(Banking COMPILATION As of 6 20am) 2015 02-06-2141 Banking

Commercial Law Review | Divina | 2nd Sem AY 2014-2015 |Page 1
A. The New Central Bank Act institutions performing quasi-banking functions, of which savings and
loan associations, such as PESALA, form part of. Central Bank, through
1. State Policies the Monetary Board, is empowered to conduct investigations and
examine the records of savings and loan associations. If any
2.Creation of the Bangko Sentral ng Pilipina
irregularity is discovered in the process, the Monetary Board may
3. Responsibility and Primary Objectives impose appropriate sanctions, such as suspending the offender from
holding office or from being employed with the Central Bank, or
Busuego v. CA placing the names of the offenders in a watchlist. The requirement of

prior association notice is also relaxed under Section 28 (c) of RA 3779
March 11, 1999
as investigations or examinations may be conducted with or without
Ponente: Purisima J.
Sai Bautista prior notice "but always with fairness and reasonable opportunity for
the or any of its officials to give their side."
SUMMARY:
After discovery of anomalies and irregularities in the books and
records of PESALA, the Monetary Board issued MB Resolution No. 805 FACTS:
which required that the names of Banez, Busuego and Lim be included Central Bank examiners conducted a regular examination of the books and
in the Sector's watchlist to prevent them from holding responsible records of the PAL Employees Savings and Loan Association, Inc. (PESALA). Several
positions in any institution under Central Bank supervision. It also anomalies and irregularities were discovered: 1) Questionable investment In a multi-
required the board of directors of PESALA to file civil and criminal million peso real estate project (Pesalaville)2) Conflict of interest in the conduct of
cases against Banez, Romeo Busuego and Renato Lim for all the business, 3). Unwarranted declaration and payment of dividends and 4.) Commission
misfeasance and malfeasance committed by them . Petitioners filed a of unsound and unsafe business practices.
Petition for Injunction with Prayer for the Immediate Issuance of a
The Monetary Board adopted and issued MB Resolution No. 805 which
TRO to enjoin the Monetary Board of the CB from including them in the
required that the names of Mr. Catalino Banez, Mr. Romeo Busuego and Mr. Renato
watchlist. Trial Court granted the petition. Court Appeals reversed the
Lim be included in the Sector's watchlist to prevent them from holding responsible
decision. Petitioners appealed to SC asserting that Monetary Board is
positions in any institution under Central Bank supervision. It also required the board
not vested with "the authority to disqualify persons from occupying
of directors of PESALA to file civil and criminal cases against Banez, Romeo Busuego
positions in institutions under the supervision of the Central Bank
and Renato Lim for all the misfeasance and malfeasance committed by them.
without proper notice and hearing" nor is it vested with authority "to
file civil and criminal cases against its officers/directors for suspected Petitoners filed a Petition for Injunction with Prayer for the Immediate
fraudulent acts." Issuance of a TRO to enjoin the Monetary Board of the CB from including them in the
watchlist. Trial Court granted the petition. Court Appeals reversed the decision and
DOCTRINE:
dismissed the petition for injunction. Petitioners appealed to SC and also filed an
The Central Bank of the Philippines (now Bangko Sentral ng
Motion for Issuance of a TRO and/or Writ of Preliminary Injunction against the
Pilipinas), through the Monetary Board, is the government agency
Secretary of Justice and the City Prosecutor of Pasay from proceeding and taking
charged with the responsibility of administering the monetary,
further actions.
banking and credit system of the country and is granted the power of
supervision and examination over banks and non-bank financial They asserted that they were deprived of their right to notice and opportunity
to be heard by the Monetary Board, that MB Resolution No. 806 is null and void for always with fairness and reasonable opportunity for the association or any of its
being violative of their right to due process. According to them, the Monetary Board is officials to give their side."
not vested with "the authority to disqualify persons from occupying positions in
institutions under the supervision of the Central Bank without proper notice and As may be gathered from the records, the said requirement was properly
hearing" nor is it vested with authority "to file civil and criminal cases against its complied with by the respondent Monetary Board. (Petitioners were invited by
officers/directors for suspected fraudulent acts." Director Lirio to a conference to discuss the findings made in the examination of
PESALA's records but they did not attend. Petitioner Lim's letter to PESALA's Board
of Directors, explaining his side of the controversy, was forwarded to the Monetary
ISSUES/HELD: Board which the latter considered in adopting Monetary Board Resolution No. 805;
and PESALA's Board of Director's letter, dated to the Monetary Board, explaining the
Board's side of the controversy, was also considered)
WON MB Resolution is void for being violative of petitioners’ right to due process-
NO! Suspension was only preventive in nature and therefore, no notice or, hearing
was necessary. Neither were petitioners deprived of their lawful calling as they are
RATIO:
free to look for another employment so long as the agency or company involved is not
subject to Central Bank control and supervision. Petitioners can still practice their
The Central Bank of the Philippines (now Bangko Sentral ng Pilipinas), through the profession or engage in business as long as these are not within the ambit of
Monetary Board, is the government agency charged with the responsibility of Monetary Board Resolution No. 805.
administering the monetary, banking and credit system of the country and is granted
the power of supervision and examination over banks and non-bank financial WHEREFORE, the petition is DENIED, and the assailed Decision of the Court of
institutions performing quasi-banking functions, of which savings and loan Appeals AFFIRMED.
associations, such as PESALA, form part of.
Ana Maria Koruga vs. Teodoro Arcenas, Jr., G.R. No. 1 68332/ G.R. No. 1
The special law governing savings and loan association is Republic Act No. 69053, June 1 9, 2009
3779, as amended, otherwise known as the "Savings and Loan Association Act”.
Section 28 of the said law authorizes the Monetary Board to conduct regular yearly 4. Monetary Board—Powers and Functions
examinations of the books and records of savings and loan associations, to suspend, a
ANA MARIA A. KORUGA v. TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR
savings and loan association for violation of law, to decide any controversy over the
S. PAGUIO, FRANCISCO A. RIVERA, and THE HONORABLE COURT OF APPEALS,
obligations and duties of directors and officers, and to take remedial measures, among
THIRD DIVISION, TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR S.
others.
PAGUIO, and FRANCISCO A. RIVERA v. HON. SIXTO MARELLA, JR., Presiding Judge,
Central Bank, through the Monetary Board, is empowered to conduct Branch 138, Regional Trial Court of Makati City, and ANA MARIA A. KORUGA
investigations and examine the records of savings and loan associations. If any
Summary: Koruga charged defendants with violation of Corporation Code,
irregularity is discovered in the process, the Monetary Board may impose appropriate self-dealing, etc before RTC Makati. Defendants claim RTC Makati does not
sanctions, such as suspending the offender from holding office or from being have jurisdiction. SC upheld defendants. BSP has jurisdiction as the issues do
employed with the Central Bank, or placing the names of the offenders in a watchlist. not involve ordinary intra-corporate matters, but pertain to conduct of Banco
The requirement of prior notice is also relaxed under Section 28 (c) of RA 3779 as Filipino's banking business. Also it is BSP that has jurisdiction to decide the
investigations or examinations may be conducted with or without prior notice "but suit that seeks to place Banco Filipino under receivership. Following
"generalia specialibus non derogant" principle, Sections 29 and 30 of the New ing business is properly subject to reasonable regulation under the police power of
Central Bank Act governs. Section 30 further provides that appointment of a the state because of its nature and relation to the fiscal affairs of the people and the
receiver is vested "exclusively" with the MB. revenues of the state. Banks are affected with public interest because they receive
funds from the general public in the form of deposits. It is the Government’s responsi-
FACTS: Two petitions that originated from a Complaint filed by Koruga before the bility to see to it that the financial interests of those who deal with banks and banking
Regional Trial Court (RTC) of Makati City against the Board of Directors of Banco institutions, as depositors or otherwise, are protected. In this country, that task is del-
Filipino and the Members of the Monetary Board of the Bangko Sentral ng Pilipinas egated to the BSP, which pursuant to its Charter, is authorized to administer the mon-
(BSP). Koruga is a minority stockholder of Banco Filipino Savings and Mortgage Bank. etary, banking, and credit system of the Philippines. It is further authorized to take the
On August 20, 2003, she filed a complaint before the Makati RTC. Koruga's complaint necessary steps against any banking institution if its continued operation would cause
charged defendants with violation of Sections 31 to 34 of the Corporation code, self- prejudice to its depositors, creditors and the general public as well.
dealing and conflict of interest of directors and officers. She invoked her right to
inspect corporation records under Section 74 and 75 of the Corporation Code and 2. The law vests in the BSP the supervision over operations and activities
prayed for Receivership and Creation of a management committee pursuant to Rule of banks per Section 25 of the New Central Bank Act. 1 Koruga alleges that “the
59 of the Rules of Civil Procedure, SRC, and the Interim Rules of Procedure Governing dispute in the trial court involves the manner with which the Directors’ (sic) have
Intra-Corporate Controversies, the General Banking Law and the New Central Bank handled the Bank’s affairs, specifically the fraudulent loans and dacion en pago autho-
Act. She accused the directors and officers of Banco Filipino of engaging in unsafe, rized by the Directors in favor of several dummy corporations known to have close
unsound, and fraudulent banking practices, more particularly, acts that violate the ties and are indirectly controlled by the Directors.” Her allegations, then, call for the
prohibition on self-dealing. examination of the allegedly questionable loans. Whether these loans are cov-
ARCENAS ANSWER: RTC without jurisdiction to take cognizance of the case. They
also filed a Manifestation and Motion seeking the dismissal of the case on the 1 The New Central Bank Act provides:
following grounds: (a) lack of jurisdiction over the subject matter; (b) lack of
Section 25. Supervision and Examination. - The Bangko Sentral shall have supervision over, and conduct periodic or special
jurisdiction over the persons of the defendants; (c) forum-shopping; and (d) for being examinations of, banking institutions and quasi-banks, including their subsidiaries and affiliates engaged in allied activities.
a nuisance/harassment suit. They then moved that the trial court rule on their
affirmative defenses, dismiss the intra-corporate case, and set the case for Specifically, the BSP’s supervisory and regulatory powers include:
preliminary hearing.
4.1 The issuance of rules of conduct or the establishment of standards of operation for uniform application to all
RTC denied respondents’ manifestation, and later the MR. Arcenas et al went to CA via institutions or functions covered, taking into consideration the distinctive character of the operations of institutions and the
Rule 65 with a prayer for TRO. CA issued TRO, then later issued a preliminary substantive similarities of specific functions to which such rules, modes or standards are to be applied;
injunction, but ultimately also denied petition of Arcenas stating that RTC did not
commit grave abuse of discretion. (Two petitions because: first, Koruga went to SC on 4.2 The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant as
Rule 65 due to CA’s issuance of preliminary injuction, and second, because Arcenas went determined by the Monetary Board;
to SC on Rule 45 when CA denied their petition and stated RTC did not commit grave
4.3 Overseeing to ascertain that laws and Regulations are complied with;
absue of discretion)
4.4 Regular investigation which shall not be oftener than once a year from the last date of examination to determine
WHICH BODY HAS JURISDICTION OVER THE KORUGA COMPLAINT, THE RTC OR
whether an institution is conducting its business on a safe or sound basis: Provided, That the deficiencies/irregularities found
THE BSP? BSP. Given that the RTC does not have jurisdiction over the subject
by or discovered by an audit shall be immediately addressed;
matter of the case, its refusal to dismiss the case on that ground amounted to
grave abuse of discretion. 4.5 Inquiring into the solvency and liquidity of the institution (2-D); or
1. It is clear that the acts complained of pertain to the conduct of Banco Fil- 4.6 Enforcing prompt corrective action.
ipino’s banking business. A bank, as defined in the General Banking Law, refers to
an entity engaged in the lending of funds obtained in the form of deposits. [ The bank-
ered by the prohibition on self-dealing is a matter for the BSP to deter- Procedure on Receivership, that would apply to this case. Instead, Sections 29 and 30
mine. These are not ordinary intra-corporate matters; rather, they involve of the New Central Bank Act should be followed. Section 30 provides in part:
banking activities which are, by law, regulated and supervised by the BSP. As
the Court has previously held: “The actions of the Monetary Board taken under this section or
under Section 29 of this Act shall be final and executory, and
It is well-settled in both law and jurisprudence that the may not be restrained or set aside by the court except on
Central Monetary Authority, through the Monetary Board, is vested petition for certiorari on the ground that the action taken was in
with exclusive authority to assess, evaluate and determine the excess of jurisdiction or with such grave abuse of discretion as
condition of any bank, and finding such condition to be one of to amount to lack or excess of jurisdiction. The petition
insolvency, or that its continuance in business would involve a for certiorari may only be filed by the stockholders of record
probable loss to its depositors or creditors, forbid bank or non-bank representing the majority of the capital stock within ten (10) days
financial institution to do business in the Philippines; and shall from receipt by the board of directors of the institution of the order
designate an official of the BSP or other competent person as directing receivership, liquidation or conservatorship.
receiver to immediately take charge of its assets and liabilities.
The designation of a conservator under Section 29 of this Act or the
Correlatively, the Section 36 of the General Banking Law of appointment of a receiver under this section shall be vested
2000 specifically deals with loans contracted by bank directors or officers. exclusively with the Monetary Board. Furthermore, the
Furthermore, the authority to determine whether a bank is conducting business designation of a conservator is not a precondition to the designation
in an unsafe or unsound manner is also vested in the Monetary Board of a receiver.
per Section 56 of the General Banking Law. Finally, Section 37 of the New Central
Bank Act grants the Monetary Board the power to impose administrative
sanctions on the erring bank. On the strength of these provisions, it is the Monetary Board that exercises
exclusive jurisdiction over proceedings for receivership of banks. Crystal clear in
3. Koruga also accused Arcenas, et al. of violation of the Corporation Code’s pro- Section 30 is the provision that says the “appointment of a receiver under this
visions on self-dealing and conflict of interest. She invoked Section 31 of the Corpora- section shall be vested exclusively with the Monetary Board.” The term
tion Code, which defines the liability of directors, trustees, or officers of a corporation “exclusively” connotes that only the Monetary Board can resolve the issue of
for, among others, acquiring any personal or pecuniary interest in conflict with their whether a bank is to be placed under receivership and, upon an affirmative
duty as directors or trustees, and Section 32, which prescribes the conditions under finding, it also has authority to appoint a receiver. This is further affirmed by
which a contract of the corporation with one or more of its directors or trustees – the the fact that the law allows the Monetary Board to take action “summarily and
so-called “self-dealing directors”– would be valid. She also alleged that Banco Fil- without need for prior hearing.” And, as a clincher, the law explicitly provides
ipino’s directors violated Sections 33 and 34 in approving the loans of corporations that “actions of the Monetary Board taken under this section or under Section
with interlocking ownerships, i.e., owned, directed, or managed by close associates of 29 of this Act shall be final and executory, and may not be restrained or set
Albert C. Aguirre. aside by the court except on a petition for certiorari on the ground that the
action taken was in excess of jurisdiction or with such grave abuse of discretion
Koruga’s invocation of the provisions of the Corporation Code is as to amount to lack or excess of jurisdiction.”
misplaced. The Corporation Code, is a general law applying to all types of
corporations, while the New Central Bank Act regulates specifically banks and 4. Koruga herself recognizes the BSP’s power over the allegedly
other financial institutions, including the dissolution and liquidation unlawful acts of Banco Filipino’s directors. Koruga, through her legal counsel,
thereof. As between a general and special law, the latter shall prevail
– generalia specialibus non derogant. Consequently, it is not the Interim Rules of
Procedure on Intra-Corporate Controversies, or Rule 59 of the Rules of Civil
wrote the Monetary Board on April 21, 2003 to bring to its attention the acts she had
enumerated in her complaint before the RTC.2
BSP Monetary Board vs. Hon. Antonio-Valenzuela, G.R. No. 1 84778,
On the other hand, the BSP, in its Answer before the RTC, said that it had been October 2, 2009
looking into Banco Filipino’s activities. An October 2002 Report of Examination
(ROE) prepared by the Supervision and Examination Department (SED) noted
certain dacion payments, out-of-the-ordinary expenses, among other dealings. On
July 24, 2003, the Monetary Board passed Resolution No. 1034 furnishing Banco 5. How the BSP handles Banks in Distress
Filipino a copy of the ROE with instructions for the bank to file its comment or
explanation within 30 to 90 days under threat of being fined or of being subjected to
other remedial actions. The ROE, the BSP said, covers substantially the same matters
a. Conservatorship
raised in Koruga’s complaint. At the time of the filing of Koruga’s complaint on August
20, 2003, the period for Banco Filipino to submit its explanation had not yet expired.
Thus, the court’s jurisdiction could only have been invoked after the Monetary
Central Bank vs. Court of Appeals
October 3, 1985
Board had taken action on the matter and only on the ground that the action
Makasiar, C.J.
taken was in excess of jurisdiction or with such grave abuse of discretion as to Oswald P. Imbat
amount to lack or excess of jurisdiction.
SUMMARY: Island Savings Bank (Bank) extended a loan to Tolentino, for
5. Finally, there is one other reason why Koruga’s complaint before the which the latter executed a real estate mortgage. The Bank, however, was
RTC cannot prosper. Given her own admission – and the same is likewise sup- only able to release P17,000 of the P80,000 loan. Tolentino executed a
ported by evidence – that she is merely a minority stockholder of Banco Fil- promissory note for the P17,000, payable in 3 years. Tolentino defaulted.
ipino, she would not have the standing to question the Monetary Board’s action. The Bank attempted to foreclose the mortgage. Tolentino filed a petition
This is per Section 30 of New Central Bank Act.3 for injunction, specific performance or rescission. The CFI dismissed and
2 Letter reads in part: “Banco Filipino and the current members of its Board of Directors should be placed under allowed foreclosure. The CA affirmed the dismissal, but ruled that the Bank
investigation for violations of banking laws, the commission of irregularities, and for conducting business in an cannot foreclose nor collect. The SC ruled that (1) rescission may be had
unsafe or unsound manner. They should likewise be placed under preventive suspension by virtue of the powers with the balance of the loan, (2) Tolentino is liable to pay the P17,000, and
granted to the Monetary Board under Section 37 of the Central Bank Act. These blatant violations of banking (3) the mortgage subsists only partially.
laws should not go by without penalty. They have put Banco Filipino, its depositors and stockholders, and the
entire banking system (sic) in jeopardy. DOCTRINE: The Monetary Board, upon finding that the bank failed to put
up the required capital to restore its solvency, prohibited a bank from do-
xxxx ing business and instructed the Acting Superintendent of Banks to take
charge of the assets of the bank. When by reason of this prohibition, only a
We urge you to look into the matter in your capacity as regulators. Our clients, a minority stockholders, (sic) and
portion of the loan approved by the bank was released to its debtor, it also
many depositors of Banco Filipino are prejudiced by a failure to regulate, and taxpayers are prejudiced by
follows that the bank, in exercising its right to foreclose the real estate
accommodations granted by the BSP to Banco Filipino.”
mortgage, can only foreclose up to the extent of the amount it released.
FACTS:
3 The petition for certiorari may only be filed by the stockholders of record representing the majority of the 1. On April 28, 1965, Island Savings Bank (Bank) approved the loan application of
capital stock within ten (10) days from receipt by the board of directors of the institution of the order directing Sulpicio Tolentino (Tolentino) for P80,000.
receivership, liquidation or conservatorship. a. The loan is payable in 3 years, to be used by Tolentino to develop a subdivision.

