenses; Petitioner is deemed
time, they must keep within certain prescribed lines regarded subrogated by virtue of the deed of assignment to the rights
by the legislature as essential to safety in the banking and obligations of the assignor and bound by exactly the same
business.” conditions relative to the redemption of the property that
bound the latter as debtor and mortgagor.–––Moreover,
G.R. No. 178429. October 23, 2009.* petitioner by virtue of the deed of assignment of Carlos
Coquinco’s right of redemption must be deemed subrogated to
JOSE C. GO, petitioner, vs. BANGKO SENTRAL NG the rights and obligations of his assignor, and bound by
PILIPINAS, respondent. exactly the same conditions, relative to the redemption of the
subject property that bound the latter as debtor and mortgagor
Mercantile Law; Banks and Banking; Banks were not created [Gorospe v. Santos, G.R. No. L-30079, January 30, 1976, 69
for the benefit of their directors and officers; they cannot use SCRA 191]. Had Carlos Coquinco attempted to redeem the
the assets of the bank for their own benefit, except as may be subject foreclosed property, he would have had to pay “the
permitted by law. Congress has thus deemed it essential to amount due under the mortgage deed . . . with interest thereon
impose restrictions on borrowings by bank directors and at the rate specified in the mortgage and all costs . . . and other
officers in order to protect the public, especially the expenses incurred . . . by reason of the execution [or
depositors.—The language of the law is broad enough to foreclosure] and sale and as a result of the custody of said
encompass either act of borrowing or guaranteeing, or both. property less the income received from the property . . .”
While the first paragraph of Section 83 is penal in nature, and pursuant to Section 78 of the General Banking Act in order to
by principle should be strictly construed in favor of the effect a valid redemption. Since petitioner merely stepped into
accused, the Court is unwilling to adopt a liberal construction the shoes of Carlos Coquinco, his assignor, petitioner should
that would defeat the legislature’s intent in enacting the have tendered and paid that same amount in order to redeem
statute. The objective of the law should allow for a reasonable the property.
flexibility in its construction. Section 83 of RA 337, as well as
other banking laws adopting the same prohibition, was Same; Same; Same; Ponce de Leon vs. RFC case which ruled
enacted to ensure that loans by banks and similar financial that the General Banking Act partakes of the nature of an
institutions to their own directors, officers, and stockholders amendment to Act 3135 insofar as the redemption price is
are above board. Banks were not created for the benefit of their concerned when the mortgagee is a bank or banking or credit
directors and officers; they cannot use the assets of the bank for institution, is applicable in case at bar; Sec. 6 of Act 3135 is
their own benefit, except as may be permitted by law. inconsistent with Sec. 78 of the General Banking Act.–––
Congress has thus deemed it essential to impose restrictions on Contrary to petitioner’s claim, the Court’s decision in Ponce de
borrowings by bank directors and officers in order to protect Leon v. Rehabilitation Finance Corporation, supra, is
the public, especially the depositors. Hence, when the law applicable. In that case, the Court had occasion to state that the
prohibits directors and officers of banking institutions from General Banking Act partakes of the nature of an amendment
becoming in any manner an obligor of the bank (unless with to Act No. 3135 insofar as the redemption price is concerned,
the approval of the board), the terms of the prohibition shall be when the mortgagee is a bank or banking or credit institution,
the standards to be applied to directors’ transactions such as Section 6 of Act No. 3135 being, in this respect, inconsistent
those involved in the present case. with Section 78 of the General Banking Act. Although the
foreclosure and sale of the subject property was done by SIHI
G.R. No. 83139. April 12, 1989.* pursuant to Act No. 3135, as amended (whereby entities like
SIHI are authorized to extrajudicially foreclose and sell
ARNEL SY, petitioner, vs. HONORABLE COURT OF mortgaged properties only under a special power inserted in
APPEALS, STATE INVESTMENT HOUSE, INC. and THE or annexed to the real estate mortgage contract, and interested
REGISTER OF DEEDS OF RIZAL, respondents. parties, like petitioner herein, are given one year from the date
of sale within which to redeem the foreclosed properties),
Commercial Law; Banks; Section 78 of the General Banking Section 78 of the General Banking Act, as amended, provides
Act applies not only to banks and banking institutions but the amount at which the subject property is redeemable from
also to credit institutions; State Investment House, Inc. is a SIHI, which is, in this case, the amount due under the
credit institution.–––It must be emphasized that the above mortgage deed, or the outstanding obligation of Carlos
section is applicable not only to “banks and banking Coquinco, plus interest and expenses.
institutions,” but also to “credit institutions.” And, as certified
by the Central Bank, SIHI is a credit institution, i.e., financial Same; Same; Same; PNB vs. CA case applicable only to
intermediary engaged in quasi-banking functions, within the extrajudicial foreclosures by the PNB effected pursuant to a
purview of Section 78, it being an entity authorized to engage mortgage contract entered into prior to the Revised Charter of
in the lending of funds or purchasing of receivables or other the PNB enacted in 1975.–––The decision in the 1985 case of
Philippine National Bank v. The Honorable Court of Appeals, UNION BANK OF THE PHILIPPINES, petitioner, vs.
