BANKING FULL CASES JULY 7, 2015
GR 880313 simex intl vs ca
118492 reyes vs ca
rp vs security credit L-20583
central bank vs morfe L-20119
BPI family vs franco 123498
bpi vs ca 104612
Vitug vs Ca 82027
BPI vs IAC 206 scra 408
Go vs IAC 197 scra 22 1991
firestone vs ca 113236
PBCom v CA 269 scra 695 1997
salvacion vs CB 94723
rcbc v de castro 168 scra 49
G.R. No. 88013 March 19, 1990
SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL
BANK, respondents.
CRUZ, J.:
We are concerned in this case with the question of damages, specifically moral
and exemplary damages. The negligence of the private respondent has already
been established. All we have to ascertain is whether the petitioner is entitled to
the said damages and, if so, in what amounts.
The parties agree on the basic facts. The petitioner is a private corporation
engaged in the exportation of food products. It buys these products from various
local suppliers and then sells them abroad, particularly in the United States,
Canada and the Middle East. Most of its exports are purchased by the petitioner
on credit.
The petitioner was a depositor of the respondent bank and maintained a checking
account in its branch at Romulo Avenue, Cubao, Quezon City. On May 25, 1981,
the petitioner deposited to its account in the said bank the amount of P100,000.00,
thus increasing its balance as of that date to P190,380.74. 1 Subsequently, the
petitioner issued several checks against its deposit but was suprised to learn later
that they had been dishonored for insufficient funds.
The dishonored checks are the following:
1. Check No. 215391 dated May 29, 1981, in favor of California
Manufacturing Company, Inc. for P16,480.00:
2. Check No. 215426 dated May 28, 1981, in favor of the
Bureau of Internal Revenue in the amount of P3,386.73:
3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg
Pedreo in the amount of P7,080.00;
4. Check No. 215441 dated June 5, 1981, in favor of Malabon
Longlife Trading Corporation in the amount of P42,906.00:
5. Check No. 215474 dated June 10, 1981, in favor of Malabon
Longlife Trading Corporation in the amount of P12,953.00:
6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land
Services, Inc. in the amount of P27,024.45:
7. Check No. 215412 dated June 10, 1981, in favor of Baguio
Country Club Corporation in the amount of P4,385.02: and
8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta
Bayla in the amount of P6,275.00. 2
As a consequence, the California Manufacturing Corporation sent on June 9,
1981, a letter of demand to the petitioner, threatening prosecution if the
dishonored check issued to it was not made good. It also withheld delivery of the
order made by the petitioner. Similar letters were sent to the petitioner by the
Malabon Long Life Trading, on June 15, 1981, and by the G. and U. Enterprises,
on June 10, 1981. Malabon also canceled the petitioner's credit line and demanded
that future payments be made by it in cash or certified check. Meantime, action on
the pending orders of the petitioner with the other suppliers whose checks were
dishonored was also deferred.
The petitioner complained to the respondent bank on June 10,
1981. 3 Investigation disclosed that the sum of P100,000.00 deposited by the
petitioner on May 25, 1981, had not been credited to it. The error was rectified on
June 17, 1981, and the dishonored checks were paid after they were re-
deposited. 4
In its letter dated June 20, 1981, the petitioner demanded reparation from the
respondent bank for its "gross and wanton negligence." This demand was not met.
The petitioner then filed a complaint in the then Court of First Instance of Rizal
claiming from the private respondent moral damages in the sum of P1,000,000.00
and exemplary damages in the sum of P500,000.00, plus 25% attorney's fees, and
costs.
BANKING FULL CASES JULY 7, 2015
After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and
exemplary damages were not called for under the circumstances. However,
observing that the plaintiff's right had been violated, he ordered the defendant to
pay nominal damages in the amount of P20,000.00 plus P5,000.00 attorney's fees
and costs. 5 This decision was affirmed in toto by the respondent court.
6
The respondent court found with the trial court that the private respondent was
guilty of negligence but agreed that the petitioner was nevertheless not entitled to
moral damages. It said:
The essential ingredient of moral damages is proof of bad faith
(De Aparicio vs. Parogurga, 150 SCRA 280). Indeed, there was
the omission by the defendant-appellee bank to credit
appellant's deposit of P100,000.00 on May 25, 1981. But the
bank rectified its records. It credited the said amount in favor of
plaintiff-appellant in less than a month. The dishonored checks
were eventually paid. These circumstances negate any
imputation or insinuation of malicious, fraudulent, wanton and
gross bad faith and negligence on the part of the defendant-
appellant.
It is this ruling that is faulted in the petition now before us.
This Court has carefully examined the facts of this case and finds that it cannot
share some of the conclusions of the lower courts. It seems to us that the
negligence of the private respondent had been brushed off rather lightly as if it
were a minor infraction requiring no more than a slap on the wrist. We feel it is
not enough to say that the private respondent rectified its records and credited the
deposit in less than a month as if this were sufficient repentance. The error should
not have been committed in the first place. The respondent bank has not even
explained why it was committed at all. It is true that the dishonored checks were,
as the Court of Appeals put it, "eventually" paid. However, this took almost a
month when, properly, the checks should have been paid immediately upon
presentment.
As the Court sees it, the initial carelessness of the respondent bank, aggravated by
the lack of promptitude in repairing its error, justifies the grant of moral damages.
This rather lackadaisical attitude toward the complaining depositor constituted the
gross negligence, if not wanton bad faith, that the respondent court said had not
been established by the petitioner.
We also note that while stressing the rectification made by the respondent bank,
the decision practically ignored the prejudice suffered by the petitioner. This was
simply glossed over if not, indeed, disbelieved. The fact is that the petitioner's
credit line was canceled and its orders were not acted upon pending receipt of
actual payment by the suppliers. Its business declined. Its reputation was
tarnished. Its standing was reduced in the business community. All this was due to
the fault of the respondent bank which was undeniably remiss in its duty to the
petitioner.
Article 2205 of the Civil Code provides that actual or compensatory damages may
be received "(2) for injury to the plaintiff s business standing or commercial
credit." There is no question that the petitioner did sustain actual injury as a result
of the dishonored checks and that the existence of the loss having been established
"absolute certainty as to its amount is not required." 7 Such injury should bolster
all the more the demand of the petitioner for moral damages and justifies the
examination by this Court of the validity and reasonableness of the said claim.
We agree that moral damages are not awarded to penalize the defendant but to
compensate the plaintiff for the injuries he may have suffered. 8 In the case at bar,
the petitioner is seeking such damages for the prejudice sustained by it as a result
of the private respondent's fault. The respondent court said that the claimed losses
are purely speculative and are not supported by substantial evidence, but if failed
to consider that the amount of such losses need not be established with exactitude
precisely because of their nature. Moral damages are not susceptible of pecuniary
estimation. Article 2216 of the Civil Code specifically provides that "no proof of
pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or
exemplary damages may be adjudicated." That is why the determination of the
amount to be awarded (except liquidated damages) is left to the sound discretion
of the court, according to "the circumstances of each case."
From every viewpoint except that of the petitioner's, its claim of moral damages in
the amount of P1,000,000.00 is nothing short of preposterous. Its business
certainly is not that big, or its name that prestigious, to sustain such an extravagant
pretense. Moreover, a corporation is not as a rule entitled to moral damages
because, not being a natural person, it cannot experience physical suffering or
such sentiments as wounded feelings, serious anxiety, mental anguish and moral
shock. The only exception to this rule is where the corporation has a good
reputation that is debased, resulting in its social humiliation. 9
We shall recognize that the petitioner did suffer injury because of the private
respondent's negligence that caused the dishonor of the checks issued by it. The
immediate consequence was that its prestige was impaired because of the
bouncing checks and confidence in it as a reliable debtor was diminished. The
private respondent makes much of the one instance when the petitioner was sued
in a collection case, but that did not prove that it did not have a good reputation
that could not be marred, more so since that case was ultimately settled. 10
It does
not appear that, as the private respondent would portray it, the petitioner is an
unsavory and disreputable entity that has no good name to protect.
Considering all this, we feel that the award of nominal damages in the sum of
P20,000.00 was not the proper relief to which the petitioner was entitled. Under
Article 2221 of the Civil Code, "nominal damages are adjudicated in order that a
right of the plaintiff, which has been violated or invaded by the defendant, may be
BANKING FULL CASES JULY 7, 2015
vindicated or recognized, and not for the purpose of indemnifying the plaintiff for
any loss suffered by him." As we have found that the petitioner has indeed
incurred loss through the fault of the private respondent, the proper remedy is the
award to it of moral damages, which we impose, in our discretion, in the same
amount of P20,000.00.