b. Tolentino executed a real estate mortgage over 100-hectare land. performance or rescission with damages in either case, specific performance
c. A mere P17,000 partial release of the loan was made by the Bank. cannot be granted in view of Resolution 967 which prohibited the Bank from doing
d. Tolentino signed a promissory note for the P17,000, payable in 3 years. further business. Rescission should, however, be limited to the balance of the loan.
e. Advance interest for the whole P80,000 was deducted. a. When the Bank and Tolentino entered into a loan agreement, they undertook
f. The pre-deducted interest was refunded when the Bank informed him that reciprocal obligations. Tolentino’s promise to pay was the consideration for the
there was no available fund for the remainder of the loan. obligation of the Bank to furnish the loan.
g. The Bank repeatedly promised that the remainder will be released. b. When Tolentino executed a mortgage, he signified his willingness to pay. From
2. On August 13, 1965, the Monetary Board (MB) of the Central Bank (CB), finding such date, the obligation of the Bank to furnish the loan accrued. The Bank's
that the Bank had liquidity problems, issued Resolution 1049. delay then started and lasted for 3 years (upon the issuance of Resolution 967).
a. It prohibited the Bank from making new loans and investments except c. The power of the Monetary Board to take over insolvent banks for the
investments in government securities excluding extensions or renewals of protection of the public is recognized by Section 29 of R.A. No. 265, which took
already approved loans. effect on June 15, 1948.
b. Even this was subject to review by the Superintendent of Banks. d. Resolution 1049 cannot interrupt the default of the Bank because it merely
3. On June 14, 1968, the MB, after finding that Island Savings Bank failed to put up prohibited the Bank from making new loans and investments.
the required capital to restore its solvency, issued Resolution 967. e. Besides, the mere pecuniary inability to fulfill an engagement does not
a. It prohibited the Bank from doing business in the Philippines. discharge the obligation of the contract, nor does it constitute any defense to a
b. It also instructed the Acting Superintendent of Banks to take charge of the decree of specific performance (Repide vs. Afzelius).
assets of the Bank. f. That Tolentino demanded and accepted the refund of the pre-deducted interest
4. On August 1, 1968, the Bank, in view of nonpayment of the P17,000, applied for the cannot be taken as a waiver of his right to collect the balance. A person cannot
extra-judicial foreclosure of the Tolentino’s mortgage. be legally charged interest for a non-existing debt. Tolentino’s receipt of the
5. Tolentino filed a petition with the CFI of Agusan for injunction, specific pre-deducted interest was, therefore, an exercise of his right to it, which exists
performance or rescission, and damages, arguing that: independently of his right to demand the completion of the loan.
a. Since the Bank failed to deliver the balance, he is entitled to specific g. The alleged discovery by the Bank of the over-valuation of the loan collateral
performance. cannot exempt it from complying with its reciprocal obligation to furnish the
b. If said balance cannot be delivered, he is entitled to rescission of the mortgage. entire loan. It was its responsibility to investigate the existence and valuation of
6. The CFI issued a TRO enjoining foreclosure of the mortgage. the security. In any case, this was not raised in its pleadings before the CFI.
7. The CB and the Acting Superintendent of Banks intervened, praying for the h. Since, however, the Bank is now prohibited from doing further business,
dismissal of Tolentino’s petition. rescission is the only alternative remedy left, which is limited only to the
8. The CFI, after trial, dismissed the petition and ordered Tolentino to pay the balance of the loan.
P17,000, plus interests and charges. It also lifted the TRO so that foreclosure may 2. Tolentino is still liable to pay P17,000, because he executed a separate promissory
proceed. note therefor.
9. The CA affirmed dismissal, but ruled that the Bank cannot foreclose nor collect the a. The promissory note gave rise to Tolentino's reciprocal obligation to pay the
P17,000 loan. P17,000 loan when it falls due.
b. Since he is in default, he is not entitled to rescission [of the P17,000 loan]. The
ISSUES/RULINGS: right to rescind belongs to the aggrieved party, the Bank.
1. Can the action for specific performance prosper? No. c. If Tolentino had not signed a promissory note for the P17,000 payable in 3
2. Is Tolentino liable to pay the P17,000? Yes. years, he would be entitled to ask for rescission of the entire loan, because he
3. Can the mortgage be foreclosed to satisfy the amount? Yes, partially. cannot possibly be in default as there was no date for him to perform his
reciprocal obligation to pay.
RATIO: d. Since both parties were in default, they are both liable for damages. Under
1. While the Bank was in default in fulfilling its reciprocal obligation under the loan Article 1192, CC, in case both parties are in breach, the liability of the first
agreement and Tolentino, under Article 1191, CC, may choose between specific infractor shall be equitably tempered by the courts. As such, the liability of the
Bank and Tolentino offset one another, except for Tolentino’s liability for when it issued the orders granting WPI and dismissing CB’s MTD.
interest, because he benefited from the loan.
3. The real estate mortgage cannot be entirely foreclosed to satisfy the P17,000. DOCTRINE: The following requisites must be present before the order of
a. When there is partial failure of consideration, the mortgage becomes conservatorship may be set aside by a court: (1) The appropriate pleading
unenforceable to the extent of such failure (Dow, et al. vs. Poore). Where the must be filed by the stockholders of record representing the majority of the
indebtedness actually owing to the holder of the mortgage is less than the sum capital stock of the bank in the proper court; (2) said pleading must be filed
named in the mortgage, the mortgage cannot be enforced for more than the within ten (10) days from receipt of notice by said majority stockholders of
actual sum due (Metropolitan Life Ins. Co. vs. Peterson). [Note: American cases the order placing the bank under conservatorship; and (3) there must be
are cited.] convincing proof, after hearing, that the action is plainly arbitrary and made
b. Since the Bank failed to furnish the balance, the mortgage became in bad faith.
unenforceable to such extent. P63,000 is 78.75% of P80,000, hence the mortgage
is unenforceable to the extent of 78.75 hectares. The mortgage covering the
remainder of 21.25 hectares subsists as a security for the P17,000 loan. FACTS: On 29 April 1983, during the regular examination of the Producers Bank of
c. The rule of indivisibility of a real estate mortgage under Article 2089, CC, is the Philippines (PBP), the Central Bank (CB) examiners stumbled upon some highly
inapplicable, since the provision presupposes several heirs of the debtor or questionable loans which had been extended by the PBP management to several
creditor which does not obtain in this case. entities. Upon further examination, it was discovered that these loans, totalling
approximately P300 million, were "fictitious" as they were extended, without
collateral, to certain interests related to PBP owners themselves. Said loans were
CENTRAL BANK vs. CA and RTC JUDGE deemed to be anomalous particularly because the total paid-in capital of PBP at that
GUADIZ, JR. time was only P 140.544 million. This means that the entire paid-in capital of the
bank, together with some P160 million of depositors' money, was utilized by PBP
May 8, 1992 management to fund these unsecured loans.
DAVIDE, JR., J.
Denn (Ang haba nito. Sorry.) Sometime in August of the same year, at the height of the controversy surrounding the
discovery of the anomalous loans, several blind items about a family-owned bank in
SUMMARY: During the regular examination of Producers Bank (PBP), CB
Binondo which granted fictitious loans to its stockholders appeared in major
examiners discovered highly questionable loans extended by PBP
newspapers. These news items triggered a bank-run in PBP which resulted in
management to several entities, including those with interests related to PBP
continuous over-drawings on the bank's demand deposit account with the Central
owners themselves, without collateral. The total amount of these loans
Bank; the over-drawings reached P74.109 million by 29 August 1983. By 17 January
exceeded PBP’s paid-in capital. Blind-items relating to the controversial loans
1984, PBP's overdraft with the CB increased to P143.955 million, an indication of
appeared in newspapers triggered a bank-run in PBP. This resulted in
PBP's continuing inability to maintain that condition of solvency and liquidity
continuous over-drawings on PBP’s demand deposit account with the CB.
necessary to protect the interests of its depositors and creditors.
Later, on the basis of a report submitted to the Monetary Board, the MB
placed PBP under conservatorship. Despite efforts to come up with a viable
Hence, on 20 January 1984, on the basis of the report submitted by the Supervision
rehabilitation plan, no actual agreement happened, until the rehabilitation
and Examination Sector, Department I of the CB, the Monetary Board (MB), pursuant
program proposed by MB under its Resolution No. 649. However, PBP did not
to its authority under Section 28-A of R.A. No. 265 and by virtue of MB Board
approve such program. PBP later filed a civil case for injunction and damages
Resolution No. 164, placed PBP under conservatorship.
against CB and MB, essentially questioning the validity/legality of placing
their bank under conservatorship. The CB questioned PBP management’s
While PBP admits that it had no choice but to submit to the conservatorship, it
authority to file said suit without the conservator’s consent. Respondent RTC
nonetheless requested that the same be lifted by the CB. In 1984, PBP submitted a
judge issued a TRO, and later a WPI enjoining CB from implementing their
rehabilitation plan to the CB. Although said proposal was explored and discussed, no
Resolutions. However, the SC ruled that respondent judge committed GAD
program acceptable to both the CB and PPI was arrived at because of disagreements
on certain matters. No other rehabilitation program was submitted by PBP for almost
3 years; as a result thereof, its overdrafts with the CB continued to accumulate. By the Respondent RTC Judge Guadiz: issued a TRO and later granted the application for WPI
end of June 1987, the figure swelled to a staggering P1.023 billion. enjoining the CB or any of their agents from: implementing MB Resolutions Nos. 649
and 751
Consequently, per MB Resolution No. 649 dated 3 July 1987, the CB Monetary Board
decided to approve in principle what it considered a viable rehabilitation program for In a Motion to Dismiss (and in several pleadings later filed), the CB argued the
PBP. following:
1) the amended complaint states no cause of action; MB Resolution Nos. 649
There being no response from PBP on the proposed rehabilitation plan, the MB issued and 751 are merely advisory, thus, neither effect impairment of plaintiffs'
Resolution No. 751 instructing CB management to advise the bank as follows: rights nor cause it prejudice, loss or damage; furthermore, there is no basis
a. The Central Bank conservatorship over PBP may be lifted only after PBP for the averments on the legality or illegality of the conservatorship since the
shall have identified the new group of stockholders who will put in new amended complaint does not seek its annulment;
capital in PBP and after the Monetary Board shall have considered such new 2) the amended complaint is not authorized by the management of PBP; and
stockholders as acceptable; and 3) the lower court did not acquire jurisdiction over the case except to order
b. The stockholders of PBP have to decide whether or not to accept the terms the amended complaint expunged from the records because the proper filing
of the rehabilitation plan as provided under Resolution No. 649 dated July 3, fee was not paid.
1987 within one week from receipt of notice hereof and if such terms are not
acceptable to them, the Central Bank will take appropriate alternative action The Motion to Dismiss was denied. (To cut it short, the respondent RTC judge kept on
on the matter; . . . ruling in favour of Producers Bank and against Central Bank. Because of the WPI, the
bank's overdraft with the CB continued to rise. As of 13 February 1990, PBP's
Later, PBP filed a complaint verified by its former board chairman, Henry Co, with the overdraft with the CB increased to P1.233 billion. Contempt proceedings against the
RTC of Makati against the CB, the MB and CB Governor Jose B. Fernandez, Jr. PBP conservator Atty. Leonida Tansinsin-Encarnacion for her failure to follow the
- The complaint devoted several pages to specific allegations in support of orders of the court were also discussed by the SC.)
PBP's assertions that the conservatorship was unwarranted, ill-motivated,
illegal, utterly unnecessary and unjustified; that the appointment of the ISSUE/HELD/RATIO:
conservator was arbitrary; that herein petitioners acted in bad faith; that the (1) W/N respondent Judge committed GAD in not dismissing PBP’s Civil Case on
CB-designated conservators committed bank frauds and abuses; that the CB the following grounds of lack of legal. personality to bring the action as the
is guilty of promissory estoppel; and that by reason of the conservatorship, it same was filed in the name of the PBP without the authority of the
suffered losses, the total quantifiable extent of which is P108,479,771.00, conservator - YES
exclusive of loss of profits and loss of
goodwill. PBP has been under conservatorship since 20 January 1984. Pursuant to Section 28-A
- PRAYER: for judicial review of MB Resolutions No. 649 and No. 751 and that of the Central Bank Act, a conservator, once appointed, takes over the management of
judgment be rendered nullifying the same and ordering defendant CB's the bank and assumes exclusive powers to oversee every aspect of the bank's
conservator to restore the viability of PBP as mandated by section 28-A of operations and affairs.
R.A. 265 and to fully repair the damages inflicted on PBP consisting of losses - CB: This power includes the authority to determine "whether or not to
maintain suit in the bank's name."
of operation and the conservators' bank frauds and abuses, with costs against
- RTC: Section 28-A does not prohibit the Board of Directors of a bank to file
defendants. PBP also prayed for the issuance of a TRO/WPI enjoining
suit to lift the conservatorship over it, to question the validity of the
defendants' coercion on PBP to accept the rehabilitation plan within one
conservator's fraudulent acts and abuses and the arbitrary action of the
week or their taking "appropriate alternative action" including exclusion of
conservator's principal –– the MB of the CB. The conservator cannot be
PBP from settlement of clearing balances at the Central Bank clearing house.
expected to question his own continued existence and acts. He cannot be
- Only P102.00 was paid as docket fee.
expected to file suit to annul the action of his principal . . . or a suit that would
point out the ill-motivation, the disastrous effects of the conservatorship and Rural Bank of Lucena, Inc. vs. Arca, et al: Nor can the proceedings before Judge Arca be
the conservator's bank frauds and abuses as alleged in the complaint. deemed a judicial review of the 1962 resolution No. 122 of the Monetary Board, if
- SC: The RTC was of the impression that what was sought for in Civil Case No. only because by law such review must be asked within 10 days from notice of the
17692 is the lifting of the conservatorship because it was arbitrarily and resolution of the Board…
illegally imposed. However, there is nothing in the amended complaint to - This rule is still good law notwithstanding the amendment to Section 29
reflect an unequivocal intention to ask for its lifting. which expands its scope by including the action of the MB under Section 28-A
of the Act on the appointment of a conservator.
If what was sought was the lifting of the conservatorship because it was arbitrarily
imposed, then the case should have been dismissed on the grounds of prescription SUB-ISSUE:
and lack of personality to bring the action. W/N an action for damages arising from (a) the MB's act of placing the PBP under
- Fifth paragraph of Section 29 of the CB Act, as amended by EO 289 4: The conservatorship and (b) the acts of the conservator, and to enjoin the MB from
actions of the MB may be assailed in an appropriate pleading filed by the implementing resolutions related or incident to, or in connection with the
stockholders of record representing the majority of the capital stock within conservatorship, may be brought only for and in behalf of the PBP by the stockholders on
ten (10) days from receipt of notice by the said majority stockholders of the record representing the majority of the capital stock thereof or simply upon authority of
order placing the bank under conservatorship. its Board of Directors, or by its Chairman.
- Under said provision, the following requisites must be present before the
order of conservatorship may be set aside by a court: SC: As to the first kind of damages, the same may be claimed only if the MB's action is
1. The appropriate pleading must be filed by the stockholders of record plainly arbitrary and made in bad faith, and that the action therefor is inseparable
representing the majority of the capital stock of the bank in the proper court; from an action to set aside the conservatorship. In other words, it must be filed within
2. Said pleading must be filed within ten (10) days from receipt of notice by said ten (10) days from receipt of notice of the order placing the bank under
majority stockholders of the order placing the bank under conservatorship; conservatorship. Otherwise, the fifth paragraph of Section 29 of the CB Act could be
and rendered meaningless and illusory by the bank's filing, beyond the prescribed ten-day
3. There must be convincing proof, after hearing, that the action is plainly period, of an action ostensibly claiming damages but in reality questioning the
arbitrary and made in bad faith. conservatorship.
CAB: PBP was placed under conservatorship on 20 January 1984. The original As to actions for the second kind of damages and for injunction to restrain the
complaint was filed only on 27 August 1987, or three (3) years, seven (7) months and enforcement of the CB's implementing resolutions, said fifth paragraph of Section 29
seven (7) days later, long after the expiration of the 10-day period deferred to above. It of the Central Bank Act, as amended, equally applies because the questioned acts are
is also beyond question that the complaint and the amended complaint were not but incidental to the conservatorship.
initiated by the stockholders of record representing the majority of the capital stock. - The purpose of the law in requiring that only the stockholders of record
Accordingly, the order placing PBP under conservatorship had long become final and representing the majority of the capital stock may bring the action to set
its validity could no longer be litigated upon before the trial court. aside a resolution to place a bank under conservatorship is to ensure that it
be not frustrated or defeated by the incumbent Board of Directors or officers
4 The provisions of any law to the contrary notwithstanding, the actions of the Monetary Board under this who may immediately resort to court action to prevent its implementation or
Section, Section 28-A, and the second paragraph of section 34 of this Act shall be final and executory, and
enforcement.
can be set aside by a court only if there is convincing proof, after hearing, that the action is plainly arbitrary
and made in bad faith: Provided, That the same is raised in an appropriate pleading filed by the stockholders
of record representing the majority of the capital stock within ten (10) days from the date the receiver CB: Once a bank is placed under conservatorship, no action may be filed on behalf of
takes charge of the assets and liabilities of the bank or non-bank financial intermediary performing quasi- the bank without prior approval of the conservator. Since in this case such approval
banking functions or, in case of conservatorship or liquidation, within ten (10) days from receipt of notice
was not secured prior to the filing of Civil Case No. 17692, the latter must also be
by the said majority stockholders of said bank or non-bank financial intermediary of the order of its
placement under conservatorship or liquidation. dismissed on that ground.
- SC: No such approval is necessary where the action was instituted by the - Under both the 1973 and 1987 Constitutions, the Central Bank is tasked with
majority of the bank's stockholders. To contend otherwise would be to defeat providing policy direction in the areas of money, banking and credit;
the rights of such stockholders under the fifth paragraph of Section 29 of the corollarily, it shall have supervision over the operations of banks. Under its
CB Act. A bank retains its juridical personality even if placed under charter, the CB is further authorized to take the necessary steps against any
conservatorship; it is neither replaced nor substituted by the conservator banking institution if its continued operation would cause prejudice to its
who, per Section 28-A of the Central Bank Act, as amended by P.D. No. 1932, depositors, creditors and the general public as well.
shall only:
. . . take charge of the assets, liabilities, and the management of that MB Resolutions Nos. 649 and 751 were not promulgated to arbitrarily divest the
institution, collect all monies and debts due said institution and present stockholders of control over PBP. The same contemplates an effective and
exercise all powers necessary to preserve the assets of the viable plan to revive and restore PBP. It is to be noted that before issuing these
institution, reorganize the management thereof, and restore its resolutions, the MB gave the management of PBP ample opportunity (more than 3
viability. He shall have the power to overrule, or revoke the actions years) to submit a viable rehabilitation plan for the bank.
of the previous management and board of directors . . ., any provision
of law to the contrary notwithstanding, and such other powers as the SC: There is nothing objectionable to the actions of the MB. Therefore, the contention
Monetary Board shall deem necessary. that the impugned resolutions are arbitrary, illegal and made in bad faith are
completely without legal or evidentiary basis.
Even assuming for the sake of argument that the action was properly brought by an
authorized party, the same must nevertheless be dismissed for failure of the plaintiffs DISPOSITIVE: Respondent Judge is ordered to dismiss Civil Case No. 17692. All
therein to pay the correct docket fees. proceedings undertaken and all orders issued by respondent Judge are hereby SET
ASIDE for being null and void. The writ of preliminary injunction issued by the trial
(2) WON the issuance of a writ of preliminary injunction was proper- NO court is hereby LIFTED.
The RTC gravely abused its discretion when it granted the application for a WPI.
There was even a prejudgment of the case when it ruled that MB Resolutions Nos. 649 b. Closure
and 751 were issued arbitrarily and that the conservatorship was issued in violation
of PBP's right to administrative due process. Ramos et. al vs. Central Bank
SC: There was neither arbitrariness nor bad faith in the issuance of the MB October 4, 1971
Resolutions.
- The banking business is properly subject to reasonable regulation under the REYES, J.B.L., J.
police power of the state because of its nature and relation to the fiscal affairs
of the people and the revenues of the state. Banks are affected with public Mica Maurinne M. Adao
interest because they receive funds from the general public in the form of
deposits. Due to the nature of their transactions and functions, a fiduciary SUMMARY: Pursuant to a resolution from the Central Bank and the
relationship is created between the banking institutions and their depositors.
Monetary Board, the operation of Overseas Bank of Manila(OBM) was
Therefore, banks are under the obligation to treat with meticulous care and
utmost fidelity the accounts of those who have reposed their trust and suspended for various violations of the banking laws and implementing
confidence in them. regulations. Because the financial situation of the OBM had caused
- It is then Government's responsibility to see to it that the financial interests mounting concern in the Central Bank, Ramos and the OBM
of those who deal with banks and banking institutions, as depositors or management met with Central Bank on the necessity and urgency of
otherwise, are protected. In the Philippines, that task is delegated to the rehabilitating the OBM through the extension of necessary financial
Central Bank which, pursuant to its Charter, is authorized to administer the assistance. CB made express representations to Ramos, et al. that it
monetary, banking and credit system of the Philippines.
would support OBM, and avoid its liquidation if they would execute (a) Trustee. Ramos et. al likewise conveyed by way of mortgage to the Central Bank all
the Voting Trust Agreement turning over the management of OBM to their private properties and holdings to secure the obligations of the OBM to the
the CB or its nominees, and (b) mortgage or assign their properties to Central Bank. Accordingly, new directors and officers were elected and installed and
the Central Bank to cover the overdraft balance of OBM. They complied they took over the management and control of OBM.
with the conditions imposed by CB yet no positive action was taken to
rehabilitate the bank. Instead, CB issued Resolutions ordering the
suspension of operations and liquidation of OBM. Hence, this petition.
However, after 8 months, the Central Bank did not make any positive action to
SC ruled that the Central Bank, by promising to rehabilitate the bank, is
reorganize and resume OBM’s normal operations. Instead, Central Bank issued a
estopped from closing it down.
Resolution excluding OBM from clearing with it and authorizing the nominee board of
DOCTRINE: Under the rule of promissory estoppels, CB may not renege directors to suspend operations. Worse, Central Bank Monetary Board issued a
on its representations and liquidate a bank, to the detriment of its Resolution ordering the liquidation the bank. Hence this petition for certiorari,
stockholders, depositors and other creditors, after such bank has prohibition and mandamus with prayer for the issuance of a writ of preliminary
complied with the conditions imposed for the rehabilitation sought for. injunction to restrain Central Bank from enforcing and implementing the Monetary
Discretion of CB has its limits and has never been held to include Board Resolutions. Ramos, et al. alleged that OBM became financially distressed
arbitrariness, discrimination or bad faith. because of this suspension and the deprivation by the Central Bank of all the usual
credit facilities and accommodations accorded to the other banks. Central Bank
contended that to assail Resolution of the Monetary Board ordering the liquidation of
the Overseas Bank, an action must be filed in the CFI of Manila by the Bank itself, and
FACTS: not by petitioning stockholders
The Overseas Bank of Manila (OBM) is a commercial banking corporation duly

organized and existing under the laws of the Philippines. Ramos et. al are the majority
and controlling stockholders of OBM. Pursuant to a resolution from the Central Bank ISSUE: Whether OBM may, under the circumstances, be closed or allowed to continue
and the Monetary Board, the operation of OBM was suspended for various violations operating at the exclusive discretion of respondent Central Bank?
of the banking laws and implementing regulations. Because the financial situation of
the OBM had caused mounting concern in the Central Bank, Ramos and the OBM
management met with Central Bank on the necessity and urgency of rehabilitating the
RULING: The Central Bank, by promising to rehabilitate the bank, is estopped from
OBM through the extension of necessary financial assistance.
closing it down. The conduct of the Central Bank reveals a calculated attempt to
evade rehabilitating OBM despite its promises. Hence, respondent Central Bank of the
Philippines is directed to comply with its obligations under the voting trust
In lieu thereof, the Monetary Board issued another Resolution dated April, 1967 agreement, and to desist from taking action in violation thereof.
demanding the stockholders to mortgage their properties or assign the same to the
Central Bank and to execute a voting trust agreement whereby they will pass the
management to Philippine National Bank in order “to stave of liquidation”. Hence,
RATIO: The record plainly shows that the CB made express representations to
Ramos et. al executed the voting trust agreement prepared by Central Bank with OBM
Ramos, et al. that it would support OBM, and avoid its liquidation if the they would
management as cestuis que trust and Central Bank’s Superintendent of Banks as the
execute (a) the Voting Trust Agreement turning over the management of OBM to the
CB or its nominees, and (b) mortgage or assign their properties to the Central Bank to respondent Central Bank of the Philippines is directed to comply with it obligations
cover the overdraft balance of OBM. Ramos, et al having complied with these under the Voting Trust Agreement, and to desist from taking action in violation
conditions and parted with value to the profit of the CB (which thus acquired thereof.
additional security for its own advances), the CB may not now renege on its
representations and liquidate the OBM, to the detriment of its stockholders, Castro, J. Dissenting Opinion: Undoubtedly, the take-over by a new management of
depositors and other creditors, under the rule of promissory estoppels the operations of the OBM to stop the bank's assets and funds from further being
fraudulently dissipated could bring about relative normalcy and stability and remove
the immediate threat of closure. But no trustee can be expected to surmount what is
humanly insurmountable. The CB is not expected, nor cannot it be obliged, to divert
CB cites American cases to the effect that the courts cannot interfere with CB's its own funds for the purpose of saving a solitary bank whose in extremis condition
discretion in determining whether or not a distressed bank should be supported or was, in the first place, caused by the malfeasance, and non-feasance of its principal
liquidated. In none of the cases cited, however, does it appear that the CB engaged to stockholders and officers. The CB was established to discharge certain constituent
support the distressed bank in exchange for control of its management and additional functions. Its powers are necessarily circumscribed by law. The fact that it achieves a
mortgages in its favor, and, therefore, the authorities cited are not in point. Discretion surplus fund in its operations does not mean that it can devote such surplus fund to
has its limits and has never been held to include arbitrariness, discrimination or bad any use not specifically and clearly described by law. Section 41 of the Central Bank
faith. Act, in fact, specifies the uses to which its net profits may be devoted. The
"rehabilitation, normalization and stabilization" of a private commercial bank are not
among these.
Having induced Ramos, et al to part with additional security in reliance upon CB's
promises and commitments to avert liquidation and to support, normalize and CENTRAL BANK OF THE PHILIPPINES,
rehabilitate the OBM, CB is duty bound to comply in good faith with such promises.
Consequently, being contrary thereto, CB Resolutions ordering the suspension of Petitioner, vs. HONORABLE COURT OF
operation and liquidation of the bank should be annulled and set aside for having
been adopted in abuse of discretion, equivalent to excess of jurisdiction. And never APPEALS, ISIDRO E. FERNANDEZ, and JESUS
having attempted to comply, nor even to begin compliance, with its commitments and
promises, the respondent CB is precluded to invoke the expiration of the period
R. JAYME, Respondents.
specified for the duration of its obligations under the Voting Trust Agreement. Such Date: July 27, 1981
Ponente: Concepcion Jr., J.
period should, in justice and equity, be deemed to start running from and after the CB
Kathleen Tuason
begins due performance of its commitments, promises and representations in good
faith. SUMMARY: Fernandez and Jayme are the majority and controlling
stockholders of Provident Bank. Provident experienced a bank run
which forced Provident to borrow funds from other banks and from
the Central Bank. Fernandez and Jayme appealed to the Central Bank
WHEREFORE, the writs prayed for in the petition are hereby granted, and respondent for further assistance. However, the Central Bank told them that they
Central Bank's resolutions Nos. 1263, 1290 and 1333 (that prohibit the Overseas have to relinquish and turnover management and control of Provident
Bank of Manila to participate in clearing, direct the suspension of its operations, and to the Iglesia ni Kristo affiliated Eagle Broadcasting Corporation, A
ordering liquidation of said bank) are hereby annulled and set aside; and said Memorandum of Agreement was executed which said that Eagle
agreed to purchase 53,000 shares of stock from Provident. Eagle did

not comply with the agreement. Subsequently, however, the Central Bank extended emergency loans to Provident
enabling them to reopen. The Hon. Alfonso Calalang, then Governor of the Central
Subsequently, Central Bank Monetary Board issued a resolution Bank, together with other high officials of the Central Bank, visited the premises of
declaring the closure of Provident and ordering its liquidation. Hence, Provident soon after its reopening and assured the public that Provident was sound
Fernandez and Jayme filed with the Court of First Instance a petition and had the full backing of the Central Bank.
for certiorari, prohibition, and mandamus against Central Bank to However, the assistance given to Provident was not sufficient to meet and service the
annul the resolution and restrain the Central Bank from proceeding unusually heavy withdrawals of deposits. Fernandez and Jayme appealed to the
with the liquidation which the court granted. Central Bank for continued assistance.
- The two were summoned to the Central Bank for a conference and were in-
The SC found that the action of the Monetary Board in forbidding troduced to representatives of the Iglesia Ni Kristo (INK) which had a size -
Provident from doing business in the Philippines and ordering its able deposit of P5.5 million with Provident and was having difficulty in with-
liquidation is clearly arbitrary and was made in bad faith. The Central drawing the same.
Bank had committed itself to support Provident and restore it to its - Central Bank Deputy Governor voiced the decision of the Central Bank that
former sound financial position provided that Fernandez and Jayme unless Fernandez and Jayme relinquished and turned over the management
should relinquish and give up its control and management of the bank and control of Provident to the Iglesia Ni Kristo, the Central Bank would not
to the INK, and thereafter, whimsically withdrew such support to the further support and assist the distressed bank.
detriment of Provident. - Governor Briñ as, in turn, persuaded the representatives of the INK, headed
by Rogelio Manalo, that the only way they could withdraw their deposit was
DOCTRINE: While the closure and liquidation of a bank may be to take control and management of Provident.
considered an exercise of police power, the validity of such exercise of
police power is subject to judicial inquiry and could be set aside if it is
either capricious, discriminatory, whimsical, arbitrary, unjust, or a Left with no other alternative, but to accede, and in order to protect their investment,
denial of the due process and equal protection clauses of the Fernandez and Jayme reluctantly executed a Memorandum Agreement with the Eagle
Constitution. Broadcasting Corporation, a company identified with the INK, making the following
commitments, which included conversion of INK time deposit to preferred shares of
stock, purchase of Fernandez’ and Jayme’s shares of stock (53,000) by the INK, among
FACTS: others.
Provident’s majority stockholders were herein private respondents Isidro Fernandez
and Jesus Jayme. A major portion of Provident’s loanable funds was granted to The Eagle Broadcasting Corporation, however, did not comply with its commitment to
directors, officers and stockholders and their related interests. purchase 53,000 common shares of stock and to convert its deposits into equity.
Instead, the new management of Provident caused the conversion of the deposits of
In 1968, a number of savings banks, Provident among others, experienced a bank run INK into “bills payable” earning 12% interest, which were subsequently withdrawn.
which was triggered off by adverse publicity in the newspapers, radio and television
of investigations conducted by Congress that some banks were unable to pay deposit Provident, under the new management, also failed to comply with the Monetary
withdrawals. Board directives relative to the rehabilitation of the bank so that it restored the
interest rate of 12% on outstanding loans. Various irregularities detrimental to
In view of the unusually heavy withdrawals, Provident had no recourse but to request Provident were also perpetrated by the new management despite the presence of
emergency loans from the Central Bank to meet the demands of the depositors, which resident Central Bank examiners. INK likewise facilitated or caused the assignment
the Monetary Board denied. Provident had to borrow money from other banks, which and mortgage of Provident’s various assets, receivables, and interests in favor of the
was not enough to meet the demands of the depositors. As a result, Provident was Eagle Broadcasting Corporation.
forced to temporarily close.
In view of the deteriorating financial condition of Provident, the Deputy Governor of Provident to the INK which did not have any intention of restoring the bank into its
the Central Bank separately met with the representatives of the INK and the majority former sound financial condition but whose interest was merely to recover its
stockholders of the bank to discuss with them the urgency of finding a solution to deposits from Provident, and, thereafter, allowing the INK to mismanage Provident
Provident’s financial difficulties. until the bank’s financial deterioration and subsequent closure.
- Both parties were requested to submit their proposals pertaining to the con- As the Trial Court found:
tinued operation and management of the bank. - The CB was not vigilant in overseeing the faithful compliance of the MOA as
o Proposals from both sides were rejected by the Monetary Board. well as the supervision of the management of the bank by Eagle Broadcasting.
Subsequently, Manalo resigned as Chairman and President of Provident, giving rise to - There was a discrepancy in the interest rates in the loans by the CB. During
large withdrawals from the big depositors which the bank could not meet. the management of Fernandez and Jayme, interest rate was 12% per annum.
When management was transferred to Eagle, rate was reduced to 10%.
Provident’s condition continued to worsen, so that, on September 1972, the Monetary - When the conditions at Provident continued to deteriorate under EAGLE’s
Board, in pursuance of Section 29 of Republic Act No. 265, decided to forbid Provident management interest rates were again raised to 12%. And yet, the CB pro-
from doing business in the Philippines. posed to extend to Banco Filipino, a solid and non-distressed bank which was
a creditor of Provident, an emergency loan with rates as low as 4%.
Consequently, Fernandez and Jayme filed a petition for certiorari, prohibition and - These rates plus the penalties greatly contributed to the deterioration of
mandamus and/or specific performance, with preliminary injunction, against the Provident’s net worth.
Central Bank and Eagle Broadcasting Corporation, with the CFI, to annul and set aside
the said Monetary Board Resolution and to restrain the Central Bank from liquidating
Provident , and, instead, to order the Central Bank to comply with its commitments WON there can be no estoppel against Central Bank in view of their valid
and reorganize and rehabilitate Provident. exercise of police power by its lawful overseeing of PROVIDENT. NO
(IMPORTANT)
CFI: Ordered the Central Bank to desist from liquidating Provident and to perform its While the closure and liquidation of a bank may be considered an exercise of
obligation to reorganize and rehabilitate the Bank. It also awarded damages in favor police power, the validity of such exercise of police power is subject to judicial
of Jayme and Fernandez. inquiry and could be set aside if it is either capricious, discriminatory,
CA: Affirmed. whimsical, arbitrary, unjust, or a denial of the due process and equal protection
clauses of the Constitution.
WON there was proof of gross and evident bad faith on the part of Central Bank The Central Bank had committed itself to support Provident and restore it to its
and Eagle Broadcasting Corporation. YES former sound financial position provided that Fernandez and Jayme should
Under Sec. 29 of Act No. 265, the law applicable during the time of the disposition of relinquish and give up its control and management of the bank to the INK, and
the case, the action of the Monetary Board in ordering the closure and liquidation of thereafter, whimsically withdrew such support to the detriment of Provident.
an insolvent bank is final and executory and can be set aside only if there is
convincing proof that the action is plainly arbitrary and made in bad faith. WON Provident’s anomalous grant of substantial loans to its own directors,
officers, and related interests which caused its insolvency was not appreciated
The petition filed, however, should not be dismissed for while there may not be gross by the lower courts. NO
and evident bad faith on the part of the Central Bank and Eagle Broadcasting The judgment complained of is based upon substantial evidence and that the trial
Corporation to sustain the award of damages to Fernandez and Jayme, as ordered by court had not overlooked, nor misinterpreted certain facts and circumstances of
the trial court, the action of the Monetary Board in forbidding Provident from doing weight in making its findings, so that the respondent appellate court did not commit
business in the Philippines and ordering its liquidation is clearly arbitrary and was any error in affirming the said judgment.
made in bad faith.
At any rate, the fact that the directors, officers, and stockholders of Provident had
The arbitrariness and bad faith of the petitioner is evident from the fact that it been extended loans by the bank which may have caused its insolvency, is of little
pressured Fernandez and Jayme into relinquishing the management and control of
importance since these loans were already known to and taken into consideration by the purchase price due from Regalado”) and the period of this second deposit was
the Central Bank when it decided in 1968 to allow Provident to continue in business. fixed at one year, maturing December 1966.
WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED.
In April 1966, NAWASA’s Acting General Manager wrote to OBM because it
wanted to withdraw the first time deposit immediately and the second time
Overseas Bank of Manila v. Court of Appeals deposit 60 days thereafter. OBM failed to remit the amounts involved despite two
more requests in May and June 1966. OBM never contacted NAWASA except to
G.R. No. L-45866/19 April 1989/First Division/Petition for Review on Certiorari pay interests (about P212K) on the time deposits a day before the second time
Overseas Bank of Manila – petitioner deposit was to mature.
Court of Appeals and National Waterworks and Sewerage Authority -
respondents After the second time deposit had matured, NAWASA again wrote OBM in
Decision by J. Narvasa, Digest by Pip January 1967. When OBM failed to respond yet again, NAWASA wrote it again and
gave it five days to remit the amount or NAWASA would seek intervention of the
Short Version: NAWASA made two time deposits with OBM. After they matured, Central Bank. When still no word came, NAWASA wrote the CB Governor. In July
OBM failed to remit the proceeds despite six written demands from NAWASA. 1967 the CB Governor replied that it was following the Monetary Board’s
OBM simply did not reply. NAWASA sued OBM and the CFI of Manila rendered suggestion for OBM to transfer government deposits in its custody (including
judgment ordering OBM to pay. On appeal, both the CA and the SC affirmed the those of NAWASA) to PNB and/or DBP. Apparently, even the CB was ignored by
CFI. The Court noted that OBM had indeed fallen into a distressed financial OBM.
situation, was subjected to suspension of operations by the CB, and finally placed
on a rehabilitation plan approved by the SC itself. Nonetheless, OBM’s liabilities to By September 1967 OBM still hadn’t remitted the time deposits nor
NAWASA were incurred two years prior to the CB suspension and long before the transferred the deposits to PNB/DBP. After NAWASA complained to the CB again,
SC approved OBM’s rehabilitation plan. There was therefore no excuse that would the CB advised it that “the matter really had to be resolved by NAWASA and the
free OBM from liability to NAWASA. Overseas Bank according to their contract” though the CB was “still pursuing
available measures to induce Overseas Bank to remit the time deposits in
Facts: After NAWASA entered into a contract of sale with one Bonifacio Regalado question.” Even the President was informed of the status of government deposits
(where NAWASA was the seller), the board of directors of NAWASA authorized with OBM.
NAWASA’s Treasurer to place about P327K in a time deposit with OBM. The time
deposit was for a period of six months and would mature in April 1966. The After one last letter in January 1968 was unheeded, NAWASA brought suit in
purpose of the time deposit was so that a refund could quickly be made to the CFI of Manila to recover its deposits and damages. OBM failed to file its
Regalado in the event that his contract with NAWASA was disapproved by the answer despite service of summons and was declared in default. The trial court
Office of the President. rendered judgment by default and ordered OBM to pay the value of the two time
deposits (with interest), attorney’s fees equivalent to 10% of the two claims, and
Regalado made a second payment in the same amount and another time costs of the suit. After being served notice of the judgment, OBM did not file an MR
deposit was made by NAWASA’s Treasurer with OBM. For some reason, the and instead appealed to the Court of Appeals. The CA affirmed the CFI.
second time deposit was in the amount of P2.945M (“representing the balance of
OBM brought the case before the Supreme Court on certiorari with the sent by NAWASA and “disdaining to answer any one of them”, compelling
following arguments: NAWASA to litigate.
1. Because of “punitive action taken by the Central Bank”, OBM had been Voting: Cruz, Gancayco, Griño-Aquino and Medialdea, JJ., concur.
prevented from undertaking banking operations which would have gen-
erated funds to pay its depositors and creditors; and
2. In Emerita Ramos, et al. v. CB (G.R. No. L-29352), the Supreme Court or-
dered the rehabilitation, normalization, and stabilization of OBM.
Banco Filipino Savings and Mortgage
Bank vs. Central Bank
Issue: Could OBM still be required to pay NAWASA notwithstanding the Supreme December 11, 1991
Ponente: Medialdea, J..
Court’s earlier resolution ordering OBM’s rehabilitation? YES.
Flores
Ruling: Petition denied. Court of Appeals and CFI affirmed. SUMMARY:

The Monetary Board ordered the closure of Banco Filipino. This was
Ratio: Neither of OBM’s arguments could excuse it’s non-payment of NAWASA’s based on a report which found the bank to be insolvent. SC ruled that
the closure is not valid. The report, which recommended the closure,
claims.
was based on an incomplete examination of the bank.
There was no evidence on record that the CB took “punitive action” DOCTRINE:
against OBM and prevented it from paying its obligations to NAWASA. The The Central Bank Act vests authority upon the Central Bank and
suspension of OBM’s operations by the CB took place in August 1968—TWO Monetary Board to take charge and administer the monetary and
banking system of the country and this authority includes the power to
YEARS after NAWASA demanded that OBM remit the time deposits. The fact
examine and determine the financial condition of banks for purposes
that OBM fell into a “distressed financial situation” and the CB’s actions toward it provided for by law, such as for the purpose of closure on the ground
did not in any sense excuse it from its obligation to pay NAWASA. of insolvency stated in Section 29 of the Central Bank Act. Nonetheless,
the authority given must not be exercised arbitrarily such as to
As to the earlier Supreme Court decision allegedly approving OBM’s prematurely conclude that a bank is insolvent if the basis for such
conclusion is lacking and insufficient.
rehabilitation plan, the CA could not be faulted for not applying it because
the CA decision came before the SC’s decision in the Ramos case. Moreover, FACTS:
the rehabilitation plan did not in any way negate or diminish OBM’s Banco Filipino Savings and Mortgage Bank (bank) placed under a conservatorship by
indebtedness to NAWASA. Conceding the prescribed procedure of payment set the Monetary Board (MB). Based on a report submitted to it, MB ordered the closure
down in the Ramos case, there was no obstacle to determining the principal and of the bank and placed it under receivership.
interests of the debts at issue in this case.
The bank filed a complaint with RTC Makati to set aside the action of the MB. The SC
ordered a referral hearing. The hearing commissioner found that the reports did not
Finally, the Court upheld the payment of attorney’s fees on account of OBM’s establish, in accordance with RA 265 (Central Bank Act), the bank’s insolvency.
acts of “evident bad faith” in deliberately ignoring the many requests for payment
ISSUES/HELD:
1. WON the closure and receivership of the bank is valid. No. the Central Bank was wrong when it contended that the bank's true financial
condition is synonymous with the terms "unimpaired capital and surplus,"
RATIO: "combined capital accounts" and net worth after deducting valuation reserves
1. The basic standards of substantial due process were not observed. Under RA 265, from the capital, surplus and unretained earnings. If valuation reserves would be
the following are the requirements to be complied with before a bank is ordered deducted from these items, the result would merely be the net worth or the
closed: Firstly, an examination conducted by the head of the supervising or unimpaired capital and surplus of the bank but not its total financial condition.
examining department into the condition of the bank; secondly, it shall be
disclosed in the examination that the condition of the bank is one of insolvency, or SC added that the insolvency of a bank occurs when the actual cash market value
that its continuance in business would involve probable loss to its depositors or of its assets is insufficient to pay its liabilities, not considering capital stock and
creditors; thirdly, the department head concerned shall inform the MB in writing, surplus which are not liabilities for such purpose. Thus it should be fair market
of the facts; and lastly, the MB shall find the statements of the department head to value and not the book value of the assets that should have been considered.
be true.
In this case, the examination contemplated in RA 265 was not fully complied with.
The report on which the closure was based, was based on an incomplete Rural Bank of San Miguel Inc. and
examination of the bank. There were still highly significant items to be weighed
and determined such as the matter of valuation reserves. It would be a drastic Hilario Soriano v Monetary Board, BSP
move to conclude prematurely that a bank is insolvent if the basis for such
conclusion is lacking and insufficient, especially if doubt exists as to whether such and PDIC
bases or findings faithfully represent the bank’s real financial status. February 16, 2007
Ponente: Corona, J.
Kitty
The actuation of the Monetary Board in closing petitioner bank on January 25,
1985 barely four days after a conference with the latter on the examiners' partial
findings on its financial position is also violative of what was provided in the SUMMARY: Resolution No. 105 was issued by the Monetary Board,
preventing RBSM from doing business in the Philippines, placing it
Further, according to CB Manual of Examination Procedures, only after the under receivership and designating PDIC as receiver. Petitioner argued
that the resolution was bereft of basis since no complete examination
examination is concluded, should a pre-closing conference be held with the
officers of the institution on the findings/exception, and a copy of the summary of was made. It insisted that “examination” as used in Sec. 29 of the old
law is the same as that required in Sec. 30 of RA 7635. SC ruled against
the findings should be furnished the institution so that corrective action may be
taken. It is hard to understand how a period of four days after the conference petitioner’s contention. The old law was expressly repealed by RA
7635.
could be a reasonable opportunity for a bank to undertake a responsive and
corrective action on the partial list of findings of the examiner-in-charge.
DOCTRINE: The decision of the MB and BSP, like any other
The Central Bank of the Philippines has the responsibility to administer the administrative body, must have something to support itself and its
findings of fact must be supported by substantial evidence. It is clear
monetary, banking and credit system of the country and that its powers and
functions shall be exercised by the MB pursuant to RA 265. Consequently, the under RA 7653 that the basis need not arise from an examination as
required in the old law.
power of the MB to close banks is an exercise of the police power. Police power,
however, may not be done unreasonably and could be set aside if it is tantamount
to a denial of due process and equal protection clauses of the Constitution.
FACTS:
SC also found that under RA 265, the bank is solvent. Under RA 265, a bank is
insolvent when its realizable assets are insufficient to meet its liabilities. Hence
 Rural Bank if San Miguel was a domestic corporation engaged in banking. It o PDIC thereafter implemented the closure order and took over the
started operations in 1962 and by year 2000, had 15 branches in Bulacan. management of RBSM’s assets and affairs.
Soriano claims to be the majority stockholder.  June 9, 2000: MB passed Resolution No. 966 directing PDIC to proceed with
 January 21, 2000: Monetar Board (MB), the governing board of BSP, issued the liquidation of RBSM under Sec. 30 of RA 7635.
Resolution No. 105 which prohibited RBSM from doing business in the  RBSM argues that Resolution No. 105 was bereft of basis since no complete
Philippines, placing it under receivership and designating PDIC as receiver. examination was made. Petitioner insists that “examination” as used in Sec.
 January 31, 2000: Petitioners filed a petition for certiorari and prohibition in 29 of the old banking law is the same as that required in Sec. 30 of RA 7635.
the RTC of Malolos to nullify and set aside Resolution No. 105.
 February 7, 2000: Petitioners filed a notice of withdrawal in the RTC and filed ISSUES/HELD:
a special civil action for certiorari and prohibition in the CA. 2. Does Sec. 30 of RA 7635 and applicable jurisprudence require a current and
 February 8, 2000: The RTC dismissed the case pursuant to Sec. 1, Rule 17 of complete examination of the bank before it can be closed and placed under
the RTC. receivership?
 CA had the following findings: RATIO:
o To assist in the impaired liquidity and operations, the RBSM was  Petitioners assert that examination is necessary and not a mere report,
granted emergency loans on different occasions in the aggregate otherwise the decision to close a bank would be arbitrary. Respondents
amount of P375 million. counter that the law merely requires a report of the head of the supervising
o As early as November 29, 1998, Land Bank of the Philippines advised or examining department.
RBSM that it will terminate the clearing of the latter’s checks in view o Petitioner’s contention has no merit. The cases it cited were decided
of its frequent clearing lossees and continuing failure to replenish its using the old law. However, the old law was expressly repealed when
Special Clearing Demand Deposit with LBP. RA 7635 was issued in 1993. Resolution.
 BSP interceded with LBP not to terminate the clearing  In RA 7653, only a "report of the head of the supervising or examining
arrangement to protect the interests of RBSM’s depositors department" is necessary. It is an established rule in statutory construction
and creditors. that where the words of a statute are clear, plain and free from ambiguity, it
o November 28, 1999: MB approved the release of P26,289 million must be given its literal meaning and applied without attempted
(last tranche of the P375 million emergency loan) for the purpose of interpretation.
servicing and meeting the withdrawals of RBSM’s depositors. Instead o The word "report" has a definite and unambiguous meaning which is
of servicing withdrawals, RBSM paid two entities which are owned clearly different from "examination."
and controlled by Soriano and other RBSM officers. o A report, as a noun, may be defined as "something that gives
o November 29, 1999: LBP informed BSP of the termination of the information" or "a usually detailed account or statement." On the
clearing facility of RBSM to take effect on December 29, 1999. other hand, an examination is "a search, investigation or scrutiny."
o January 4, 2000: RBSM declared a bank holiday. Alarmed, BSP  The Court cannot look for or impose another meaning on the term "report" or
wanted to examine the books and records of RBSM but encountered to construe it as synonymous with "examination." From the words used in
problems. Section 30, it is clear that RA 7653 no longer requires that an examination be
o RBSM’s designated comptroller submitted to the BSP a made before the MB can issue a closure order.
Comptrollership Report on her findings on the financial condition  The absence of an examination before the closure of RBSM did not mean that
and operations of the bank. there was no basis for the closure order. The decision of the MB and BSP, like
o Based on the Comptrollership Report, the director of the Department any other administrative body, must have something to support itself and its
of Rural Banks Supervision and Examination Sector, Wilredo findings of fact must be supported by substantial evidence. It is clear under
Domoong made a report to MB. The MB after issued Resolution No. RA 7653 that the basis need not arise from an examination as required in the
105. old law.
DISPOSITIVE
 WHEREFORE, the petition is hereby DENIED. The March 28, 2000 decision  After the examinations, exit conferences were held with the officers or repre-
and November 13, 2001 resolution of the CA in CA-GR SP No. 57112 are sentatives of the banks wherein the SED examiners provided them with
AFFIRMED. copies of Lists of Findings/Exceptions containing the deficiencies discovered
during the examinations. These banks were then required to comment and to
undertake the remedial measures.
 Though the banks claimed that they made the additional capital infusions,
SED sent separate letters to the BODs of each bank informing them that the
SED found that the banks failed to carry out the required remedial measures.
 The banks requested that they be given time to obtain BSP approval to amend
BSP vs. Hon. Antonio-Valenzuela their Articles of Incorporation, that they have an opportunity to seek in-
vestors. They also requested that they be furnished copies of the ROEs pur-
October 2, 2009
suant to their right to due process.
Velasco Jr., J.
o SED, however, insisted on their failure to carry out the remedial mea-
Kaye (Digest No. 59)
sures.
 The banks filed a complaint for the nullification of the ROEs with an applica-
Summary: The Supervision and Examination Division (SED) of BSP conducted
tion for TRO
examinations of books of several banks for which they issued Reports of Examination.
o They prayed that the SED be enjoined from submitting the ROE or
The banks were notified of the findings but they were not issued written ROEs. The
any similar report to the Monetary Board (MB), or if the ROE had al-
banks were given the chance to put in additional capital to comply with the
ready been submitted, the MB be enjoined from acting on the basis of
requirements of the BSP but they failed to do so. The banks filed a complaint for the
said ROE, on the allegation that the failure to furnish the bank with a
nullification of the ROEs with an application for TRO (so that the ROEs will not be
copy of the ROE violated its right to due process.
submitted with the Monetary Board for action because it will result in the closure of
 Judge Valenzuela (RTC) GRANTED the TRO.
the banks). Judge Valenzuela GRANTED the TRO.
o RTC held that it had been the practice of the SED to provide the ROEs
to the banks before submission to the MB.
Doctrine: This “close now, hear later” scheme is grounded on practical and legal ISSUE: WON the TRO was validly issued?
considerations to prevent unwarranted dissipation of the bank’s assets and as a valid
exercise of police power to protect the depositors, creditors, stockholders, and the HELD: No.
general public. The writ of preliminary injunction cannot, thus, prevent the MB from  There are 3 requirements for the issuance of a TRO: (1) the invasion of right
taking action, by preventing the submission of the ROEs and worse, by preventing the sought to be protected is material and substantial; (b) the right of the com-
MB from acting on such ROEs. plainant is clear and unmistakable; and (c) there is an urgent and paramount
necessity for the writ to prevent serious damage.
 First, respondent banks have failed to show that they are entitled to copies of
FACTS:
the ROEs. They can point to no provision of law, no section in the procedures
 The Supervision and Examination Division (SED) of BSP conducted examina- of the BSP that shows that the BSP is required to give them copies of the
tions of books of several banks for which they issued Reports of Examination. ROEs.
o Furthermore, they cannot claim that there has been violation of due in the banking system is certain to deteriorate to the prejudice of the
process because they were given the list of findings and were made national economy itself, not to mention the losses suffered by the
aware of the deficiencies discovered. bank depositors, creditors, and stockholders, who all deserve the
 Second, the issuance by the RTC of writs of preliminary injunction is an un- protection of the government.
warranted interference with the powers of the MB. Secs. 29 and 30 of RA
7653 refer to the appointment of a conservator or a receiver for a bank,
which is a power of the MB for which they need the ROEs done by the super - c. Receivership
vising or examining department.
o The writs of preliminary injunction issued by the trial court hinder CENTRAL BANK v. CA
the MB from fulfilling its function under the law.
o The actions of the MB under Secs. 29 and 30 of RA 7653 “may not be October 3, 1985
restrained or set aside by the court except on petition for certio-
rari on the ground that the action taken was in excess of jurisdiction Makasiar, J.
or with such grave abuse of discretion as to amount to lack or excess
of jurisdiction.” SUMMARY: Tolentino entered into a contract of loan for P80,000 with Island
o The writs of preliminary injunction order are precisely what cannot Savings bank for which he mortgaged his land. The bank was unable to
furnish the entire loan, Tolentino was unable to pay the principal and
be done under the law by preventing the MB from taking action un-
interests of the initial amount given; their actions offset the damages one
der either Sec. 29 or Sec. 30 of RA 7653.
could claim from the other. Since there was no obligation for Tolentino to
 Finally, the respondent banks have shown no necessity for the writ of prelim-
pay the entire 80,000, the Bank could only enforce the debt on the property
inary injunction to prevent serious damage.
corresponding to his 17,000 debt. The delay of the bank to give the rest of
o The serious damage contemplated by the trial court was the possibil-
the loan was computed until they were declared and prevented from doing
ity of the imposition of sanctions upon respondent banks, even the
further business.
sanction of closure. Under the law, the sanction of closure could be
imposed upon a bank by the BSP even without notice and hearing.
o This “close now, hear later” scheme is grounded on practical and le-
gal considerations to prevent unwarranted dissipation of the bank’s DOCTRINE: The power of the Monetary Board to take over insolvent banks
assets and as a valid exercise of police power to protect the deposi- for the protection of the public is recognized by Section 29 of R.A. No. 265,
tors, creditors, stockholders, and the general public. which took effect on June 15, 1948, the validity of which is not in question.
o The writ of preliminary injunction cannot, thus, prevent the MB from
taking action, by preventing the submission of the ROEs and worse,
by preventing the MB from acting on such ROEs.
o The “close now, hear later” doctrine has already been justified as a
measure for the protection of the public interest. Swift action is
called for on the part of the BSP when it finds that a bank is in dire
straits. Unless adequate and determined efforts are taken by the FACTS: Island Savings Bank (ISB) approved the P80,000.00 loan application of
government against distressed and mismanaged banks, public faith Sulpicio M. Tolentino, who executed a real estate mortgage over his 100-hectare land
as security. It called for a lump sum P80,000.00 loan, repayable in semi-annual Bank's delay in furnishing the entire loan lasted for a period of 3 years until the
installments for a period of 3 years, with 12% annual interest. Monetary Board issued the Resolution prohibiting Island Savings Bank from doing
further business. This made it legally impossible for Island Savings Bank to furnish
However, only a P17,000.00 partial release was made by the Bank; and Sulpicio M. the
Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at
12% annual interest, payable within 3 years from the date of execution of the The power of the Monetary Board to take over insolvent banks for the protection of
contract. the public is recognized by Section 29 of R.A. No. 265, which took effect on June 15,
1948, the validity of which is not in question.
Subsequently, the Monetary Board of the Central Bank found that ISB was suffering
liquidity problems and issued a Resolution prohibiting the bank from making new
loans and investments [except investments in government securities]. When ISB
failed to put up the required capital to restore its solvency, the Monetary Board issued The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default
another Resolution which prohibited Island Savings Bank from doing business in the of Island Savings Bank in complying with its obligation of releasing the P63,000.00
Philippines. balance because said resolution merely prohibited the Bank from making new loans
and investments, and nowhere did it prohibit island Savings Bank from releasing the
Tolentino failed to pay the P17,000 and so ISB filed an application for the extra- balance of loan agreements previously contracted. Besides, the mere pecuniary
judicial foreclosure of the real estate mortgage. Tolentino filed a case for injunction, inability to fulfill an engagement does not discharge the obligation of the contract, nor
specific performance or rescission and damages with preliminary injunction. The TC does it constitute any defense to a decree of specific performance (Gutierrez Repide
ordered Tolentino to pay Island Savings Bank PI 7 000.00 plus legal interest and legal vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact of insolvency of a
charges due, and allowed the foreclosure. debtor is never an excuse for the non-fulfillment of an obligation but 'instead it is
taken as a breach of the contract by him (vol. 17A, 1974 ed., CJS p. 650)
CA affirmed the dismissal of Tolentino's petition for specific performance, but it ruled
that ISB can neither foreclose the real estate mortgage nor collect the P17,000.00
loan.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under
ISSUE: Can the action of Tolentino for specific performance prosper?-NO their loan agreement, Tolentino, under Article 1191 of the Civil Code, may choose
between specific performance or rescission with damages in either case. But since
RATIO: Island Savings Bank is now prohibited from doing further business by Monetary
Board Resolution No. 967, specific performance cannot be granted anymore.
The parties undertook reciprocal obligations. In reciprocal obligations, the obligation
or promise of each party is the consideration for that of the other; and when one party DISPOSITIVE: WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED
has performed or is ready and willing to perform his part of the contract, the other FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND
party who has not performed or is not ready and willing to perform incurs in delay
(Art. 1169 of the Civil Code). 1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN
PETITIONERS THE SUM OF P17.000.00, PLUS P41,210.00 REPRESENTING 12%
The promise of Tolentino to pay was the consideration for the obligation of Island INTEREST PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22,
Savings Bank to furnish the P80,000.00 loan. When Tolentino executed a real estate 1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST 22,
mortgage, he signified his willingness to pay the P80,000.00 loan. From such date, the 1985 UNTIL PAID;
obligation of Island Savings Bank to furnish the P80,000.00 loan accrued. Thus, the
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE From 1982 to January 1984, petitioner spouses maintained time and savings deposits
COVERING 21.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL with respondent bank. When some of the Time Deposit Certificates matured, the
INDEBTEDNESS; AND spouses were not able to cash them but instead were issued a manager's check which
was dishonored upon presentment. Demands for the payment of both time and sav-
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY ings deposits having failed, the spouses filed with RTC Pasig a Complaint With Prayer
For Issuance of a Writ of Preliminary Attachment for collection of a sum of money
DECLARED UNEN FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF
with damages (March 14 1984).
SULPICIO M. TOLENTINO.
Respondent judge ordered the issuance of a writ of attachment in favor of the spouses
NO COSTS. SO ORDERED. (March 19 1984), and after judgment on the pleadings (Nov. 13 1984), for the bank to
pay the amount of the deposits plus interest.
Meanwhile, the Monetary Board, finding that the condition of the bank was one of in-
SPOUSES ROMEO LIPANA and solvency and that its continuance in business would result in probable loss to its de-
positors and creditors, decided to place it under receivership (Aug. 10 1984).
MILAGROS LIPANA v DEVELOPMENT Spouses filed a Motion for Execution Pending Appeal. Respondent judge ordered the
BANK OF RIZAL issuance of a writ of execution (Jan. 29 1985). The bank filed a Motion for Reconsider-
ation and to Stay Writ of Execution (Feb. 11 1985). Respondent judge stayed the exe-
September 24 1987
Ponente: Paras, J.
cution (March 6 1985). Spouses filed a Motion to Lift Stay of Execution, which the re-
Leigh Siazon spondent judge denied. Spouses filed petition for review.
SUMMARY: Spouses filed a complaint for sum of money against the ISSUES/HELD:
bank. The RTC ruled in favor of the spouses in November 1984.
Meanwhile in August 1984, Central Bank placed the respondent bank [pertinent to discussion] Could the judge legally stay execution of judgment that
under receivership. Upon motion of the bank, the judge stayed the has already become final and executory? YES
execution of the RTC decision. The SC held that the judge could legally
stay the execution of the judgment even if it has already become final The rule that once a decision becomes final and executory, it is the ministerial duty of
and executory. the court to order its execution, admits of certain exceptions as in cases of special and
exceptional nature where it becomes imperative in the higher interest of justice to di-
DOCTRINE: The rule that once a decision becomes final and executory, rect the suspension of its execution (Vecine vs. Geronimo); whenever it is necessary to
it is the ministerial duty of the court to order its execution, admits of accomplish the aims of justice (Pascual vs. Tan); or when certain facts and circum-
exceptions. Here, the stay of execution of judgment is warranted by the stances transpired after the judgment became final which could render the execution
fact that the bank was placed under receivership. To execute the judg- of the judgment unjust (Cabrias vs. Adil).
ment would unduly deplete the assets of the bank to the obvious preju-
dice of other depositors and creditors. The assets of the insolvent In the instant case, the stay of the execution of judgment is warranted by the fact that
banking institution are held in trust for the equal benefit of all credi- the bank was placed under receivership. To execute the judgment would unduly de-
tors, and after its insolvency, one cannot obtain an advantage or a pref- plete the assets of the bank to the obvious prejudice of other depositors and creditors,
erence over another by an attachment, execution or otherwise. since, as aptly stated in Central Bank of the Philippines vs. Morfe, after the Monetary
Board has declared that a bank is insolvent and has ordered it to cease operations, the
FACTS: Board becomes the trustee of its assets for the equal benefit of all the creditors, in-
cluding depositors. The assets of the insolvent banking institution are held in trust for
the equal benefit of all creditors, and after its insolvency, one cannot obtain an advan- project of distribution.
tage or a preference over another by an attachment, execution or otherwise.
Moreover, it will be noted that respondent bank was placed under receivership on Au- Abacus Real Estate Development Center
gust 10, 1984, and the Decision of respondent judge is dated November 13, 1984. Ac-
cordingly, the spouses’ complaint should have been dismissed, in line with the ruling v. Manila Banking Corp.
in the aforesaid Morfe case, which reads:
The circumstance that the Fidelity Savings Bank, having stopped operations since February 19, April 6, 2005
1969, was forbidden to do business (and that ban would include the payment of time deposits)
implies that suits for the payment of such deposits were prohibited. What was directly prohib- Garcia, J.
ited should not be encompassed indirectly. ...
Digest by Ces
Did the placing of respondent bank under receivership, long after the complaint
was filed, remove it from the application of the doctrine in Re: Central Bank v
Morfe? NO
The time of the filing of the complaint is immaterial. It is the execution that will obvi-
ously prejudice the other depositors and creditors. Moreover, the effect of judgment is
only to fix the amount of the debt, not to give priority over other depositors and credi-
tors.
Does the filing of the complaint for sum of money with damages against the
bank, and the subsequent attachment of its property in Pasig, long before the
receivership took place, render inapplicable the doctrine in the Morfe case? NO
As in the case of Central Bank v CA (Sept. 17 1984), where the plaintiff was able to ob-
tain a write of preliminary attachment against the defendant, the Court refused to rec-
ognize any preference resulting from such attachment and ruled that after a declara-
tion of insolvency, the remedy of the depositors is to intervene in the liquidation pro-
ceedings.
Does the indefinite stay of execution without a ruling as to how long it will last,
amount to deprivation of petitioners of their property without due process of
law? NO
Such staying of execution is not without a time limit. In fact, the Monetary Board ap-
proved the liquidation of respondent bank on April 26, 1985 and ordered, among oth-
ers, the filing of a petition in the RTC praying for assistance of said court in the liqui-
dation of the bank. The staying of the writ of execution will be lifted after approval by
the liquidation court of the project of distribution, and the liquidator or his deputy
will authorize payments to all claimants concerned in accordance with the approved
Short version: Bank Sentral ordered the closure Manila Bank and placed it  In the interim, Manila Bank’s then acting president, Vicente G. Puyat, star-
under receivership. The legality of this closure was contested in Court. ted looking for possible investors who could finance the completion of the
building earlier mentioned.
Subsequently, its President granted a 10 year lease with an exclusive option to
buy a lot owned by it, to the Laureano Group. Since litigation was still pending  A group of investors called the Laureano group) offered to lease the build-
regarding the legality of the closure of Manila Bank, its assets could not be ing for 10 years and to advance the cost to complete the same. In consid-
disposed of. Thus, Manila Bank leased the property to Manila Equities eration of advancing the construction cost, the group wanted to be given
Corporation (MEQCO), a wholly-owned subsidiary, and MEQCO subleased it to the exclusive option to purchase the building and the lot on which it was
Abacus Real Estate, a corporation owned by the Laureano Group for this constructed.
purpose. The Laureano group then offered its rights to Bitanga, who accepted
it. Bitanga claims that the receiver verbally approved his offer to buy the  Since no disposition of assets could be made due to the litigation concern-
ing Manila Bank’s closure, an arrangement was made where the property
Laureano Group’s rights. However, when Bitanga wanted to exercise its
would first be leased to Manila Equities Corporation (MEQCO), a wholly-
exclusive right to purchase, Manila Bank refused. Abacus then filed a owned subsidiary of Manila Bank, with MEQCO thereafter subleasing the
complaint for specific performance against Manila Bank. property to the Laureano group.
 Puyat accepted the Laureano group’s offer and granted it an "exclusive op-
tion to purchase" the lot and building for P150m. Later, the building was
The SC ruled against Abacus. Under Section 29 of the Central Bank Act, the
leased to MEQCO and then MEQCO subleased the property to Abacus Real
receiver only has authority to administer the same for the benefit of its Estate Development Center, Inc. (Abacus), a corporation formed by the
creditors. Granting or approving an "exclusive option to purchase" is not an act Laureano group for the purpose.
of administration, but an act of strict ownership, involving, as it does, the
disposition of property of the bank. Thus, the receiver’s acts of approving the  The Laureano group was, however, unable to finish the building due to the
right to purchase was beyond its authority. economic crisis brought about by the failed December 1989 coup attempt.
The Laureano group then offered its rights in Abacus and its "exclusive op-
Facts:
tion to purchase" to Benjamin Bitanga (Bitanga), for P20,500,000.00. Be-
cause of the substantial amount involved, Bitanga talked to Atty. Santos,
 Manila Bank owned a parcel of land in Makati. It began constructing a
the statutory receiver, to discuss the offer. Bitanga alleged that Atty. San-
building there but it couldn’t finish it due to financial difficulties.
tos verbally approved his entry into Abacus and his take-over of the sub-
 Banko Sentral ng Pilipinas ordered the closure of Manila Bank and placed lease and option to purchase.
it under receivership. The legality of this closure was contested before the
Court.
 The Laureano group transferred and assigned to Bitanga all of its rights in
 Banko Sentral, by virtue of Monetary Board Resolution No. 505, ordered
Abacus and the "exclusive option to purchase" the subject land and build-
the liquidation of Manila Bank and designated a liquidator, Atty. Renan
ing. Abacus sent a letter to Manila Bank informing the latter of its desire to
Santos. His designation was later changed to a Statutory Receiver. The liq-
exercise its "exclusive option to purchase". However, Manila Bank refused
uidation, however, was held in abeyance pending the outcome of the ear-
to honor the same.
lier suit filed by Manila Bank regarding the legality of its closure.
 Thus, Abacus filed a complaint for specific performance and damages menti, that Atty. Renan Santos, Manila Bank’s receiver, approved the "ex-
against Manila Bank and/or the Estate of Vicente G. Puyat. It prayed for a clusive option to purchase" granted by Vicente G. Puyat, it would still be of
judgment ordering Manila Bank to sell, transfer and convey the land and no force and effect.
building.
5) Under Section 29 of the Central Bank Act5, the receiver only has authority
 Both defendants filed Motions to Dismiss. The RTC granted the MTD of the to administer the same for the benefit of its creditors. Granting or ap-
Estate of Puyat but denied the MTD of Manila Bank. proving an "exclusive option to purchase" is not an act of administration,
but an act of strict ownership, involving, as it does, the disposition of
 The RTC ruled in favor of Abacus and ordered Manila Bank to sell the property of the bank. Not being an act of administration, the so-called "ap-
building and lot ot Abacus. proval" by Atty. Renan Santos amounts to no approval at all, since he had
no authority.
 Manila Bank appealed to the CA, which reversed the RTC decision.
6) Section 306 also recognizes that a bank receiver only has powers of admin-
Issue: Did Abacus acquire the right to buy the land and building? NO istration.
7) Thus, Manila Bank’s receiver was without any power to approve or ratify
the "exclusive option to purchase" granted by the late Vicente G. Puyat,
Ratio: who, in the first place, also did not have authority to bind the bank under
such exclusive option. Manila Bank may not thus be compelled to sell the
1) Abacus insists that Puyat’s actions, as then President of Manila Bank, was
binding upon it. However… 5 Sec. 29. Proceedings upon insolvency. – Whenever, upon examination by the head of the
2) The assets of the bank pass beyond its control into the possession and appropriate supervising and examining department or his examiners or agents into the condition of
control of the receiver whose duty it is to administer the assets for the any banking institution, it shall be disclosed that the condition of the same is one of insolvency, or
benefit of the creditors of the bank. Thus, the appointment of a receiver that its continuance in business would involve probable loss to its depositors or creditors, it shall be
operates to suspend the authority of the bank and of its directors and offi- the duty of the department head concerned forthwith, in writing, to inform the Monetary Board of
cers over its property and effects, such authority being reposed in the re- the facts, and the Board may, upon finding the statements of the department head to be true,
ceiver, and in this respect, the receivership is equivalent to an injunction forbid the institution to do business in the Philippines and shall designate an official of the Central
to restrain the bank officers from intermeddling with the property of the Bank as receiver to immediately take charge of its assets and liabilities, as expeditiously as possible
bank in any way. collect and gather all the assets and administer the same for the benefit of its creditors, exercising
3) With the bank having been already placed under receivership, its officers, all the powers necessary for these purposes including, but not limited to, bringing suits and
inclusive of its acting president, Vicente G. Puyat, were no longer author- foreclosing mortgages in the name of the banking institution.
ized to transact business in connection with the bank’s assets and prop-
erty. Clearly then, the "exclusive option to purchase" granted by Vicente G. 6 "[t]he receiver shall immediately gather and take charge of all the assets and liabilities of the
institution, administer the same for the benefit of its creditors, and exercise the general powers of a
Puyat was and still is unenforceable against Manila Bank.
receiver under the Revised Rules of Court but shall not, with the exception of administrative
expenditures, pay or commit any act that will involve the transfer or disposition of any asset of the
4) Abacus argues that the "exclusive option to purchase" was ratified by Ma-
institution…"
nila Bank’s receiver, Atty. Renan Santos, during a lunch meeting held with
Benjamin Bitanga in March 1990. However, even assuming, in gratia argu-
land and building in question to petitioner Abacus under the terms of the Rural Bank of Faire, Inc. (RBFI) was a banking institution in Centro Sur, Sto. Niñ o,
latter’s "exclusive option to purchase". Cagayan. It's corporate life ended on 31 My 2005. Notwithstanding, Vivas and his
principals acquired controlling interest in RBFI in Januart 2006.
CA decision affirmed.
At Vivas's initiative, an internal audit was conducted and results highlighted the
dismal operation of the bank. BSP issued a Certificate of Authority extending the
ALFREDO VIVAS v. MONETARY BOARD corporate life of RBFI for 50 years and approved the change of its corporate name to
EuroCredit Community Bank, Inc. (ECBI).
August 07, 2013
J. Mendoza Pursuant to the New Central Bank Act (NCBA), a general examination of ECBI and its
Paula officers was conducted. The Monetary Board (MB) then placed EDBI under Prompt
Corrective Action (PCA) because of findings which included: 1] negative capital of
Summary: MB decided to close down ECBI (former RBFI) due to findings of P14.674 million and capital adequacy ratio of negative 18.42%; 2] CAMEL (Capital
negative capital and unsound activities and the bank’s refusal to infuse fresh capital Asset Management Earnings Liquidity) composite rating of "2" with a Management
into the said bank. The bank was then put under receivership. Vivas opposed saying component rating of "1"; and 3] serious supervisory concerns particularly on
that there was non-observance of due process. SC held that MB was authorized activities deemed unsafe or unsound.
under the New Central Bank Act to "close now, hear later". This doctrine has already
been justified as a measure for the protection of the public interest. Swift action is BSP directed the bank's Board of Directors and senior management to: 1] infuse fresh
called for on the part of the BSP when it finds that a bank is in dire straits. capital of P22.643 million; 2] book the amount of P28.563 million representing
unbooked valuation reserves on classified loans and other risks assets on or before
October 31, 2008; and 3] take appropriate action necessary to address the
Doctrine: The "close now, hear later" doctrine has already been justified as a violations/exceptions noted in the examination. Vivas failed to comply with the
measure for the protection of the public interest. Swift action is called for on the directive , alleging that there was non-observance of due process and arbitrariness.
part of the BSP when it finds that a bank is in dire straits. Unless adequate and
determined efforts are taken by the government against distressed and Because of ECBI's failure to comply, a fine was imposed on ECBI and the matter was
mismanaged banks, public faith in the banking system is certain to deteriorate to referred o the Office of the Special Investigation (OSI) for the filing of appropriate
the prejudice of the national economy itself, not to mention the losses suffered by legal action. The BSP also wrote a letter advising ECBI to comply with MB requiring
the bank depositors, creditors, and stockholders, who all deserve the protection of the bank to follow its directive.
the government.
For continued failure to comply with the directive, the MB approved the issuance of a
cease and desist order against ECBI, enjoining it from pursuing g certain acts and
transactions that were considered unsafe or unsound banking practices, and from
doing such other acts or transactions constituting fraud or might result in the
dissipation of its assets.
Facts OSI filed a complaint for estafa with the DOJ. Later, the MB placed ECBI under
receivership in accordance with the recommendation of its investigating team.
Issue:(1) WON MB authorized to closed ECBI. YES; (2) WON Sec. 30 of RA 7653 receivership of the erring bank are present. The MB, under R.A. No. 7653, has been
constitutes undue delegation of legislative power. NO invested with more power of closure and placement of a bank under receivership for
insolvency or illiquidity, or because the bank's continuance in business would
Ratio: probably result in the loss to depositors or creditors.
Close Now, Hear Later
The MB may forbid a bank from doing business and place it under receivership BSP v. Hon. Antonio-Valenzuela: The "close now, hear later" doctrine has already been
without prior notice and hearing. Section 30 of R.A. No. 7653: justified as a measure for the protection of the public interest. Swift action is called for
on the part of the BSP when it finds that a bank is in dire straits. Unless adequate and
Sec. 30.Proceedings in Receivership and Liquidation. — Whenever, upon report of the head of the
supervising or examining department, the Monetary Board finds that a bank or quasi-bank: determined efforts are taken by the government against distressed and mismanaged
banks, public faith in the banking system is certain to deteriorate to the prejudice of
the national economy itself, not to mention the losses suffered by the bank depositors,
creditors, and stockholders, who all deserve the protection of the government.
(a)is unable to pay its liabilities as they become due in the ordinary course of business: Provided,
That this shall not include inability to pay caused by extraordinary demands induced by financial
panic in the banking community;
Swift, adequate and determined actions must be taken against financially distressed
and mismanaged banks by government agencies lest the public faith in the banking
(b)has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or system deteriorate to the prejudice of the national economy.
Accordingly, the MB can immediately implement its resolution prohibiting a banking