supra, invoked by petitioner is not determinative of the issues COURT OF APPEALS, APOLONIA DE JESUS GREGORIO,
in the instant petition because that case is applicable only to LUCIANA DE JESUS GREGORIO, GONZALO VINCOY,
extrajudicial foreclosures by the PNB effected pursuant to a married to TRINIDAD GREGORIO VINCOY, respondents.
mortgage contract entered into prior to the enactment in 1975
of the Revised Charter of the PNB, P.D. No. 694 (which Same; Same; Same; Same; Section 78 of the General Banking
contained provisions on redemption), and deals specifically Act had the effect of amending Section 6 of Act No. 3135
with the amount of interest to be included in the computation insofar as the redemption price is concerned when the
of the redemption price. mortgagee is a bank or a banking or credit institution.—
Petitioner’s contention that Section 78 of the General Banking
Same; Same; Same; No valid redemption was effected as Act governs the determination of the redemption price of the
petitioner failed to tender and pay the required amount for subject property is meritorious. In Ponce de Leon v.
redemption of the property under Sec. 78 of the General Rehabilitation Finance Corporation, this Court had occasion to
Banking Act.–––Thus, inasmuch as petitioner failed to tender rule that Section 78 of the General Banking Act had the effect
and pay the required amount for the redemption of the subject of amending Section 6 of Act No. 3135 insofar as the
property pursuant to Section 78 of the General Banking Act, as redemption price is concerned when the mortgagee is a bank,
amended, no valid redemption was effected by him. as in this case, or a banking or credit institution. The apparent
Consequently, there was no legal obstacle to the consolidation conflict between the provisions of Act No. 3135 and the
of title by SIHI. General Banking Act was, therefore, resolved in favor of the
latter, being a special and subsequent legislation. This
Same; Same; Same; The Register of Deeds incurred no liability pronouncement was reiterated in the case of Sy v. Court of
when he cancelled a transfer certificate of title and issued in Appeals where we held that the amount at which the
lieu thereof another certificate of title as he acted in foreclosed property is redeemable is the amount due under the
fulfillment of his official functions.–––As regards the third mortgage deed, or the outstanding obligation of the mortgagor
issue, suffice it to say that the respondent Register of Deeds plus interest and expenses in accordance with Section 78 of the
incurred no liability when he cancelled TCT No. 2782 and General Banking Act. It was therefore manifest error on the
issued in lieu thereof TCT No. 44775 in the name of SIHI, the part of the Court of Appeals to apply in the case at bar the
former having acted in fulfillment of his official functions and provisions of Section 30 Rule 39 of the Rules of Court in fixing
in accordance with law. the redemption price of the subject foreclosed property.

Same; Same; Same; Damages; Award of attorney’s fees as a G.R. No. 195540. March 13, 2013.*
form of damages is the exception rather than the general rule;
How award of attorney’s fees predicated.–––A perusal of GOLDENWAY MERCHANDISING CORPORATION,
Article 2208 of the New Civil Code will reveal that the award petitioner, vs. EQUITABLE PCI BANK, respondent.
of attorney’s fees as a form of damages is the exception rather
than the general rule for it is predicated upon the existence of Same; Same; Same; Redemption; The one-year period of
exceptional circumstances, such as a “clearly unfounded civil redemption is counted from the date of the registration of the
action or proceeding” or evident bad faith on the plaintiff’s certificate of sale.―The one-year period of redemption is
part in instituting his action [Tan Ti v. Alvear, 26 Phil. 566 counted from the date of the registration of the certificate of
(1914); Buan v. Camaganacan, G.R. No. L-21569, February 28, sale. In this case, the parties provided in their real estate
1966, 16 SCRA 321; Philippine National Bank v. Court of mortgage contract that upon petitioner’s default and the
Appeals, G.R. No. L-45770, March 20, 1988, 159 SCRA 433]. latter’s entire loan obligation becoming due, respondent may
immediately foreclose the mortgage judicially in accordance
with the Rules of Court, or extrajudicially in accordance with
Act No. 3135, as amended.
Same; Same; Same; Same; Petitioner had not acted in bad faith
in filing his complaint against the credit institution; Same; Same; Same; General Banking Law (R.A. No. 8791); Act
Petitioner’s complaint raised legitimate issues on the No. 3135; Section 47 of R.A. No. 8791 otherwise known as “The
application of Sec. 78 of the General Banking Act and the General Banking Law of 2000” which took effect on June 13,
import of the decisions in Ponce de Leon vs. RFC and PNB vs. 2000, amended Act No. 3135.―Section 47 of R.A. No. 8791
CA.–––It cannot be said that the present action instituted by otherwise known as “The General Banking Law of 2000”
petitioner was clearly unfounded. Although the theory upon which took effect on June 13, 2000, amended Act No. 3135.
which petitioner’s complaint was based is untenable, he had Under the new law, an exception is thus made in the case of
raised legitimate issues on the application of Section 78 of the juridical persons which are allowed to exercise the right of
General Banking Act to credit institutions like SIHI, and the redemption only “until, but not after, the registration of the
import of the decisions in the cases of Ponce de Leon v. certificate of foreclosure sale” and in no case more than three
Rehabilitation Finance Corporation and Philippine National (3) months after foreclosure, whichever comes first.