Now for the exemplary damages.
The pertinent provisions of the Civil Code are the following:
Art. 2229. Exemplary or corrective damages are imposed, by
way of example or correction for the public good, in addition to
the moral, temperate, liquidated or compensatory damages.
Art. 2232. In contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.
The banking system is an indispensable institution in the modern world and plays
a vital role in the economic life of every civilized nation. Whether as mere passive
entities for the safekeeping and saving of money or as active instruments of
business and commerce, banks have become an ubiquitous presence among the
people, who have come to regard them with respect and even gratitude and, most
of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust
his life's savings to the bank of his choice, knowing that they will be safe in its
custody and will even earn some interest for him. The ordinary person, with equal
faith, usually maintains a modest checking account for security and convenience
in the settling of his monthly bills and the payment of ordinary expenses. As for
business entities like the petitioner, the bank is a trusted and active associate that
can help in the running of their affairs, not only in the form of loans when needed
but more often in the conduct of their day-to-day transactions like the issuance or
encashment of checks.
In every case, the depositor expects the bank to treat his account with the utmost
fidelity, whether such account consists only of a few hundred pesos or of millions.
The bank must record every single transaction accurately, down to the last
centavo, and as promptly as possible. This has to be done if the account is to
reflect at any given time the amount of money the depositor can dispose of as he
sees fit, confident that the bank will deliver it as and to whomever he directs. A
blunder on the part of the bank, such as the dishonor of a check without good
reason, can cause the depositor not a little embarrassment if not also financial loss
and perhaps even civil and criminal litigation.
The point is that as a business affected with public interest and because of the
nature of its functions, the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of
their relationship. In the case at bar, it is obvious that the respondent bank was
remiss in that duty and violated that relationship. What is especially deplorable is
that, having been informed of its error in not crediting the deposit in question to
the petitioner, the respondent bank did not immediately correct it but did so only
one week later or twenty-three days after the deposit was made. It bears repeating
that the record does not contain any satisfactory explanation of why the error was
made in the first place and why it was not corrected immediately after its
discovery. Such ineptness comes under the concept of the wanton manner
contemplated in the Civil Code that calls for the imposition of exemplary
damages.
After deliberating on this particular matter, the Court, in the exercise of its
discretion, hereby imposes upon the respondent bank exemplary damages in the
amount of P50,000.00, "by way of example or correction for the public good," in
the words of the law. It is expected that this ruling will serve as a warning and
deterrent against the repetition of the ineptness and indefference that has been
displayed here, lest the confidence of the public in the banking system be further
impaired.
ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private
respondent is ordered to pay the petitioner, in lieu of nominal damages, moral
damages in the amount of P20,000.00, and exemplary damages in the amount of
P50,000.00 plus the original award of attorney's fees in the amount of P5,000.00,
and costs.
SO ORDERED.
SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL
BANK, respondents.
BOTTOMLINE: You got preexisting 90K and you deposited 100K, but it was not
updated by the bank, 8 checks bounced and you lost business partners. (burn
down the bank? hahaha) Can you demand moral and exemplary damages?
FACTS: We are concerned in this case with the question of damages, specifically
moral and exemplary damages The petitioner is a private corporation engaged in
the exportation of food products. It buys these products from various local
suppliers and then sells them abroad, particularly in the United States, Canada and
the Middle East. Most of its exports are purchased by the petitioner on credit. The
petitioner was a depositor of the respondent bank and maintained a checking
account in its branch at Romulo Avenue, account in the said bank the amount of
P100,000.00, thus increasing its balance as of that date to P190,380.74. , the
petitioner issued several checks against its deposit but was surprised to learn later
that they had been dishonored for insufficient funds. There were 8 dishonored
checks.
BANKING FULL CASES JULY 7, 2015
The California Manufacturing Corporation sent on June 9, 1981, a letter
of demand to the petitioner, threatening prosecution if the dishonored check
issued to it was not made good. . Malabon also canceled the petitioner's credit line
and demanded that future payments be made by it in cash or certified check The
petitioner complained to the respondent bank on June 10, 1981. 3 Investigation
disclosed that the sum of P100,000.00 deposited by the petitioner on May 25,
1981, had not been credited to it. The error was rectified on June 17, 1981, and the
dishonored checks were paid after they were re-deposited , the petitioner
demanded reparation from the respondent bank for its "gross and wanton
negligence." This demand was not met. Court of First Instance of Rizal claiming
from the private respondent moral damages in the sum of P1,000,000.00 and
exemplary damages in the sum of P500,000.00, plus 25% attorney's fees, and
costs.
Judge Johnico G. Serquinia rendered judgment holding that moral and exemplary
damages were not called for under the circumstances. However, observing that the
plaintiff's right had been violated, he ordered the defendant to pay nominal
damages in the amount of P20,000.00 plus P5,000.00 attorney's fees and costs.
The respondent court found with the trial court that the private respondent was
guilty of negligence but agreed that the petitioner was nevertheless not entitled to
moral damages The error should not have been committed in the first place. The
respondent bank has not even explained why it was committed at all. It is true that
the dishonored checks were, as the Court of Appeals put it, "eventually" paid.
However, this took almost a month when, properly, the checks should have been
paid immediately upon presentment.
ISSUE: After all that you went through, the judge only awarded you 20k and 5k,
can you demand for 1,000,000 damage?
RULING:
We also note that while stressing the rectification made by the respondent bank,
the decision practically ignored the prejudice suffered by the petitioner. Article
2205 of the Civil Code provides that actual or compensatory damages may be
received "(2) for injury to the plaintiff s business standing or commercial credit."
We agree that moral damages are not awarded to penalize the defendant but to
compensate the plaintiff for the injuries he may have suffered From every
viewpoint except that of the petitioner's, its claim of moral damages in the amount
of P1,000,000.00 is nothing short of preposterous. Its business certainly is not that
big, or its name that prestigious, to sustain such an extravagant pretense
Considering all this, we feel that the award of nominal damages in the sum of
P20,000.00 was not the proper relief to which the petitioner was entitled. Under
Article 2221 of the Civil Code, "nominal damages are adjudicated in order that a
right of the plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the plaintiff for
any loss suffered by him." the proper remedy is the award to it of moral damages,
which we impose, in our discretion, in the same amount of P20,000.00.
After deliberating on this particular matter, the Court, in the exercise of its
discretion, hereby imposes upon the respondent bank exemplary damages in the
amount of P50,000.00, ACCORDINGLY, the appealed judgment is hereby
MODIFIED and the private respondent is ordered to pay the petitioner, in lieu of
nominal damages, moral damages in the amount of P20,000.00, and exemplary
damages in the amount of P50,000.00 plus the original award of attorney's fees in
the amount of P5,000.00, and costs.
SECOND DIVISION
[G.R. No. 118492. August 15, 2001]
GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners,
vs. THE HON. COURT OF APPEALS and FAR EAST BANK AND
TRUST COMPANY,respondents.
D E C I S I O N
DE LEON, JR., J.:
Before us is a petition for review of the Decision[1]
dated July 22, 1994 and
Resolution[2]
dated December 29, 1994 of the Court of Appeals[3]
affirming with
modification the Decision[4]
dated November 12, 1992 of the Regional Trial Court
of Makati, Metro Manila, Branch 64, which dismissed the complaint for damages
of petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes against
respondent Far East Bank and Trust Company.
The undisputed facts of the case are as follows:
In view of the 20th
Asian Racing Conference then scheduled to be held in
September, 1988 in Sydney, Australia, the Philippine Racing Club, Inc. (PRCI,
for brevity) sent four (4) delegates to the said conference. Petitioner Gregorio H.
Reyes, as vice-president for finance, racing manager, treasurer, and director of
PRCI, sent Godofredo Reyes, the clubs chief cashier, to the respondent bank to
apply for a foreign exchange demand draft in Australian dollars.
Godofredo went to respondent banks Buendia Branch in Makati City to
apply for a demand draft in the amount One Thousand Six Hundred Ten
Australian Dollars (AU$1,610.00) payable to the order of the 20th
Asian Racing
Conference Secretariat of Sydney, Australia. He was attended to by respondent
banks assistant cashier, Mr. Yasis, who at first denied the application for the
reason that respondent bank did not have an Australian dollar account in any bank
in Sydney. Godofredo asked if there could be a way for respondent bank to
accommodate PRCIs urgent need to remit Australian dollars to Sydney. Yasis of
respondent bank then informed Godofredo of a roundabout way of effecting the
BANKING FULL CASES JULY 7, 2015
requested remittance to Sydney thus: the respondent bank would draw a demand
draft against Westpac Bank in Sydney, Australia (Westpac-Sydney for brevity)
and have the latter reimburse itself from the U.S. dollar account of the respondent
in Westpac Bank in New York, U.S.A (Westpac-New York for brevity). This
arrangement has been customarily resorted to since the 1960s and the procedure
has proven to be problem-free. PRCI and the petitioner Gregorio H. Reyes, acting
through Godofredo, agreed to this arrangement or approach in order to effect the
urgent transfer of Australian dollars payable to the Secretariat of the 20th
Asian
Racing Conference.