institution to do business in the Philippines and, thereafter, appoint the PDIC as
(c)cannot continue in business without involving probable losses to its depositors or creditors; or receiver. The procedure for the involuntary closure of a bank is summary and
expeditious in nature. Such action of the MB shall be final and executory, but may be
later subjected to a judicial scrutiny via a petition for certiorari to be filed by the
(d)has wilfully violated a cease and desist order under Section 37 that has become final, involving stockholders of record of the bank representing a majority of the capital stock.
acts or transactions which amount to fraud or a dissipation of the assets of the institution; in Obviously, this procedure is designed to protect the interest of all concerned, that is,
which cases, the Monetary Board may summarily and without need for prior hearing forbid the the depositors, creditors and stockholders, the bank itself and the general public. The
institution from doing business in the Philippines and designate the Philippine Deposit Insurance
protection afforded public interest warrants the exercise of a summary closure.
Corporation as receiver of the banking institution.
In this case, the application of Sec. 30 was justified since management take-over
R.A. No. 7653 is a later law and under said act, the power of the MB over banks,
under Sec. 11 of the same law was no longer feasible considering the serious
including rural banks, was increased and expanded. The Court, in several cases,
conditions of insolvency and illiquidity shown by ECBI
upheld the power of the MB to take over banks without need for prior hearing. It is
not necessary inasmuch as the law entrusts to the MB the appreciation and
determination of whether any or all of the statutory grounds for the closure and
No undue delegation
Salud7 v Central Bank of the
Philippines
There is no violation of the non-delegation of legislative power. The rationale for the
constitutional proscription is that "legislative discretion as to the substantive contents 19 August 1986
of the law cannot be delegated. What can be delegated is the discretion to determine
how the law may be enforced, not what the law shall be. The ascertainment of the Ponente: Narvasa, J.
latter subject is a prerogative of the legislature. This prerogative cannot be abdicated
or surrendered by the legislature to the delegate." Krys
SUMMARY: Central Bank filed a Petition for Assistance in the

Liquidation of Rural Bank of Muntinlupa. The Rural Bank filed an
There are two accepted tests to determine whether or not there is a valid delegation opposition, alleging inter alia that the action of the Monetary Board
of legislative power, viz., the completeness test and the sufficient standard test. Under was “arbitrary and made in bad faith”. CFI dismissed the Petition. IAC
the first test, the law must be complete in all its terms and conditions when it leaves initially ruled to remand the case to the CFI for a full blown trial, but it
the legislature such that when it reaches the delegate the only thing he will have to do later amended its own decision and ordered CFI to approve the
is enforce it. Under the sufficient standard test, there must be adequate guidelines or Petition for Assistance. Muntinlupa Bank says that the intial decision of
stations in the law to map out the boundaries of the delegate's authority and prevent IAC remanding the case was correct. Central Bank argues that CFI
the delegation from running riot. Both tests are intended to prevent a total cannot rule on the issue of whether the resolution of the Monetary
transference of legislative authority to the delegate, who is not allowed to step into Board is “arbitrary and made in bad faith” in the same proceeding for
the shoes of the legislature and exercise a power essentially legislative." assistance in liquidation.
In this case, under the two tests, there was no undue delegation of legislative SC did not agree with Central Bank’s contention. There is no
authority in the issuance of R.A. No. 7653. To address the growing concerns in the requirement for a separate proceeding to exclusively adjudicate this
banking industry, the legislature has sufficiently empowered the MB to effectively issue. Besides, this would engender multiplicity of proceedings. Also,
monitor and supervise banks and financial institutions and, if circumstances warrant, the failure to assert, as a ground for defense or objection to proceeding
to forbid them to do business, to take over their management or to place them under for assistance in liquidation, the fact that the MB resolution was
receivership. The legislature has clearly spelled out the reasonable parameters of the “arbitrary and made in bad faith” would constitute a waiver thereof.
power entrusted to the MB and assigned to it only the manner of enforcing said
power. In other words, the MB was given a wide discretion and latitude only as to
how the law should be implemented in order to attain its objective of protecting the
interest of the public, the banking industry and the economy. DOCTRINE:
Resolutions of the Monetary Board with regard to handling

d. Liquidation
banks in distress such as appointing a receiver to take charge of the
bank's assets and liabilities; or determining whether the banking
7 Acting in behalf of the Rural bank of Muntinlupa

institutions may be rehabilitated, or should be liquidated and CFI deemed the Opposition as tantamount to a Motion to Dismiss, and
appointing a liquidator towards this end are by law final and declared the actions taken by the Monetary Board to be arbitrary and dismissed the
executory. Nonetheless, the same may be set aside by the court upon Petition for Assistance for lack of merit. Central Bank’s MRs were denied.
proof that the action is plainly arbitrary and made in bad faith, which
may be asserted as an affirmative defense or a counterclaim in the
proceeding for assistance in liquidation.
When petition was referred to IAC, it initially ruled to remand the case on the
ground that the lower court dismissed the petition outright without a hearing. But
upon MR by Central Bank, the IAC “clarified, if not modified” the dispositive part of its
FACTS: Decision: the IAC ruled that the CFI’s orders were issued with GADALEJ, and it
ordered the CFI to approve the Petition for Assistance in the Liquidation of the
The Central Bank and its Liquidator filed a “Petition for Assistance in the Muntinlupa Bank.
Liquidation of Rural Bank of Muntinlupa” with the CFI Pasay. The petition allaged that
on the strength of Sec. 29 of the Central Bank Act, the Monetary Board adopted 2
resolutions:
Muntinlupa Bank is now assailing the IAC decision.
(1) forbidding the bank to do business and designating its receiver and;
(2) ordering the liquidation of the bank after confirming that it was insolvent and
could not resume business with safety to all concerned, and that public interest Parties’ Arguments:
required the liquidation.
Muntinlupa Bank: Under Sec. 29, the RTC has jurisdiction to deermine
The Rural Bank of Muntinlupa (Muntinlupa Bank) filed an Opposition, whether the actions of the Monetary Board were “arbitrary and made in bad faith”,
pleading the ff as defenses: therefore the initial order of the IAC remanding the case to the RTC was in complete
accord with the law.
(1) The liquidation was premature and void because the Sec. 28-A of the
Central Bank Act mandates that it is Central Bank’s duty to reorganize management of
the (Muntinlupa Bank) and to restore its vitality;
Central bank: RTC does not have jurisdiction to rule on the issue of whether
(2) The action of liquidation was “arbitrary and in bad faith” because the the resolution of the Monetary Board is “arbitrary and made in bad faith” where that
bank can still be rehabilitated and such action is inconsistent with prior actions of the issue is raised in the same proceeding either by an opposition or a Motion to Dismiss.
Central Bank rehabilitating similarly-distressed banks The issue may only be raised in a separate action or a proceeding.
ISSUES/HELD: Should the issue of whether the Monetary Board’s actions

were “arbitrary and made in bad faith” should be raised in a different proceeding?
(NO, it may be asserted as an affirmative defense or a counterclaim in the same under Section 29 of the Central Bank Act should be set aside as plainly arbitrary and
proceeding) made in bad faith cannot be asserted as an affirmative defense or a counterclaim in
the proceeding for assistance in liquidation, but only as a cause of action in a separate
and distinct action. Nor can this Court see why "a full-blown hearing" on the issue is
possible only if it is asserted as a cause of action, but not when set up by way of an
RATIO:
affirmative defense, or a counterclaim.
1. Based on Sec. 29 of the Central Bank Act, whenever it shall appear prima
facie that a banking institution is in a “condition of insolvency” or so situated that its
continuance in business would involve probable loss to its depositors or creditors, the There is no provision of law which expressly or even by implication imposes
MB has the authority: the requirement for a separate proceeding exclusively occupied with adjudicating this
issue. Moreover, to declare the issue as beyond the scope of matters cognizable in a
(1) to forbid the institution to do business and appoint a receiver;
proceeding for assistance in liquidation would be to engender that multiplicity of
(2) to determine within 60 days whether or not: proceedings which the law abhors.
(a) the institution may be reorganized and rehabilitated to such an extent as

to be permitted to resume business with safety to depositors, creditors and the
Indeed, the failure to assert, as a ground of defense or objection to a
general public; or
proceeding for assistance in liquidation, the fact that the resolution of the Monetary
(b) it is indeed insolvent or cannot resume business with safety to depositors, Board authorizing the initiation of such a proceeding is "arbitrary and made in bad
creditors and the general public, and public interest requires that it be liquidated. faith" would constitute a waiver thereof, conformably with the rule of "Waiver of
Defenses" (defenses and objections not pleaded either in a motion to dismiss or in the
answer are generally deemed waived) or the “Omnibus Motion Rule” (A motion
attacking a pleading or a proceeding shall include all objections then available, and all
If the bank can no longer resume business with safety to depositors, creditors objections not so included shall be deemed waived)
and the public, etc., its liquidation will be ordered and a liquidator appointed by the
Monetary Board. The Central Bank shall file a petition in the RTC praying for the
Court’s assistance in the liquidation of the bank.
No reason exists to preclude determination of this question in the very
proceeding for assistance in liquidation instituted pursuant to Section 29 of the
Central Bank Act.
The actions of Monetary Board are “final and executory” and they may not be
set aside or even restrained or enjoined by the court, except only upon "convincing
proof that the action is plainly arbitrary and made in bad faith."
3. Central Bank’s basis for arguing that way can be traced in their cited case of
Central Bank v CA where there were 2 separate proceedings. But that came about
because by pure chance, the petition to annul the MB resolution was filed before the
2. Contrary to the contention of Central Bank, the SC perceives no reason petition for assistance in liquidation. Besides, the 2 proceedings were jointly heard
whatever why a banking institution's claim that a resolution of the Monetary Board and decided, indicating the intimate relationship in issues between said proceedings.
order its liquidation, indicate the manner of its liquidation and approve a liquidation
plan. The Central Bank shall by the Solicitor General file a petition in the Court of First
APPENDIX: Instance reciting the proceedings which have been taken and praying the assistance
of the court in the liquidation of the banking institution The court shall have
jurisdiction in the same proceedings to adjudicate disputed claims against the bank
Sec. 29, Central Bank Act: and enforce individual liabilities of the stockholders and do all that is necessary to
preserve the assets of the banking institution and to implement the liquidation plan
approved by the Monetary Board. The Monetary Board shall designate an official of
the Central Bank or a person of recognized competence in banking, as liquidator who
SEC. 29. Proceedings upon insolvency. Whenever, upon examination by the shall take over the functions of the receiver previously appointed by the Monetary
head of the appropriate supervising and examining department or his examiners or Board under this Section. The liquidator shall with all convenient speed, convert the
agents into the condition of any banking institution, it shall be disclosed that the assets of the banking institution to money or sell, assign or otherwise dispose of the
condition of the same is one of insolvency, or that its continuance in business would same to creditors and other parties for the purpose of paying the debts of such bank
involve probable loss to its depositors or creditors, it shall be the duty of the and he may, in the name of the banking institution, institute such actions as may be
department head concerned forthwith, in writing, to inform the Monetary Board of necessary in the appropriate court to collect and recover accounts and assets of the
the facts, and the Board may, upon finding the statements of the department head to banking institution.
be true, forbid the institution to do business in the Philippines and shall designate an
official of the Central Bank, or a person of recognized competence in banking, as
receiver to immediately take charge of its assets and liabilities, as expeditiously as
possible collect and gather all the assets and administer the same for the benefit of its The provisions of any law to the contrary notwithstanding the actions of the
creditors, exercising all the powers necessary for these purposes including, but not Monetary Board under this Section and the second paragraph of Section 34 of this Act
limited to, bringing suits and foreclosing mortgages in the name of the banking shall be final and executory, and can be set aside by the court only if there is
institution. convincing proof that the action is plainly arbitrary and made in bad faith. No
restraining order or injunction shall be issued by the court enjoining the Central Bank
from implementing its actions under this Section and the second paragraph of Section
34 of this Act, unless there is convincing proof that the action of the Monetary Board
The Monetary Board shall thereupon determine within sixty days whether is plainly arbitrary and made in bad faith and the petitioner or plaintiff files with the
the institution may be recognized or otherwise placed in such a condition so that it clerk or judge of the court in which the action is pending a bond executed in favor of
may be permitted to resume business with safety to its depositors and creditors and the Central Bank, in an amount to be fixed by the court. The restraining order or
the general public and shall prescribe the conditions under which such redemption of injunction shall be refused or, if granted, shall be dissolved upon filing by the Central
business, shall take place as wen as the time for fulfillment of such conditions. In such Bank of a bond, which shall be in the form of cash or Central Bank cashier's check, in
case, the expenses and fees in the collection and administration of the assets of the an amount twice the amount of the bond of the petitioner, or plaintiff conditioned that
institution shall be determined by the Board and shall be paid to the Central Bank out it will pay the damages which the petitioner or plaintiff may suffer by the refusal or
of the assets of such banking institution. the dissolution of the injunction. The provisions of Rule 58 of the New Rules of Court
insofar as they are applicable and not inconsistent with the provisions of this Section
If the Monetary Board shall determine and confirm within the said period
shall govern the issuance and dissolution of the restraining order or injunction
that the, banking institution is insolvent or cannot resume business with safety to its
contemplated in this Section.
depositors, creditors and the general public, it shall, if the public interest requires,
FACTS:
Insolvency, under this Act, shall be understood to mean the inability of a Rural Bank of Olongapo (RBO) owns 2 lots which it mortgage to Petitioner Ong to
banking institution to pay its liabilities as they fall due in the usual and ordinary guarantee the payment of loan obtained by Omnibus Finance, Inc (OFI).
course of business: Provided however, that this shall not include the inability to pay of
OFI defaulted. Ong extrajudicially foreclosed the properties o RBO. RBO to redeem
an otherwise non-insolvent bank caused by extraordinary demands induced by
said lots. Ong demanded for the TCTs but RBO would not heed this
financial panic commonly evidenced by a run on the banks in the banking community.
1991 – Ong filed with RTC of QC a petition for surrender of 2 TCTs of unredeemed lots
owned and named under Rural Bank of Olongapo (RBO).
The appointment of a conservator under Section 28-A of this Act or the RBO filed a motion to dismiss on the ground of RES JUDICATA allegeing that
appointment of receiver under this Section shall be vested exclusively with the petitioner Ong had already sought same relief in Br. 18 RTC Tagaytay but dismissed
Monetary Board, the provision of any law, general or special to the contrary by CA with finality.
notwithstanding.
RBO filed a supplemental Motion to dismiss this time alleging that it is undergoing
Banco Filipino Savings and Mortgage Bank vs. Central Bank, G.R. No. liquidation and therefore Ong’s claim must be fileld in the liquidation court.
70054, December 1 1 , 1 991 (supra)
RTC: Denied Motion to Dismiss. RBO filed an MR. Denied again.
CA: annulled RTC decision, also, it directed RTC to dismiss the instant case without
Jerry Ong vs CA, and Rural Bank of prejudice too the right of Ong to file the claim in the liquidation court (in Br 73 RTC
Olongapo).
Ologapo as rep. by Liquidators Ong files petition in SC arguing that his case may proceed independently of the
(1996)
MJVBRIGOLA liquidation proceedings; that the disputed land have been extrajudicially foreclosed
and the corresponding certificate of sale issued in his favor; he should now be allowed
SUMMARY: Ong (mortgagee) files a petition in RTC for the surrender to consolidate his title thereto; that respondent RBO’s mortgage in favor of petitioner
of TCTs of certain unredeemed lots against RBO which is a bank under and its foreclosure are presumed valid and regular; and, that the liquidation court has
liquidation. RBO filed a motion to dismiss on the ground of (1) res no jurisdiction over subject land since they are no longer assets of respondent RBO.
judicata and (2) it I undergoing liquidation ence the liquidation court
has exclusive jurisdiction in all claims against bank. ISSUES/HELD:
1. WON the RTC QC has jurisdiction over the case as petitioner asserts? (NO.
DOCTRINE: The court shall have jurisdiction in the same proceedings claim must be filed with the liquidation court.)
to adjudicate disputed claims against the bank and enforce individual
liabilities of such institution and to implement the liquidation plan RATIO: The court shall have jurisdiction in the same proceedings to adjudicate
approved by the Monetary Board. Hence, all claims against the disputed claims against the bank and enforce individual liabilities of such institution
insolvent bank should be filed in the liquidation proceeding and it is and to implement the liquidation plan approved by the Monetary Board. Hence, all
not necessary that a claim be initially disputed in a court or agency claims against the insolvent bank should be filed in the liquidation proceeding and it
before it is file with the liquidation court. is not necessary that a claim be initially disputed in a court or agency before it is file
with the liquidation court.
Section 29, par. 3, of R.A. 265 as amended by P. D. 1827 provides

If the Monetary Board….order its(bank’s) liquidation, xxx The Central Bank shall, by
the SolGen… file a petition in the Court of First Instance reciting the proceedings which
have been taken and praying the assistance of the court in the liquidation of such
institution. The court shall have jurisdiction in the same proceedings to
Manalo et al v Court of Appeals
8 October 2001
adjudicate disputed claims against the bank x x x and enforce individual liabilities Ponente: Puno
of the stockholders and do all that is necessary to preserve the assets of such rachel04022015
institution and to implement the liquidation plan approved by the Monetary Board.
SUMMARY: S. Villanueva Enterprises obtained a loan from PAIC
In Hernandez v. Rural Bank of Lucena, Inc: The fact that the insolvent bank is
Savings and Mortgage Bank, secured by a real estate mortgage over a
forbidden to do business, that its assets are turned over to the Superintendent of Banks,
lot owned by its president Vargas. When the company failed to pay
as a receiver, for conversion into cash, and that its liquidation is undertaken with
back its loan, PAIC Savings foreclosed the mortgage and bought the
judicial intervention means that, as far as lawful and practicable, all claims against the
land in the ensuing public auction. Notwithstanding this, Vargas leased
insolvent bank should be filed in the liquidation proceeding (italics supplied).
the land to Domingo Manalo. Now under liquidation, PAIC Savings filed
a petition for issuance of writ of possession over the disputed lot in a
The judicial liquidation is intended to prevent multiplicity of actions against the
court other than the liquidation court. Manalo moved to intervene in
insolvent bank. It is a pragmatic arrangement designed to establish due process and
the petition, but was denied by the trial court. In the Supreme Court, he
orderliness in the liquidation of the bank, to obviate the proliferation of litigations and
argued that the trial court had no jurisdiction over the petition, and
to avoid injustice and arbitrariness. The lawmaking body contemplated that for
that PAIC Savings had no capacity to sue.
convenience only one court, if possible, should pass upon the claims against the
insolvent bank and that the liquidation court should assist the Superintendent of
DOCTRINE: Only claims against an insolvent bank need to be filed
Banks and regulate his operations.
with the liquidation court. Since the claim in this case was a claim by
the bank, PAIC Savings properly filed its petition in the court where the
The phrase “(T)he court shall have jurisdiction in the same proceedings to adjudicate
property was found. Further, PAIC Savings, through its liquidator,
disputed claims against the bank” have misled petitioner. He argues that to the best of
could properly file the action, pursuant to the powers vested in the
his personal knowledge there is no pending action filed before any court which
latter by the New Central Bank Act.
contests his right over subject properties. Thus his petition before RTC QC cannot be
considered a “disputed claim”.
FACTS:
It is not necessary that a claim be initially disputed in a court or agency before it S. Villanueva Enterprises, through president Therese Vargas, obtained two loans, P3M
is filed with the liquidation court. As may be gleaned in the Hernandez case, the from PAIC Savings and Mortgage Bank and P1M from the Philippine American
term “disputed claim” in the provision simply connotes that in the course of the Investments Corporation. Vargas secured the debts a joint first mortgage over two
liquidation, contentious cases might arise wherein a full-dress hearing would be parcels of land registered in her name.
required and legal issues would have to be resolved. Hence, it would be necessary
injustice to all concerned that a separate RTC x x x assist and supervise the liquidation S. Villanueva defaulted in paying amortizations due, so PAIC Savings instituted
and x x x act as umpire or arbitrator in the allowance and disallowance of claims. extrajudicial foreclosure proceedings over the lots. The lots were then sold to PAIC
Savings, and when Vargas failed to exercise her right of redemption, title was
Petitioner must have overlooked the fact that since respondent RBO is insolvent other consolidated in its name.
claimants not privy to their transaction may be involved. As far as those claimants are
concerned, in the absence of certificates of title in the name of petitioner, subject Later, the Central Bank filed a petition for assistance in the liquidation of PAIC
lots still form part of the assets of the insolvent bank. Savings. Vargas attempted to repurchase the foreclosed lots, but she couldn’t afford
the repurchase price, so she filed a case for annulment of mortgage and extra-
judicial foreclosure sale. The trial court dismissed the complaint. PAIC Savings then
filed a petition for issuance of writ of possession with the Pasay City Regional Trial
Court, which Vargas opposed. During the pendency of the trial for the writ, Vargas The petition for issuance of writ of possession was not a disputed claim against the
sold the mortgaged property to Armando Angsico, and she also leased the same bank. Instead, it was an action instituted by the bank itself to preserve its asset and
property to Domingo Manalo. The court granted the issuance of the writ. protect its property, filed through its liquidator. Act 3135, which regulated the sale of
property under real estate mortgages, explicitly gave jurisdiction over a writ of
Procedural History possession with the court where the property was found.
Vargas moved for the quashal of the writ, while Manalo filed a motion to intervene in
the Pasay RTC. The two motions were denied. Manalo then filed a petition for On the capacity of PAIC Savings to litigate the petition for writ of possession
certiorari with the Court of Appeals. While the case was pending, he entered into Manalo’s argument: As it was under liquidation, PAIC Savings was a dead corporation
another lease agreement, now with PAIC Savings, over the same lot. The CA then that couldn’t maintain suit in the RTC.
dismissed the petition.
The Court’s disposition
ISSUES/HELD: A bank ordered closed by the Monetary Board retained its juridical personality. It
1. Did the Regional Trial Court have jurisdiction to hear the petition for issuance could sue and be sued through its liquidator, and the only limitation was that the
of writ of possession, as it was a claim involving a bank being liquidated? YES action must be prosecuted or defended through the same. Sec. 29 also granted this
2. Could PAIC Savings file the petition for issuance of writ of possession? YES power to the liquidator: “x x x and [the liquidator] may, in the name of the bank x x x
institute such actions as may be necessary in the appropriate court to collect and
(NB: There are other issues in this case, but they involve the mortgage proceedings and recover accounts and assets of such institution x x x.”
are not pertinent to the topic.)
RULING: Manalo’s petition denied.
RATIO:
On the jurisdiction of the RTC not acting as a liquidation court