Bank v. The Honorable Court of Appeals. Neither was it
established that petitioner had acted in bad faith in the filing of G.R. No. 148163. December 6, 2004.*
his action against SIHI notwithstanding the dismissal of his
complaint in Civil Case No. 84-22839 (consignation case). BANCO FILIPINO SAVINGS AND MORTGAGE BANK,
petitioner, vs. JUANITA B. YBAÑEZ, CHARLES B.
G.R. No. 134068. June 25, 2001.*
YBAÑEZ, JOSEPH B. YBAÑEZ and JEROME B. YBAÑEZ, loan agreement in this case, and petitioner could not rely on
respondents. this Circular for its imposition of 3% monthly surcharge.

Commercial Law; Banks; Receivership; Pendency of the case Same; Same; Same; Same; A penal clause is an accessory
did not diminish the authority of the designated liquidator to undertaking to assume greater liability in case of breach and is
administer and continue the bank’s transactions.—In Banco attached to an obligation in order to secure its performance; If
Filipino Savings and Mortgage Bank v. Monetary Board, the such stipulation is found contrary to law for being usurious, it
validity of the closure and receivership of Banco Filipino was can be nullified by the courts without affecting the principal
put in issue. But the pendency of the case did not diminish the obligation.—Petitioner also argues that the 3% monthly
authority of the designated liquidator to administer and surcharge partakes of the nature of a penalty clause. A penal
continue the bank’s transactions. The Court allowed the bank’s clause is an accessory undertaking to assume greater liability
liquidator to continue receiving collectibles and receivables or in case of breach and is attached to an obligation in order to
paying off creditor’s claims and other transactions pertaining secure its performance. The penalty shall substitute the
to normal operations of a bank. Among these transactions were indemnity for damages and the payment of interests in case of
the prosecution of suits against debtors for collection and for non-compliance. But if such stipulation is found contrary to
foreclosure of mortgages. The bank was allowed to collect law for being usurious, it can be nullified by the courts without
interests on its loans while under liquidation, provided that the affecting the principal obligation.
interests were legal.
G.R. No. 135046. August 17, 1999.*
Civil Law; Contracts; It is an elementary rule of contracts that
the contracting parties are free to stipulate the terms of their SPOUSES FLORANTE and LAARNI BAUTISTA,
contracts for as long as the terms are not contrary to law, petitioners, vs. PILAR DEVELOPMENT CORPORATION,
morals, good customs, public policy, public order and respondent.
national interests.—It is an elementary rule of contracts that
the contracting parties are free to stipulate the terms of their Same; Same; Interests; Circular No. 905 removed the ceiling on
contract for as long as the terms are not contrary to law, interest rates for secured and unsecured loans regardless of
morals, good customs, public policy, public order, and national maturity.–On December 1, 1979, the Monetary Board of the
interests. Laws in force at the time the contract was made Central Bank of the Philippines issued Circular No. 705 which
generally govern its interpretation and application. The loan fixed the effective rate of interest on loan transactions with
agreement between petitioner and respondents specifies the maturities of more than 730 days to twenty-one per cent (21%)
obligation of the debtor to pay interest. In principle said per annum for both secured and unsecured loans. On January
stipulation is binding between the parties. 28, 1980, The Monetary Board issued Circular No. 712
reiterating the effective interest rate of 21% on said loan
Same; Same; Interests; Court agree that the 21% interest is not transactions. On January 1, 1983, CB Circular No. 905, series of
violative of the Usury Law as it stood at the time of the loan 1982, took effect. This Circular declared that the rate of interest
transaction.—We note that at the time the parties entered into on any loan or forbearance of any money, goods or credits,
the said loan agreement, the pertinent law, Act No. 2655, regardless of maturity and whether secured or unsecured,
already provided that the rate of interest for the forbearance of “shall not be subject to any ceiling prescribed under or
money when secured by a mortgage upon real estate should pursuant to the Usury Law, as amended.– In short, Circular
not be more than 12% per annum or the maximum rate No. 905 removed the ceiling on interest rates for secured and
prescribed by the Monetary Board and in force at the time the unsecured loans, regardless of maturity.
loan was granted. On December 1, 1979, the Monetary Board of
the Central Bank of the Philippines had issued CBP Circular G.R. No. 97412. July 12, 1994.*
No. 705-79. On loan transactions with maturities of more than
730 days, it fixed the effective rate of interest at 21% per annum EASTERN SHIPPING LINES, INC., petitioner, vs. HON.
for both secured and unsecured loans. Since the loan in COURT OF APPEALS AND MERCANTILE INSURANCE
question has fixed 15 years for its maturity, it fell within the COMPANY, INC., respondents. Eastern Shipping Lines, Inc.
coverage of said CBP Circular. Thus, we agree that the 21% vs. Court of Appeals, 234 SCRA 78, G.R. No. 97412 July 12,
interest is not violative of the Usury Law as it stood at the time 1994
of the loan transaction.
