Banking Law Cases – POSTED BLOG

1. Prudential Bank v Chonney Lim GR No. 136371, November 11, 2005

Facts:

Respondent allegedly made 2 deposits in the amount of P34,000 each on the 14th and 15th

of March 1988 in his savings account. He availed of the petitioner bank’s automatic transfer system where his savings deposit may be automatically transferred in his checking account in case the latter has insufficient fund to pay for his issued checks. Apparently, respondent received a letter of dishonor for his checks due to insufficient fund. He wrote a letter to the bank opposing their claim that he has an insufficient fund while asserting to have made two separate deposits in the amount of P34,000 to his savings account. The bank denied receiving two separate deposits and verified only that respondent made a deposit only on the 14th of March and that the deposit slip dated March 15 presented by the respondent is merely a copy of the former. Upon presentation of evidence, it was clear that the two separate deposit slips have the same amount but with different denominations stated therein. This was further attested by the bank teller who admitted to have stamped both deposit slips. The lower court decided in favor of the respondent. Upon appeal by the petitioner, the court of appeals affirmed the lower court decision with some modification on the award of damages hence this petition to the Supreme Court.

Issue:

Whether or not there was negligence on the part of the bank to record the second deposit made on March 15 by the respondent.

Ruling:

The court held that respondent presented substantial evidence to prove that two deposits were made in his account of the same amount on March 14 and 15, 1988. The failure of the bank to credit the deposit made by the respondent on March 15 to his savings account resulting to his dishonored checks constitutes a breach of duty of the bank to its client that equates to negligence. By the nature of the bank functions, they are mandated to observe highest degree of diligence in treating the accounts of their depositors. The banking industry is impressed with public interest and by virtue of their fiduciary duty to their clients banks are mandated to treat with meticulous care and fidelity all undertakings pertaining to their depositor’s accounts. The court finds the imposition of award for damages are in order. The wrongful act of the bank constitutes injury to the respondent because the financial credit of a businessman is a valuable asset and any adverse reflection of his credit would result to material loss to him.

2. Security Bank and Trust Co. v Eric Gan GR No. 150464, June 27, 2006

Facts:

Respondent Gan opened a current account to the petitioner which he can draw check from its fund. Under a special agreement with the petitioner manager Mr. Qui, respondent is allowed to transfer fund from his account to another person’s account. His transaction of transferring fund from his account to another account is covered by a debit memo. In December 14, 1982, he was reportedly to have incurred a negative balance in the amount of P153,757.78. By Sept. 15, 1990 his total obligation to the petitioner allegedly amounted to P297,060.01 inclusive of interest. Petitioner filed a complaint to recover the sum of money from the respondent after his refusal to pay contending that the alleged overdraft was made from transactions without his knowledge and consent. Petitioner presented its bookkeeper, Patricio Mercado who handles the respondent’s account and transactions in a ledger. Records show that a transfer of fund from the respondent’s account was made to another person’s account which was made with authority from Qui which resulted to the overdraft of his account. Respondent denied to have authorized such transaction. The lower court dismissed the case on the ground that the petitioner failed to establish with substantial evidence that the respondent does owe them that sum of money. The CA affirmed the lower court decision upon the court hence this petition.

Issue:

Whether or not petitioner has established substantial evidence that respondent is liable for the overdraft on his account?

Ruling:

The court held that the ledger presented is not competent evidence to prove that the respondent consented to the transaction made on his account. Petitioner invoked Section 43 of Rule 130: “Entries in the course of business – Entries made at, or near the time of the transactions to which they refer, by a person deceased, or unable to testify, who was in a position to know the facts therein stated, may be received as prima facie evidence, if such person made the entries in his professional capacity or in the performance of duty and in the ordinary or regular course of business or duty.” Under this exception to the hearsay rule, the admission in evidence of entries in corporate books required the satisfaction of the following conditions: 1. the person who made the entry must be dead, or unable to testify; 2. the entries were made at or near the time of the transactions to which they refer; 3. the entrant was in a position to know the facts stated in the entries; 4. the entries were made in his professional capacity or in the performance of a duty, whether legal, contractual, moral or religious; and 5. the entries were made in the ordinary or regular course of business or duty.