On July 28, 1988, the respondent bank approved the said application of
PRCI and issued Foreign Exchange Demand Draft (FXDD) No. 209968 in the
sum applied for, that is, One Thousand Six Hundred Ten Australian Dollars
(AU$1,610.00), payable to the order of the 20th
Asian Racing Conference
Secretariat of Sydney, Australia, and addressed to Westpac-Sydney as the drawee
bank.
On August 10, 1988, upon due presentment of the foreign exchange demand
draft, denominated as FXDD No. 209968, the same was dishonored, with the
notice of dishonor stating the following: xxx No account held with Westpac.
Meanwhile, on August 16, 1988, Westpac-New York sent a cable to respondent
bank informing the latter that its dollar account in the sum of One Thousand Six
Hundred Ten Australian Dollars (AU$1,610.00) was debited. On August 19,
1988, in response to PRCIs complaint about the dishonor of the said foreign
exchange demand draft, respondent bank informed Westpac-Sydney of the
issuance of the said demand draft FXDD No. 209968, drawn against the Westpac-
Sydney and informing the latter to be reimbursed from the respondent banks
dollar account in Westpac-New York. The respondent bank on the same day
likewise informed Westpac-New York requesting the latter to honor the
reimbursement claim of Westpac-Sydney. On September 14, 1988, upon its
second presentment for payment, FXDD No. 209968 was again dishonored by
Westpac-Sydney for the same reason, that is, that the respondent bank has no
deposit dollar account with the drawee Westpac-Sydney.
On September 17, 1988 and September 18, 1988, respectively, petitioners
spouses Gregorio H. Reyes and Consuelo Puyat-Reyes left for Australia to attend
the said racing conference. When petitioner Gregorio H. Reyes arrived in Sydney
in the morning of September 18, 1988, he went directly to the lobby of Hotel
Regent Sydney to register as a conference delegate. At the registration desk, in the
presence of other delegates from various member countries, he was told by a lady
member of the conference secretariat that he could not register because the foreign
exchange demand draft for his registration fee had been dishonored for the second
time. A discussion ensued in the presence and within the hearing of many
delegates who were also registering. Feeling terribly embarrassed and humiliated,
petitioner Gregorio H. Reyes asked the lady member of the conference secretariat
that he be shown the subject foreign exchange demand draft that had been
dishonored as well as the covering letter after which he promised that he would
pay the registration fees in cash. In the meantime he demanded that he be given
his name plate and conference kit. The lady member of the conference secretariat
relented and gave him his name plate and conference kit. It was only two (2) days
later, or on September 20, 1988, that he was given the dishonored demand draft
and a covering letter. It was then that he actually paid in cash the registration fees
as he had earlier promised.
Meanwhile, on September 19, 1988, petitioner Consuelo Puyat-Reyes
arrived in Sydney. She too was embarrassed and humiliated at the registration
desk of the conference secretariat when she was told in the presence and within
the hearing of other delegates that she could not be registered due to the dishonor
of the subject foreign exchange demand draft. She felt herself trembling and
unable to look at the people around her. Fortunately, she saw her husband coming
toward her. He saved the situation for her by telling the secretariat member that he
had already arranged for the payment of the registration fees in cash once he was
shown the dishonored demand draft. Only then was petitioner Puyat-Reyes given
her name plate and conference kit.
At the time the incident took place, petitioner Consuelo Puyat-Reyes was a
member of the House of Representatives representing the lone Congressional
District of Makati, Metro Manila. She has been an officer of the Manila Banking
Corporation and was cited by Archbishop Jaime Cardinal Sin as the top lady
banker of the year in connection with her conferment of the Pro-Ecclesia et
Pontifice Award. She has also been awarded a plaque of appreciation from the
Philippine Tuberculosis Society for her extraordinary service as the Societys
campaign chairman for the ninth (9th
) consecutive year.
On November 23, 1988, the petitioners filed in the Regional Trial Court of
Makati, Metro Manila, a complaint for damages, docketed as Civil Case No. 88-
2468, against the respondent bank due to the dishonor of the said foreign
exchange demand draft issued by the respondent bank. The petitioners claim that
as a result of the dishonor of the said demand draft, they were exposed to
unnecessary shock, social humiliation, and deep mental anguish in a foreign
country, and in the presence of an international audience.
On November 12, 1992, the trial court rendered judgment in favor of the
defendant (respondent bank) and against the plaintiffs (herein petitioners), the
dispositive portion of which states:
WHEREFORE, judgment is hereby rendered in favor of the defendant, dismissing
plaintiffs complaint, and ordering plaintiffs to pay to defendant, on its
counterclaim, the amount of P50,000.00, as reasonable attorneys fees. Costs
against the plaintiff.
SO ORDERED.[5]
The petitioners appealed the decision of the trial court to the Court of
Appeals. On July 22, 1994, the appellate court affirmed the decision of the trial
court but in effect deleted the award of attorneys fees to the defendant (herein
respondent bank) and the pronouncement as to the costs. The decretal portion of
the decision of the appellate court states:
BANKING FULL CASES JULY 7, 2015
WHEREFORE, the judgment appealed from, insofar as it dismisses plaintiffs
complaint, is hereby AFFIRMED, but is hereby REVERSED and SET ASIDE in
all other respect. No special pronouncement as to costs.
SO ORDERED.[6]
According to the appellate court, there is no basis to hold the respondent
bank liable for damages for the reason that it exerted every effort for the subject
foreign exchange demand draft to be honored.The appellate court found and
declared that:
xxx xxx xxx
Thus, the Bank had every reason to believe that the transaction finally went
through smoothly, considering that its New York account had been debited and
that there was no miscommunication between it and Westpac-New York. SWIFT
is a world wide association used by almost all banks and is known to be the most
reliable mode of communication in the international banking business. Besides,
the above procedure, with the Bank as drawer and Westpac-Sydney as drawee,
and with Westpac-New York as the reimbursement Bank had been in place since
1960s and there was no reason for the Bank to suspect that this particular demand
draft would not be honored by Westpac-Sydney.
From the evidence, it appears that the root cause of the miscommunications of the
Banks SWIFT message is the erroneous decoding on the part of Westpac-Sydney
of the Banks SWIFT message as an MT799 format. However, a closer look at the
Banks Exhs. 6 and 7 would show that despite what appears to be an asterisk
written over the figure before 99, the figure can still be distinctly seen as a number
1 and not number 7, to the effect that Westpac-Sydney was responsible for the
dishonor and not the Bank.
Moreover, it is not said asterisk that caused the misleading on the part of the
Westpac-Sydney of the numbers 1 to 7, since Exhs. 6 and 7 are just documentary
copies of the cable message sent to Westpac-Sydney. Hence, if there was mistake
committed by Westpac-Sydney in decoding the cable message which caused the
Banks message to be sent to the wrong department, the mistake was Westpacs, not
the Banks. The Bank had done what an ordinary prudent person is required to do
in the particular situation, although appellants expect the Bank to have done more.
The Bank having done everything necessary or usual in the ordinary course of
banking transaction, it cannot be held liable for any embarrassment and
corresponding damage that appellants may have incurred.[7]
xxx xxx xxx
Hence, this petition, anchored on the following assignment of errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN FINDING
PRIVATE RESPONDENT NOT NEGLIGENT BY ERRONEOUSLY
APPLYING THE STANDARD OF DILIGENCE OF AN ORDINARY
PRUDENT PERSON WHEN IN TRUTH A HIGHER DEGREE OF
DILIGENCE IS IMPOSED BY LAW UPON THE BANKS.