Same; Same; Same; Same; In case of other obligations, the
Same; Same; Same; Usury Law; CBP Circular No. 905-82 interest on the amount of damages may be imposed at the
simply suspended the effectivity of the Usury Law.—CBP discretion of the court at the rate of 6% per annum.—When an
Circular No. 905-82, which was effective January 1, 1983, did obligation, not constituting a loan or forbearance of money, is
not repeal nor in any way amend the Usury Law. The Circular breached, an interest on the amount of damages awarded may
simply suspended the effectivity of the Usury Law. A Central be imposed at the discretion of the court at the rate of 6% per
Bank Circular cannot repeal a law. Only a law can repeal annum. No interest, however, shall be adjudged on
another law. Thus, the retroactive application of a CBP unliquidated claims or damages except when or until the
Circular cannot, and should not, be presumed. The loan was demand can be established with reasonable certainty.
entered into on December 24, 1982, but CBP Circular No. 905- Accordingly, where the demand is established with reasonable
82 was given force and effect only on January 1, 1983. Thus, certainty, the interest shall begin to run from the time the claim
CBP Circular No. 905-82 could not be made applicable to the is made judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only authority of the BSP-MB to set interest rates and to issue and
from the date the judgment of the court is made (at which time enforce Circulars when it ruled that “the BSP-MB may
the quantification of damages may be deemed to have been prescribe the maximum rate or rates of interest for all loans or
reasonably ascertained). The actual base for the computation of renewals thereof or the forbearance of any money, goods or
legal interest shall, in any case, be on the amount finally credits, including those for loans of low priority such as
adjudged. consumer loans, as well as such loans made by pawnshops,
finance companies and similar credit institutions. It even
Same; Same; Same; Same; When the judgment of the court authorizes the BSP-MB to prescribe different maximum rate or
awarding a sum of money becomes final and executory, the rates for different types of borrowings, including deposits and
rate of legal interest shall be 12% per annum from such deposit substitutes, or loans of financial intermediaries.”
finality until its satisfaction, this interim period being deemed
to be by then an equivalent to a forbearance of credit.—When Same; When the obligation is breached, and it consists in the
the judgment of the court awarding a sum of money becomes payment of a sum of money, i.e., a loan or forbearance of
final and executory, the rate of legal interest, whether the case money, the interest due should be that which may have been
falls under paragraph 1 or paragraph 2, above, shall be 12% stipulated in writing; In the absence of stipulation, the rate of
per annum from such finality until its satisfaction, this interim interest shall be 6% per annum to be computed from default,
period being deemed to be by then an equivalent to a i.e., from judicial or extrajudicial demand under and subject to
forbearance of credit. the provisions of Article 1169 of the Civil Code.—When the
obligation is breached, and it consists in the payment of a sum
G.R. No. 189871. August 13, 2013.* of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing.
DARIO NACAR, petitioner, vs. GALLERY FRAMES and/or Furthermore, the interest due shall itself earn legal interest
FELIPE BORDEY, JR., respondents. Nacar vs. Gallery from the time it is judicially demanded. In the absence of
Frames, 703 SCRA 439, G.R. No. 189871 August 13, 2013 stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial
Interest Rates; In the absence of an express stipulation as to demand under and subject to the provisions of Article 1169 of
the rate of interest that would govern the parties, the rate of the Civil Code.
legal interest for loans or forbearance of any money, goods or
credits and the rate allowed in judgments shall no longer be Same; When an obligation, not constituting a loan or
twelve percent (12%) per annum — as reflected in the case of forbearance of money, is breached, an interest on the amount
Eastern Shipping Lines vs. Court of Appeals, 234 SCRA 78 of damages awarded may be imposed at the discretion of the
(1994), and Subsection X305.1 of the Manual of Regulations for court at the rate of 6% per annum.—When an obligation, not
Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the constituting a loan or forbearance of money, is breached, an
Manual of Regulations for Non-Bank Financial Institutions, interest on the amount of damages awarded may be imposed
before its amendment by BSP-MB Circular No. 799 — but will at the discretion of the court at the rate of 6% per annum. No
now be six percent (6%) per annum effective July 1, 2013.—In interest, however, shall be adjudged on unliquidated claims or
the absence of an express stipulation as to the rate of interest damages, except when or until the demand can be established
that would govern the parties, the rate of legal interest for with reasonable certainty. Accordingly, where the demand is
loans or forbearance of any money, goods or credits and the established with reasonable certainty, the interest shall begin
rate allowed in judgments shall no longer be twelve percent to run from the time the claim is made judicially or
(12%) per annum — as reflected in the case of Eastern Shipping extrajudicially (Art. 1169, Civil Code), but when such certainty
Lines, Inc. v. Court of Appeals, 234 SCRA 78 (1994) and cannot be so reasonably established at the time the demand is
Subsection X305.1 of the Manual of Regulations for Banks and made, the interest shall begin to run only from the date the
Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of judgment of the court is made (at which time the quantification
Regulations for Non-Bank Financial Institutions, before its of damages may be deemed to have been reasonably
amendment by BSP-MB Circular No. 799 — but will now be six ascertained). The actual base for the computation of legal
percent (6%) per annum effective July 1, 2013. It should be interest shall, in any case, be on the amount finally adjudged.