The ledger entries did not meet the first and third requisites. It was due to Mercado’s testimony that the ledgers were presented thus there is no need to justify its necessity for presentation since the person who made them was available to testify in court. Mercado does not have personal knowledge as to the truthfulness of the entries after stating that the agreement was made between Qui and Gan. It is undeniable that the ledger does contains the transaction records in the ordinary course of business but it cannot be used as a prima facie evidence as to the facts that were recorded therein. Mercado knows the facts of the entry of the check deposits and the withdrawals but he does not have knowledge as to the facts involving the debit memos issued to support the transaction.

Petitioner argues that the respondent is estopped from denying the petitioner’s claim after benefiting from the special agreement accorded to him resulting to the negative balance. The court held that the principle of estoppel is not applicable at the case at bar since it was not established that the respondent received the copy of the ledger to be given the chance to review the entries therein. Respondent did not benefit from the said agreement since the fund transfer was from and not to the respondent’s account. Hence, the benefit goes to another person’s account and not from the respondent’s. The court denied the petition and affirmed the lower courts’ decision.

3. First Planters Pawnshop, Inc. v Commissioner of Internal Revenue, GR No. 174134, July 30, 2008

Facts:

The BIR informed the petitioner on its VAT and Documentary Stamp Tax (DST) deficiency for the year 2000. The petitioner protested after receiving the formal assessment notice from the BIR directing it to pay its VAT deficiencies with surcharges and interest. They contend they are not a lending investor within the scope of Section 108 (A) of the National Internal Revenue Code therefore not subject to Vat and that a pawn ticket is not subject to DST because it is not a proof of pledge of transaction. Their protest was denied by the BIR Regional Director and their appeal was likewise denied by the Court of Tax Appeal hence this petition for review.

Issue:Whether or not pawnshops maybe subjected to VAT and Documentary stamp tax?

Ruling:

At the time of the disputed assessment in 2000, pawnshops were not subject to 10% under the general provision on "sale or exchange of services" as defined under Section 108(A) of the Tax Code of 1997 which was amended by the RA 9238 classifying pawnshops as “Other Non-Bank Financial Intermediaries.” Since petitioner is a non-bank financial intermediary, it is subject to 10% VAT for the tax years 1996 to 2002; however, with the levy, assessment and collection of VAT from non-bank financial intermediaries being specifically deferred by law, then petitioner is not liable for VAT during these tax years. But with the full implementation of the VAT system on non-bank financial intermediaries starting January 1, 2003, petitioner is liable for 10% VAT for said tax year. And beginning 2004 up to the present, by virtue of R.A. No. 9238, petitioner is no longer liable for VAT but it is subject to percentage tax on gross receipts from 0% to 5 %, as the case may be.

Pawnshops are liable for documentary stamp tax. Subject of DST is not limited to the document alone. Pledge (which is an exercise of a privilege to transfer obligations, rights or properties incident thereto) is essentially the business of pawnshops which are defined under Section 3 of Presidential Decree No. 114, or the Pawnshop Regulation Act, as persons or entities engaged in lending money on personal property delivered as security for loans. The DST is an excise tax imposed in the exercise of a pledge. Although the law does not consider a pawn ticket as an evidence of security or indebtedness, for purposes of taxation it is treated as an exercise of a taxable privilege of concluding a contract of pledge.

Thus, the court partially granted the petition where the decision on the BIR assessment on VAT deficiency is reversed and set aside while the decision on payment for DST is affirmed.

R.A. No. 337, as amended, or the General Banking Act characterizes the terms banking institution and bank as synonymous and interchangeable and specifically include commercial banks, savings bank, mortgage banks, development banks, rural banks, stock savings and loan associations, and branches and agencies in the Philippines of foreign banks. R.A. No. 8791 or the General Banking Law of 2000, meanwhile, provided that banks shall refer to entities engaged in the lending of funds obtained in the form of deposits.

R.A. No. 8791 also included cooperative banks, Islamic banks and other banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas in the classification of banks. phi1

Financial intermediaries are defined as "persons or entities whose principal functions include the lending, investing or placement of funds or evidences of indebtedness or equity deposited with them, acquired by them, or otherwise coursed through them, either for their own account or for the account of others."