Manalo’s argument: The power to hear the petition for issuance of writ of possession RURAL BANK OF STA CATALINA
was exclusively vested in the Liquidation Court (the court where the Central Bank
filed the petition for assistance in PAIC Savings’ liquidation). This was pursuant to RA (represented by PDIC as liquidator) V
265 Sec. 29, and Valenzuela v Court of Appeals, where the Court ruled that, “if there is
a judicial liquidation of an insolvent bank, all claims against the bank should be filed LAND BANK OF THE PHIL (2004)
in the liquidation proceeding.”
The Court’s disposition Sept 1996: Land Bank filed a complaint against Rural bank for
Sec. 29 stated in part that, “The [Liquidation Court] shall have jurisdiction in the same collection of sum of money for money that Rural Bank owed Land Bank
proceedings to assist in the adjudication of disputed claims against the bank x x x.”
due to rediscounting. Summons were served on the bank in January
This provision only referred to claims against an insolvent bank, such that the 1997 but Rural bank never filed an answer. It was hence declared in
exclusive jurisdiction of a liquidation court pertained only to the adjudication of default.
claims against the bank. It didn’t cover situations where the bank itself filed claims
against another person or legal entity. In January 1998, PDIC was appointed by the BSP to be the receiver of
The requirement in Sec. 29 was intended to prevent multiplicity of actions against the
Rural Bank. PDIC never filed a motion to lift default order nor did it
insolvent bank, and was designed to establish due process and orderliness in its participate in any way in the pending case.
liquidation.
April 1998: RTC promulgated its decision in favor of Land Bank. It

ordered Rural Bank to pay Land bank 5.7M plus interest to be B. Law on Secrecy of Bank Deposits (R.A. No. 1 405, as amended)
computed from July 1997 until its obligations are fully paid.
1. Purpose
Rural Bank, through PDIC, appealed:
- It was never informed of the pending case between Rural Bank and Oñate v. Abrogar
Land Bank. February 23, 1995
Mendoza, J.
Sai Bautista
WON PDIC, as Rural Bank’s receiver, failure to file timely pleadings
excusable. NO. SUMMARY:
This case concerns two separate motions seeking reconsideration of
The trial court rendered judgment only on April 7, 1998 or more than a the decision of the SC denying petition for certiorari filed by
year after the issuance of the default order; yet, the petitioner failed to petitioners. Petitioners assert that the attachment of their properties
file any verified motion to set aside the said order before the rendition was void because the trial court had not at that time acquired
of the judgment of default. jurisdiction over them and that the subsequent service of summons on
them did not cure the invalidity of the levy; that the examination of the
The PDIC was designated by the Central Bank of the Philippinesas books and ledgers of the BPI, PNB and the Urban Bank was a "fishing
receiver (conservator) as early as January 14, 1998, and in the course of expedition" which the trial court should not have authorized because
its management of the petitioner bank’s affairs, it should have known of petitioner Oñ ate, whose accounts were examined, was not a signatory
the pendency of the case against the latter in the trial court. Moreover, to any of the documents evidencing the transaction between Sun Life
the petitioner, through the PDIC, received a copy of the decision of the and Brunner Corporation. Respondent Sun Life asserted that trial
trial court on June 2, 1998, but did not bother filing a motion for partial court eventually acquired jurisdiction over petitioners and contends
reconsideration, under Rule 37 of the Rules of Court, appending thereto that this cured the invalidity of the attachment of petitioners'
the orders of the Monetary Board or a motion to set aside the order of properties. Also, the examination of petitioner Oñ ate's bank account
default. Instead, the petitioner appealed the decision, and even failed to was justified because it was he who signed checks transferring huge
amounts from Brunner's account in the Urban Bank to the PNB and the
assign as an error the default order of the trial court. Rural bank is,
BPI. SC ruled in favor of petitioners.
thus, barred from relying on the orders of the Monetary Board of the
Central Bank of the Philippines placing its assets and affairs under
DOCTRINE:
receivership and ordering its liquidation. The issue is whether the money paid to Brunner was the consideration
for the sale of treasury bills, as Sun Life claims, or whether it was
Serzo money intended for placement, as petitioners allege. Petitioners do not
deny receipt of P39,526,500.82 from Sun Life. Hence, whether the
6. How the BSP Handles Exchange Crisis transaction is considered a sale or money placement does not make
a. Legal Tender Power the money the "subject matter of litigation" within the meaning of § 2
b. Rate of Exchange of Republic Act No. 1405 which prohibits the disclosure or inquiry into
bank deposits except "in cases where the money deposited or invested petitioners and contends that this cured the invalidity of the attachment of
is the subject matter of litigation." Nor will it matter whether the petitioners' properties. Also, the examination of petitioner Oñ ate's bank account was
money was "swindled" as Sun Life contends. The examination of bank justified because it was he who signed checks transferring huge amounts from
books and records cannot be justified under Rule 57, Sec. 10 Brunner's account in the Urban Bank to the PNB and the BPI.
FACTS: ISSUES/HELD:
Facts from 1994 case WON the examination Onate’s books of accounts is valid- NO!
RATIO:
Sun Life Assurance Company of Canada filed a complaint for a sum of money with a
The issue before the trial court, concerns the nature of the transaction between
prayer for the immediate issuance of a writ of attachment against Oñ ate, Econ
petitioner Brunner and Sun Life. In its complaint, Sun Life alleges that Oñ ate, in his
Holdings Corporation Brunner Development Corporation Noel L. Diñ o. Judge Abrogar
personal capacity and as president of Econ, offered to sell to Sun Life P46,990,000.00
granted the issuance of the writ. Deputy Sheriff attempted to serve summons and a
worth of treasury bills owned by Econ and Brunner at the discounted price of
copy of the amended writ of attachment upon petitioners but was not able to do so
P39,526,500.82; that Sun Life paid the price by means of a check payable to Brunner;
since there was no responsible officer to receive the same. Sheriff still proceeded to
that Brunner, through its president Noel L. Diñ o, issued to it a receipt with
serve notices of garnishment upon several commercial banks and financial
undertaking to deliver the treasury bills to Sun Life; and that Brunner and Diñ o
institutions, and levied on attachment a condominium unit and a real property
delivered instead a promissory note, dated November 27, 1991, in which it was made
belonging to petitioner Oñ ate. Petitioners filed an "Urgent Motion to
to appear that the transaction was a money placement instead of sale of treasury bills.
Discharge/Dissolve Writ of Attachment." That same day, Sun Life filed an ex-parte
motion to examine the books of accounts and ledgers of petitioner Brunner at the
Thus the issue is whether the money paid to Brunner was the consideration for the
Urban Bank, and to obtain copies thereof, which motion was granted by respondent
sale of treasury bills, as Sun Life claims, or whether it was money intended for
Judge. The examination of said account took place. Sun Life filed another motion for
placement, as petitioners allege. Petitioners do not deny receipt of P39,526,500.82
examination of bank accounts with BPI and PNB with regard to checks payable to
from Sun Life. Hence, whether the transaction is considered a sale or money
Brunner. Sun Life asked the court to order both banks to comply with the notice of
placement does not make the money the "subject matter of litigation" within the
garnishment. Judge Abrogar granted Sun Life’s motion.
meaning of § 2 of Republic Act No. 1405 which prohibits the disclosure or inquiry into
bank deposits except "in cases where the money deposited or invested is the subject
This case concerns two separate motions seeking reconsideration of the decision of
matter of litigation." Nor will it matter whether the money was "swindled" as Sun Life
the SC denying petition for certiorari filed by petitioners. Petitioners assert that the
contends.
attachment of their properties was void because the trial court had not at that time
acquired jurisdiction over them and that the subsequent service of summons on them
The examination of bank books and records cannot be justified under Rule 57, Sec.
did not cure the invalidity of the levy. They further contend that the examination of
10. Examination of party whose property is attached and persons indebted to him or controlling his property ;
the books and ledgers of the BPI, PNB and the Urban Bank was a "fishing expedition" delivery of property to officer. — Any person owing debts to the party whose property is attached or having
which the trial court should not have authorized because petitioner Oñ ate, whose in his possession or under his control any credit or other personal property belonging to such party, may be
accounts were examined, was not a signatory to any of the documents evidencing the required to attend before the court in which the action is pending, or before a commissioner appointed by
transaction between Sun Life and Brunner. the court, and be examined on oath respecting the same. The party whose property is attached may also be
required to attend for the purpose of giving information respecting his property, and may be examined on
oath. The court may, after such examination, order personal property capable of manual delivery belonging
Respondent Sun Life asserted that trial court eventually acquired jurisdiction over
AZIZ RAJKOTWALA, WILLIAM

to him, in the possession of the person so required to attend before the court, to be delivered to the clerk of
the court, sheriff, or other proper officer on such terms as may be just, having reference to any lien thereon
or claims against the same, to await the judgment in the action.
FERGUSON, JOVEN REYES, and VIC
Since the attachment of petitioners' properties was invalid, the examination ordered
in connection with such attachment must likewise be considered invalid. Under Rule LIM, respondents.
57, § 10, such examination is only proper where the property of the person examined
 Citibank filed a complaint for violation of section 31, in relation to section
has been validly attached.
144 of the Corporation Code against two (2) of its officers, Dante L. Santos
and Marilou Genuino. Attached to the complaint was an affidavit executed by
WHEREFORE, the decision dated February 21, 1994 is RECONSIDERED and SET private respondent Vic Lim, a vice-president of Citibank. Vic Lim stated that
ASIDE and another one is rendered GRANTING the petitions for certiorari and he participated in an investigation against Dante Santos (Treasurer of the
SETTING ASIDE the orders dated February 26, 1992 and September 9, 1992, insofar Global Consumer Group of the bank ) and Malou Genuino (Asst. Vice Presi-
as they authorize the attachment of petitioners' properties and the examination of dent in the office of Mr. Dante L. Santos; also was account officer) because
bank books and records pertaining to their accounts. they were using two companies namely Torrance Development Corporation
and Global Pacific Corporation, to divert money from Citibank to products of-
fered by other companies that were commanding higher rate of yields. This
Union Bank of the Philippines vs. Court of Appeals, G.R. No. 1 34699, was done by first transferring bank clients’ monies to Torrance and Global
December 23, 1 999 which in turn placed the monies of the bank clients in securities, shares of
stock and other certificates of third parties. It also appeared that out of these
transactions, Mr. Dante L. Santos and Ms. Marilou Genuino derived substan-
tial financial gains.
3. Deposits Covered  According to Lim’s affidavit, the bank clients which Mr. Santos and Ms. Gen-
uino helped/caused to divert their deposits/money placements with
Citibank, NA. to Torrance and Global (their family corporations) for subse-
CARMEN LL. INTENGAN, ROSARIO LL. quent investment in securities, shares of stocks and debt papers in other
companies included Carmen Intengan, Rosario Neri, and Rita Brawner, all of
NERI, and RITA P. whom have long standing accounts with Citibank, N.A. in savings/dollar de-
posits and/or in trust accounts and/or money placements.
BRAWNER, petitioners, vs. COURT OF  Lim annexed bank records including documents pertaining to DOLLAR
deposits of Intengan, Neri, and Brawner in order to establish the decep-
APPEALS, DEPARTMENT OF JUSTICE, tion practiced by Santos and Genuino.8 Private respondent Joven Reyes,
8 a) Annex “A-6” - an “Application for Money Transfer” in the amount of US $140,000.00, executed by
Intengan in favor of Citibank $ S/A No. 24367796, to be debited from her Account No. 22543341;
b) Annex “A-7” - a “Money Transfer Slip” in the amount of US $45,996.30, executed by Brawner in favor of
Citibank $ S/A No. 24367796, to be debited from her Account No. 22543236; and
c) Annex “A-9”- an “Application for Money Transfer” in the amount of US $100,000.00, executed by Neri in
favor of Citibank $ S/A No. 24367796, to be debited from her Account No. 24501018.
vice-president/business manager of the Global Consumer Banking Group of garnishment, or any other order or process of any court, legislative
Citibank, admits to having authorized Lim to state the names of the clients in- body, government agency or any administrative body whatsoever.
volved and to attach the pertinent bank records, including those of petition-
ers’. He states that private respondents Aziz Rajkotwala and William Fergu- Thus, under R.A. No. 6426 there is only a single exception to the secrecy of for-
son, Citibank, N.A. Global Consumer Banking Country Business Manager and eign currency deposits: disclosure is allowed only upon the written permission
Country Corporate Officer, respectively, had no hand in the disclosure, and of the depositor. Incidentally, the acts of private respondents complained of
that he did so upon the advice of counsel. happened before the enactment on September 29, 2001 of R.A. No. 9160 other-
 As an incident to the foregoing, petitioners filed respective motions for the wise known as the Anti-Money Laundering Act of 2001. A case for violation
exclusion and physical withdrawal of their bank records that were at- of Republic Act No. 6426 should have been the proper case brought against pri-
tached to Lim’s affidavit. vate respondents. Private respondents Lim and Reyes admitted that they had
 Provincial Prosecutor Mauro M. Castro who, in a Resolution dated August 18, disclosed details of petitioners’ dollar deposits without the latter’s written per-
1994, directed the filing of informations against private respondents for al- mission. It does not matter if that such disclosure was necessary to establish
leged violation of Republic Act No. 1405, otherwise known as the Bank Se- Citibank’s case against Dante L. Santos and Marilou Genuino. Lim’s act of disclosing
crecy Law. details of petitioners’ bank records regarding their foreign currency deposits, with the
 DOJ, upon appeal, ordered inter alia, the withdrawal of the aforesaid informa- authority of Reyes, would appear to belong to that species of criminal acts punishable
tions against private respondents. by special laws, called malum prohibitum.
 Petitioners sought reversal of DOJ resolutions. CA denied. Hence this petition.
2. PRESCRIPTION - Ordinarily, the dismissal of the instant petition would
Issue: ARE PETITIONERS ARE ENTITLED TO PROSECUTE PRIVATE have been without prejudice to the filing of the proper charges against private
RESPONDENTS FOR VIOLATIONS OF R.A. NO. 1405 FOR HAVING ILLEGALLY respondents. The matter would have ended here were it not for the interven-
DISCLOSED PETITIONERS’ CONFIDENTIAL BANK DEPOSITS AND RECORDS? NO. tion of time, specifically the lapse thereof. Republic Act No. 6426 being a special
law, the provisions of Act No. 3326, as amended by Act No. 3763, are applicable. 9
1. A CASE FOR VIOLATION OF RA NO. 6426 (NOT RA 1405) SHOULD HAVE Therefore a violation of Republic Act No. 6426 shall subject the offender to imprison-
BEEN THE PROPER CASE - The finest legal minds in the country - from the parties’ ment of not less than one year nor more than five years, or by a fine of not less than
respective counsel, the Provincial Prosecutor, the Department of Justice, the Solicitor
General, and the Court of Appeals - all appear to have overlooked a single fact which 9 SECTION 1. Violations penalized by special acts shall, unless otherwise provided in such acts, prescribe in
accordance with the following rules: (a) after a year for offences punished only by a fine or by imprisonment for
dictates the outcome of the entire controversy. The accounts in question are U.S. dol -
not more than one month, or both: (b) after four years for those punished by imprisonment for more than one
lar deposits; consequently, the applicable law is not Republic Act No. 1405 but Republic month, but less than two years; (c) after eight years for those punished by imprisonment for two years or more, but
Act (RA) No. 6426,known as the “Foreign Currency Deposit Act of the Philippines,” sec- less than six years; and (d) after twelve years for any other offence punished by imprisonment for six years or
tion 8 of which provides: more, except the crime of treason, which shall prescribe after twenty years: Provided, however, That all offences
against any law or part of law administered by the Bureau of Internal Revenue shall prescribe after five years.
Sec. 8. Secrecy of Foreign Currency Deposits.- All foreign currency de- Violations penalized by municipal ordinances shall prescribe after two months.
posits authorized under this Act, as amended by Presidential Decree
Violations of the regulations or conditions of certificates of public convenience issued by the Public Service
No. 1035, as well as foreign currency deposits authorized under Commission shall prescribe after two months.
Presidential Decree No. 1034, are hereby declared as and considered
of an absolutely confidential nature and, except upon the written per- SEC. 2. Prescription shall begin to run from the day of the commission of the violation of the law, and if the same
mission of the depositor, in no instance shall such foreign currency de- be not known at the time, from the discovery thereof and the institution of judicial proceedings for its
posits be examined, inquired or looked into by any person, government investigation and punishment.
official bureau or office whether judicial or administrative or legislat-
ive or any other entity whether public or private: Provided, however, The prescription shall be interrupted when proceedings are instituted against the guilty person, and shall begin to
run again if the proceedings are dismissed for reasons not constituting jeopardy.
that said foreign currency deposits shall be exempt from attachment,
five thousand pesos nor more than twenty-five thousand pesos, or both. Applying Act the plunder charge against him. He moved to quash the subpoenas
No. 3326, the offense prescribes in eight years. Per available records, private re- issued, claiming that his bank accounts are covered by R.A. No. 1405
spondents may no longer be brought before the courts for violation of Republic (The Secrecy of Bank Deposits Law) and do not fall under any of the
Act No. 6426. Private respondent Vic Lim made the disclosure in September of exceptions stated therein. The Supreme Court ruled that RA 1405 is
1993 in his affidavit submitted before the Provincial Fiscal. [ In her complaint-af- broad enough to cover trust accounts.
fidavit, Intengan stated that she learned of the revelation of the details of her
foreign currency bank account on October 14, 1993. On the other hand, Neri as- DOCTRINE:
serts that she discovered the disclosure on October 24, 1993. As to Brawner, the
material date is January 5, 1994. Based on any of these dates, prescription has An examination of the law shows that the term “deposits”
set in. used therein is to be understood broadly and not limited only to
accounts which give rise to a creditor-debtor relationship between the
The filing of the complaint or information in the case at bar for alleged violation of Re - depositor and the bank. . R.A. No. 1405 extends to funds invested such
public Act No. 1405 did not have the effect of tolling the prescriptive period, for it is
as those placed in a trust account which the bank may use for loans
the filing of the complaint or information corresponding to the correct offense and similar transactions
which produces that effect.
3. IGNORANTIA LEGIS NON EXCUSAT. The confidentiality of foreign currency
deposits mandated by Republic Act No. 6426, as amended by Presidential Decree No. FACTS:
1246, came into effect as far back as 1977. Hence, ignorance thereof cannot be pre-
tended. On one hand, the existence of laws is a matter of mandatory judicial notice; Joseph Victor G. Ejercito is the owner of Trust Account No. 858, originally
on the other, ignorantia legis non excusat. Even during the pendency of this appeal, opened at Urban Bank but now maintained at Export and Industry Bank (EIB), which
nothing prevented the petitioners from filing a complaint charging the correct offense is the purchaser and owner now of the former Urban Bank and Urbancorp
against private respondents. This was not done, as everyone involved was content to Investment, Inc. He is also the owner of Savings Account No. 0116-17345-9 which
submit the case on the basis of an alleged violation of Republic Act No. 1405 (Bank Se - was originally opened at Urban Bank but which is now maintained at EIB.
crecy Law), however, incorrectly invoked. Ejercito was subsequently charged with Plunder. The Sandiganbayan
granted a Request by the Prosecution for the Issuance of Subpoena Duces Tecum / Ad
Testificandum directing the President of EIB or his/her authorized representative to
produce various document related to the investigation.
JOSEPH VICTOR G. EJERCITO, The Special Prosecution Panel also filed a Request for Issuance of Subpoena
petitioner, vs. SANDIGANBAYAN Duces Tecum/Ad Testificandum directed to the authorized representative of
Equitable-PCI Bank to produce statements of account pertaining to certain accounts
(SPECIAL DIVISION) AND PEOPLE OF in the name of “Jose Velarde” and to testify thereon.
THE PHILIPPINES,, respondents. The Sandiganbayan granted both requests and the Resolution and subpoenas
were accordingly issued. The Special Prosecution Panel filed still another Request for
November 30, 2006
Ponente: Carpio Morales, J. Issuance of Subpoena Duces Tecum/Ad Testificandum for the President of EIB or
Digest Maker: JM Arcilla his/her authorized representative to produce the same documents subject of the first
Subpoena Duces Tecum and to testify thereon on the hearings scheduled and
SUMMARY: subsequent dates until completion of the testimony. The request was likewise
granted by the Sandiganbayan. A Subpoena Duces Tecum/Ad Testificandum was
Subpoena Duces Tecum/Ad Testificandum in order to produce related accordingly issued.
to trust accounts and savings accounts owned by Ejercito in relation to
Ejercito filed various motions to quash the various Subpoenas Duces However, the protection afforded by the law is not absolute. There being
Tecum/Ad Testificandum previously issued. In his Motion to Quash, he claimed that recognized exceptions thereto, as above-quoted Section 2 provides. In the present
his bank accounts are covered by R.A. No. 1405 (The Secrecy of Bank Deposits Law) case, two exceptions apply, to wit: (1) the examination of bank accounts is upon
and do not fall under any of the exceptions stated therein. He further claimed that the order of a competent court in cases of bribery or dereliction of duty of public officials,
specific identification of documents in the questioned subpoenas, including details on and (2) the money deposited or invested is the subject matter of the litigation.
dates and amounts, could only have been made possible by an earlier illegal Ejercito contends that since plunder is neither bribery nor dereliction of duty, his
disclosure thereof by the EIB and the Philippine Deposit Insurance Corporation accounts are not excepted from the protection of R.A. 1405.
(PDIC) in its capacity as receiver of the then Urban Bank. The disclosure being illegal,
he concluded, the prosecution in the case may not be allowed to make use of the Cases of unexplained wealth are similar to cases of bribery or dereliction of
information. Before the motion was resolved by the Sandiganbayan, the prosecution duty and no reason is seen why these two classes of cases cannot be excepted from
filed two more Requests directing the President of the EIB and the Vice President of the rule making bank deposits confidential. The policy as to one cannot be different
the PDIC to produce several account-related documents for subsequent hearings. The from the policy as to the other. This policy expresses the notion that a public office is a
subpoenas prayed for in both requests were issued by the Sandiganbayan. Petitioner public trust and any person who enters upon its discharge does so with the full
filed Motions to Quash, which were both denied. knowledge that his life, so far as relevant to his duty, is open to public scrutiny.
Undoubtedly, cases for plunder involve unexplained wealth. The crime of bribery and
ISSUES/HELD: the overt acts constitutive of plunder are crimes committed by public officers, noble
Whether or not a Trust Account is covered by the term “deposit” as used in idea that “a public office is a public trust and any person who enters upon its
R.A. 1405. YES. discharge does so with the full knowledge that his life, so far as relevant to his duty, is
open to public scrutiny” applies with equal force.
RATIO:
Also, the plunder case now pending with the Sandiganbayan necessarily
involves an inquiry into the whereabouts of the amount purportedly acquired illegally
The contention that trust accounts are not covered by the term “deposits,” as by former President Joseph Estrada. RA 1405 allows the disclosure of bank deposits
used in R.A. 1405, by the mere fact that they do not entail a creditor-debtor in cases where the money deposited is the subject matter of the litigation. Hence,
relationship between the trustor and the bank, does not lie. An examination of the these accounts are no longer protected by the Secrecy of Bank Deposits Law, there
law shows that the term “deposits” used therein is to be understood broadly and not being two exceptions to the said law applicable in this case, namely: (1)the
limited only to accounts which give rise to a creditor-debtor relationship between the examination of bank accounts is upon order of a competent court in cases of bribery
depositor and the bank. or dereliction of duty of public officials, and (2)the money deposited or invested is the
subject matter of the litigation. Exception (1) applies since the plunder case pending
R.A. 1405 is broad enough to cover Trust Account No. 858. This is shown by Section 2: against former President Estrada is analogous to bribery or dereliction of duty, while
exception (2) applies because the money deposited in Ejercito’s bank accounts is said
SECTION 2. All deposits of whatever nature with banks or banking to form part of the subject matter of the same plunder case. The “fruit of the
institutions in the Philippines including investments in bonds issued by the poisonous tree” doctrine or the exclusionary rule is inapplicable in cases of unlawful
Government of the Philippines, its political subdivisions and its examination of bank accounts.
instrumentalities, are hereby considered as of an absolutely confidential
nature and may not be examined, inquired or looked into by any person, 4. Exceptions
government official, bureau or office, except upon written permission of the
depositor, or in cases of impeachment, or upon order of a competent court in
cases of bribery or dereliction of duty of public officials, or in cases where
the money deposited or invested is the subject matter of the litigation. RCBC v De Castro
Nov. 29, 1988
Cortes, J.
Gabe Ruaro Neither is it solidarily liable with BADOC. BADOC alone was
responsible for the writs and orders, and thus should alone bear the
SUMMARY: consequences of their annulment.
PVTA was ordered to reimburse money it had garnished. RCBC, the bank which
released the money, was held solidarily liable. The SC absolved them from liability, Petition granted. RCBC absolved from any liability to PVTA for reimbursement
because…. of funds garnished.
DOCTRINE: Mellon Bank, N.A. vs. Magsino, G.R. No. 71 479, October 1 8, 1990
When pursuant to a court order garnishing the depositor’s funds, a bank complied
by delivering in check the amount garnished to the sheriff, the bank cannot be held
liable to its depositor. There is no violation of the law on secrecy of bank deposits
PCIB vs. Court of Appeals
January 28, 1991
when the bank had no choice but to comply with the court order for delivery of the Sarmiento, J.
garnished amount Oswald P. Imbat
FACTS: SUMMARY: PCIB, after inquiring twice whether there was a restraining
RCBC was, in an order by the Hon. Lourdes San Diego, Presiding Judge of CFI-QC, order from the NLRC and being told by the sheriff that there was none,
ordered to pay Badoc Planters, Inc. the amount of P206k within 48 hours, as unpaid released the deposit of MMIC with it, on the basis of a notice of
tobacco deliveries from PVTA. The funds came from PVTA’s account with RCBC. garnishment and writ of execution furnished it by the sheriff. MMIC sued
This led PVTA to file an MR. MR granted.as a result of the MR, RCBC and PCIB, alleging undue haste in the release of the funds as well as violation of
Badoc were ordered to restore PVTA’s account with P206k. Hence this RA 1405. The RTC and CA ordered PCIB to pay MMIC. The SC reversed,
petition for review. ruling that the release of the garnished deposit was proper and that there
ISSUES: was no violation of RA 1405.
1. WON the PVTA funds are public funds exempt from garnishments. (No)
2. WON the bank should be held solidarily liable with its judgment creditor for DOCTRINE: The law on secrecy of bank deposits cannot be used to pre-
reimbursement of garnished funds. (No) clude the bank deposits from being garnished for the satisfaction of a judg-
RATIO: ment. There is no violation of RA 1405 because the disclosure is purely in-
1. PVTA was created as an ordinary corporation under RA 2265. It was en- cidental to the execution process and it was not the intention of the legisla-
dowed with a personality distinct and separate from the government which ture to place bank deposits beyond the reach of the judgment creditor.
owns and controls it, and with the power to sue and be sued. Thus, its funds
can be garnished. FACTS:
2. RCBC cannot be held liable as the funds entrusted to its custody were suscep- 1. To execute the judgment of the NLRC for the payment of P205,853 as backwages to
tible to garnishment. It thus could not be charged with lack of prudence for the laborers of Marinduque Mining and Industrial Corporation (MMIC), the sheriff
immediately complying with a court order to enforce payment of the obliga- went to MMIC’s mining site and served the writ of execution. Nothing happened
tions. That the court order subsequently turned out to have been erroneously there.
issued should not operate to the detriment of one who complied with its clear 2. The sheriff then sent notices of garnishment to 6 banks in Bacolod City directing
order. them to immediately issue a check in the name of the sheriff in an amount
Further, RCBC was not bound to inquire into the legality and equivalent to the amount of the garnishment.
propriety of the write of execution and notice of garnishment, because it was 3. At 9:30 AM, April 29, 1976, the sheriff presented the notice of garnishment and
not even a party to the case. It had neither the personality nor the interest to writ of execution to Jose Henares, manager of PCIB.
controvert the orders. It had no choice but to obe the orders. a. Later that afternoon, the sheriff demanded the release of the deposit.
b. MMIC’s in-house counsel, also that afternoon, verbally at around 2:00 PM, and garnishee to inquire or to judge for itself whether the order for the advance
through a formal letter at around 5:00 PM, requested the withholding of any execution of a judgment is valid.
release of the deposit. ii. Section 8, Rule 57 provide that, upon the issuance of attachment
4. Upon knowing from the sheriff that there was no restraining order from the NLRC (garnishment is a specie of attachment), the garnishee is liable to the
and on favorable advice of PCIB’s counsel, Henares issued a manager’s check in applicant of the amount of such credits, debts or other property, until the
favor of the sheriff for the amount of P37,466, the exact balance of MMIC with attachment be discharged, or any judgment recovered by him be satisfied,
PCIB. unless such property be delivered or transferred, or such debts be paid, to
5. The sheriff went the next day to encash the check. Henares again inquired whether the clerk, sheriff or other proper officer of the court issuing the attachment.
there was a restraining order. Upon being told by the sheriff that there was none, iii. The garnishee, after having been judicially compelled to pay the amount of
he allowed encashment. the judgment represented by funds in its possession belonging to the
6. MMIC sued , PCIB, Henares, and the sheriff, before the RTC of Manila: judgment debtor, should then be released from all responsibilities over such
a. Its deposit was levied upon, garnished, and with undue haste unlawfully amount after delivery to the sheriff.
allowed to be withdrawn. c. Section 39, Rule 39, on examination of a debtor of the judgment debtor, does not
b. There was unauthorized disclosure and unlawful release of its deposit. apply since the debt, i.e., the deposit, has not been denied.
c. PCIB refused to restore the amount despite repeated demands. d. The immediate release of the funds on the strength of the notice of garnishment
7. The RTC ordered PCIB, Henares, and the sheriff to pay solidarily. and writ of execution, whose issuance, absent any patent defect, enjoys the
8. The CA first reversed then, upon MR, affirmed the RTC. presumption of regularity, sufficiently supported by Section 41, Rule 39, which
provides: “After an execution against property has issued, a person indebted to
ISSUES/RULINGS: the judgment debtor may pay to the officer holding the execution the amount of
1. Did PCIB properly release the garnished deposit? Yes. his debt or so much thereof as may be necessary to satisfy the execution, and
2. Did PCIB violate RA 1405? No. the officer’s receipt shall be a sufficient discharge for the amount so paid or
directed to be credited by the judgment creditor on the execution.”
RATIO: e. Also, PCIB should be commended for having acted with urgent dispatch despite
1. PCIB properly released the garnished deposit of MMIC. attempts by MMIC to frustrate the prompt satisfaction of the legitimate claims
a. De la Rama vs. Villarosa, where it was held that the effect of garnishment is to of labor.
require the garnishee to set aside the amount from the funds held by him and 2. There is no violation of RA 1405 (Secrecy of Bank Deposits Act).
owing to the judgment debtor, and keep the same subject to the final orders of a. In CBC vs. Ortega, it was stated, based on the deliberations of the conference
the court, does not apply in this case. committee, that the prohibition against examination of or inquiry into a bank
i. In De la Rama, the amount garnished was not actually taken possession of by deposit does not preclude its being garnished to insure satisfaction of a
the sheriff, even from the time of garnishment, because the judgment debtor judgment. There is no real inquiry in such a case. If existence of the deposit is
was able to appeal and obtain an injunction prohibiting execution of the disclosed, the disclosure is purely incidental to the execution process. Congress
judgment. could not have intended to enable debtors to evade payment by depositing
ii. In this case, MMIC did not appeal not obtain any injunction. their funds.
iii. Henares, in fact, previously sought the advice of PCIB’s counsel and asked b. In any case, there is no evidence that PCIB themselves divulged the information
twice the sheriff, who informed him of the absence of any restraining order. that MMIC had an account with them.
iv. As such, there was no undue and indecent haste in the release of the funds.
b. Instead, Engineering Construction vs. NPC and RCBC vs. De Castro apply.
i. The garnishee should not be faulted for its prompt obedience to a writ of Marquez vs. Desierto, G.R. No. 1 35882, June 27, 2001
garnishment. Unless there are compelling reasons, such as a defect on the
face of the writ or actual knowledge on the part of the garnishee of lack of
entitlement on the part of the garnisher, it is not incumbent upon the
OFFICE OF THE OMBUDSMAN vs. IBAY
September 3, 2001 cover only the account identified in the pending case. An investigation
by the Ombudsman on the so-called “scam” cannot be considered a
QUISUMBING, J. pending case thus, any order for the opening of the bank account for
inspection is clearly premature and legally unjustified.
Mica Maurinne M. Adao
Sometime in 1998, Ombudsman conducted an investigation on the alleged “scam” on