II
THE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING
PRIVATE RESPONDENT FROM LIABILITY BY OVERLOOKING THE
FACT THAT THE DISHONOR OF THE DEMAND DRAFT WAS A
BREACH OF PRIVATE RESPONDENTS WARRANTY AS THE
DRAWER THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING
THAT AS SHOWN OVERWHELMINGLY BY THE EVIDENCE, THE
DISHONOR OF THE DEMAND DRAFT WAS DUE TO PRIVATE
RESPONDENTS NEGLIGENCE AND NOT THE DRAWEE BANK.[8]
The petitioners contend that due to the fiduciary nature of the relationship
between the respondent bank and its clients, the respondent bank should have
exercised a higher degree of diligence than that expected of an ordinary prudent
person in the handling of its affairs as in the case at bar. The appellate court,
according to petitioners, erred in applying the standard of diligence of an ordinary
prudent person only. Petitioners also claim that the respondent bank violated
Section 61 of the Negotiable Instruments Law[9]
which provides the warranty of a
drawer that xxx on due presentment, the instrument will be accepted or paid, or
both, according to its tenor xxx. Thus, the petitioners argue that respondent bank
should be held liable for damages for violation of this warranty. The petitioners
pray this Court to re-examine the facts to cite certain instances of negligence.
It is our view and we hold that there is no reversible error in the decision of
the appellate court.
Section 1 of Rule 45 of the Revised Rules of Court provides that (T)he
petition (for review) shall raise only questions of law which must be distinctly set
forth. Thus, we have ruled that factual findings of the Court of Appeals are
conclusive on the parties and not reviewable by this Court and they carry even
more weight when the Court of Appeals affirms the factual findings of the trial
court.[10]
The courts a quo found that respondent bank did not misrepresent that it was
maintaining a deposit account with Westpac-Sydney. Respondent banks assistant
cashier explained to Godofredo Reyes, representating PRCI and petitioner
Gregorio H. Reyes, how the transfer of Australian dollars would be effected
through Westpac-New York where the respondent bank has a dollar account to
BANKING FULL CASES JULY 7, 2015
Westpac-Sydney where the subject foreign exchange demand draft (FXDD No.
209968) could be encashed by the payee, the 20th
Asian Racing Conference
Secretatriat. PRCI and its Vice-President for finance, petitioner Gregorio H.
Reyes, through their said representative, agreed to that arrangement or
procedure. In other words, the petitioners are estopped from denying the said
arrangement or procedure. Similar arrangements have been a long standing
practice in banking to facilitate international commercial transactions. In fact, the
SWIFT cable message sent by respondent bank to the drawee bank, Westpac-
Sydney, stated that it may claim reimbursement from its New York branch,
Westpac-New York where respondent bank has a deposit dollar account.
The facts as found by the courts a quo show that respondent bank did not
cause an erroneous transmittal of its SWIFT cable message to Westpac-Sydney. It
was the erroneous decoding of the cable message on the part of Westpac-Sydney
that caused the dishonor of the subject foreign exchange demand draft. An
employee of Westpac-Sydney in Sydney, Australia mistakenly read the printed
figures in the SWIFT cable message of respondent bank as MT799 instead of as
MT199. As a result, Westpac-Sydney construed the said cable message as a
format for a letter of credit, and not for a demand draft. The appellate court
correctly found that the figure before 99 can still be distinctly seen as a number 1
and not number 7. Indeed, the line of a 7 is in a slanting position while the line of
a 1 is in a horizontal position. Thus, the number 1 in MT199 cannot be construed
as 7.[11]
The evidence also shows that the respondent bank exercised that degree of
diligence expected of an ordinary prudent person under the circumstances
obtaining. Prior to the first dishonor of the subject foreign exchange demand draft,
the respondent bank advised Westpac-New York to honor the reimbursement
claim of Westpac-Sydney and to debit the dollar account[12]
of respondent bank
with the former.As soon as the demand draft was dishonored, the respondent
bank, thinking that the problem was with the reimbursement and without any idea
that it was due to miscommunication, re-confirmed the authority of Westpac-New
York to debit its dollar account for the purpose of reimbursing Westpac-
Sydney.[13]
Respondent bank also sent two (2) more cable messages to Westpac-
New York inquiring why the demand draft was not honored.[14]
With these established facts, we now determine the degree of diligence that
banks are required to exert in their commercial dealings. In Philippine Bank of
Commerce v. Court of Appeals[15]
upholding a long standing doctrine, we ruled
that the degree of diligence required of banks, is more than that of a good father of
a family where the fiduciary nature of their relationship with their depositors is
concerned.In other words banks are duty bound to treat the deposit accounts of
their depositors with the highest degree of care. But the said ruling applies only to
cases where banks act under their fiduciary capacity, that is, as depositary of the
deposits of their depositors. But the same higher degree of diligence is not
expected to be exerted by banks in commercial transactions that do not involve
their fiduciary relationship with their depositors.
Considering the foregoing, the respondent bank was not required to exert
more than the diligence of a good father of a family in regard to the sale and
issuance of the subject foreign exchange demand draft. The case at bar does not
involve the handling of petitioners deposit, if any, with the respondent
bank. Instead, the relationship involved was that of a buyer and seller, that is,
between the respondent bank as the seller of the subject foreign exchange demand
draft, and PRCI as the buyer of the same, with the 20th
Asian Racing Conference
Secretariat in Sydney, Australia as the payee thereof. As earlier mentioned, the
said foreign exchange demand draft was intended for the payment of the
registration fees of the petitioners as delegates of the PRCI to the 20th
Asian
Racing Conference in Sydney.
The evidence shows that the respondent bank did everything within its
power to prevent the dishonor of the subject foreign exchange demand draft. The
erroneous reading of its cable message to Westpac-Sydney by an employee of the
latter could not have been foreseen by the respondent bank. Being unaware that its
employee erroneously read the said cable message, Westpac-Sydney merely stated
that the respondent bank has no deposit account with it to cover for the amount of
One Thousand Six Hundred Ten Australian Dollar (AU$1610.00) indicated in the
foreign exchange demand draft. Thus, the respondent bank had the impression
that Westpac-New York had not yet made available the amount for reimbursement
to Westpac-Sydney despite the fact that respondent bank has a sufficient deposit
dollar account with Westpac-New York. That was the reason why the respondent
bank had to re-confirm and repeatedly notify Westpac-New York to debit its
(respondent banks) deposit dollar account with it and to transfer or credit the
corresponding amount to Westpac-Sydney to cover the amount of the said demand
draft.
In view of all the foregoing, and considering that the dishonor of the subject
foreign exchange demand draft is not attributable to any fault of the respondent
bank, whereas the petitioners appeared to be under estoppel as earlier mentioned,
it is no longer necessary to discuss the alleged application of Section 61 of the
Negotiable Instruments Law to the case at bar. In any event, it was established
that the respondent bank acted in good faith and that it did not cause the
embarrassment of the petitioners in Sydney, Australia. Hence, the Court of
Appeals did not commit any reversable error in its challenged decision.
WHEREFORE, the petition is hereby DENIED, and the assailed decision
of the Court of Appeals is AFFIRMED. Costs against the petitioners.
SO ORDERED.
Reyes VS. CA
Facts: By virtue of the erroneous reading of the cable message by its employee,
Westpac- Sydney asserted that the respondent Bank had no deposit account with it
to cover for the amount of AU$1610.00 indicated in the foreign exchange demand
draft. Consequently, the respondent Bank had the impression that Westpac- New
York had not yet made available the amount for reimbursement to Westpac Sidney despite the fact that Respondent Bank has a sufficient deposit dollar
account with Westpac New York. Nevertheless, the demand draft was not served. Can the Respondent Bank be held liable?
Held: No, when the circumstances show that all efforts were made by the
BANKING FULL CASES JULY 7, 2015
respondent bank to avoid such mistakes.
In Phil. Bank of Commerce v. CA, upholding a long standing doctrine, it was
ruled that the degree of diligence required of bank is more than that of good father
of a family, where the fiduciary nature of their relationship with their depositors is
concerned. In other words, banks are duty bound to test the deposit accounts of
their depositors. But the same higher degree of diligence is not expected to be
executed by banks in commercial instruction that do not involve their fiduciary
relationship with their depositors.
Republic of the Philippines
SUPREME COURT Manila
EN BANC
G.R. No. L-20583 January 23, 1967
REPUBLIC OF THE PHILIPPINES, petitioner,
vs.
SECURITY CREDIT AND ACCEPTANCE CORPORATION, ROSENDO
T. RESUELLO, PABLO TANJUTCO, ARTURO SORIANO, RUBEN
BELTRAN, BIENVENIDO V. ZAPA, PILAR G. RESUELLO, RICARDO D.
BALATBAT, JOSE SEBASTIAN and VITO TANJUTCO JR., respondents.
Office of the Solicitor General Arturo A. Alafriz and Solicitor E. M. Salva for
petitioner.
Sycip, Salazar, Luna, Manalo & Feliciano for respondents.
Natalio M. Balboa and F. E. Evangelista for the receiver.