Section 3 of P.D. No. 114 defines pawnshop as "a person or entity engaged in the business of lending money on personal property delivered as security for loans and shall be synonymous, and may be used interchangeably, with pawnbroker or pawn brokerage."

4. Philippine Savings Bank v Chowking Food Corp. GR No. 177526, July 4, 2008

Facts:

Rino Manzano, acting accounting manager of Chowking, endorsed and encashed from the petitioner 5 checks amounting to a total of P556,981.86. The checks were encashed without the signatures of the other authorized officials of Chowking but was accepted and honored by Santos. Manzano misappropriated the amount and when Chowking found out it demanded reimbursement from the bank. The bank refused thus the respondent filed a complaint for the sum of money with damages. It impleaded the bank president, Antonio Abacan and the bank branch manager, Santos who in turn filed a cross claim and third party complaint against Manzano. But summon was not served to Manzano and the third party complaint was archived when Santos did not take any further action. The bank maintained it exercised due diligence in the supervision of its employees while Santos denied to be negligent on her job. Abacan invokes that the respondent does not have any cause of action against him because he has no involvement in the transaction. Santos and Abacan both contend that Chowking is estopped from claiming reimbursement and damages because of its negligence for allowing Manzano to take hold, endorse and encash its checks.

RTC Ruling: Ordered the bank and Santos to pay Chowking jointly and severally. Likewise Santos and Manzano are jointly and severally ordered to reimburse the bank for whatever amount the bank will be paying to Chowking. On motion for reconsideration, the court dismissed the complaint of Chowking and ordered Manzano or Santos to pay Chowking for reimbursement and damages. Chowking appealed before the CA assailing the court decision that the proximate cause of its loss is due to its negligence.

CA Ruling: Bank and Santos should bear the loss since it is undisputed that Santos was negligent for honoring the checks signed only by Manzano. Art. 2180 provides that the obligation imposed on Art. 2176 on negligence is demandable not only to one’s own act but also to the acts of persons for whom one is responsible. Hence the bank is liable for the negligence of its employee. The bank invokes that Chowking is estopped from its claim against the bank and that the proximate cause of its loss is due to its own negligence.

Issue: Whether or not Chowking is estopped from its claim against the petitioner and whether Chowking should bear the loss from its own negligence.

Ruling:

The doctrine of estoppel is not applicable in the case at bar. For estoppel to occur the following requisites should be met: (a) conduct amounting to false representation or concealment of material facts or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (b) intent, or at least expectation that this conduct shall be acted upon, or at least influenced by the other party; and (c) knowledge, actual or constructive of the actual facts. Chowking did not in any way show misrepresentation on the material facts on the encashment of checks. They do not allow the encashment of checks without the signature of all its authorized signatories. This the bank knows as the customary practice of Chowking and it failed to provide evidence to show they observe due diligence required from banks by the law. The General Banking Law 2000 imposes to all banks to observe meticulous care in treating the accounts of their depositors. The bank’s negligence contributed to the fraud committed by Manzano as it is primarily liable for the negligence

of its officers and agents who are acting within the scope of their employment. Petition was denied.

5. Citibank vs spouses CabamonganGR No. 146918, May 2, 2006

FACTS:

Spouses Cabamongan opened a joint and/or foreign currency time deposit in favor of their two children with Citibank. On a material date, a person who claimed to be Carmelita sought the pre-termination of the account. She presented identification cards to ascertain her identity to the then account officer. When she left with the money, she left an identification card. She filled up the necessary forms for pre-termination of deposits with the assistance of Account Officer Yeye San Pedro. While the transaction was being processed, she was casually interviewed by San Pedro about her personal circumstances and investment plans. Since the said person failed to surrender the original Certificate of Deposit, she had to execute a notarized release and waiver document in favor of Citibank, pursuant to Citibank's internal procedure, before the money was released to her. The release and waiver document was not notarized on that same day but the money was nonetheless given to the person withdrawing. The transaction lasted for about 40 minutes.After said person left, San Pedro realized that she left behind an identification card. The account officer then called up the address. The spouses and their family knew of the incident. They were presently residing in the US and there was a prior incident wherein they got robbed in their house with the jewelry box and cards stolen. Spouses made several demands for the return of the amount but Citibank refused to do so.