SUMMARY: Ombudsman conducted an investigation on the alleged
the Public Estates Authority-Amari Coastal Bay Development Corporation. Initial
“scam” on the PEA-Amari Coastal Bay Development Corporation. Initial
result of the investigation revealed that the alleged anomaly was committed through
result of the investigation revealed that the alleged anomaly was
the issuance of checks which were subsequently deposited in several financial
committed through the issuance of checks which were subsequently
institutions.
deposited in several financial institutions. It ordered Marquez, a branch
manager of Union Bank to produce several documents for inspection.
The inspection would be done “in camera” wherein the bank records
would be examined without bringing the documents outside the bank On April 29, 1998, Ombudsman issued an Order directing Lourdes Marquez, branch
premises. Marquez failed to comply with the Order and another Order manager of Union Bank of the Philippines branch at Julia Vargas Avenue, Pasig City, to
was issued directing her, in the event of her failure to comply, to show produce several bank documents for inspection relative to Account Nos. 011-37270-5,
cause why she should not be cited for contempt and why she should not 240-020718, 245-30317-3 and 245-30318-1, reportedly maintained in the said
be charged for obstruction. Marquez filed an action for declaratory branch. The documents referred to include bank account application forms, signature
relief with the RTC to ask for guidelines because under R.A. 1405 (Law cards, transactions history, bank statements, bank ledgers, debit and credit memos,
on Secrecy of Bank Deposits), she had the legal obligation not to divulge deposit and withdrawal slips, application for purchase of manager’s checks, used
any information relative to all deposits of whatever nature with banks manager’s checks and check microfilms. The inspection would be done “in camera”
in the Philippines. Ombudsman filed a motion to dismiss for lack of wherein the bank records would be examined without bringing the documents
jurisdiction. RTC denied the motion to dismiss and ruled it has outside the bank premises. Its purpose was to identify the specific bank records prior
jurisdiction. SC ruled that RTC has jurisdiction and that the “in camera” to the issuance of the required information not in any manner needed in or relevant
inspection cannot be legally done without a pending case against Union to the investigation
Bank.
Marquez failed to comply with such order. She explained that despite diligent efforts,
DOCTRINE: In Marquez vs. Desierto, it was ruled that before an in the bank could not identify these accounts since the checks were issued in cash or
camera inspection of bank accounts may be allowed, there must be a bearer forms. Ombudmsna found such explanation unacceptable. Marquez was
pending case before a court of competent jurisdiction. Further, the reminded that her acts constitute disobedience or resistance to a lawful order and is
account must be clearly identified, and the inspection limited to the punishable as indirect contempt. The same might also constitute willful obstruction of
subject matter of the pending case before the court of competent the lawful exercise of the functions of the Ombudsman, which is punishable under
jurisdiction. The bank personnel and the account holder must be Section 36 of R.A. 6770.
notified to be present during the inspection, and such inspection may
1. The special civil action of declaratory relief falls under the exclusive jurisdiction of
the Regional Trial Courts. It is not among the actions within the original jurisdiction of
On June 16, 1998, Ombudsman issued an order to Marquez to produce the requested the Supreme Court even if only questions of law are involved
bank documents for “in camera” inspection. In the event of her failure to comply as
directed, Marquez was ordered to show cause why she should not be cited for
contempt and why she should not be charged for obstruction.
The requisites of an action for declaratory relief are: (1) there must be a justiciable
controversy; (2) the controversy must be between persons whose interests are
adverse; (3) that the party seeking the relief has a legal interest in the controversy;
Instead of complying with the order, Marquez filed a petition for declaratory relief and (4) that the issue is ripe for judicial determination.
with an application for temporary restraining order and/or preliminary injunction
before the RTC of Makati City, Branch 135, presided by respondent Judge Francisco
Ibay. In her petition, Marquez averred that under Sections 2 and 3 of R.A. 1405 (Law
on Secrecy of Bank Deposits), she had the legal obligation not to divulge any In this case, the controversy concerns the extent of the power of petitioner to
information relative to all deposits of whatever nature with banks in the Philippines. examine bank accounts under Section 15 (8) of R.A. 6770 vis-à-vis the duty of banks
But petitioner’s Order cited Section 15 (8) of R.A. 6770 stating that the Ombudsman under Republic Act 1405 not to divulge any information relative to deposits of
had the power to examine and have access to bank accounts and records. Marquez, whatever nature. The interests of the parties are adverse considering the antagonistic
therefore, sought a definite ruling and/or guidelines as regards her rights as well as assertion of a legal right on one hand, that is the power of Ombudsman to examine
Ombudman’s power to inspect bank deposits under the cited provisions of law. bank deposits, and on the other, the denial thereof apparently by Marquez who
refused to allow Ombudsman to inspect in camera certain bank accounts. The party
seeking relief asserts a legal interest in the controversy. The issue invoked is ripe for
judicial determination as litigation is inevitable. Note that Ombudsman has Marquez
Ombudsman moved to dismiss the aforesaid petition for declaratory relief on the with “indirect contempt” and “obstruction” charges should the latter not comply with
ground that the RTC has no jurisdiction over the subject matter. RTC denied the MTD its order.
and ruled that it has jurisdiction over the action for declaratory relief. Hence,
Ombudsman filed this petition.
2. In Marquez vs. Desierto, it was ruled that before an in camera inspection of bank
accounts may be allowed, there must be a pending case before a court of competent
ISSUES: jurisdiction. Further, the account must be clearly identified, and the inspection limited
to the subject matter of the pending case before the court of competent jurisdiction.
1. Whether or not RTC Judge Ibay acted without jurisdiction and/or with grave
abuse of discretion in entertaining the cited petition for declaratory relief? The bank personnel and the account holder must be notified to be present during the
2. What is the extent of the power of Ombudsman to examine bank accounts inspection, and such inspection may cover only the account identified in the pending
under Section 15 (8) of R.A. 6770 vis-à-vis the duty of banks under Republic case. In the present case, since there is no pending litigation yet before a court of
Act 1405 not to divulge any information relative to deposits of whatever na- competent authority, but only an investigation by the Ombudsman on the so-called
ture? “scam”, any order for the opening of the bank account for inspection is clearly
premature and legally unjustified.
RULING:
FACTS:
WHEREFORE, the instant petition is DISMISSED.
The BSB Group, Inc., is a duly organized domestic corporation presided by its
representative, Ricardo Bangayan (Bangayan). Respondent Sally Go is Bangayan’s
wife, who was employed in the company as a cashier, and was engaged, among others,
BSB GROUP, INC., represented by its to receive and account for the payments made by the various customers of the
company.
President, Mr. Ricardo Bangayan,
In 2002, Bangayan filed a complaint for estafa and/or qualified theft against Sally Go,
Petitioner, vs. Sally Go a.k.a. Sally Go- alleging that several checks with an aggregate amount of P1,534,135.50 issued by the
company’s customers in payment of their obligation were, instead of being turned
Bangayan, Respondent over to the company’s coffers, indorsed by respondent who deposited the same to her
personal banking account maintained at Security Bank.
Date: February 16, 2010
Ponente: Peralta, J. Subsequently, Sally was charged with qualified theft.
Kate Tuason - That in or about or sometime during the period comprised (sic) between Jan-
uary 1988 [and] October 1989, inclusive, in the City of Manila, Philippines,
SUMMARY: BSB Group charged Sally Go with qualified theft. They the said accused did then and there willfully, unlawfully and feloniously with
alleged that several checks issued by the company’s customers in intent [to] gain and without the knowledge and consent of the owner thereof,
payment of their obligation were, instead of being turned over to the take, steal and carry away cash money in the total amount of P1,534,135.50
company’s coffers, indorsed by respondent who deposited the same to belonging to BSB GROUP OF COMPANIES represented by RICARDO BAN-
her personal banking account maintained at Security Bank. GAYAN, to the damage and prejudice of said owner in the aforesaid amount of
P1,534,135.50, Philippine currency.
The prosecution was able to present in court the testimony of
Marasigan, a representative of Security Bank. Marasigan sought to
- That in the commission of the said offense, said accused acted with grave
prove that between 1988 and 1989, Sally, while engaged as cashier at
abuse of confidence, being then employed as cashier by said complainant at
the BSB Group, Inc., was able to run away with the checks issued to the
the time of the commission of the said offense and as such she was entrusted
company by its customers, endorse the same, and credit the
with the said amount of money.
corresponding amounts to her personal deposit account with Security
Bank.
During trial, on the premise that Sally had allegedly encashed the subject checks and
deposited the corresponding amounts thereof to her personal banking account, the
SC held that this testimony should be excluded by operation of R.A.
prosecution moved for the issuance of subpoena duces tecum /ad
1405.
testificandum against the respective managers or records custodians of Security
Bank’s Divisoria Branch and Metrobank Tondo Branch. The trial court granted the
motion and issued the corresponding subpoena.
DOCTRINE: One of the exceptions under R.A. 1405 is when the inquiry

into the bank deposits is premised on the fact that the money
Sally filed a motion to quash the subpoena addressed to Metrobank, noting to the
deposited in the account is itself the subject of the action. Such is not
court that in the complaint-affidavit filed with the prosecutor, there was no mention
the case when the respondent was charged with qualified theft and
made of the said bank account, to which she allegedly deposited the proceeds of the
when the attempt of inquiry serves no other purpose but to establish
supposed checks.
the existence of such account, its nature and the amount kept in it.

BSB, opposing respondent’s move, argued for the relevancy of the Metrobank account - The subject matter of the action in the case at bar is to be determined from
on the ground that the complaint-affidavit showed that there were two checks which the indictment that charges respondent with the offense, and not from the ev-
Sally allegedly deposited in an account with the said bank. idence sought by the prosecution to be admitted into the records.
- To this, Sally filed a supplemental motion to quash, invoking the absolutely - In the criminal Information filed, Sally Go unqualifiedly and in plain language,
confidential nature of the Metrobank account under the provisions of RA is charged with qualified theft by abusing petitioner’s trust and confidence
1405. and stealing cash in the amount of P1,534,135.50.
- The trial court denied the Motion to Quash. o It made no factual allegation that in some material way involves the
checks subject of the testimonial and documentary evidence sought
Meanwhile, the prosecution was able to present in court the testimony of Elenita to be suppressed.
Marasigan (Marasigan), the representative of Security Bank. o Neither do the allegations make mention of the supposed bank ac-
- Marasigan’s testimony sought to prove that between 1988 and 1989, Sally, count in which the funds represented by the checks have allegedly
while engaged as cashier at the BSB Group, Inc., was able to run away with been kept.
the checks issued to the company by its customers, endorse the same, and
credit the corresponding amounts to her personal deposit account with Secu- The admission of testimonial and documentary evidence relative to Sally Go’s
rity Bank. Security Bank account serves no other purpose than to establish the existence
of such account, its nature and the amount kept in it.
- But before the testimony could be completed, Sally filed a Motion to Sup-
press,seeking the exclusion of Marasigan’s testimony and accompanying doc- It constitutes an attempt by the prosecution at an impermissible inquiry into a
uments thus far received, bearing on the subject Security Bank account. bank deposit account the privacy and confidentiality of which is protected by
o In addition to irrelevancy, the privilege of confidentiality under R.A. law.
No. 1405 was invoked.
The testimony of Marasigan on the particulars of Sally’s supposed bank account with
TC denied the motion. Case was elevated to the CA via petition for certiorari under Security Bank and the documentary evidence represented by the checks adduced in
Rule 65. CA reversed the TC. support thereof, are not only incompetent for being excluded by operation of R.A. No.
1405. They are likewise irrelevant to the case, inasmuch as they do not appear to
BSB’s theory: The account with Security Bank contains the proceeds of the checks have any logical and reasonable connection to the prosecution of respondent for
that she has fraudulently appropriated to herself and, thus, falls under one of the qualified theft.
exceptions in Section 2 of R.A. No. 1405 that the money kept in said account is the
subject matter in litigation. WHEREFORE, the petition is DENIED.
WON the testimony of Marasigan and the accompanying documents are

violative of the absolutely confidential nature of bank deposits and, hence, RCBC v. Hi-Tri
excluded by operation of RA 1405. YES
G.R. No. 192413/13 June 2012/Second Division/Petition for Review on Certiorari

Rizal Commercial Banking Corporation – petitioner
RATIO: Hi-Tri Development Corporation and Luz R. Bakunawa – respondents
What indeed constitutes the subject matter in litigation in relation to Section 2 of R.A. Decision by J. Sereno, Digest by Pip
No. 1405 has been pointedly and amply addressed in Union Bank of the Philippines v.
Court of Appeals in which the Court noted that the inquiry into bank deposits
allowable under R.A. No. 1405 must be premised on the fact that the money deposited Short Version: (Case was also taken up in Nego [in relation to Section 16 of the
in the account is itself the subject of the action. NIL]—this digest will focus on the exception to the Secrecy of Bank Deposits
Law.) The Bakunawas received a down-payment of about P1M from Teresita, who It was on the basis of this check that the Bakunawas filed a complaint against
wanted to buy six lots from them. When the sale fell through, the Bakunawas Teresita and her agent (one Montemayor) before the RTC of Quezon City. In that
asked that she return the TCTs and accept the return of her down-payment. For complaint they prayed that Teresita be compelled to return the TCTs and receive
this purpose the Bakunawas (through their company Hi-Tri) took out a manager’s the amount of the down-payment. They also asked for moral damages and
check from RCBC covering the amount. Teresita refused and the parties went to attorney’s fees. All throughout the proceedings the check was in the Bakunawas’
court. The case dragged on for over a decade. possession and they refrained from canceling or negotiating it. Teresita was
informed that the check was available for her withdrawal.
Meanwhile, RCBC, pursuant to Act No. 3936 informed the Bureau of Treasury
of unclaimed balances among its deposits, among them the P1M in Hi-Tri’s In January 2003, while the case was pending, RCBC reported the P1M existing
account. The balances became the subject of escheat proceedings. When the in favor of Rosmil to the Bureau of Treasury as among its “unclaimed balances as
Bakunawas finally settled the case with Teresita, they learned of the escheat of 31 January 2003.” This was done without the Bakunawas’ knowledge.
proceedings. The funds were ultimately escheated to the Republic on order of the According to the bank, a copy of the Sworn Statement executed by the Florentino
RTC of Makati. On appeal, the CA ruled that the Bakunawas’ balance should not Mendoza (Manager and Head of RCBC’s Asset Management, Disbursement &
have been included. Sundry Department) was posted within the premises of RCBC-Ermita. In
December 2006, the Republic through the Office of the Solicitor General filed with
The SC affirmed the CA. While RCBC did have a duty under law to inform the the RTC Makati an action for escheat.
Treasury of unclaimed balances, it was also required (through a procedure of
notice that the Court applied strictly) to verify if the accounts were really Meanwhile, the Bakunawas settled their dispute amicably in April 2008 when
unclaimed or abandoned. they agreed to pay Teresita P3M (inclusive of the P1M she had given as down-
payment). When the Bakunawas inquired at RCBC regarding the availability of the
Facts: Luz and her husband Manuel Bakunawa (deceased) were registered P1M covered by the manager’s check, they learned that the amount was already
owners of six parcels of land (two in Quezon City, four in Marikina). The lots were subject to escheat proceedings. Manuel wrote RCBC and asserted that the funds
sequestered by the Presidential Commission on Good Government (PCGG). In could not be taken out of Hi-Tri’s bank account since the check covering them was
1990, one Teresita Millan offered to buy the lots for P6M with the promise that never presented. Manuel pointed out that if the amount covered by the check had
she would take care of clearing “whatever preliminary obstacles there may be to been taken out (as in paid from) Hi-Tri’s bank account, the bank should have
effect a completion of the sale.” Luz and her husband gave Teresita the owner’s notified them through a statement and informed them that the deposit would be
copies of the TCTs and she made a down-payment of a little over P1M. considered dormant absent any fund movement.
For one reason or another, Teresita was not able to clear “said obstacles.” The RCBC replied that the funds covered by the manager’s check no longer formed
Bakunawas rescinded the sale and offered to return her down-payment but part of the bank’s own account since “by simple operation of law” the funds
Teresita refused to accept it. The Bakunawas, through their company Hi-Tri covered became susceptible of inclusion in the escheat case filed by the Republic.
Development Corporation then took out a manager’s check from RCBC-Ermita in RCBC also claimed it had given Hi-Tri notice and that if ever it was duty-bound to
the amount of the down-payment. The check was payable to Teresita’s company, make good the check, its obligation to do so had already prescribed.
Rosmil Realty and Development Corporation.
The RTC of Makati concluded its escheat proceedings in May 2008 and favor of persons known to be dead, or who have not made further deposits or
declared the deposits and credits (including the P1M at issue) escheated to the withdrawals during the preceding ten years or more. The Sworn Statement must
Republic. After their MR was denied, the Bakunawas appealed to the Court of include (among others) the names of the persons in whose favor the unclaimed
Appeals, which court reversed the RTC in November 2009. The CA ruled that balances stand and their addresses. A copy of the Sworn Statement must be
because RCBC had not communicated with Hi-Tri (the purchaser of the M/C) or posted in a conspicuous place in the premises of the bank. Moreover,
Rosmil (the designated payee) prior to filing the Sworn Statement with the immediately before filing the Sworn Statement, the bank must communicate
Bureau of Treasury, Hi-Tri and Rosmil were deprived of the opportunity to with the person in whose favor the unclaimed balance stands at his last
intervene in the escheat proceedings, in violation of their right to due process. known place of residence or post office address.
Issue: Could the allocated funds be escheated in favor of the Republic? NO. The very purpose of communicating with the person with an unclaimed
balance prior to filing the Sworn Statement is to determine whether an
Ruling: Petition denied. inactive account has indeed been unclaimed, abandoned, forgotten, or left
without an owner. If the depositor simply does not wish to touch the funds in the
Ratio: Escheat proceedings refer to the judicial process in which the state, by meantime, but still asserts ownership and dominion over the dormant account,
virtue of its sovereignty, steps in and claims abandoned, left vacant, or unclaimed then the bank is no longer obligated to include the account in its Sworn
property, without there being an interested person having a legal claim thereto. Statement. It is not the intent of the law to force depositors into unnecessary
In the case of dormant accounts, the state inquires into the status, custody, litigation and defense of their rights, as the state is only interested in escheating
and ownership of the unclaimed balance to determine whether the balances that have been abandoned and left without an owner.
inactivity was brought about by the fact of death or absence of or
abandonment by the depositor. If after the proceedings the property remains If the bank complies with the provisions of law and the unclaimed
without a lawful owner interested to claim it, the property shall be reverted to the balances are escheated to the Republic, the bank ceases to be liable for the
state “to forestall an open invitation to self-service by the first comers.” However, same and will be defended by the Solicitor General without cost in the event
if interested parties have come forward and lain claim to the property, the that an action is brought against the bank in relation to the escheated
courts shall determine whether the credit or deposit should pass to the balances (Section 5 of Act No. 3936, as amended). However, if the bank fails to
claimants or be forfeited in favor of the state. Escheat is not a proceeding to comply with the legally outlined procedure, this defense is unavailable to it.
penalize depositors for failing to deposit to or withdraw from their
accounts. It is a proceeding whereby the state compels the surrender to it of RCBC argued that the person it was required to give notice to was Rosmil, not
unclaimed deposit balances when there is substantial ground for a belief Hi-Tri, since taking out the manager’s check and designating Rosmil as the payee
that they have been abandoned, forgotten, or without an owner. worked as an automatic transfer of the funds in Rosmil’s favor. Since it did not
have Rosmil’s address, it could not possibly have given Rosmil notice. The Court
As provided in Section 2 of Act No. 3936 10, the Sworn Statement to the explained (I’m chopping most of it out since this is the Nego part) that the mere
Treasurer of the Philippines shall disclose all credits and deposits held by them in issuance of a manager’s check does not ipso facto work as an automatic transfer
of funds to the account of the payee. Accordingly, it was Hi-Tri that was entitled to
10 “An Act Requiring Banks, Trust Corporations, and Building and Loan Associations, to
notice that the deposit covered by the check had been left inactive for more than
Transfer Unclaimed Balances Held by Them to the Treasurer of the Philippines and for
ten years, and that it may be subjected to escheat proceedings if left unclaimed.
Other Purposes”
final orders of the Court. Since there was no order to deliver the money then PCIB
Voting: Carpio, Brion, Perez, and Reyes, JJ., concur. should not released the money to the sheriff.
5. Garnishment of Deposits, Including Foreign Deposits ISSUES/HELD:

2. WON the PCIB had legal basis in releasing the company’s deposit to the
sheriff. Yes.
3. WON PCIB violated RA 1405, the Secrecy of Bank Deposits Act. No.
PCIB vs. Court of Appeals RATIO:
January 28, 1991 1. De la Rama is not applicable because in that case the judgement debtor was
Ponente: SARMIENTO, J.: able to appeal and obtained an injunction prohibiting execution of the
Flores judgment. In the present case, there is no evidence of the existence of a
restraining order.
SUMMARY:
Garnishment is considered as a specie of attachment for reaching credits
belonging to the judgment debtor and owing to him from a stranger to the
DOCTRINE: litigation. The garnishee is obliged to deliver the credits, etc. to the proper
The law on secrecy of bank deposits cannot be used to preclude the officer and the law exempts the garnishee from liability if such property be
bank deposits from being garnished for the satisfaction of a judgment. delivered or transferred to the clerk, sheriff, or other officer of the court in
There is no violation of R.A. No. 1405 because the disclosure is purely which the action is pending.
incidental to the execution process and it was not the intention of the
legislature to place bank deposits beyond the reach of the judgment 2. It is clear from the discussion of the conference committee report on Senate
creditor. Bill No. 351 and House Bill No. 3977, that the prohibition against examination
of or inquiry into a bank deposit does not preclude its being garnished to
FACTS: insure satisfaction of a judgment. There is no real inquiry in such a case, and
NLRC ordered Marinduque Mining and Industrial Corp. (Company) to pay a group of if existence of the deposit is disclosed the disclosure is purely incidental to
laborers P200k for backwages. NRLC issued a writ of execution. The sheriff went to the execution process. It is not the intention of Congress to enable debtors to
the mining site but nothing seemed to have happened thereat. Thereafter, the Sheriff evade payment of their debts through the expedient of converting their assets
prepared on his own a Notice of Garnishment addressed to 6 banks, one of which is into cash and depositing the same in a bank.
PCIB, directing the banks to issue a check in the name of the sheriff. PCIB debited the
company’s account and issued a check in favor of the sheriff.
The company filed a complaint before the RTC against PCIB and the sheriff alleging Karen Salvacion, minor, thru Federico
that its current deposit with PCIB was levied upon, garnished, and with undue haste
unlawfully allowed to be withdrawn, and notwithstanding the alleged unauthorized Salvacion, father and Natural Guardian,
disclosure of the said current deposit and unlawful release thereof, the latter have
failed and refused to restore its balance. Sps. Federico and Evelina Salvacion v
Both RTC and CA ruled in favor of the company. RTC and CA based their ruling on De Central Bank of the Philippines, China
la Rama vs. Villaros and ruled that the effect of garnishment was to require PCIB to set
aside said amount from the funds of the depositor and keep the same subject to the Banking Corporation and Greg Bartelli
August 21, 1997
Ponente: Torres, Jr., J.
Kitty properly and legally made by virtue of a court order which has placed such
deposits under custodial egis.
SUMMARY: Petitioners won a civil judgment against Greg Bartelli for  Chinabank then invoked Sec. 113 of Central Bank Circular No. 960 to the
damages (for raping Karen Salvacion). A writ of preliminary effect that the dollar deposits of Bartelli are exempt from attachment,
attachment was issued and the Deputy Sheriff served a Notice of garnishment, or any other order or process of any court, legislative body,
Garnishment on Chinabank for the dollar account of Bartelli. government agency or any administrative body, whatsoever.
Chinabank invoked RA No. 1405 on the secrecy of bank deposits and  Counsel of the petitioners made an inquiry with the Central Bank on whether
subsequently, Sec. 114 of CB Circular No. 960 on the exemption of Sec. 113 has any exception or whether the said section had been repealed or
foreign currency deposits from garnishment. SC ruled that the amended since it has rendered nugatory the substantive right of the plaintiff
exemption did not apply to foreign transients to have the claim secured.
 The Central Bank responded in the negative, stating that “the cited provision
DOCTRINE: If the SC ruled that the questioned provision is applicable is absolute in application. It does not admit of any exception, nor has the
to a foreign transient, injustice would result – especially to a citizen same been repealed or amended.”
aggrieved by a foreign guest.  April 10, 1989: The TC granted petitioners’ motion for leave to serve
summons by publication.
 After hearing the case ex-parte, the court rendered judgment in favor of the
FACTS: plaintiffs, awarding moral damages, exemplary damages, attorney’s fees,
 From February 4 to 7, 1989, Greg Bartelli detained Karen Salvacion and litigation expenses, and costs of the suit.
repeatedly raped her until she was rescued by policemen and people living  Notice of the decision was published in the Manila Bulletin once a week for 3
near the apartment where she was detained. consecutive weeks. After the lapse of 15 days from the date of last publication
 February 7, 1989: Bartelli was arrested and the police were able to recover and the decision of the TC had become final, the bank invoked Sec. 113 of
from him a dollar check worth $3903.20, a Cocobank Bank Book (peso Central Bank Circular No. 960.
account), Philippine money worth P234, ID-122-30-8877, door keys, and a  Arguments of the petitioner is that Sec. 113 is unconstitutional on the
teddy bear used to lure Karen. grounds that:
 February 16, 1989: Makati Investigating Fiscal filed a case against Greg o It has taken away the right of petitioners to have the bank deposit
Bartelli for serious illegal detention and 4 counts of rape. garnished, in violation of substantive due process guaranteed by the
 On the same day, petitioners filed with the RTC of Makati a civil case for Constitution
damages with preliminary attachment against Bartelli. o It has given foreign currency depositors an undue favor or class
 February 24, 1989: The day he was scheduled for a hearing on his bail privilege in violation of the equal protection clause
application, Bartelli escaped from jail. o It has provided a safe haven for criminals
 February 28, 1989: The court granted the fiscal’s Urgent Ex-Parte Motion for o The MB has exceeded its delegated quasi-legislative power
the Issuance of Warrant of Arrest and Hold Departure Order. Pending his  Central Bank, on the other hand, alleges that it did not exceed its power or
arrest, the criminal cases were archived. authority because Sec. 113 is a verbatim copy of a portion of RA 6426 as
 Meanwhile, in the Civil case, the Judge issued an order granting the amended by PD 1246. Hence, it was not the MB that granted the exemption
applications of herein petitioners for the issuance of the writ of preliminary but the law itsel. It further averred that the questioned provision is needed to
attachment. promote interest and the general welfare. Respondent Chinabank gave
 March 1, 1989: Deputy Sheriff of Makati served a Notice of Garnishment on similar reasons.
Chinabank. ISSUES/HELD:
 Chinabank invoked RA No. 1405 as its answer to the garnishment. Deputy 4. Can Sec. 113 of the Central Bank Circular No. 960 and Sec. 8 of RA 6426, as
Sheriff sent his reply saying that the garnishment did not violate the secrecy amended by PD 1246, otherwise known as the Foreign Currency Deposit Act,
of bank deposits since the disclosure is merely incidental to the garnishment be made applicable to a foreign transient? NO.
RATIO 23 January 1967

 The court, in its ratio, basically just enumerated the concerned provisions Kaye (Digest No. 84)
and the purpose as to why those laws were passed – to protect foreign
deposits and thereby assure the development and speedy growth of the
Summary: The SolGen filed a quo warranto case for the dissolution of SCAC upon
Foreign Currency Deposit system and the Offshore Banking in the Philippines
(PD 1034) finding that the latter has been performing the functions of a banking institution
o It also mentioned that the PD 1035 created the Foreign Currency without the necessary license and authority under the General Banking Act.
Deposit System to draw deposits from foreign lenders and investors.
 Obviously, foreign currency deposits made by a transient or
a tourist is not the kind of deposit encouraged by PDs 1034
and 1035 and given incentives and protection by said laws Doctrine: Only duly authorized persons and entities may engage in the lending of
because such depositor stays only for a few days in the funds obtained from the public through the receipts of deposits or the sale of bonds,
country and, therefore will only maintain a ddeposit for a securities, or obligations of any kind and all entities regularly conducting operations
short time. shall be considered banking institutions and shall be subject to the provisions of the
 In general, the application of the law depends on the extent of its justice. If General Banking Act.
the SC ruled that the questioned provision is applicable to a foreign transient,
injustice would result – especially to a citizen aggrieved by a foreign guest
like Greg Bartelli.
FACTS:
o Such would negate Art. 10 of the NCC which provides that “in case of
 The Solicitor General filed a petition for quo warranto to dissolve the Security
doubt in the interpretation or application of laws, it is presumed that
the lawmaking body intended right and justice to prevail. When the and Acceptance Corporation, alleging that the latter was engaging in banking
statute is silent or ambiguous, this is one of those fundamental operations without the authority required therefor by the General Banking
solutions that would respond to the vehement urge of conscience. Act (Republic Act No. 337).
DISPOSITIVE  Pursuant to a search warrant issued by MTC Manila, members of Central
 IN VIEW WHEREOF, the provisions of Sec. 113 of the CB Circular No. 960 and Bank intelligence division and Manila police seized documents and records
PD No. 1246, insofar as it amends Sec. 8 of RA 6462 are hereby held to be
relative to the business operations of the corporation. After examination of
INAPPLICABLE to this case because of its peculiar circumstances.
Respondents are hereby REQUIRED to COMPLY with the writ of execution the same, the intelligence division of the Central Bank submitted a memoran-
issued in Civil Case No. 89-3214, “Karen Salvacion et al. v Greg Bartelli y dum to the then Acting Deputy Governor of Central Bank finding that the cor-
Northcott, by Branch CXLIV, RTC Makati and to RELEASE to petitioners the poration is engaged in banking operations.
dollar deposit of respondent Greg Bartelli y Northcott in such amount as  It was found that Security and Acceptance Corporation has been performing
would satisfy the judgment. SO ORDERED. the following acts:
o Receiving deposits from the general public
C. General Banking Law of 2000 (R.A. No. 8791 ) o Lending funds from thos obtained from the public
1. Definition and Classification of Banks o Receiving investments on their shares of stock
 Accordingly, the Solicitor General commenced quo warranto proceedings for
the dissolution of the corporation, with a prayer that, meanwhile, a writ of
Republic of the Philippines vs. Security Credit and Acceptance preliminary injunction be issued ex parte, enjoining the corporation and its
branches, as well as its officers and agents, from performing the banking op -
Corporation
erations complained of, and that a receiver be appointed pendente lite.
o The corporation continued operations despite the commencement of

the quo warranto proceedings and was in fact able to open 74 more
branches and open thousands of savings deposit accounts for its BANAS v. ASIA PACIFIC FINANCE CORP.
clients. October 18, 2000
 Superintendent of Banks of the Central Bank was then appointed by the Belosillo, J.
Supreme Court as receiver pendente lite of defendant corporation. SUMMARY: Dizon Corporation endorsed a promissory note to Asia Pacific Finance Corp. It
 In their defense, Security and Acceptance Corporation averred that the the defaulted in payment and is now alleging that what actually happened was that he was given a
corporation had filed with the Superintendent of Banks an application for loan by Asia Pacific from deposits of public funds, which it is not allowed to do since it is not a
bank. SC found that the documentary evidence shows that what transpired was not a loan from
conversion into a Security Savings and Mortgage Bank.
public funds, only authorized banks can make.
ISSUE: DOCTRINE: Sec. 2 of the General Banking Act provides in part -

