BAUTISTA, EUGENICE IVY

MUOZ, FLORELYN
RODRIGUERA, EDUARD ANGELO
4C

PHILIPPINE NATIONAL BANK VS. F.F. CRUZ AND CO.,

INC.
654 SCRA 333 (JULY 25, 2011)

FACTS:
FF Cruz & Co., Inc, opened savings/current or so called
combo account and dollar savings account with PNB at its
Timog Avenue Branch. Its president Felipe Cruz and SecretaryTreasurer Angelita Cruz were named the signatories for the
said accounts. Said signatories on separate dates left for and
return from the US, Felipe on March 18,1995 until June 10,
1995 while Angelita followed him on March 29, 1995 and
returned ahead on May 9, 1995.
While they were out of the country, applications for
managers and cashiers cheque bearing Felipes signature were
presented and both approved by the PNB. One cheque
amounting to Php 9,950,000 payable to certain Gene
Sangalang and the other cheque amounting to Php
3,260,500.31 payable to Paul Baustista, were debited by the
PNB against the combo account of the FFCCI.
When Angelita returned to the country, she noticed the
deductions of Php 9,950,000 and Php 3,260,500.31 while
examining the bank statements. Claiming that these were
unauthorized and fraudulently made, requested PNB to credit
back the said amounts. PNB refused, so FFCCI filed this instant
suit for damages against PNB and its own accountant Aurea
Caparas.

The RTC ruled that FFCCI was guilty of negligence in

clothing Aurea Caparas with authority to make decisions on and
dispositions of its account which paved the way for the
fraudulent transactions; that in practice, FFCCI waived the twosignature requirement in transactions involving the subject
combo account so much that PNB could not be faulted for
honoring the applications of the managers cheque even if only
the signature of Felipe Cruz appeared thereon; and that FFCCI
was negligent in not immediately informing PNB of the fraud.
The RTC likewise, found PNB negligent in not calling or
personally verifying from the authorized signatories the
legitimacy of the subject withdrawals considering that they
were in huge amounts. According to the RTC, PNB has the last
clear chance to prevent the unauthorized debits from FFCCI
combo account, thus PNB should bear the loss.
In appeal, CA affirmed the decision of the RTC with
modification that PNB shall pay FFCCI 60% of the actual
damages and the remaining 40% shall be borne by FFCCI for
contributory negligence. Thus this petition for review.

ISSUE: Whether the CA seriously erred when it found PNB

guilty of negligence.

HELD:
SC affirmed the decision of the CA.
SC affirmed the negligence of PNB because PNB failed to
make the proper verification for the applications of 2 managers
cheques, evidenced by the lack of the signature of the bank
verifier. PNB concedes the absence of the subject signature but
argues that the same was the result of inadvertence. It
maintained that the testimonies of the Branch Manager and
Cashier, sufficient to establish that the signature verification
was followed. According to the SC, oral testimony is not as
reliable as documentary evidence.

Given the foregoing, SC find no reversible error in the

findings of CA that PNB was negligent in handling the FFCCIs
combo account, especially, with respect to PNBs failure to
detect the forgeries in the subject application for managers
cheque which could have been prevented the loss. SC
constantly ruled that, banking business is impressed with public
trust. A higher degree if diligence is imposed on banks relative
to the handling of their affairs than that of an ordinary business
enterprise. Thus, the degree of responsibility, care and
trustworthiness expected of their officials and employees is far
greater than those of ordinary officers and employees in other
enterprises. In the case, PNB failed to meet the required high
standard of diligence required by the circumstances to prevent
the fraud. As held in PBC vs CA and The Consolidated Bank and
Trust company, where the banks negligence is the proximate
cause of the loss and the depositor is guilty of contributory
negligence, we allocated the damages between the bank and
the depositor on a 60-40 ratio.

BACOLOD-MURCIA, MILLING CO., INC., VS. CENTRAL

BANK OF THE PHILIPPINES
9 SCRA 268 (OCTOBER 25, 1963)

FACTS:
On or about December 17, 1956, Bacolod-Murcia sold and
exported to Olavarria & Co of New York, United States 48,192
piculs (3000 tons) of sugar for the total price of $416,640.00
and as a consequence drew against Olavarria & Co., Inc 2
drafts for the total amount of $336,995.40, to cover the initial
payment equivalent to 95% of the purchase price. Said draft
were then entrusted and presented to Philippine Bank of