CONCEPCION, C.J.:
This is an original quo warranto proceeding, initiated by the Solicitor General, to
dissolve the Security and Acceptance Corporation for allegedly engaging in
banking operations without the authority required therefor by the General Banking
Act (Republic Act No. 337). Named as respondents in the petition are, in addition
to said corporation, the following, as alleged members of its Board of Directors
and/or Executive Officers, namely:
NAME POSITION
Rosendo T. Resuello President & Chairman of the Board
Pablo Tanjutco Director
Arturo Soriano Director
Ruben Beltran Director
Bienvenido V. Zapa Director & Vice-President
Pilar G. Resuello Director & Secretary-Treasurer
Ricardo D. Balatbat Director & Auditor
Jose R. Sebastian Director & Legal Counsel
Vito Tanjutco Jr. Director & Personnel Manager
The record shows that the Articles of Incorporation of defendant
corporation1 were registered with the Securities and Exchange Commission on
March 27, 1961; that the next day, the Board of Directors of the corporation
adopted a set of by-laws,2 which were filed with said Commission on April 5,
1961; that on September 19, 1961, the Superintendent of Banks of the Central
Bank of the Philippines asked its legal counsel an opinion on whether or not said
corporation is a banking institution, within the purview of Republic Act No. 337;
that, acting upon this request, on October 11, 1961, said legal counsel rendered an
opinion resolving the query in the affirmative; that in a letter, dated January 15,
1962, addressed to said Superintendent of Banks, the corporation through its
president, Rosendo T. Resuello, one of defendants herein, sought a
reconsideration of the aforementioned opinion, which reconsideration was denied
on March 16, 1962; that, prior thereto, or on March 9, 1961, the corporation had
applied with the Securities and Exchange Commission for the registration and
licensing of its securities under the Securities Act; that, before acting on this
application, the Commission referred it to the Central Bank, which, in turn, gave
the former a copy of the above-mentioned opinion, in line with which, the
Commission advised the corporation on December 5, 1961, to comply with the
requirements of the General Banking Act; that, upon application of members of
the Manila Police Department and an agent of the Central Bank, on May 18, 1962,
the Municipal Court of Manila issued Search Warrant No. A-1019; that, pursuant
thereto, members of the intelligence division of the Central Bank and of the
Manila Police Department searched the premises of the corporation and seized
documents and records thereof relative to its business operations; that, upon the
return of said warrant, the seized documents and records were, with the authority
of the court, placed under the custody of the Central Bank of the Philippines; that,
upon examination and evaluation of said documents and records, the intelligence
division of the Central Bank submitted, to the Acting Deputy Governor thereof, a
memorandum dated September 10, 1962, finding that the corporation is:
1. Performing banking functions, without requisite certificate of authority
from the Monetary Board of the Central Bank, in violation of Secs. 2 and
BANKING FULL CASES JULY 7, 2015
6 of Republic Act 337, in that it is soliciting and accepting deposit from
the public and lending out the funds so received;
2. Soliciting and accepting savings deposits from the general
public when the company's articles of incorporation authorize it only to
engage primarily in financing agricultural, commercial and industrial
projects, and secondarily, in buying and selling stocks and bonds of any
corporation, thereby exceeding the scope of its powers and authority as
granted under its charter; consequently such acts are ultra-vires:
3. Soliciting subscriptions to the corporate shares of stock and accepting
deposits on account thereof, without prior registration and/or licensing
of such shares or securing exemption therefor, in violation of the
Securities Act; and
4. That being a private credit and financial institution, it should come
under the supervision of the Monetary Board of the Central Bank, by
virtue of the transfer of the authority, power, duties and functions of the
Secretary of Finance, Bank Commissioner and the defunct Bureau of
Banking, to the said Board, pursuant to Secs. 139 and 140 of Republic
Act 265 and Secs. 88 and 89 of Republic Act 337." (Emphasis Supplied.)
that upon examination and evaluation of the same records of the
corporation, as well as of other documents and pertinent pipers obtained
elsewhere, the Superintendent of Banks, submitted to the Monetary
Board of the Central Bank a memorandum dated August 28, 1962,
stating inter alia.
11. Pursuant to the request for assistance by the Chief, Intelligence
Division, contained in his Memorandum to the Governor dated May 23,
1962 and in accordance with the written instructions of Governor
Castillo dated May 31, 1962, an examination of the books and records of
the Security Credit and Loans Organizations, Inc. seized by the
combined MPD-CB team was conducted by this Department. The
examination disclosed the following findings:
a. Considering the extent of its operations, the Security Credit
and Acceptance Corporation, Inc.,receives deposits from the
public regularly. Such deposits are treated in the Corporation's
financial statements as conditional subscription to capital stock.
Accumulated deposits of P5,000 of an individual depositor may
be converted into stock subscription to the capital stock of the
Security Credit and Acceptance Corporation at the option of the
depositor. Sale of its shares of stock or subscriptions to its
capital stock are offered to the public as part of its regular
operations.
b. That out of the funds obtained from the public through the
receipt of deposits and/or the sale of securities, loans are made
regularly to any person by the Security Credit and Acceptance
Corporation.
A copy of the Memorandum Report dated July 30, 1962 of the
examination made by Examiners of this Department of the seized books
and records of the Corporation is attached hereto.
12. Section 2 of Republic Act No. 337, otherwise known as the General
Banking Act, defines the term, "banking institution" as follows:
Sec. 2. Only duly authorized persons and entities may engage in
the lending of funds obtained from the public through the
receipts of deposits or the sale of bonds, securities, or
obligations of any kind and all entities regularly conducting
operations shall be considered as banking institutions and shall
be subject to the provisions of this Act, of the Central Bank Act,
and of other pertinent laws. ...
13. Premises considered, the examination disclosed that the Security
Credit and Acceptance Corporation isregularly lending funds obtained
from the receipt of deposits and/or the sale of securities. The
Corporation therefore is performing 'banking functions' as contemplated
in Republic Act No. 337, without having first complied with the
provisions of said Act.
Recommendations:
In view of all the foregoing, it is recommended that the Monetary Board
decide and declare:
1. That the Security Credit and Acceptance Corporation is performing
banking functions without having first complied with the provisions of
Republic Act No. 337, otherwise known as the General Banking Act, in
violation of Sections 2 and 6 thereof; and
2. That this case be referred to the Special Assistant to the Governor
(Legal Counsel) for whatever legal actions are warranted, including, if
warranted criminal action against the Persons criminally liable and/orquo
warranto proceedings with preliminary injunction against the
Corporation for its dissolution. (Emphasis supplied.)
that, acting upon said memorandum of the Superintendent of Banks, on
September 14, 1962, the Monetary Board promulgated its Resolution No.
1095, declaring that the corporation is performing banking operations,
BANKING FULL CASES JULY 7, 2015
without having first complied with the provisions of Sections 2 and 6 of
Republic Act No. 337;3that on September 25, 1962, the corporation was
advised of the aforementioned resolution, but, this notwithstanding, the
corporation, as well as the members of its Board of Directors and the
officers of the corporation, have been and still are performing the
functions and activities which had been declared to constitute illegal
banking operations; that during the period from March 27, 1961 to May
18, 1962, the corporation had established 74 branches in principal cities
and towns throughout the Philippines; that through a systematic and
vigorous campaign undertaken by the corporation, the same had
managed to induce the public to open 59,463 savings deposit accounts
with an aggregate deposit of P1,689,136.74; that, in consequence of the
foregoing deposits with the corporation, its original capital stock of
P500,000, divided into 20,000 founders' shares of stock and 80,000
preferred shares of stock, both of which had a par value of P5.00 each,
was increased, in less than one (1) year, to P3,000,000 divided into
130,000 founders' shares and 470,000 preferred shares, both with a par
value of P5.00 each; and that, according to its statement of assets and
liabilities, as of December 31, 1961, the corporation had a capital stock
aggregating P1,273,265.98 and suffered, during the year 1961, a loss of
P96,685.29. Accordingly, on December 6, 1962, the Solicitor General
commenced this quo warranto proceedings for the dissolution of the
corporation, with a prayer that, meanwhile, a writ of preliminary
injunction be issued ex parte, enjoining the corporation and its branches,
as well as its officers and agents, from performing the banking operations
complained of, and that a receiver be appointed pendente lite.
Upon joint motion of both parties, on August 20, 1963, the Superintendent of
Banks of the Central Bank of the Philippines was appointed by this Court receiver
pendente lite of defendant corporation, and upon the filing of the requisite bond,
said officer assumed his functions as such receiver on September 16, 1963.