1. WON the respondent is a “banking institution” under the General Banking Act (YES)
2. WON the respondent violated the General Banking Act (YES, Court ordered its Sec. 2. Only entities duly authorized by the Monetary Board of the Central Bank may engage in
the lending of funds obtained from the public through the receipt of deposits of any kind, and
dissolution)
all entities regularly conducting such 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
HELD: (underscoring supplied).
1. 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.
 Section 2 of the General Banking Act defines a bank as: FACTS: Teodoro Bañ as executed a Promissory Note in favor of C. G. Dizon Construction
o A moneyed institute founded to facilitate borrowing, lending and whereby he promised to pay to the order of C. G. Dizon Construction P390,000.00 in
safe-keeping of money and to deal in notes, bills of exchange and installments.
credits
Later, C. G. Dizon Construction endorsed with recourse the Promissory Note to ASIA PACIFIC,
 Any person engaged in the business carried on by banks of deposit, of dis-
and to secure payment, C. G. Dizon Construction, through its corporate officers, Cenen Dizon,
count, or of circulation is doing banking business. President, and Juliette B. Dizon, Vice President and Treasurer, executed a Deed of Chattel
 Only duly authorized persons and entities may engage in the lending of funds Mortgage covering three (3) heavy equipment units of Caterpillar Bulldozer Crawler Tractors.
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 op- Dizon Cinstruction was able to pay P130,000.00 but defaulted as to the rest of the amount, and
Dizon Construction was sued for payment. It admitted the genuineness and due execution of
erations shall be considered banking institutions and shall be subject to the the Promissory Note, the Deed of Chattel Mortgage and the Continuing Undertaking, but
provisions of this act xxx (Sec 2, General Banking Act) maintained that these documents were never intended by the parties to be legal, valid and
binding but a mere subterfuge to conceal the loan of P390,000.00 with usurious interests.
2. 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 They claimed that since ASIA PACIFIC could not directly engage in banking business, it
proposed to them a scheme wherein plaintiff ASIA PACIFIC could extend a loan to them without
and franchise affects the essence of its business, that it is willful and has been violating banking laws: first, Cenen Dizon would secure a promissory note from Teodoro Bañ as
repeated 59,463 times, and that its continuance inflicts injury upon the public, owing with a face value of P390,000.00 payable in installments; second, ASIA PACIFIC would then
to the number of persons affected thereby. make it appear that the promissory note was sold to it by Cenen Dizon with the 14% usurious
interest on the loan or P54,000.00 discounted and collected in advance by ASIA PACIFIC; and,
2. Distinction of Banks from Quasi-Banks and Trust Entities lastly, Cenen Dizon would provide sufficient collateral to answer for the loan in case of default
in payment and execute a continuing guaranty to assure continuous and prompt payment of the SO ORDERED.
loan. They also alleged that there was an agreement that the delivery of the tractors were to be
sufficient payment of the debt.
First Planters Pawnshop, Inc. vs. Commissioner of Internal Revenue, G.R.
No. 1 741 34, July 30, 2008
Both TC and CA ruled in favor of Asia Pacific.
ISSUE: Whether the disputed transaction between petitioners and ASIA PACIFIC violated
banking laws, hence, null and void- NO 3. Bank Powers and Liabilities
a. Corporate Powers
RATIO:
An investment company refers to any issuer which is or holds itself out as being engaged or Register of Deeds of Manila, petitioner-
proposes to engage primarily in the business of investing, reinvesting or trading in securities.
As defined in Sec. 2, par. (a), of the Revised Securities Act, securities "shall include x x x x appellee v China Banking Corporation,
commercial papers evidencing indebtedness of any person, financial or non-financial entity,
irrespective of maturity, issued, endorsed, sold, transferred or in any manner conveyed to
another with or without recourse, such as promissory notes x x x x" Clearly, the transaction was
respondent-appellant
one involving not a loan but purchase of receivables at a discount, within the purview of April 28, 1962
"investing, reinvesting or trading in securities" which an investment company, like ASIA
PACIFIC, is authorized to perform and does not constitute a violation of the General Banking Dizon, J.
Act.
Digest by Ces
Moreover, Sec. 2 of the General Banking Act provides in part -
Sec. 2. Only entities duly authorized by the Monetary Board of the Central Bank may engage in Short version: Pangilinan, through a “Deed of Transfer”, ceded and transferred a par-
the lending of funds obtained from the public through the receipt of deposits of any kind, and cel of land to Chinabank, in order to answer for his civil liability in a qualified theft
all entities regularly conducting such operations shall be considered as banking institutions and charge. The Land Registration Commission however held that the Deed of Transfer
shall be subject to the provisions of this Act, of the Central Bank Act, and of other pertinent laws was unregistrable because it was in favor of an alien bank and thus, it would violate
(underscoring supplied). the Constitution. The SC affirmed the Land Registration Commission’s decision.
What is prohibited for investment companies to lend funds obtained from the public through
receipts of deposit, which is a function of banking institutions. But here, the funds supposedly It held that the bank could hold property transferred to it in satisfaction of debts pre-
"lent" to petitioners have not been shown to have been obtained from the public by way of
viously contracted in course of business. In this case, it was transferred to it in satis-
deposits, hence, the inapplicability of banking laws.
faction of civil liability arising from crime. This is not the “debt” referred to in law.
Thus, Chinabank could not have this particular property transferred to it
DISPOSITIVE: WHEREFORE, no reversible error having been committed by the Court of
Appeals, its assailed Decision of 24 July 1996 and its Resolution of 21 March 1997 are
AFFIRMED. Accordingly, petitioners C.G. Construction Inc. and Cenen Dizon are ordered jointly
and severally to pay respondent Asia Pacific Finance Corporation, substituted by International Facts:
Corporate Bank (now known as Union Bank of the Philippines), P87,637.50 representing the
unpaid balance on the Promissory Note, with interest at fourteen percent (14%) per annum
 Appeal from a resolution of the Land Registration Commission holding "that
computed from 20 March 1981 until fully paid, and fifteen percent (15%) of the principal
obligation and interests due by way of attorney's fees. Costs against petitioners.
the deed of transfer in favor of an alien bank, subject of the present Consulta,
is unregisterable for being in contravention of the Constitution of the Philip- for the specific purposes and in the particular cases enumerated, this case
pines". does not fall under such provision.
 On June 16, 1953, Alfonso Pangilinan and Guillermo Chua were charged in the
CFI of Manila with qualified theft of money amounting to P275,000.00. 3) Paragraph (c), Section 25 of Republic Act 337 allows a commercial bank to
purchase and hold such real estate as shall be conveyed to it in satisfaction of
 Pangilinan and his wife, Belen Sta. Ana, executed a public instrument entitled debts previously contracted in the course of its dealings. “Debts” in this provi-
DEED OF TRANSFER whereby, after admitting his civil liability in favor of his sion are only those resulting from previous loans and other similar transac-
employer, the China Banking Corporation, in relation to the qualified theft 11, tions made or entered into by a commercial bank in the ordinary course of its
he ceded and transferred to Chinabank, in satisfaction thereof, a parcel of business as such. Whatever civil liability arising from the criminal offense—
land in the City of Manila, registered in the name of "Belen Sta. Ana, married arising from the criminal offense of qualified theft — was not a debt resulting
to Alfonso Pangilinan". from a loan or a similar transaction had between the two parties in the ordi-
nary course of banking business.
 The deed was presented for registration to the Register of Deeds of the City of
Manila, but because Chinabank was alien-owned and, as such, barred from ac-
4) Paragraph (d) also does not apply because the deed of transfer in question
quiring lands in the Philippines, in accordance with the provisions of Section
can in no sense be considered as a sale made by virtue of a judgment, decree,
5, Article XIII of the Constitution of the Philippines, the issue was referred
mortgage, or trust deed held by the bank.
 The Land Registration Commission held "that the deed of transfer in favor of 5) It also cannot be said that the real property was purchased by Chinabank "to
an alien bank, subject of the present Consulta, is unregisterable for being in secure debts due to it", considering that the term debt can logically refer only
contravention of the Constitution of the Philippines". to such debts as may become payable to appellant bank as a result of a bank-
ing transaction.
 Chinabank appealed to the SC.
o It argues that an alien-owned bank can temporarily hold the land

subject to the obligation of disposing it within 5 years from the date
12 SEC. 25. Any commercial bank may purchase, hold, and convey real estate for the
of acquisition.
following purposes:
xxx xxx xxx
Issue: WON an alien-owned bank can acquire ownership of the property by virtue of
the deed of transfer. NO (c) Such shall be conveyed to it in satisfaction of debts previously contracted in the course
of its dealings; .
Ratio: (d) Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds
1) Chinabank relied on Section 25 of Republic Act No. 33712. held by it and such as it shall purchase to secure debts due to it.
2) However, even assuming that Section 25 allows any commercial bank, But no such bank shall hold the possession of any real estate under mortgage or trust
whether alien-owned or controlled or not, to purchase and hold real estate deed, or the title and possession of any real estate purchased to secure any debt due to it,
for a longer period than five years.
11 The case didn’t explicitly state how it was related to the theft. Maybe he was a an
employee and he stole from the bank?
6) Chinabank claims that the Consitutional provision should be liberally con-

strued so that the prohibition be limited to the permanent acquisition of real
estate by aliens.
7) However, the Constitution is absolute in its terms.
Decision affirmed. Facts
After evaluating the financial statements of JAPRL Development Corporation (JAPRL)

for fiscal years 1998-2000, Banco de Oro-EPCI, Inc. extended credit facilities to it
amounting to P230M. Rapid Forming Corporation (RFC) and Jose U. Arollado acted as
JAPRL's sureties.
BANCO DE ORO-EPCI, INC.vs. JAPRL Despite its seemingly strong financial position, JAPRL defaulted in the payment of four
DEVELOPMENT CORPORATION, RAPID trust receipts soon after the approval of its loan. It was later discovered that that
JAPRL had altered and falsified its financial statements. It allegedly bloated its sales
FORMING CORPORATION and JOSE U. revenues to post a big income from operations for the concerned fiscal years to
project itself as a viable investment. BDO thus demanded immediate payment of
AROLLADO JAPRL's obligations amounting to P194.5M
14 April 2008
Spec Pro Case (Rehabilitation)
J. Corona
Summary: BDO loaned money to JAPRL, with Arollado and RFC as sureties
but later discovered that JAPRL was falsifying JAPRL filed a petition for rehabilitation, disclosing that it had been experiencing a
Paula their financial statements so decline in sales for the three preceding years and a staggering loss in 2002. A stay
BDO demanded the balance of the loan. JAPRL later submitted a petition for
rehabilitation and a stay order was issued enjoining all claims against it. SC order was thus issued but the proposed rehabilitation plan was rejected.
held that BDO may go after Arollado and recover from JAPRL and RFC if
fraud was proven to have been committed with respect to JAPRL’s financial
statements. . BDO would be entitled to immediate payment of P194.5M and Civil Case (complaint for sum of money)
damages.
BDO filed a complaint for sum of money with an application for the issuance of a writ
of preliminary attachment against respondents in the RTC Makat where BDO asserted
JAPRL was guilty of fraud for altering and falsifying its financial statements. RTC
Doctrine: Under Sec. 40 of the General Banking Law, banks have the right
denied the writ but issued summons for respondents who failed to show up.
to annul any credit accommodation or loan, and demand the immediate
payment thereof, from borrowers proven to be guilty of fraud.
Banks therefore redistribute wealth in the economy by channeling idle savings to