noted, nonetheless, that the new rate could only be applied
prospectively and not retroactively. Consequently, the twelve Same; When the judgment of the court awarding a sum of
percent (12%) per annum legal interest shall apply only until money becomes final and executory, the rate of legal interest,
June 30, 2013. Come July 1, 2013 the new rate of six percent shall be 6% per annum from such finality until its
(6%) per annum shall be the prevailing rate of interest when satisfaction.—When the judgment of the court awarding a
applicable. sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph
Same; Monetary Board; The Bangko Sentral ng Pilipinas- 2, above, shall be 6% per annum from such finality until its
Monetary Board may prescribe the maximum rate or rates of satisfaction, this interim period being deemed to be by then an
interest for all loans or renewals thereof or the forbearance of equivalent to a forbearance of credit.
any money, goods or credits, including those for loans of low
priority such as consumer loans, as well as such loans made by G.R. No. 146942. April 22, 2003.*
pawnshops, finance companies and similar credit
institutions.—In the recent case of Advocates for Truth in CORAZON G. RUIZ, petitioner, vs. COURT OF APPEALS
Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral and CONSUELO TORRES, respondents.
Monetary Board, 688 SCRA 530 (2013), this Court affirmed the
Civil Law; Contracts; Contracts of Adhesion; In contracts of effectivity, there must nevertheless be a de-escalation clause to
adhesion, the only participation of the other party is the mitigate the one-sidedness of the escalation clause. Indeed
signing of his signature or his ‘adhesion’ thereto.—“. . . there because of concern for the unequal status of borrowers vis-a-
are certain contracts almost all the provisions of which have vis the banks, our cases after Banco Filipino have fashioned the
been drafted only by one party, usually a corporation. Such rule that any increase in the rate of interest made pursuant to
contracts are called contracts of adhesion, because the only an escalation clause must be the result of agreement between
participation of the other party is the signing of his signature the parties.
or his ‘adhesion’ thereto. Insurance contracts, bills of lading,
contracts of sale of lots on the installment plan fall into this G.R. No. 174433. February 24, 2014.*
category. “. . . it is drafted only by one party, usually the
corporation, and is sought to be accepted or adhered to by the PHILIPPINE NATIONAL BANK, petitioner, vs. SPOUSES
other party . . . who cannot change the same and who are thus ENRIQUE MANALO & ROSALINDA JACINTO, ARNOLD
made to adhere hereto on the ‘take it or leave it’ basis . . .” J. MANALO, ARNEL J. MANALO, and ARMA J. MANALO,
respondents.
Same; Loan; Interest; Usury Law; Nothing in the said circular
(Usury Law) grants lenders carte blanche authority to raise Civil Law; Contracts; Contract of Adhesion; A contract where
interest rates to levels which will either enslave their there is no mutuality between the parties partakes of the
borrowers or lead to a hemorrhaging of their assets.—We held nature of a contract of adhesion, and any obscurity will be
that while the Usury Law has been suspended by Central Bank construed against the party who prepared the contract, the
Circular No. 905, s. 1982, effective on January 1, 1983, and latter being presumed the stronger party to the agreement, and
parties to a loan agreement have been given wide latitude to who caused the obscurity.—The Court has declared that a
agree on any interest rate, still stipulated interest rates are contract where there is no mutuality between the parties
illegal if they are unconscionable. Nothing in the said circular partakes of the nature of a contract of adhesion, and any
grants lenders carte blanche authority to raise interest rates to obscurity will be construed against the party who prepared the
levels which will either enslave their borrowers or lead to a contract, the latter being presumed the stronger party to the
hemorrhaging of their assets. agreement, and who caused the obscurity. PNB should then
suffer the consequences of its failure to specifically indicate the
Same; Same; Same; Surcharges; This surcharge or penalty rates of interest in the credit agreement.
stipulated in a loan agreement in case of default partakes of
the nature of liquidated damages.—This surcharge or penalty
stipulated in a loan agreement in case of default partakes of the
nature of liquidated damages under Art. 2227 of the New Civil Same; Interest Rates; Interest should be computed from the
Code, and is separate and distinct from interest payment. Also time of the judicial or extrajudicial demand.—Indeed, the
referred to as a penalty clause, it is expressly recognized by Court said in Eastern Shipping Lines, Inc. v. Court of Appeals,
law. It is an accessory undertaking to assume greater liability 234 SCRA 78 (1994), that interest should be computed from the
on the part of an obligor in case of breach of an obligation. The time of the judicial or extrajudicial demand. However, this case
obligor would then be bound to pay the stipulated amount of presents a peculiar situation, the peculiarity being that the
indemnity without the necessity of proof on the existence and Spouses Manalo did not demand interest either judicially or
on the measure of damages caused by the breach. Although extrajudicially. In the RTC, they specifically sought as the main
the courts may not at liberty ignore the freedom of the parties reliefs the nullification of the foreclosure proceedings brought
to agree on such terms and conditions as they see fit that by PNB, accounting of the payments they had made to PNB,
contravene neither law nor morals, good customs, public order and the conversion of their loan into a long term one. In its
or public policy, a stipulated penalty, nevertheless, may be judgment, the RTC even upheld the validity of the interest
equitably reduced if it is iniquitous or unconscionable. rates imposed by PNB. In their appellant’s brief, the Spouses
Manalo again sought the nullification of the foreclosure
G.R. No. 109563. July 9, 1996.* proceedings as the main relief. It is evident, therefore, that the
Spouses Manalo made no judicial or extrajudicial demand
PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF from which to reckon the interest on any amount to be
APPEALS, MARIA AMOR BASCOS and MARCIANO refunded to them. Such demand could only be reckoned from
BASCOS, respondents. the promulgation of the CA’s decision because it was there that
the right to the refund was first judicially recognized.