In their answer, defendants admitted practically all of the allegations of fact made
in the petition. They, however, denied that defendants Tanjutco (Pablo and Vito,
Jr.), Soriano, Beltran, Zapa, Balatbat and Sebastian, are directors of the
corporation, as well as the validity of the opinion, ruling, evaluation and
conclusions, rendered, made and/or reached by the legal counsel and the
intelligence division of the Central Bank, the Securities and Exchange
Commission, and the Superintendent of Banks of the Philippines, or in Resolution
No. 1095 of the Monetary Board, or of Search Warrant No. A-1019 of the
Municipal Court of Manila, and of the search and seizure made thereunder. By
way of affirmative allegations, defendants averred that, as of July 7, 1961, the
Board of Directors of the corporation was composed of defendants Rosendo T.
Resuello, Aquilino L. Illera and Pilar G. Resuello; that on July 11, 1962, the
corporation had filed with the Superintendent of Banks an application for
conversion into a Security Savings and Mortgage Bank, with defendants Zapa,
Balatbat, Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran and Sebastian as
proposed directors, in addition to the defendants first named above, with
defendants Rosendo T. Resullo, Zapa, Pilar G. Resuello, Balatbat and Sebastian as
proposed president, vice-president, secretary-treasurer, auditor and legal counsel,
respectively; that said additional officers had never assumed their respective
offices because of the pendency of the approval of said application for conversion;
that defendants Soriano, Beltran, Sebastian, Vito Tanjutco Jr. and Pablo Tanjutco
had subsequently withdrawn from the proposed mortgage and savings bank; that
on November 29, 1962 or before the commencement of the present proceedings the corporation and defendants Rosendo T. Resuello and Pilar G. Resuello had instituted Civil Case No. 52342 of the Court of First Instance of
Manila against Purificacion Santos and other members of the savings plan of the
corporation and the City Fiscal for a declaratory relief and an injunction; that on
December 3, 1962, Judge Gaudencio Cloribel of said court issued a writ directing
the defendants in said case No. 52342 and their representatives or agents to refrain
from prosecuting the plaintiff spouses and other officers of the corporation by
reason of or in connection with the acceptance by the same of deposits under its
savings plan; that acting upon a petition filed by plaintiffs in said case No. 52342,
on December 6, 1962, the Court of First Instance of Manila had appointed Jose
Ma. Ramirez as receiver of the corporation; that, on December 12, 1962, said
Ramirez qualified as such receiver, after filing the requisite bond; that, except as
to one of the defendants in said case No. 52342, the issues therein have already
been joined; that the failure of the corporation to honor the demands for
withdrawal of its depositors or members of its savings plan and its former
employees was due, not to mismanagement or misappropriation of corporate
funds, but to an abnormal situation created by the mass demand for withdrawal of
deposits, by the attachment of property of the corporation by its creditors, by the
suspension by debtors of the corporation of the payment of their debts thereto and
by an order of the Securities and Exchange Commission dated September 26,
1962, to the corporation to stop soliciting and receiving deposits; and that the
withdrawal of deposits of members of the savings plan of the corporation was
understood to be subject, as to time and amounts, to the financial condition of the
corporation as an investment firm.
In its reply, plaintiff alleged that a photostat copy, attached to said pleading, of the
anniversary publication of defendant corporation showed that defendants Pablo
Tanjutco, Arturo Soriano, Ruben Beltran, Bienvenido V. Zapa, Ricardo D.
Balatbat, Jose R. Sebastian and Vito Tanjutco Jr. are officers and/or directors
thereof; that this is confirmed by the minutes of a meeting of stockholders of the
corporation, held on September 27, 1962, showing that said defendants had been
elected officers thereof; that the views of the legal counsel of the Central Bank, of
the Securities and Exchange Commission, the Intelligence Division, the
Superintendent of Banks and the Monetary Board above referred to have been
expressed in the lawful performance of their respective duties and have not been
assailed or impugned in accordance with law; that neither has the validity of
Search Warrant No. A-1019 been contested as provided by law; that the only
assets of the corporation now consist of accounts receivable amounting
approximately to P500,000, and its office equipment and appliances, despite its
increased capitalization of P3,000,000 and its deposits amounting to not less than
P1,689,136.74; and that the aforementioned petition of the corporation, in Civil
BANKING FULL CASES JULY 7, 2015
Case No. 52342 of the Court of First Instance of Manila, for a declaratory relief is
now highly improper, the defendants having already committed infractions and
violations of the law justifying the dissolution of the corporation.
Although, admittedly, defendant corporation has not secured the requisite
authority to engage in banking, defendants deny that its transactions partake of the
nature of banking operations. It is conceded, however, that, in consequence of a
propaganda campaign therefor, a total of 59,463 savings account deposits have
been made by the public with the corporation and its 74 branches, with an
aggregate deposit of P1,689,136.74, which has been lent out to such persons as
the corporation deemed suitable therefor. It is clear that these transactions partake
of the nature of banking, as the term is used in Section 2 of the General Banking
Act. Indeed, a bank has been defined as:
... a moneyed institute [Talmage vs. Pell 7 N.Y. (3 Seld. ) 328, 347, 348]
founded to facilitate the borrowing, lending and safe-keeping of money
(Smith vs. Kansas City Title & Trust Co., 41 S. Ct. 243, 255 U.S. 180,
210, 65 L. Ed. 577) and to deal, in notes, bills of exchange, and credits
(State vs. Cornings Sav. Bank, 115 N.W. 937, 139 Iowa 338). (Banks &
Banking, by Zellmann Vol. 1, p. 46).
Moreover, it has been held that:
An investment company which loans out the money of its customers,
collects the interest and charges a commission to both lender and
borrower, is a bank. (Western Investment Banking Co. vs. Murray, 56 P.
728, 730, 731; 6 Ariz 215.)
... any person engaged in the business carried on by banks of deposit, of
discount, or of circulation is doing a banking business, although but one
of these functions is exercised. (MacLaren vs. State, 124 N.W. 667, 141
Wis. 577, 135 Am. S.R. 55, 18 Ann. Cas. 826; 9 C.J.S. 30.)
Accordingly, defendant corporation has violated the law by engaging in
banking without securing the administrative authority required in
Republic Act No. 337.
That the illegal transactions thus undertaken by defendant corporation warrant its
dissolution is apparent from the fact that the foregoing misuser of the corporate
funds and franchise affects the essence of its business, that it is willful and has
been repeated 59,463 times, and that its continuance inflicts injury upon the
public, owing to the number of persons affected thereby.
It is urged, however, that this case should be remanded to the Court of First
Instance of Manila upon the authority of Veraguth vs. Isabela Sugar Co. (57 Phil.
266). In this connection, it should be noted that this Court is vested with original
jurisdiction, concurrently with courts of first instance, to hear and decide quo
warranto cases and, that, consequently, it is discretionary for us to entertain the
present case or to require that the issues therein be taken up in said Civil Case No.
52342. The Veraguth case cited by herein defendants, in support of the second
alternative, is not in point, because in said case there were issues of fact which
required the presentation of evidence, and courts of first instance are, in general,
better equipped than appellate courts for the taking of testimony and the
determination of questions of fact. In the case at bar, there is, however, no dispute
as to the principal facts or acts performed by the corporation in the conduct of its
business. The main issue here is one of law, namely, the legal nature of said facts
or of the aforementioned acts of the corporation. For this reason, and because
public interest demands an early disposition of the case, we have deemed it best to
determine the merits thereof.
Wherefore, the writ prayed for should be, as it is hereby granted and defendant
corporation is, accordingly, ordered dissolved. The appointment of receiver herein
issued pendente lite is hereby made permanent, and the receiver is, accordingly,
directed to administer the properties, deposits, and other assets of defendant
corporation and wind up the affairs thereof conformably to Rules 59 and 66 of the
Rules of Court. It is so ordered.
Republic of the Philippines vs. Security Credit and Acceptance Corporation G.R.
No. L-20583, January 23, 1967
MARCH 16, 2014LEAVE A COMMENT
An investment company which loans out the money of its customers, collects the
interest and charges a commission to both lender and borrower, is a bank. It is
conceded that a total of 59,463 savings account deposits have been made by the
public with the corporation and its 74 branches, with an aggregate deposit of
P1,689,136.74, which has been lent out to such persons as the corporation
deemed suitable therefore. It is clear that these transactions partake of the
nature of banking, as the term is used in Section 2 of the General Banking Act.
