Dear PAO,

In 2022, I obtained a mortgage loan from a well-known financial institution in my province. When I moved to the city in 2023, I opted to personally deposit my monthly amortization at a branch closer to my workplace. Last November 2024, when I went to the said branch to make my customary monthly payments, my payment was refused, and I was informed that my loan had been forwarded to a recovery company. Upon further inquiry, I learned that the loans department of the main branch where I obtained the loan had tagged my account as delinquent due to an alleged default on five monthly amortizations. I also found out that the branch where I had been paying my monthly amortization failed to update my account in their system, which resulted in the erroneous foreclosure of my property. Can I hold the said branch liable for the payment of the full debt amount in order to recover my property?

Andre

Dear Andre,

Republic Act (RA) 8791, otherwise known as the General Banking Law of 2000, requires banking institutions to exercise the highest degree of diligence, along with high standards of integrity and performance. Due to the very nature of its functions, particularly its significant role in commercial transactions, banks and other financial institutions are expected to observe extraordinary diligence in their business dealings, especially in handling their clients’ accounts.

Once proven to be negligent or in breach of its contractual obligations to its clients, banks may be held primarily liable for the losses or damages incurred by its clients. (Citystate Savings Bank v. Teresita Tobias and Shellidie Valdez, GR 227990, March 7, 2018, Ponente: Associate Justice Andres Reyes Jr.) This is pursuant to Article 2176 of the New Civil Code of the Philippines which states that “[w]hoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. xxx”

However, before a bank may be held liable for damages, it is incumbent upon the plaintiff to prove that it is the bank’s negligence which is the proximate cause of the damage or loss suffered. In our jurisdiction, negligence “consists of the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the person, of the time and of the place. xxx” (Article 1173, New Civil Code of the Philippines)

In your situation, it is crucial to determine whether the branch where you had been making your monthly payments acted negligently in handling your loan account. The test for negligence in this case is: Did the bank, in doing the alleged negligent act of failing to update your loan account, use that reasonable care and caution which a person exercising extraordinary diligence would have used in the same situation? If not, then it is guilty of negligence, and you can hold the negligent bank liable for the payment of the full debt amount to recover your property by filing a civil action for the collection of sum of money, or a civil action for damages, or both.

We hope that we were able to answer your queries. This advice was based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.

Thank you for your continued trust and support.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to [email protected]