Commercial Law; Banks and Banking; Interests; Any increase Nevertheless, pursuant to Eastern Shipping Lines, Inc. v. Court
in the rate of interest made pursuant to an escalation clause of Appeals, 234 SCRA 78 (1994), the amount to be refunded
must be the result of agreement between the parties.—To begin and the interest thereon should earn interest to be computed
with, PNB’s argument rests on a misapprehension of the from the finality of the judgment until the full refund has been
import of the appellate court’s ruling. The Court of Appeals made.
nullified the interest rate increases not because the promissory
note did not comply with P.D. No. 1684 by providing for a de- Same; Same; Monetary Board Circular No. 799; The Supreme
escalation, but because the absence of such provision made the Court, in Nacar v. Gallery Frames, 703 SCRA 439 (2013) and
clause so one-sided as to make it unreasonable. That ruling is S.C. Megaworld Construction v. Parada, 705 SCRA 584 (2013),
correct. It is in line with our decision in Banco Filipino Savings already applied Monetary Board Circular No. 799 by reducing
& Mortgage Bank v. Navarro that although P.D. No. 1684 is the interest rates allowed in judgments from 12% per annum
not to be retroactively applied to loans granted before its to 6% per annum.—Anent the correct rates of interest to be
applied on the amount to be refunded by PNB, the Court, in exceptions.—This court is not a trier of facts. As a general rule,
Nacar v. Gallery Frames, 703 SCRA 439 (2013) and S.C. findings of fact of the lower court and of the Court of Appeals
Megaworld Construction v. Parada, 705 SCRA 584 (2013) are not reviewable and are binding upon this court unless the
already applied Monetary Board Circular No. 799 by reducing circumstances of the case are shown to be covered by the
the interest rates allowed in judgments from 12% per annum to exceptions. Petitioner failed to show any ground for this court
6% per annum. According to Nacar v. Gallery Frames, MB to review the trial court’s and the Court of Appeals’ finding
Circular No. 799 is applied prospectively, and judgments that that petitioner mortgaged his property in consideration of a
became final and executory prior to its effectivity on July 1, loan amounting to P600,000.00. Petitioner’s undisputed title to
2013 are not to be disturbed but continue to be implemented and ownership of the property is sufficient to give him free
applying the old legal rate of 12% per annum. Hence, the old disposal of it. As owner of the property, he has the right to
legal rate of 12% per annum applied to judgments becoming enjoy all attributes of ownership including jus disponendi or
final and executory prior to July 1, 2013, but the new rate of 6% the right to encumber, alienate, or dispose his property
per annum applies to judgments becoming final and executory “without other limitations than those established by law.”
after said date.
Civil Law; Contracts; Contracts entered into in violation of
G.R. No. 177260 March 30, 2011.* restrictions on a property owner’s rights do not always have
the effect of making them void ab initio.—Contracts entered
LOTTO RESTAURANT CORPORATION, represented by into in violation of restrictions on a property owner’s rights do
SUAT KIM GO, petitioner, vs. BPI FAMILY SAVINGS not always have the effect of making them void ab initio. This
BANK, INC., respondent. has been clarified as early as 1956 in Municipality of Camiling
v. Lopez, 99 Phil. 187.
Loans; Interest Rates; The Court has previously upheld as
valid the proviso in loans that the interest rate would be made Same; Same; Contracts that only subject a property owner’s
to depend on the prevailing market rate.—The Court has property rights to conditions or limitations but otherwise
previously upheld as valid the proviso in loans that the interest contain all the elements of a valid contract are merely
rate would be made to depend on the prevailing market voidable by the person in whose favor the conditions or
rate. Such provision does not signify an automatic increase in limitations are made.—Contracts that only subject a property
the interest. It simply means that the bank may adjust the owner’s property rights to conditions or limitations but
interest according to the prevailing market rate. This may otherwise contain all the elements of a valid contract are
result to either an increase or a decrease in the interest. merely voidable by the person in whose favor the conditions or
limitations are made. The mortgage contract entered into by
Same; Mortgages; Foreclosure of Mortgage; Foreclosure is but petitioner and respondent contains all the elements of a valid
a necessary consequence of non-payment of mortgage contract of mortgage. The trial court and the Court of Appeals
indebtedness.—As to BPI’s right to foreclose, the records show found no irregularity in its execution. There was no showing
that Lotto defaulted in its obligation when it unjustifiably that it was attended by fraud, illegality, immorality, force or
stopped paying its amortizations after the first intimidation, and lack of consideration. At most, therefore, the
year. Consequently, there is no question that BPI (which restrictions made the contract entered into by the parties
succeeded DBS) had a clear right to foreclose on Lotto’s voidable by the person in whose favor they were made — in
collateral. The Court held in Equitable PCI Bank, Inc. v. OJ- this case, by the National Housing Authority. Petitioner has no
Mark Trading, Inc. that foreclosure is but a necessary actionable right or cause of action based on those restrictions.