Facts: The Solicitor General filed a petition for quo warranto to dissolve the
Security and Acceptance Corporation, alleging that the latter was engaging in
banking operations without the authority required therefor by the General Banking
Act (Republic Act No. 337). Pursuant to a search warrant issued by MTC Manila,
members of Central Bank intelligence division and Manila police seized
documents and records relative to the business operations of the corporation. After
BANKING FULL CASES JULY 7, 2015
examination of the same, the intelligence division of the Central Bank submitted a
memorandum to the then Acting Deputy Governor of Central Bank finding that
the corporation is engaged in banking operations. It was found that Security and
Acceptance Corporation established 74 branches in principal cities and towns
throughout the Philippines; that through a systematic and vigorous campaign
undertaken by the corporation, the same had managed to induce the public to open
59,463 savings deposit accounts with an aggregate deposit of P1,689,136.74;
Accordingly, the Solicitor General commenced this quo warranto proceedings for
the dissolution of the corporation, with a prayer that, meanwhile, a writ of
preliminary injunction be issued ex parte, enjoining the corporation and its
branches, as well as its officers and agents, from performing the banking
operations complained of, and that a receiver be appointed pendente lite.
Superintendent of Banks of the Central Bank was then appointed by the Supreme
Court as receiver pendente lite of defendant corporation.
In their defense, Security and Acceptance Corporation averred that the the
corporation had filed with the Superintendent of Banks an application for
conversion into a Security Savings and Mortgage Bank, with defendants Zapa,
Balatbat, Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran and Sebastian as
proposed directors.
Issue: Whether or not defendant corporation was engaged in banking
operations.
Held. An investment company which loans out the money of its customers,
collects the interest and charges a commission to both lender and borrower, is a
bank. It is conceded that a total of 59,463 savings account deposits have been
made by the public with the corporation and its 74 branches, with an aggregate
deposit of P1,689,136.74, which has been lent out to such persons as the
corporation deemed suitable therefore. It is clear that these transactions partake of
the nature of banking, as the term is used in Section 2 of the General Banking Act.
Hence, defendant corporation has violated the law by engaging in banking without
securing the administrative authority required in Republic Act No. 337.
That the illegal transactions thus undertaken by defendant corporation warrant its
dissolution is apparent from the fact that the foregoing misuser of the corporate
funds and franchise affects the essence of its business, that it is willful and has
been repeated 59,463 times, and that its continuance inflicts injury upon the
public, owing to the number of persons affected thereby.
Republic of the Philippines
SUPREME COURT Manila
EN BANC
G.R. No. L-20119 June 30, 1967
CENTRAL BANK OF THE PHILIPPINES, petitioner,
vs.
THE HONORABLE JUDGE JESUS P. MORFE and FIRST MUTUAL
SAVING AND LOAN ORGANIZATION, INC., respondents.
Natalio M. Balboa, F. E. Evangelista and Mariano Abaya for petitioner.
Halili, Bolinao, Bolinao and Associates for respondents.
CONCEPCION, C.J.:
This is an original action for certiorari, prohibition and injunction, with
preliminary injunction, against an order of the Court of First Instance of Manila,
the dispositive part of which reads:
WHEREFORE, upon the petitioner filing an injunction bond in the
amount of P3,000.00, let a writ of preliminary preventive and/or
mandatory injunction issue, restraining the respondents, their agents or
representatives, from further searching the premises and properties and
BANKING FULL CASES JULY 7, 2015
from taking custody of the various documents and papers of the
petitioner corporation, whether in its main office or in any of its
branches; and ordering the respondent Central Bank and/or its co-
respondents to return to the petitioner within five (5) days from service
on respondents of the writ of preventive and/or mandatory injunction, all
the books, documents, and papers so far seized from the petitioner
pursuant to the aforesaid search warrant.1wph1.t
Upon the filing of the petition herein and of the requisite bond, we issued, on
August 14, 1962, a writ of preliminary injunction restraining and prohibiting
respondents herein from enforcing the order above quoted.
The main respondent in this case, the First Mutual Savings and Loan
Organization, Inc. hereinafter referred to as the Organization is a registered non-stock corporation, the main purpose of which, according to its Articles of
Incorporation, dated February 14, 1961, is "to encourage . . . and implement
savings and thrift among its members, and to extend financial assistance in the
form of loans," to them. The Organization has three (3) classes of
"members,"1 namely: (a) founder members who originally joined the
organization and have signed the pre-incorporation papers with the exclusive right to vote and be voted for ; (b) participating members with "no right to vote or be voted for" to which category all other members belong; except (c) honorary members, so made by the board of trustees, "at the exclusive discretion" thereof due to "assistance, honor, prestige or help extended in the propagation" of the objectives of the Organization without any pecuniary expenses on the part of said honorary members.
On February 14, 1962, the legal department of the Central Bank of the Philippines
hereinafter referred to as the Bank rendered an opinion to the effect that the Organization and others of similar nature are banking institutions, falling within
the purview of the Central Bank Act.2 Hence, on April 1 and 3, 1963, the Bank
caused to be published in the newspapers the following:
A N N O U N C E M E N T
To correct any wrong impression which recent newspaper reports on "savings and
loan associations" may have created in the minds of the public and other
interested parties, as well as to answer numerous inquiries from the public, the
Central Bank of the Philippines wishes to announce that all "savings and loan
associations" now in operation and other organizations using different corporate
names, but engaged in operations similar in nature to said "associations" HAVE
NEVER BEEN AUTHORIZED BY THE MONETARY BOARD OF THE
CENTRAL BANK OF THE PHILIPPINES TO ACCEPT DEPOSIT OF FUNDS
FROM THE PUBLIC NOR TO ENGAGE IN THE BANKING BUSINESS NOR
TO PERFORM ANY BANKING ACTIVITY OR FUNCTION IN THE
PHILIPPINES.
Such institutions violate Section. 2 of the General Banking Act, Republic Act No.
337, should they engage in the "lending of funds obtained from the public through
the receipts of deposits or the sale of bonds, securities or obligations of any kind"
without authority from the Monetary Board. Their activities and operations are not
supervised by the Superintendent of Banks and persons dealing with such
institutions do so at their risk.
CENTRAL BANK OF THE PHILIPPINES
Moreover, on April 23, 1962, the Governor of the Bank directed the coordination
of "the investigation and gathering of evidence on the activities of the savings and
loan associations which are operating contrary to law." Soon thereafter, or on May
18, 1962, a member of the intelligence division of the Bank filed with the
Municipal Court of Manila a verified application for a search warrant against the
Organization, alleging that "after close observation and personal investigation, the
premises at No. 2745 Rizal Avenue, Manila" in which the offices of the Organization were housed "are being used unlawfully," because said Organization is illegally engaged in banking activities, "by receiving deposits of
money for deposit, disbursement, safekeeping or otherwise or transacts the
business of a savings and mortgage bank and/or building and loan association . . .
without having first complied with the provisions of Republic Act No. 337" and
that the articles, papers, or effects enumerated in a list attached to said application,
as Annex A thereof.3 are kept in said premises, and "being used or intended to be
used in the commission of a felony, to wit: violation of Sections 2 and 6 of
Republic Act No. 337."4 Said articles, papers or effects are described in the
aforementioned Annex A, as follows:
I. BOOKS OF ORIGINAL ENTRY
(1) General Journal
(2) Columnar Journal or Cash Book
(a) Cash Receipts Journal or Cash Receipt Book
(b) Cash Disbursements Journal or Cash Disbursement Book
II. BOOKS OF FINAL ENTRY
(1) General Ledger
(2) Individual Deposits and Loans Ledgers
(3) Other Subsidiary Ledgers
BANKING FULL CASES JULY 7, 2015
III. OTHER ACCOUNTING RECORDS
(1) Application for Membership
(2) Signature Card
(3) Deposit Slip
(4) Passbook Slip
(5) Withdrawal Slip
(6) Tellers Daily Deposit Report
(7) Application for Loan Credit Statement
(8) Credit Report
(9) Solicitor's Report
(10) Promissory Note
(11) I n d o r s e m e n t
(12) Co-makers' Statements
(13) Chattel Mortgage Contracts
(14) Real Estate Mortgage Contracts
(15) Trial Balance
(16) Minutes Book Board of Directors
IV. FINANCIAL STATEMENTS
(1) Income and Expenses Statements
(2) Balance Sheet or Statement of Assets and Liabilities
V. OTHERS
(1) Articles of Incorporation
(2) By-Laws
(3) Prospectus, Brochures Etc.
(4) And other documents and articles which are being used or intended to
be used in unauthorized banking activities and operations contrary to
law.
Upon the filing of said application, on May 18, 1962, Hon. Roman Cancino, as
Judge of the said municipal court, issued the warrant above referred
to,5 commanding the search of the aforesaid premises at No. 2745 Rizal Avenue,
Manila, and the seizure of the foregoing articles, there being "good and sufficient
reasons to believe" upon examination, under oath, of a detective of the Manila
Police Department and said intelligence officer of the Bank that the Organization has under its control, in the address given, the aforementioned
articles, which are the subject of the offense adverted to above or intended to be
used as means for the commission of said off offense.