HELD:

Citibank was negligent.

First, the “depositor” didn’t present the Certificate of Deposit. This would not have been an insurmountable obstacle as the bank, in the absence of such certificate, allows the termination of the deposit for as long as the depositor executes a notarized release and waiver document in favor of the bank. However, this simple procedure was not followed by the bank, as it terminated the deposit and actually delivered the money to the impostor without having the said document notarized on the flimsy excuse that another department of the bank was in charge of notarization. The said procedure was obviously for the protection of the bank but it deliberately ignored such precaution. At the very least, the conduct of the bank amounts to negligence.

Second, from the internal memorandum issued by the Account Officer, he admitted to the fact that the specimen signature was different from the one who misrepresented herself as Carmelita. San Pedro was able to detect discrepancies in the signatures but she did not exercise additional precautions to ascertain the identity of the person she was dealing with. In fact, the entire transaction took only 40 minutes to complete despite the anomalous situation. Undoubtedly, the bank could have done a better job

Third, the bank kept in its records pictures of its depositors. It is inconceivable how the bank was duped by an impostor. San Pedro admitted in her testimony that the woman she dealt with did not resemble the pictures appearing on the identification cards presented but San Pedro still went on with the sensitive transaction. She did not mind such disturbing anomaly because she was convinced of the validity of the passport. She also considered as decisive the fact that the impostor had a mole on her face in the same way

that the person in the pictures on the identification cards had a mole. These explanations do not account for the disparity between the pictures and the actual appearance of the impostor. That said person was allowed to withdraw the money anyway is beyond belief.Bank transactions pass through a successive of bank personnel, whose duty is to check and countercheck transactions for possible errors. While a bank is not expected to be infallible, it must bear the blame for failing to discover mistakes of its employees despite established bank procedure involving a battery of personnel designed to minimize if not eliminate errors.

Phil. Banking Corp. vs CAGR. No. 127469

Facts:

Leonilo Marcos filed in court a complaint for sum of money with damages against Phil. Banking Corporation (PBC). Marcos allegedly made a time deposit in 2 occasions the amt. of P664,897.67 and P764,897.67 through the persuasion of his friend Pagsaligan, one of the bank’s officials. The bank issued receipt for the first deposit while a letter-certification was issued for his second deposit by Pagsaligan. Pagsaligan kept the various time deposit certificates. When Marcos wanted to withdraw his time deposit and its accumulated interest Pagsaligan encouraged him to open a letter of credit to the bank by executing 3 trust receipts agreement. He signed blank forms for domestic letter of credits, trust receipts agreements and promissory notes. He was required to deposit 30% of the total amount of credit and his time deposit will secure the remaining 70% of the letters of credit.

He is now accusing the bank for unjustly collecting payment without deducting the 30% of his down payment and charging him with accumulating interests since his time deposit serves as collateral for his remaining obligation. He further denied making a loan of P500,000 with 25% interest per annum covered by a promissory note produced by the bank. The bank explained that the promissory notes he executed are distinct from the trust receipt agreement and denied falsifying the promissory note covering for the loan of P500,000. The evidence presented on the promissory note however is merely a machine copy of the document. The said loan was already paid by offsetting it from his time deposit.

Issue:Whether or not the bank failed to take a proper account on Marcos’ deposits and payment of his loans?

Ruling:

The court held that the bank is liable for offsetting the time deposit of Marcos to the fictitious promissory note for the 500,000 loan. The court upheld the findings of the lower court on the discrepancies shown by the machine copy of the duplicate of the promissory note and the suspicious claim of the bank that it could not produce the original copy thereof. The mere machine copy of the document has no evidentiary value before the court. The court held that the bank did not forge the promissory note. Pagsaligan did to cover up his failure to give the proper account of Marcos’ time deposits. This however does not excuse the bank to return to Marcos the correct amount of his time deposit with interest. Bank has the fiduciary duty before its clients. Its duty is to observe the highest standards of integrity and performance. Assuming Pagsaligan is responsible for the spurious promissory note the court held that a bank is liable for the wrongful acts of its officers. The court made the proper account of the total amount due to Marcos ordering the bank to give to him the same plus moral and exemplary damages.