consequence of non-payment of mortgage indebtedness. The
creditor-mortgagee has the right to foreclose the mortgage, sell Same; Same; In Pari Delicto Rule; The Principle of In Pari
the property, and apply the proceeds of the sale to the Delicto is an equitable principle that bars parties from
satisfaction of the unpaid loan. enforcing their illegal acts, assailing the validity of their acts,
or using its invalidity as a defense.—Even if the mortgage
G.R. No. 201264. January 11, 2016.* contract were illegal or wrongful, neither of the parties may
assail the contract’s validity as against the other because they
FLORANTE VITUG, petitioner, vs. EVANGELINE A. were equally at fault. This is the principle of in pari delicto (or
ABUDA, respondent. in delicto) as embodied in Articles 1411 and 1412 of the Civil
Code: Art. 1411. When the nullity proceeds from the illegality
of the cause or object of the contract, and the act constitutes a
criminal offense, both parties being in pari delicto, they shall
Civil Law; Mortgages; For a mortgage contract to be valid, the have no action against each other, and both shall be
absolute owner of a property must have free disposal of the prosecuted. Moreover, the provisions of the Penal Code
property.—For a mortgage contract to be valid, the absolute relative to the disposal of effects or instruments of a crime shall
owner of a property must have free disposal of the property. be applicable to the things or the price of the contract. This rule
That property must be used to secure the fulfillment of an shall be applicable when only one of the parties is guilty; but
obligation. the innocent one may claim what he has given, and shall not be
bound to comply with his promise. Art. 1412. If the act in
Remedial Law; Civil Procedure; Appeals; As a general rule, which the unlawful or forbidden cause consists does not
findings of fact of the lower court and of the Court of Appeals constitute a criminal offense, the following rules shall be
(CA) are not reviewable and are binding upon this court unless observed: (1) When the fault is on the part of both contracting
the circumstances of the case are shown to be covered by the
parties, neither may recover what he has given by virtue of the
contract, or demand the performance of the other’s either enslave their borrowers or lead to a hemorrhaging of
undertaking; (2) When only one of the contracting parties is at their assets.”
fault, he cannot recover what he has given by reason of the
contract, or ask for the fulfillment of what has been promised Same; Same; Even if the parties voluntarily agree to an
him. The other, who is not at fault, may demand the return of interest rate, courts are given the discretionary power to
what he has given without any obligation to comply his equitably reduce it if it is later found to be iniquitous or
promise. Under this principle, courts shall not aid parties in unconscionable.—Even if the parties voluntarily agree to an
their illegal acts. The court shall leave them as they are. It is an interest rate, courts are given the discretionary power to
equitable principle that bars parties from enforcing their illegal equitably reduce it if it is later found to be iniquitous or
acts, assailing the validity of their acts, or using its invalidity as unconscionable. Courts approximate what the prevailing
a defense. market rate would have been under the circumstances had the
parties had equal bargaining power. An interest rate is not
Same; Same; Family Home; Article 155 of the Family Code inherently conscionable or unconscionable. Interest rates
explicitly provides that debts secured by mortgages are become unconscionable in light of the context in which they
exempted from the rule against execution, forced sale, or were imposed or applied. In Medel v. Court of Appeals, 299
attachment of family home.—Petitioner argues that the SCRA 481 (1998), this Court ruled that the stipulated interest of
property should be exempt from forced sale, attachment, and 5.5% or 66% per annum was unconscionable and contrary to
execution, based on Article 155 of the Family Code. Petitioner morals. It was declared void. This court reduced the interest
and his family have been neighbors with respondent since rate to 1 % per month or 12% per annum.