Forthwith, or on the same date, the Organization commenced Civil Case No.
50409 of the Court of First Instance of Manila, an original action for "certiorari,
prohibition, with writ of preliminary injunction and/or writ of preliminary
mandatory injunction," against said municipal court, the Sheriff of Manila, the
Manila Police Department, and the Bank, to annul the aforementioned search
warrant, upon the ground that, in issuing the same, the municipal court had acted
"with grave abuse of discretion, without jurisdiction and/or in excess of
jurisdiction" because: (a) "said search warrant is a roving commission general in
its terms . . .;" (b) "the use of the word 'and others' in the search warrant . . .
permits the unreasonable search and seizure of documents which have no relation
whatsoever to any specific criminal act . . .;" and (c) "no court in the Philippines
has any jurisdiction to try a criminal case against a corporation . . ."
The Organization, likewise, prayed that, pending hearing of the case on the merits,
a writ of preliminary injunction be issued ex parte restraining the aforementioned
search and seizure, or, in the alternative, if the acts complained of have been
partially performed, that a writ of preliminary mandatory injunction be forthwith
issuedex parte, ordering the preservation of the status quo of the parties, as well as
the immediate return to the Organization of the documents and papers so far
seized under, the search warrant in question. After due hearing, on the petition for
said injunction, respondent, Hon. Jesus P. Morfe, Judge, who presided over the
branch of the Court of First Instance of Manila to which said Case No. 50409 had
been assigned, issued, on July 2, 1962, the order complained of.
Within the period stated in said order, the Bank moved for a reconsideration
thereof, which was denied on August 7, 1962. Accordingly, the Bank commenced,
in the Supreme Court, the present action, against Judge Morfe and the
Organization, alleging that respondent Judge had acted with grave abuse of
discretion and in excess of his jurisdiction in issuing the order in question.
BANKING FULL CASES JULY 7, 2015
At the outset, it should be noted that the action taken by the Bank, in causing the
aforementioned search to be made and the articles above listed to be seized, was
predicated upon the theory that the Organization was illegally engaged in banking
by receiving money for deposit, disbursement, safekeeping or otherwise, or transacting the business of a savings and mortgage bank and/or building and loan
association, without first complying with the provisions of R.A. No. 337, and that the order complained of assumes that the Organization had violated sections 2
and 6 of said Act.6 Yet respondent Judge found the searches and, seizures in
question to be unreasonable, through the following process of reasoning: the
deposition given in support of the application for a search warrant states that the
deponent personally knows that the premises of the Organization, at No. 2745
Rizal Avenue, Manila,7 were being used unlawfully for banking and purposes.
Respondent judge deduce, from this premise, that the deponent " knows specific
banking transactions of the petitioner with specific persons," and, then concluded
that said deponent ". . . could have, if he really knew of actual violation of the law,
applied for a warrant to search and seize only books" or records:
covering the specific purportedly illegal banking transactions of the
petitioner with specific persons who are the supposed victims of said
illegal banking transactions according to his knowledge. To authorize
and seize all the records listed in Annex A to said application for search
warrant, without reference to specific alleged victims of the purported
illegal banking transactions, would be to harass the petitioner, and its
officers with a roving commission or fishing expedition for evidence
which could be discovered by normal intelligence operations or
inspections (not seizure) of books and records pursuant to Section 4 of
Republic Act No 337 . . ."
The concern thus shown by respondent judge for the civil liberty involved is,
certainly, in line with the function of courts, as ramparts of justice and liberty and
deserves the greatest encouragement and warmest commendation. It lives up to
the highest traditions of the Philippine Bench, which underlies the people's faith in
and adherence to the Rule of Law and the democratic principle in this part of the
World.
At the same time, it cannot be gainsaid the Constitutional injunction against
unreasonable searches and seizures seeks to forestall, not purely abstract or
imaginary evils, but specific and concrete ones. Indeed, unreasonableness is, in
the very nature of things, a condition dependent upon the circumstances
surrounding each case, in much the same way as the question whether or not
"probable cause" exists is one which must be decided in the light of the conditions
obtaining in given situations.
Referring particularly to the one at bar, it is not clear from the order complained
of whether respondent Judge opined that the above mentioned statement of the
deponent to the effect that the Organization was engaged in the transactions mentioned in his deposition deserved of credence or not. Obviously, however,
a mere disagreement with Judge Cancino, who issued the warrant, on the
credibility of said statement, would not justify the conclusion that said municipal
Judge had committed a grave abuse of discretion, amounting to lack of
jurisdiction or excess of jurisdiction. Upon the other hand, the failure of the
witness to mention particular individuals does not necessarily prove that he had no
personal knowledge of specific illegal transactions of the Organization, for the
witness might be acquainted with specific transactions, even if the names of the
individuals concerned were unknown to him.
Again, the aforementioned order would seem to assume that an illegal banking
transaction, of the kind contemplated in the contested action of the officers of the
Bank, must always connote the existence of a "victim." If this term is used to
denote a party whose interests have been actually injured, then the assumption is
not necessarily justified. The law requiring compliance with certain requirements
before anybody can engage in banking obviously seeks to protect the public
against actual, as well as potential, injury. Similarly, we are not aware of any rule
limiting the use of warrants to papers or effects which cannot be secured
otherwise.
The line of reasoning of respondent Judge might, perhaps, be justified if the acts
imputed to the Organization consisted of isolated transactions, distinct and
different from the type of business in which it is generally engaged. In such case,
it may be necessary to specify or identify the parties involved in said isolated
transactions, so that the search and seizure be limited to the records pertinent
thereto. Such, however, is not the situation confronting us. The records suggest
clearly that the transactions objected to by the Bank constitute the general
pattern of the business of the Organization. Indeed, the main purpose thereof,
according to its By-laws, is "to extend financial assistance, in the form of loans, to
its members," with funds deposited by them.
It is true, that such funds are referred to in the Articles of Incorporation and the By-laws as their "savings." and that the depositors thereof are designated as "members," but, even a cursory examination of said documents will readily show
that anybody can be a depositor and thus be a "participating member." In other
words, the Organization is, in effect, open to the "public" for deposit accounts,
and the funds so raised may be lent by the Organization. Moreover, the power to
so dispose of said funds is placed under the exclusive authority of the "founder
members," and "participating members" are expressly denied the right to vote or
be voted for, their "privileges and benefits," if any, being limited to those which
the board of trustees may, in its discretion, determine from time to time. As a
consequence, the "membership" of the "participating members" is purely nominal
in nature. This situation is fraught, precisely, with the very dangers or evils which
Republic Act No. 337 seeks to forestall, by exacting compliance with the
requirements of said Act, before the transactions in question could be undertaken.
It is interesting to note, also, that the Organization does not seriously contest the
main facts, upon which the action of the Bank is based. The principal issue raised
BANKING FULL CASES JULY 7, 2015
by the Organization is predicated upon the theory that the aforementioned
transactions of the Organization do not amount to " banking," as the term is used
in Republic Act No. 337. We are satisfied, however, in the light of the
circumstance obtaining in this case, that the Municipal Judge did not commit a
grave abuse of discretion in finding that there was probable cause that the
Organization had violated Sections 2 and 6 of the aforesaid law and in issuing the
warrant in question, and that, accordingly, and in line with Alverez vs. Court of
First Instance (64 Phil. 33), the search and seizure complained of have not been
proven to be unreasonable.
Wherefore, the order of respondent Judge dated July 2, 1962, and the writ of
preliminary mandatory injunction issued in compliance therewith are hereby
annulled, and the writ of preliminary injunction issued by this Court on August
14, 1962, accordingly, made permanent, with costs against respondent First
Mutual Savings and Loan Organization, Inc. It is so ordered.
CENTRAL BANK v. MORFE
July 5, 2013 Leave a comment
CENTRAL BANK v. MORFE
FACTS: First Mutual Savings and Loan Organization encourage savings among
its members and extend financial assistance thru loans. Central bank said that the
Organization and others with similar nature are banking institutions and that the
Org have never been authorized. CB applied for SW because of the Orgs illegal
receipt of deposits of money for deposit, disbursementswithout compliance
with RA 337. The SW includes articles such as book of original entryand
others. They said that the SW is general in its terms and that the use of the word
and others permits the unreasonable search and seizure of documents which
have no relation to any specific criminal act.
HELD: SW is upheld.
Depending on the circumstances, while in one instance the particular
wording of the warrant may make it assume the character of a general warrant, in
another context it may be considered perfectly alright.
SW only for one offense, if issued for more than two, it is void. Scatter