Commerce, which accepted the undertaking to collect the

amount for the account of the Bacolod-Murcia. PBC later called
the attention of the plaintiff that under the existing rules and
regulations, all exchange proceeds of the drafts must be sold to
the Central Bank authorities at the prevailing rate of exchange
set up by the Central Bank, creating a reserve supply for
dollars with Central Bank. Plaintiff apparently felt that it
suffered enough, it wrote a letter on December 29 to the
Central Bank saying that they doubt the legality and validity of
the rules and regulations on this particular point, and cannot
agree and cannot give their consent to the sale of the dollar
proceeds unless the Central Bank should agree to them the real
international worth and prevailing market value of the said
dollar proceeds. So on January 28, 1957, plaintiff brought this
special action for prohibition in order to stop the Central Bank
from taking further action to enforce Circular No.20. Plaintiff
says that the forced sale of foreign currency to CB is ultra
vires; and that the practice of the Central Bank in paying such
exchange rate at legal parity rate with the purpose of reselling
the same to other private parties at the same rate is a
confiscation of private property not for public use nor for just
compensation. Plaintiff argued the following:
1. That the compulsory sale regulation expressly violates
Sec. 73 of the Central Bank Charter, that it may engage in
exchange transactions only with banking institutions and
other entities specified;
2. That the circular establishes a monopoly by allowing
commandeering of foreign exchange, when its charter
allows commandeering only of gold;
3. That compelling private persons to sell foreign exchange
to the Central Bank cannot be included in the power to
subject to license all transactions in gold and foreign
exchange during an exchange crisis as defined in Sec.74
of the Charter.
The contention of the Central Bank are as follows:
1. That Circular No.20 is presumed to be valid;

2. That the Philippines is a signatory member of

International Monetary Fund Agreement and such bound
to maintain the par value of the Philippine currency;
3. That the Circular No.20 was approved in an exchange
crisis in accordance with Sec.74 of Central Bank Act and it
was approved by the President and the International
Monetary Fund;
4. That the powers of the Central Bank to curtail, regulate
and license the use of foreign exchange include the right
to require that all foreign exchange be surrendered and
that the plaintiff has not exhausted the administrative
remedies available in the ordinary course of law.
ISSUE:
Whether or not the exchange control provision,
contained in Section 4(a) of the Central Bank Circular No.20,
may be considered as sufficiently authorized by the provisions
of the Charter.
HELD:
Circular No.20 Section 4(a). All receipts of foreign
exchange shall be sold daily to the Central Bank by those
authorized to deal in foreign exchange. All receipts of foreign
exchange by any person, firm, partnership, association, branch
office, agency, company shall be sold to the authorized agents
of the Central Bank by the recipients within one business day
following the receipt of such foreign exchange.
The Supreme Court ruled that the exchange control
provision on Circular No.20 is authorized by its Charter. The
fact that the Charter does not expressly grant the Bank the
power to require the forcible sale of foreign exchange is no
reason, for holding that the Bank may not do so; the inquiry
should be whether or not the Act contains sufficient standards
on which the exercise of a power could be premise.
In Section 2, the Central Bank is charged with the duty to
administer the monetary and banking system; to maintain
monetary stability in the Philippines; to preserve the
international value of the peso; and to promote in rising level

of production, employment and real income of the Philippines.

In Section 64, it is given the duty to control any expansion and
contraction in the money supply, or any rise and fall in prices,
which is prejudicial to the attainment or maintenance of a high
level of production, employment and real income.
Dealing in international reserve, Section 68 enjoins the
Central Bank to maintain an international reserve, adequate to
meet any foreseeable net demands on the Bank for foreign
currencies. In determining the adequacy, the guide is the
prospective receipts and payments of foreign exchange by the
Philippines. Further, it is required to consider the volume and
maturity of the Central Banks own liabilities in foreign
currencies. The Central Bank is empowered under Section 70 to
take remedial measures that are appropriate and within the
powers granted whenever the international reserve falls to an
amount which the Monetary Board considers inadequate to
meet prospective demands for foreign currencies.
The forcible sale of foreign exchange to the Central Bank,
in relation to the powers and responsibilities given can be
regarded as falling within the category implied powers, as
those necessary for the effective discharge of its
responsibilities.
The gist of the argument for exchange control, is the rule
of necessity. Its establishment would affect the international
stability of the peso and it is necessary to establish it to
maintain international reserve. If the demand for exchange
exceeds the foreign exchange earned by exports, the demand,
if deemed necessary to preserve the economy of the country,
can be met by the international reserves or by international
loans. By limiting the sale of foreign exchange to be used for
imports to the amounts earned through exports and obtained
by loans, the stability of the currency could be secured, even
without the Bank commandeering the foreign exchange earned
by exporters in the course if their business operations. This
could be done by licensing of the sale of foreign exchange,
directing those that earn dollars, for example, to sell to those

that are licensed to import the foreign commodities needed by

the countrys population and economy. As the exports are to be
licensed also, holding the foreign exchange, requiring them to
sell the foreign exchange to the licensed importer.
The request of the petitioner that the payment of their
dollar earnings should be Php 3 to $ 1, is not allowed because
it will violate RA. 265 which prohibits the Central Bank to
change the par value of the peso (Php 2: $1). Any change in
the par value can be done by the President upon the proposal
of the Monetary Board and with the approval of the Congress.
Also, since the Philippines is a signatory of International
Monetary Fund Agreement that promote change exchange
stability and avoid competitive exchange depreciation, the
Philippines must comply with the agreed exchange rate.