1992, before the execution of the mortgage contract. Even
though petitioner’s property has been constituted as a family G.R. No. 201927. February 17, 2016.
home, it is not exempt from execution. Article 155 of the
Family Code explicitly provides that debts secured by VICENTE D. CABANTING and LALAINE V. CABANTING,
mortgages are exempted from the rule against execution, petitioners, vs. BPI FAMILY SAVINGS BANK, INC.,
forced sale, or attachment of family home: Art. 155. The family respondent.
home shall be exempt from execution, forced sale or
attachment except: . . . . (3) For debts secured by mortgages on Civil Law; Contracts; Contract of Adhesion; A contract of
the premises before or after such constitution[.] Since adhesion is as binding as ordinary contracts, the reason being
petitioner’s property was voluntarily used by him as security that the party who adheres to the contract is free to reject it
for a loan he obtained from respondent, it may be subject to entirely.—The CA is correct that no prior demand was
execution and attachment. necessary to make petitioners’ obligation due and payable. The
Promissory Note with Chattel Mortgage clearly stipulated that
Same; Interest Rates; Mortgages; Parties are free to stipulate “[i]n case of my/our [petitioners’] failure to pay when due and
interest rates in their loan contracts in view of the suspension payable, any sum which I/We x x x or any of us may now or in
of the implementation of the Usury Law ceiling on interest the future owe to the holder of this note x x x then the entire
effective January 1, 1983.—The Court of Appeals correctly sum outstanding under this note shall immediately become
found that the interest rates of 5% or 10% per month imposed due and payable without the necessity of notice or demand
on petitioner’s loan were unconscionable. Parties are free to which I/We hereby waive.” Petitioners argue that such
stipulate interest rates in their loan contracts in view of the stipulation should be deemed invalid as the document they
suspension of the implementation of the Usury Law ceiling on executed was a contract of adhesion. It is important to stress
interest effective January 1, 1983. The freedom to stipulate the Court’s ruling in Dio v. St. Ferdinand Memorial Park, Inc.,
interest rates is granted under the assumption that we have a 509 SCRA 453 (2006), to wit: A contract of adhesion, wherein
perfectly competitive market for loans where a borrower has one party imposes a ready-made form of contract on the other,
many options from whom to borrow. It assumes that parties is not strictly against the law. A contract of adhesion is as
are on equal footing during bargaining and that neither of the binding as ordinary contracts, the reason being that the party
parties has a relatively greater bargaining power to command who adheres to the contract is free to reject it entirely. Contrary
a higher or lower interest rate. It assumes that the parties are to petitioner’s contention, not every contract of adhesion is an
equally in control of the interest rate and equally have options invalid agreement.
to accept or deny the other party’s proposals. In other words,
the freedom is granted based on the premise that parties arrive Due Process; Time and again, the Supreme Court (SC) has
at interest rates that they are willing but are not compelled to stressed that there is no deprivation of due process when a
take either by force of another person or by force of party is given an opportunity to be heard, not only through
circumstances. hearings but even through pleadings, so that one may explain
one’s side or arguments; or an opportunity to seek
Same; Contracts; Iniquitous or unconscionable interest rates reconsideration of the action or ruling being assailed.—There
are illegal and, therefore, void for being against public is likewise no merit to petitioners’ claim that they were
morals.—In stipulating interest rates, parties must ensure that deprived of due process when they were deemed to have
the rates are neither iniquitous nor unconscionable. Iniquitous waived their right to present evidence. Time and again, the
or unconscionable interest rates are illegal and, therefore, void Court has stressed that there is no deprivation of due process
for being against public morals. The lifting of the ceiling on when a party is given an opportunity to be heard, not only
interest rates may not be read as “grant[ing] lenders carte through hearings but even through pleadings, so that one may
blanche [authority] to raise interest rates to levels which will explain one’s side or arguments; or an opportunity to seek
reconsideration of the action or ruling being assailed. The
records bear out that herein petitioners were given several
opportunities to present evidence, but said opportunities were
frittered away. We stress the fact that petitioners did not even
bother to move for reconsideration of the Order dated
February 13, 2008, deeming petitioners to have waived their
right to present evidence. Such is glaring proof of their
propensity to waste the opportunities granted them to present
their evidence.

Interest Rates; Rates found to be iniquitous or unconscionable


are void, as if it there were no express contract thereon.—The
CA is correct that the interest rate being charged by
respondent under the Promissory Note with Chattel Mortgage
is quite unreasonable. In New Sampaguita Builders
Construction, Inc. (NSBCI) v. Philippine National Bank, 435
SCRA 565 (2004), the Court ruled that “the interest ranging
from 26 percent to 35 percent in the statements of account —
‘must be equitably reduced for being iniquitous,
unconscionable and exorbitant.’ 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.

Same; Legal interest, effective July 1, 2013, was set at six


percent (6%) per annum in accordance with Bangko Sentral ng
Pilipinas-Monetary Board (BSP-MB) Circular No. 799, Series
of 2013.—Legal interest, effective July 1, 2013, was set at six
percent (6%) per annum in accordance with Bangko Sentral ng
Pilipinas-Monetary Board Circular No. 799, Series of 2013.

G.R. No. 137798. October 4, 2000.*

LUCIA R. SINGSON, petitioner, vs. CALTEX


(PHILIPPINES), INC., respondent.

Civil Law; Contracts; Extraordinary inflation exists 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.—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.

Same; Same; Supervening of extraordinary inflation is never


assumed.—The supervening of extraordinary inflation is never
assumed. The party alleging it must lay down the factual basis
for the application of Article 1250.

Same; Same; The effects of extraordinary inflation are not to


be applied without an official declaration thereof by
competent authorities.—This Court has held that the effects of
extraordinary inflation are not to be applied without an official
declaration thereof by competent authorities.