profitable investments.
RTC SEC case (rehabilitation case)
JAPRL filed for petition for rehabilitation in RTC Laguna who issued a stay order.
JAPRL then moved to suspend the civil case pending in RTC Makati. In this case, BDO alleged that JAPRL fraudulently altered and falsified its financial
statements in order to obtain its credit facilities. Considering the amount of BDO's
exposure in JAPRL, justice and fairness dictate that the Makati RTC hear whether or
not respondents indeed committed fraud in securing the credit accommodation.
RTC Makati granted the motion but ordered that Arollado, as surety, should file an
answer.
A finding of fraud will change the whole picture. In this event, BDO can use the finding
of fraud to move for the dismissal of the rehabilitation case in the Calamba RTC. The
Respondents filed certiorari with CA, alleging Makati RTC did not acquire jurisdiction
protective remedy of rehabilitation was never intended to be a refuge of a debtor
over their persons due to defective service of summons (summons merely served on
guilty of fraud.
their admin assistant). CA granted motion.
Meanwhile, RTC Makati should proceed to hear civil case against three respondents
Issue: WON BDO may recover from respondents despite the stay order. YES.
guided by Sec. 40 of General Banking Law:
Ratio
Section 40. Requirement for Grant of Loans or Other Credit Accommodations. Before granting a
loan or other credit accommodation, a bank must ascertain that the debtor is capable of fulfilling
his commitments to the bank.
Under the Interim Rules of Procedure on Corporate Rehabilitation, a stay order defers
all actions or claims against the corporation seeking rehabilitation from the date of its
issuance until the dismissal of the petition or termination of the rehabilitation Towards this end, a bank may demand from its credit applicants a statement of their assets and
proceedings. Thus, in light of the stay order issued in favor of JAPRL and RFC, RTC liabilities and of their income and expenditures and such information as may be prescribed by law
Makati may only proceed to hear the civil case against Arollado IF there is no ground or by rules and regulations of the Monetary Board to enable the bank to properly evaluate the
to go after JAPRL and RFC. A creditor can demand payment from the surety solidarily credit application which includes the corresponding financial statements submitted for taxation
purposes to the Bureau of Internal Revenue. Should such statements prove to be false or incorrect
liable with the corporation seeking rehabilitation.
in any material detail, the bank may terminate any loan or credit accommodation granted on the
basis of said statements and shall have the right to demand immediate repayment or liquidation
of the obligation.
Banks are entities engaged in the lending of funds obtained through deposits from the
public. They borrow the public's excess money (i.e., deposits) and lend out the same.
In formulating the rules and regulations under this Section, the Monetary Board shall recognize documents together, it can be seen that she entered into an investment
the peculiar characteristics of microfinancing, such as cash flow-based lending to the basic sectors management agreement with the bank, which was valid under Sec. 72
that are not covered by traditional collateral. of the General Banking Act of 1948.
DOCTRINE:
An investment management agreement, which created a principal-
Under this provision, banks have the right to annul any credit accommodation or loan, agent relationship between petitioners as principals and respondent
and demand the immediate payment thereof, from borrowers proven to be guilty of as agent for investment purposes, is not a trust or an ordinary bank
fraud. BDO would be entitled to immediate payment of P194.5M and damages. deposit; hence, no trustor-trustee-beneficiary or even borrower-lender
relationship existed. Banks may legally exercise investment
management activities but the Monetary Board may regulate such
operations to insure that said operations do not endanger the interests
Finally, considering that respondents failed to pay the four trust receipts, the Makati of the depositors and other creditors of the banks.
City Prosecutor should investigate whether or not there is probable cause to indict
respondents for violation of Section 13 of the Trust Receipts Law. FACTS:
Amalia Panlilio went to Citibank and deposited P1M in a “Citihi” account, a fixed term
b. Banking and Incidental Powers savings account with higher than average interest. She initially intended to invest the
money in a Citibank Product, PRPN (Peso Repriceble Promissory Note, which had a
Sps. Panlilio v Citibank NA higher interest), but this was unavailable that day, hence she put it in the Citihi
Account.
28 Nov 2007
Ponente: Austria-Martinez, J. More than a month later, Panlilio phoned Citibank, saying she wanted to place another
Krys investment worth P3M. She spoke to Lee, a bank employee, on the phone and
apparently decided on where to invest the money. She visited Citibank and instructed
SUMMARY: Amalia Panlilio placed a P3M investment thru Citibank. Lee on where to invest the P3M. Later, she learned that P2.1M was placed by Citibank
She instructed an employee on where to place the money, and it was in a LTCP13 (Long-Term Commercial Paper, a debt instrument paying a high interest)
invested mostly in a LTCP issued by C&P Homes. On the day she made issued by Camella and Palmera Homes (C&P Homes). The rest were placed in 2 PRPN
the investment, Panlilio signed several documents, namely the DIMA, accounts, in trust for Panlilio’s 2 children.
TIA, and Directional letter/Specific Instructions where it was made
clear that Citibank had no obligation to guarantee the principal and On the day she made the P3M investment, Panlilio signed the ff. documents:
interest of the investment in the absence of fraud or negligence on its 1. DIMA (Directional Investment Management Agreement)
part. Months later, she wanted to withdraw the investment, but 2. TIA (Term Investment Application); and
Citibank told her it’s not possible since it hasn’t reached maturity yet. 3. Directional Letter/Specific Instructions
She sent demand letters to no avail, so she filed a complaint for sum of
money and damages, claiming that she didn’t instruct Citibank to
invest her money in a LTCP and that she isn’t bound by the terms and
conditions of the documents she signed. 13 An LTCP is an evidence of indebtedness, with a maturity period of more than 365 days,
issued by a corporation to any person or entity. It is in effect a loan obtained by a corporation
SC ruled that Panlilio is bound by the documents she signed, and (as borrower) from the investing public (as lender) and is one of many instruments that
Citibank cannot be made liable for her bad investment. Reading the investment banks can legally buy on behalf of their clients, upon the latter's express
instructions, for investment purposes. LTCPs' attraction is that they usually have higher yields
than most investment instruments. In the case of the LTCP issued by C&P Homes, the gross
interest rate was 16.25% per annum at the time Amalia made her investment.
The key features of the DIMA and the Directional Letter are provisions that clear Petitioners contend that they are not bound by the DIMA, Directional Letter and COIs
Citibank of any obligation to guarantee the principal and interest of the investment, because they are inconsistent with the TIA and other documents they signed. They
absent any fraud and negligence on its part. The provisions also state that all risks are claim that they did not instruct Citibank to invest the money in a LTCP or to put
assumed by the investor. money in such a high-risk Long Term Investment.
Following this investment, respondent claims to have regularly sent confirmations of ISSUES/HELD:
investment (COIs) to the Panlilios, informing the customer of the investment earlier 5. WON the Panlilios are bound by the terms and conditions of the DIMA, TIA,
made with the bank. Directional Letter/Specific Instructions, and Confirmations of Investment.
6. WON Citibank is obliged to return the money upon demand prior to maturity.
Subsequently, after newspaper reports came out the C&P Homes’ stock had plunged
in value, Panlilio went to Citibank and met with another employee to preterminate the
LTCP, but were told that the liquidation could only be made if there is a willing buyer. DISPOSITIVE: Petition DENIED.
Still, petitioner signed Sales Order slips to sell the LTCP and left these with the CA decision AFFIRMED.
employee.
RATIO:
Thereafter, Panlilio sent three demand letters for the withdrawal of her investment,
but was informed that the investment would mature 5 years later and that despite ON ISSUE 1: Panlilios are bound by the terms and conditions of the documents they
efforts to sell it, there were no willing buyers, and even if buyers would come later, signed.
the price would be lower than the original investment.
1. The documents (DIMA, Directional Letter and COI) are evidence of the contract
Panlilio filed a complaint with RTC for a sum of money and damages, demanding a between the parties and are binding on them, in accordance with Art. 1159 of the Civil
return of the investment, alleging that: Code. Panlilio affixed her signatures on the DIMA, which evidences her consent
 Panlilio never instructed Lee to invest the money in an LTCP, but merely in a thereon.
“trust account” with an interest of around 16.25% with a term of 91 days.
 It was only much later, after the first COI was sent that she learned of Lee’s In examining the documents, it can be seen that they generally extricate Citibank from
infidelity to her orders. She thereafter called Lee, but was convinced by Lee liability in case the investment is lost. Accordingly, petitioners assumed all risks and
that the investment was secure since it was an Ayala Company and that it the task of collecting from the borrower/issuer of C&P Homes.
could easily be withdrawn.
 When they wanted to “withdraw” the money to buy a house, they were The DIMA, Directional Letter, TIA and COIs, read together, establish the agreement
informed that LTCP had not yet matured and there were no willing buyers between the parties as an investment management agreement, which created a
principal-agent relationship between petitioners as principals and respondent as
RTC ordered Citibank to pay the sum of money sought + damages, upholding Panlilio’s agent for investment purposes.
allegations. Citibank appeled.  The agreement is not a trust or an ordinary bank deposit; hence, no trustor-
trustee-beneficiary or even borrower-lender relationship existed between
CA reversed RTC decision and ruled that the account deposited by Panlilio was an petitioners and respondent with respect to the DIMA account.
investment management account; as a result, the money invested was the sole and  Respondent purchased the LTCPs only as agent of petitioners; thus, the latter
exclusive obligation of C&P Homes, the issuer of the LTCP, and was not guaranteed or assumed all obligations or inherent risks entailed by the transaction under
insured by Citibank. It ruled that Panlilio opened the account thru the DIMA, TIA, and Article 191014 of the Civil Code.
the Directional letter, and gave no credence to Panlilio’s arguments that she failed to
understand the true nature of the investment and failed to read the fine print in the 14 Article 1910. The principal must comply with all the obligations which the agent
docs. may have contracted within the scope of his authority.
1. It is clear that since the money is committed to C&P Homes via LTCP for five years,
2. This transaction is perfectly legal since investment management activities may be or until 2003, petitioners may not seek its recovery from respondent prior to the
exercised by a banking institution, pursuant to Sec.72 15 RA 337 (General Banking Act lapse of this period. Petitioners must wait and meanwhile just be content with
of 1948) which was the law then in effect, while Sec. 74 prohibits banks from receiving their interest regularly. If petitioners want the immediate return of their
guaranteeing obligations of any person. investment before the maturity date, their only way is to find a willing buyer to
purchase the LTCP at an agreed price, or to go directly against the issuer C&P Homes,
Nothing also taints the legality of the LTCP bought in behalf of the petitioners since not against the respondent.
C&P Homes’ LTCP was duly registered with the SEC while the issuer was accredited
with Philippine Trust Committee. Having bound themselves under the contract as earlier discussed, petitioners are
governed by its provisions. Petitioners as principals in an agency relationship are
3. Contrary to the Panlilios’ claims, it is improbable that someone fairly educated and solely obliged to observe the solemnity of the transaction entered into by the agent on
with investment experience would sign a document in blank or without reading it their behalf, absent any proof that the latter acted beyond its authority.
first. Panlilio even admitted that it was not her habit to sign in blank and that the
contents of the documents were explained to her before she signed.
4. Diligence Required of Banks—Relevant Jurisprudence
ISSUE 2: Petitioners may not seek a return of their investment directly from respondent
at or prior to maturity
Simex International (Manila) Inc. vs. Court of Appeals, 1 83 SCRA 360 (1
990)
As for any obligation wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly. Luzan Sia vs CA
(1993) Digest by: MJVBRIGOLA
15 Sec. 72. In addition to the operations specifically authorized elsewhere in this SUMMARY: Sia leased a deposit box from Security bank to put her
Act, banking institutions other than building and loan associations may perform the stamp collection. Floods ruined the stamp collection inside the deposit
following services: box. Sia wants compensation for the damage but Security Bank refuses
(a) Receive in custody funds, documents, and valuable objects, and rent safety claiming that under their contract, its liability is limited to preventing
deposit boxes for the safeguarding of such effects; others from opening the box. Also, it avers that the floods are
(b) Act as financial agent and buy and sell, by order of and for the account of considered fortuitous event. SC held that there was negligence on the
their customers, shares, evidences of indebtedness and all types of securities; part of the bank (failed to notify SIA regarding the floods) hence it
(c) Make collections and payments for the account of others and perform such other must be liable.
services for their customers as are not incompatible with banking business.
(d) Upon prior approval of the Monetary Board, act as managing agent, adviser, DOCTRINE: In the absence of any stipulation, the depositary’s
consultant or administrator of investment management/ advisory/consultancy responsibility for the safekeeping of the objects deposited would
accounts. required the diligence of a good father of a family. Hence, any
The banks shall perform the services permitted under subsections (a), stipulation exempting the depositary from any liability arising from
(b) and (c) of this section as depositories or as agents. Accordingly, they shall the loss of the things deposited on account of fraud, negligence or
keep the funds, securities and other effects which they thus receive duly delay would be void for being contrary to law and public policy. The
separated and apart from the bank's own assets and liabilities. bank’s negligence in failing to notify the depositor aggravated the
The Monetary Board may regulate the operations authorized by this iinjury or damage to the stamp collection which was inundated by
section in order to insure that said operations do not endanger the interests of floodwaters, thus the bank should be held liable.
the depositors and other creditors of the banks.
The bank has no interest whatsoever in said contents, except as herein expressly
FACTS: The plaintiff LUZAN SIA rented on March 22, 1985 the Safety Deposit Box No. provided, and ita ssumes absolutely no liability in connection therewith." are void as
54 of the defendant Security Bank (SBTC) at its Binondo Branch wherein he placed his they are contrary to law and public policy. Public respondent further postulates that
collection of stamps. The said safety deposit box leased by the plaintiff SIA was at the SBTC cannot be held responsible for the destruction or loss of thestamp collection
bottom or at the lowest level of the safety deposit boxes of the defendant bank. because the flooding was a fortuitous event and there was no showing of SBTC's
participationin the aggravation of the loss or injury. Both the law and authority cited
During the floods that took place, floodwater entered into the defendant bank's are clear enough and require no further elucidation. Unfortunately, however, the
premises, seeped into the safety deposit box leased by the plaintiff and caused, public respondent failed to consider that in the instant case, as correctly held by the
according to the plaintiff, damage to his stamps collection. Defendant bank failed to trial court, SBTC was guilty of negligence. thus comes to the succor of the petitioner.
notify the plaintiff. The destruction or loss of the stamp collection which was, in the language of the trial
court, the "product of 27 years of patience and diligence" caused the petitioner
The defendant bank rejected the plaintiff's claim for compensation for his damaged pecuniary loss; hence, he must be compensated therefor.
stamps collection, It argued that based on their contract, the liability of the bank is
limited to the exercise of diligence to prevent the opening of the Safe by any person
other than the renter. Also, the cause of damage was a fortuitous event
so, the plaintiff instituted an action for damages against the defendant bank.
RTC; favored plaintiff. Also, it ruled that the lease agreement was a contract of
adhesion construed against the bank.
CA: favored the defendant bank. The lliability provision in the least agreement is valid
and not contrary to law, morals, good customs, public order and public plicy. Consolidated Bank and Trust Corp. v.
ISSUES/HELD: Whether or not bank can be made liable? (YES) CA + LC Diaz and Company (2003) /
RATIO: A contract of deposit may be entered into orally or in writing (Art. 1969, Civil Carpio
Code] and, pursuant to Article 1306of the Civil Code, the parties thereto may establish
such stipulations, clauses, terms and conditions as they may deem convenient, Facts
LC Diaz [professional partnership engaged in accounting] opened a savings account with Solidbank. LC
provided they are not contrary to law, morals, good customs, public order or public Diaz's cashier, Macaraya, filled up two savings deposit slips, and she gave them + passbook to messenger
policy. Accordingly, the depositary would be liable if, in performing its obligation, it is Calapre and instructed him to deposit the money with Solidbank. Calapre presented the deposit slips and
found guilty of fraud, negligence, delay or contravention of the tenor of the agreement passbook to the teller. He left the passbook with Solidbank first as he had to make another deposit at Allied
[Art. 1170]. Bank, but when he returned, he was informed that somebody got the passbook. Calapre reported this to
Macaraya. Macaraya + Calapre went back to Solidbank with a deposit slip [P200k check]. When Macaraya
asked about the passbook, the teller said that someone shorter than Calapre got it. Macaraya reported this
In the absence of anystipulation prescribing the degree of diligence required, that of a matter.
good father of a family is to be observed [Art.1173] Hence, any stipulation exempting The following day, CEO Diaz called Solidbank to stop any transaction using the passbook until the
the depositary from any liability arising from the loss of the thing deposited on company could open a new account. It was found out that learned that P300k was withdrawn from the
account the previous day. The withdrawal slip bore the signatures of two authorized signatories of LC Diaz
account of fraud, negligence or delay would be void for being contrary to law and but they denied signing it. Noel Tamayo received this sum of money.
public policy. An information for Estafa through Falsification of Commercial Document was filed against one of
their messengers (Ilagan) and one Roscoe Verdazola (first time they appeared in the case discussion), but the
In the instant case, petitioner maintains that conditions 13 and l4 of the questioned RTC dismissed the criminal case. LC Diaz demanded the return of their money from Solidbank, but the
latter refused and a complaint for recovery of a sum of money was filed against them. However, Solidbank
contract of lease of the safetydeposit box, which read:"13. The bank is a depositary of was absolved.
the contents of the safe and it has neither the possession nor control of thesame."14.
RTC applied rules on savings account written on the passbook ["Possession of this book shall raise the SC DOES NOT APPLY IT HERE. Solidbank is liable for breach of contract due to negligence in
presumption of ownership and any payment or payments made by the bank upon the production of the the performance of its contractual obligation to LC Diaz. This is a case of culpa contractual, where neither
said book and entry therein of the withdrawal shall have the same effect as if made to the depositor the contributory negligence of the plaintiff nor his last clear chance to avoid the loss, would exonerate
personally."] RTC said that the burden of proof shifted to LC Diaz to prove that the signatures are not the defendant from liability. Since LC Diaz was guilty of contributory negligence, Solidbank's liability should
forged. Also, they applied the rule that the holder of the passport is presumed to be the owner. It was also be reduced.
held that Solidbank did not have any participation in the custody and care of the passbook and as such,
their act of allowing the withdrawal was not the proximate cause of the loss. The proximate cause was LC
Diaz’ negligence. As regards the contention that LC Diaz and Solidbank had precautionary procedures ( like
a secret handshake of sorts) whenever the former withdrew a large sum, RTC pointed out that LC Diaz
disregarded this in the past withdrawal.
CA, on the other hand, said that the proximate cause of the unauthorized withdrawal is Solidbank's
negligence, applying NCC 2176. CA said the 3 elements of QD are present [damages; fault or negligence;
connection of cause and effect]. The teller could have called up LC Diaz since the amount being drawn was
significant. Proximate cause is teller's failure to call LC Diaz. CA ruled that while LC Diaz was negligent in
CITIBANK VS. THE CABAMONGANS
entrusting its deposits to its messenger and its messenger in leaving the passbook with the teller, Solidbank
could not escape liability because of the doctrine of last clear chance. May 2, 2006
ISSUE: WON SOLIDBANK IS LIABLE. YES
Austria-Martinez, J.
RATIO
On Solidbank's fiduciary duty under the law Luisa
SC says that Solidbank is liable for breach of K due to negligence [culpa contractual]. K [savings deposit
agreement] between bank and depositor governed by provisions on simple loan; bank is the debtor and
depositor is the creditor. Banks are under obligation to treat accounts of depositors with meticulous care
[higher than diligence of a good father of a family standard], bearing in mind the fiduciary nature of their
SUMMARY: Spouses Luis and Carmelita Cabamongan opened a joint foreign currency
relationship. The bank's obligation to observe high standards of integrity and performance is deemed time deposit at Citibank Makati. Prior to maturity, a person claiming to be Carmelita
written in every deposit agreement. However, this nature does not convert K from a simple loan to a trust went to Citibank and preterminated the deposit. It was found out later on that
agreement (failure by bank to pay depositor is failure to pay a simple loan only).
Carmelita was in California at that time and that documents were stolen from her
Solidbank's breach of K-tual obligation California house days back. The Cabamongans demanded for the payment of the
For breach of the savings deposit agreement due to negligence, or culpa contractual, the bank is liable to
its depositor. When the passbook is in the possession of Solidbank’s tellers during withdrawals, the law deposit, Citibank refused. Cabamongans filed a complaint for sum of money. RTC, CA
imposes an even higher degree of diligence. Likewise, tellers must exercise a high degree of diligence in and SC ruled for the Cabamongans. Citibank was grossly negligent. Their gross
insuring that they return the passbook only to the depositor or authorized representative.
In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the
negligence in fact amounts to bad faith which entitles the spouses to moral damages.
defendant was at fault or negligent. The burden is on the defendant to prove that he was not at fault
or negligent. In culpa aquiliana, the plaintiff has the burden of proof. Solidbank failed to discharge this
burden, after LC Diaz establishing the breach of K-tual obligation. Hence, Solidbank is bound by the
DOCTRINE: (From sir’s outline) Allowing the pretermination of the account despite
negligence of its employees. The defense of exercising required diligence in selecting, supervising noticing discrepancies in the signature and photograph of the person claiming to be
employees is NOT a complete defense in culpa contractual, unlike in culpa aquiliana. the depositor, accompanied by the failure to surrender the original certificate of time
Proximate cause of unauthorized withdrawal deposit, amounted to negligence on the part of the bank. A bank that fails to exercise
Solidbank’s negligence in not returning the passbook to Calapre was the proximate cause. the degree of diligence required of it becomes liable for damages.
RTC said that LC Diaz’ negligence was the proximate cause. However, SC says LC Diaz was not at fault
that the passbook landed in the hands of the impostor. In fact, it was in the possession of the bank while the
deposit was being processed. CA said that teller's failure to call LC Diaz was the proximate cause. SC says FACTS
the bank did not have the duty to call LC Diaz to confirm withdrawal.
Doctrine of last clear chance Spouses Luis and Carmelita Cabamongan opened a joint foreign currency
"Where both parties are negligent but the negligent act of one is appreciably later than that of the other, or
where it is impossible to determine whose fault or negligence caused the loss, the one who had the last time deposit in trust for their sons Luis, Jr. and Lito at Citibank Makati for a term of
clear opportunity to avoid the loss but failed to do so, is chargeable with the loss." 182 days.
Prior to maturity, a person claiming to be Carmelita went to the Makati Subsequently, the spouses made a formal demand upon Citibank for the
branch and pre-terminated the said foreign currency time deposit by presenting a payment of the preterminated deposit. Citibank refused to pay asserting that the
passport, a Bank of America Versatele Card, an ATM card and a Mabuhay Credit deposit was released to them after proper idenitification and verification.
Card. She filled up the necessary forms for pre-termination of deposits with the
assistance of Account Officer Yeye San Pedro. While the transaction was being The Cabamongan spouses filed a complaint against Citibank for Specific
processed, she was casually interviewed by San Pedro about her personal Performance with Damages
circumstances and investment plans. San Pedro noticed that the signature on file was
of a different stroke in one letter from the signature on the termination forms filled RTC ruled in favor of the spouses. They ruled that the bank was negligent. It
out. So she asked the person to sign again. San Pedro also noticed that the person in was found out, through the testimony of a handwriting expert, that the signatures
front of her did not resemble the appearance of the picture on file but she said that were forgeries. CA sustained the RTC.
both the picture and the person had a mole so she concluded that they were one and
the same. Since the said person failed to surrender the original Certificate of Deposit, ISSUE:
she had to execute a notarized release and waiver document in favor of Citibank,
pursuant to Citibank's internal procedure, before the money was released to her. The 1. WON CITIBANK WAS NEGLIGENT – YES
release and waiver document was not notarized on that same day but the money was 2. WON CITIBANK IS LIABLE FOR MORAL DAMAGES – YES
nonetheless given to the person withdrawing. The transaction lasted for about 40
minutes. WON CITIBANK WAS NEGLIGENT – YES
After said person left, San Pedro realized that she left behind an identification The banking business is impressed with public interest, of paramount
card. So San Pedro called up the listed address in the account. Marites, the wife of importance thereto is the trust and confidence of the public in general. Consequently,
Carmelita’s son, picked the call up and was shocked to hear of the pretermination the highest degree of diligence is expected, and high standards of integrity and
because Luis and Carmelita were at that time working and residing in California. performance are even required, of it. By the nature of its functions, a bank is "under
obligation to treat the accounts of its depositors with meticulous care, always having
The Cabamongan spouses were shocked when they heard of what happened. in mind the fiduciary nature of their relationship."
It turned out that sometime ago an unidentified person broke in their house. They
initially reported missing only Carmelita’s jewelry box but it was not until they were In this case, it has been sufficiently shown that the signatures of Carmelita in
informed about the incident in Citibank that they realized that their passports and the forms for pretermination of deposits are forgeries. Citibank, with its signature
bank deposit certificates were also lost. verification procedure, failed to detect the forgery. Moreover, Citibank failed to notice
that there was a difference in the photograph on file and of the person who is claiming
The Cabamongan spouses informed Citibank through overseas calls that they to be the owner of the account. Even the waiver document was not notarized, a
could not have been the ones who preterminated the account because they were in procedure meant to protect the bank.
California. The bank, through officer San Pedro, told the spouses to submit the
necessary documents to support their claim but Citibank concluded nonetheless that Its negligence consisted in the omission of that degree of diligence required
Carmelita indeed preterminated her deposit. of banks. A bank is "bound to know the signatures of its customers; and if it pays a
forged check, it must be considered as making the payment out of its own funds, and
cannot ordinarily charge the amount so paid to the account of the depositor whose
name was forged.
PNB v. Rodriguez
Citibank cannot label its negligence as mere mistake or human error. Banks September 26,2008
handle daily transactions involving millions of pesos. By the very nature of their Ponente: Reyes, R.T., J.
Sai Bautista
works the degree of responsibility, care and trustworthiness expected of their
employees and officials is far greater than those of ordinary clerks and employees. SUMMARY:
Banks are expected to exercise the highest degree of diligence in the selection and PEMSLA regularly granted loans to its members. Spouses Rodriguez
supervision of their employees. would rediscount the postdated checks issued to members whenever
the association was short of funds. The spouses would replace the
For not observing the degree of diligence required of banking institutions, postdated checks with their own checks issued in the name of the
whose business is impressed with public interest, Citibank is liable for damages. members.To subvert the policy of PEMSLA not to approve applications
for loans of members with outstanding debts, some PEMSLA officers
WON CITIBANK IS LIABLE FOR MORAL DAMAGES – YES devised a scheme to obtain additional loans despite their outstanding
loan accounts. They took out loans in the names of unknowing
As to moral damages, in culpa contractual or breach of contract, as in the case members, without the knowledge or consent of the latter. The officers
before the Court, moral damages are recoverable only if the defendant has acted carried this out by forging the indorsement of the named payees in the
fraudulently or in bad faith, or is found guilty of gross negligence amounting to bad checks Rodriguez checks were deposited directly by PEMSLA to its
faith, or in wanton disregard of his contractual obligations. savings account without any indorsement from the named payees.
This irregular procedure was made possible through bank teller and
The act of Citibank's employee in allowing the pretermination of treasurer of PNB branch. When PNB discovered the fraudulent acts, it
Cabamongan spouses' account despite the noted discrepancies in Carmelita's closed the current account of PEMSLA. The PEMSLA checks deposited
signature and photograph, the absence of the original certificate of time deposit and by the spouses were returned or dishonored as a result. The amounts
the lack of notarized waiver dormant, constitutes gross negligence amounting to bad were duly debited from the Rodriguez account. Spouses filed a civil
faith under Article 2220 of the Civil Code. complaint for damages against PEMSLA, the Multi-Purpose
Cooperative of Philnabankers (MCP), and PNB. RTC ruled in favor of
There is no hard-and-fast rule in the determination of what would be a fair Rodriguez. CA reversed and set aside the RTC decision stating that the
amount of moral damages since each case must be governed by its own peculiar facts. checks were bearer instruments, thus not requiring indorsement for
The yardstick should be that it is not palpably and scandalously excessive. Given the negotiation. The payees in the checks were fictitious payees because
facts, the amount awarded by CA is reasonable and just. they were not the intended payees at all. But on MR, CA reversed its
earlier decision and affirmed the ruling of the RTC.
HELD: petition partially granted.
DOCTRINE:
A bank that regularly processes checks that are neither payable
to the customer nor duly indorsed by the payee is apparently grossly
Philippine Savings Bank vs. Chowking Food Corporation, G.R. No. 1 77526, negligent in its operations. The degree of responsibility, care and
July 4, 2008 trustworthiness expected of the banks’ employees and officials is far
greater than those of ordinary clerks and employees; thus the banks checks were fictitious payees because they were not the intended payees at all. But on
are expected to exercise the highest degree of diligence in the selection MR, CA reversed its earlier decision and affirmed the ruling of the RTC.
and supervision of their employees.
ISSUES/HELD:
WON the 69 checks are payable to bearer for being issued to fictitious persons
FACTS: thereby freeing PNB from liability- NO!
Spouses Erlando and Norma Rodriguez were engaged in the informal lending
business and had a discounting arrangement with the Philnabank Employees Savings RATIO:
and Loan Association (PEMSLA), an association of PNB employees. The association · Under NIL, The rule is that when the payee is fictitious or not intended to be the
maintained current and savings accounts with Philippine National Bank. PEMSLA true recipient of the proceeds, the check is considered as a bearer instrument
regularly granted loans to its members. Spouses Rodriguez would rediscount the U.S jurisprudence: An actual, existing, and living payee may also be “fictitious” if the
postdated checks issued to members whenever the association was short of funds. maker of the check did not intend for the payee to in fact receive the proceeds of the
The spouses would replace the postdated checks with their own checks issued in the check. If the payee is not the intended recipient of the proceeds of the check, the
name of the members. payee is considered a “fictitious” payee and the check is a bearer instrument.In a
fictitious-payee situation, the drawee bank is absolved from liability and the drawer
- To subvert the policy of PEMSLA not to approve applications for loans of members
bears the loss
with outstanding debts, some PEMSLA officers devised a scheme to obtain additional
loans despite their outstanding loan accounts. They took out loans in the names of However, there is a commercial bad faith exception to the fictitious-payee rule.
unknowing members, without the knowledge or consent of the latter. The officers A showing of commercial bad faith on the part of the drawee bank, or any transferee
carried this out by forging the indorsement of the named payees in the checks Ro- of the check for that matter, will work to strip it of this defense. Commercial bad faith
driguez checks were deposited directly by PEMSLA to its savings account without any is present if the transferee of the check acts dishonestly, and is a party to the
indorsement from the named payees. This irregular procedure was made possible fraudulent scheme.
through the facilitation of Edmundo Palermo, Jr., treasurer of PEMSLA and bank teller
in the PNB Branch. SC cited the U.S. case of Getty which also laid the principle that the fictitious-payee
- rule extends protection even to non-bank transferees of the checks.
- The spouses issued 69 checks totalling to P2,345,804. These were payable to 47 in-
Considering that respondents-spouses were transacting with PEMSLA and not the
dividual payees who were all members of PEMSLA. When PNB discovered the fraudu-
individual payees, it is understandable that they relied on the information given by
lent acts, it closed the current account of PEMSLA. The PEMSLA checks deposited by
the officers of PEMSLA that the payees would be receiving the checks. The checks are
the spouses were returned or dishonored as a result. The amounts were duly debited
presumed ORDER instruments. PNB failed to present sufficient evidence to defeat the
from the Rodriguez account.
claim of respondents-spouses that the named payees were the intended recipients of
-
the checks’ proceeds. The fictitious-payee rule does not apply. Thus, the checks are
- Spouses filed a civil complaint for damages against PEMSLA, the Multi-Purpose Co-
to be deemed payable to order. Consequently, the drawee bank bears the loss.
operative of Philnabankers (MCP), and PNB. They asserted that PNB credited the
checks to the PEMSLA account even without indorsements, violating its contractual PNB was remiss in its duty as the drawee bank. Its teller or tellers
obligation to them as depositors - so PNB should bear the losses. RTC ruled in favor of accepted the 69 checks for deposit to the PEMSLA account even without any
Rodriguez. CA reversed and set aside the RTC decision stating that the checks were indorsement from the named payees.
bearer instruments, thus not requiring indorsement for negotiation. The payees in the
A bank that regularly processes checks that are neither payable to the customer nor and supervision of their employees. Court cited Bank of the Philippine Islands v. Court
duly indorsed by the payee is apparently grossly negligent in its operations. There is of Appeals: Banks handle daily transactions involving millions of pesos. By the very
a unique public interest possessed by the banking industry and the need for the nature of their work the degree of responsibility, care and trustworthiness expected of
people to have full trust and confidence in their banks. For this reason, banks are their employees and officials is far greater than those of ordinary clerks and employees.
minded to treat their customer’s accounts with utmost care, confidence, and honesty. For obvious reasons, the banks are expected to exercise the highest degree of diligence in
the selection and supervision of their employees.
In a checking transaction, the drawee bank has the duty to verify the genuineness of
the signature of the drawer and to pay the check strictly in accordance with the
drawer’s instructions, i.e., to the named payee in the check. It had the responsibility
to ascertain the regularity of the indorsements, and the genuineness of the signatures
on the checks before accepting them for deposit. Lastly, PNB was obligated to pay the
Summary: BA finance (drawer) - granted credit line facility to Miller through its
representatives (Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng). These
representatives executed suretyship agreement with BA Finance. Miller assigned
trade receivables to BA Finance and executed Deeds of Assignment. BA finance then
issued 4 checks payable to “Order of Miller” drawn against Bank of America (drawee Central Bank of the Philippines vs. Citytrust Banking Corporation, G.R. No.
bank). Checks deposited with Associated (collecting bank) by Ching Uy Seng. 1 41 835, February 4, 2009
Associated guaranteed endorsements. Miller defaulted on agreement. BA filed case to
collect the amount it paid. SC: Bank of America liable to BA finance because four
checks were drawn by BA-Finance and made payable to the “Order of Miller
Offset Press, Inc.” The checks were also crossed and issued “For Payee’s BANK OF AMERICA, NT & SA vs.
Account Only.” Clearly, the drawer intended the check for deposit only by Miller
Offset Press, Inc. in the latter’s bank account. BUT ASSOCIATED BANK IS LIABLE ASSOCIATED CITIZENS BANK, BA-
TO REIMBURSE BANK OF AMERICA THE AMOUNT OF THE FOUR CHECKS. When
Associated Bank stamped the back of the four checks with the phrase “all prior FINANCE CORPORATION, MILLER
endorsements and/or lack of endorsement guaranteed,” that bank had for all intents
and purposes treated the checks as negotiable instruments and, accordingly, assumed
OFFSET PRESS, INC., UY KIAT CHUNG,
the warranty of an endorser. The collecting bank being primarily engaged in CHING UY SENG, UY CHUNG GUAN SENG,
banking holds itself out to the public as the expert and the law holds it to a high
standard of conduct. and COURT OF APPEALS.
checks in strict accordance with the instructions of the drawers. Petitioner miserably
failed to discharge this burden.  On 6 October 1978, BA-Finance entered into a transaction with Miller Offset
Press, Inc. through the latter’s authorized representatives,i.e., Uy Kiat Chung,
PNB was negligent in the selection and supervision of its employees. The Ching Uy Seng, and Uy Chung Guan Seng. BA-Finance granted Miller a credit
trustworthiness of bank employees is indispensable to maintain the stability of the line facility through which the latter could assign or discount its trade receiv-
banking industry. Thus, banks are enjoined to be extra vigilant in the management ables with the former.
 On 20 October 1978, Uy Kiat Chung, Ching Uy Seng, and Uy Chung Guan Seng 1. Is Bank of America liable to pay BA-Finance the amount of the four checks? YES
executed a Continuing Suretyship Agreement with BA-Finance. 2. Is Associated Bank liable to reimburse Bank of America the amount of the four
 Miller discounted and assigned several trade receivables to BA-Finance by ex- checks? YES
ecuting Deeds of Assignment in favor of the latter. In consideration of the as - 3. Are Ching Uy Seng and/or Uy Chung Guan Seng liable to pay Associated Bank the
signment, BA-Finance issued four checks payable to the “Order of Miller amount of the four checks? Yes
Offset Press, Inc.” with the notation “For Payee’s Account Only.” These
checks were drawn against Bank of America. 1. BANK OF AMERICA LIABLE TO BA FINANCE BECAUSE IT VIOLATED
 The four checks were deposited in Associated Citizens Bank by Ching Uy DRAWER INSTRUCTIONS IN THE CROSSED CHECK
Seng (a.k.a. Robert Ching), then the corporate secretary of Miller, in Ac-
count No. 989 Account No. 989 is a joint bank account under the names of Bank of America: denies liability for paying because it relied on the stamps made by
Ching Uy Seng and Uy Chung Guan Seng. Associated Bank stamped the Associated Bank; proximate cause of BA-Finance’s injury, if any, is the gross
checks with the notation “all prior endorsements and/or lack of en- negligence of Associated Bank which allowed Ching Uy Seng (Robert Ching) to deposit
dorsements guaranteed,” and sent them through clearing. Later, the the four checks
drawee bank, Bank of America, honored the checks and paid the pro-
SUPREME COURT: The bank on which a check is drawn, known as the drawee bank,
ceeds to Associated Bank as the collecting bank.
is under strict liability, based on the contract between the bank and its customer
 Miller failed to deliver to BA-Finance the proceeds of the assigned trade re -
(drawer), to pay the check only to the payee or the payee’s order. The drawer’s
ceivables. BA-Finance filed a Complaint against Miller for collection of the
instructions are reflected on the face and by the terms of the check. When the drawee
amount of P731,329.63 which BA-Finance allegedly paid in consideration of
bank pays a person other than the payee named on the check, it does not comply with
the assignment, plus interest at the rate of 16% per annum and penalty
the terms of the check and violates its duty to charge the drawer’s account only for
charges. Impleaded as party defendants in the collection case were Uy Kiat
properly payable items. A drawee should charge to the drawer’s accounts only the
Chung, Ching Uy Seng, and Uy Chung Guan Seng.
payables authorized by the latter; otherwise, the drawee will be violating the
 ANSWER OF MILLER, UY KIAT CHUNG, AND UY CHUNG GUAN SENG: de-
instructions of the drawer and shall be liable for the amount charged to the
nied receipt of the amount covered by the four Bank of America checks, and
drawer’s account.
(2) denied that they authorized their co-defendant Ching Uy Seng to transact
business with BA-Finance on behalf of Miller. Uy Kiat Chung and Uy Chung The Negotiable Instruments Law is silent with respect to crossed checks, although the
Guan Seng also denied having signed the Continuing Suretyship Agreement Code of Commerce makes reference to such instruments. This Court has taken judicial
with BA-Finance. Ching Uy Seng did not file his Answer to the complaint. cognizance of the practice that a check with two parallel lines in the upper left hand
 BA-Finance filed an Amended Complaint impleading Bank of America. Bank corner means that it could only be deposited and could not be converted into
of America filed a Third Party Complaint against Associated Bank. cash. Thus, the effect of crossing a check relates to the mode of payment, meaning
 ASSOCIATED BANK: admitted having received the four checks for deposit in that the drawer had intended the check for deposit only by the rightful person, i.e., the
the joint account of Ching Uy Seng (a.k.a. Robert Ching) and Uy Chung Guan payee named therein.16
Seng, but alleged that Robert Ching, being one of the corporate officers of
Miller, was duly authorized to act for and on behalf of Miller. 16On crossed checks: The crossing may be “special” wherein between the two parallel lines is
written the name of a bank or a business institution, in which case the drawee should pay only with
RTC: Bank of America to pay BA Finance Corporation the sum of P741,277.78, the the intervention of that bank or company, or “general” wherein between two parallel diagonal lines
value of the four (4) checks subject matter of this case, with legal interest… third- are written the words “and Co.” or none at all, in which case the drawee should not encash the same
party defendant Associated Citizens Bank liable to reimburse Bank of America, the but merely accept the same for deposit.
defendant third-party plaintiff
CA: Affirmed with modification

In Bataan Cigar v. Court of Appeals, we enumerated the effects of crossing a check as follows: (a)
ISSUES: the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only
In this case, the four checks were drawn by BA-Finance and made payable to the conduct. x x x In presenting the checks for clearing and for
“Order of Miller Offset Press, Inc.” The checks were also crossed and issued “For payment, the defendant [collecting bank] made an express
Payee’s Account Only.” Clearly, the drawer intended the check for deposit only guarantee on the validity of “all prior endorsements.” Thus,
by Miller Offset Press, Inc. in the latter’s bank account. Thus, when a person stamped at the back of the checks are the defendant’s clear
other than Miller, i.e., Ching Uy Seng, a.k.a. Robert Ching, presented and warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF
deposited the checks in his own personal account (Ching Uy Seng’s joint account ENDORSEMENTS GUARANTEED.
with Uy Chung Guan Seng), and the drawee bank, Bank of America, paid the
value of the checks and charged BA-Finance’s account therefor, the drawee Associated Bank was also clearly negligent in disregarding established banking
Bank of America is deemed to have violated the instructions of the drawer, and rules. The checks were issued to the “Order of Miller Offset Press, Inc.,” but were
therefore, is liable for the amount charged to the drawer’s account. deposited, and paid by Associated Bank, to the personal joint account of Ching Uy
Seng (a.k.a. Robert Ching) and Uy Chung Guan Seng. It could not have escaped
2. (Relevant to diligence required of banks) ASSOCIATED BANK LIABLE TO Associated Bank’s attention that the payee of the checks is a corporation while the
REIMBURSE BANK OF AMERICA THE AMOUNT OF THE FOUR CHECKS. When As- person who deposited the checks in his own account is an individual. As ruled by
sociated Bank stamped the back of the four checks with the phrase “all prior en- this Court in Jai-Alai Corporation of the Philippines v. Bank of the Philippine
dorsements and/or lack of endorsement guaranteed,” that bank had for all in- Islands, one who accepts and encashes a check from an individual knowing that
tents and purposes treated the checks as negotiable instruments and, accord- the payee is a corporation does so at his peril.
ingly, assumed the warranty of an endorser. The collecting bank being primar-
ily engaged in banking holds itself out to the public as the expert and the law 3. CHING UY SENG AND/OR UY CHUNG GUAN SENG LIABLE TO PAY ASSOCI -
holds it to a high standard of conduct. ATED BANK THE AMOUNT OF THE FOUR CHECKS. Since Ching Uy Seng and/or Uy
Chung Guan Seng received the proceeds of the checks as they were deposited in their
A collecting bank where a check is deposited, and which endorses the check personal joint account with Associated Bank, they should, therefore, be obliged to re-
upon presentment with the drawee bank, is an endorser. Under Section 66 of the imburse Associated Bank for the amount it has to pay to Bank of America, in line with
Negotiable Instruments Law, an endorser warrants “that the instrument is genuine the rule that no person should be allowed to unjustly enrich himself at the expense of
and in all respects what it purports to be; that he has good title to it; that all prior another.
parties had capacity to contract; and that the instrument is at the time of his
endorsement valid and subsisting.” When Associated Bank stamped the back of the
four checks with the phrase “all prior endorsements and/or lack of endorsement
guaranteed,” that bank had for all intents and purposes treated the checks as
negotiable instruments and, accordingly, assumed the warranty of an
EQUITABLE PCI BANK,
endorser. In Banco de Oro Savings and Mortgage Bank v. Equitable Banking
Corporation we held that:
petitioner, vs. ARCELITO B. TAN,

x x x the law imposes a duty of diligence on the collecting
respondents.
August 23, 2010
bank to scrutinize checks deposited with it for the purpose of Ponente: Peralta, J.
determining their genuineness and regularity. The collecting Digest Maker: JM Arcilla
bank being primarily engaged in banking holds itself out to the
public as the expert and the law holds it to a high standard of
once – to one who has an account with a bank; and (c) the act of crossing the check serves as a
warning to the holder that the check has been issued for a definite purpose so that he must inquire if
he has received the check pursuant to that purpose; otherwise, he is not a holder in due course.
SUMMARY: consisting of unrealized income together with other claims, contending that Check No.
275100 was a postdated check in payment of Bills of Lading Nos. 15, 16 and 17, and
Respondent Tan issued several postdated checks in favor of Sulpicio that his account with PCIB would have had sufficient funds to cover payment of the
Lines, Inc. The amounts covered by the postdated checks, upon three other checks were it not for the negligence of the bank in immediately debiting
deposit, were debited by the bank from the respondent’s account. from his account Check No. 275100, in the amount of P34,588.72, even as the said
Because of this, when Tan later issued three checks, the three checks check was postdated to May 30, 1992.
were dishonored for being drawn against insufficient funds when
presented for payment. The Court held that PCIB acted negligently in PCIB, on the other hand, averred that the questioned check was postdated
dealing with Tan’s account. May 30, 1992 and claimed that it was a current check dated May 3, 1992. The bank
alleged that the disconnection of the electric supply to respondent's sawmills was not
DOCTRINE: due to the dishonor of the checks, but for other reasons not attributable to the bank.
(from syllabus) The RTC ruled in favor of PCIB, holding that it did not act negligently and
The premature debiting of the postdated check by the bank which dismissed the complaint. Tan appealed. The CA reversed the decision of RTC and
resulted to insufficiency of funds that brought about the dishonor of directed PCIB to pay respondent actual damages, moral damages, exemplary damages
two checks, which caused the electric supply to be cut-off and affected and attorney's fees. PCIB filed a motion for reconsideration, which the CA denied.
business operations, indicates the negligence of the bank. For its
failure to exercise extra-ordinary diligence, which is required of banks,
it should be made liable.
FACTS: ISSUES/HELD:
Respondent Arcelito B. Tan maintained a current and savings account with WON PCIB acted negligently in dealing with Tan’s account. YES.
petitioner Equitable PCI Bank. On May 13, 1992, Tan issued PCIB Check No. 275100
postdated May 30, 1992 in the amount of P34,588.72 in favor of Sulpicio Lines, Inc. As RATIO:
of May 14, 1992, respondent's balance with PCIB was P35,147.59. On May 14, 1992,
Sulpicio Lines, Inc. deposited the aforesaid check to its account with Solid Bank, The SC affirmed with modifications the decision of CA, holding that PCIB
Carbon Branch, Cebu City. After clearing, the amount of the check was immediately acted negligently. However, the award of moral damages was deleted and added the
debited by PCIB from Tan's account leaving him with a balance of only P558.87. award of temperate damages.
However, from May 9 to 16, 1992, Tan issued three checks, specifically: PCIB The Court had already imposed on banks the same high standard of diligence
Check No. 275080 dated May 9, 1992, payable to Agusan del Sur Electric Cooperative required under R.A. 8791 at the time of the untimely debiting of Tan's account by
Inc. (ASELCO) for the amount of P6,427.68; PCIB Check No. 275097 dated May 10, PCIB. In Simex International (Manila), Inc. v. Court of Appeals, the Court held that as a
1992 payable to Agusan del Norte Electric Cooperative Inc., (ANECO) for the amount business affected with public interest and because of the nature of its functions, the
of P6,472.01; and PCIB Check No. 314104 dated May 16, 1992 payable in cash for the bank is under obligation to treat the accounts of its depositors with meticulous care,
amount of P10,000.00. always having in mind the fiduciary nature of their relationship. The diligence
required of banks, therefore, is more than that of a good father of a family. In every
When presented for payment, the three checks were dishonored for being case, the depositor expects the bank to treat his account with the utmost fidelity,
drawn against insufficient funds. As a result of the dishonored checks payable to whether such account consists only of a few hundred pesos or of millions. The bank
ASELCO and ANECO, the electric power supply for the two mini-sawmills owned and must record every single transaction accurately, down to the last centavo, and as
operated by Tan was cut off and was restored only after several days. This prompted promptly as possible. This has to be done if the account is to reflect at any given time
Tan to file with the RTC of Cebu a complaint against PCIB for the payment of losses
the amount of money the depositor can dispose of as he sees fit, confident that the approved and the proceeds eventually given to GCB Builders. However, the 75 day
bank will deliver it as and to whomever he directs. period ended without the completion of the house.
Based on the facts, it is clear that PCIB did not exercise the degree of diligence NHMFC demanded that the Capistranos start paying the amortization of their
that it ought to have exercised in dealing with its client. Furthermore, the bank on loan, as the loans had been released, and they had certified that the house had been
which the check is drawn, known as the drawee bank, is under strict liability to pay to completed already.
the order of the payee in accordance with the drawer’s instructions as reflected on the This led the spouses to sue GCB and Comsavings for breach of contract and
face and by the terms of the check. Thus, payment made before the date specified by damages. RTC ruled in favor of the spouses and ordered GCB and Comsavings to
the drawer is clearly against the drawee bank's duty to its client. As such, the Court complete the construction of the house and pay damages. CA affirmed.
finds that PCIB’s negligence is the proximate cause of Tan’s loss. ISSUES/HELD:
1. WON GCB and Comsavings were solidarily liable. (Yes)
Comsavings v. Capistrano RATIO:

The liability of COmsavings was based on a breach of contract. A banking institution is
Aug. 28, 2013 obliged to exercise the highest degree of diligence as well as high standards of
Bersamin, J. integrity and performance in all its transactions because its business is imbued with
Gabe Ruaro public interest.
Here, Comsavings was grossly negligent because it did not exercise the
SUMMARY: requisite diligence and integrity. It made the Certification of completion despite the
The Sps. Capistrano obtained a loan to construct their house. Although fact that the house had not been completed.
the house had not been completed, Comsavings bank required them to That act was irregular per se because it contravened the purpose of the
sign a certificate of completion before releasing the proceeds of the certificate. It was also fraudulent, as by that process, it benefited by the UHLP as an
loan. The house was not completed in time. Nevertheless, Comsavings originator bank.
demanded the payment of loan amortizations. The Capistranos sued Comsavings demands were also unfair, as it should not have made them pre-
the bank for breach of contract and damages, which the courts granted, sign the certificate of completion until it had confirmed that the house had been
because… completed. It did not give the spouses the option not to sign the certificate. It was thus
grossly negligent, and liable for moral, temperate, and exemplary damages.
DOCTRINE: CA affirmed.
A banking institution serving as an originating bank for the Unified
Home Lending Program (UHLP) of the Government owes a duty to
observe the highest degree of diligence and a high standard of integrity Land Bank of the Philippines vs. Emmanuel Oñate, G.R. No. 1 92371 , Janu -
and performance in all its transactions with its clients because its ary 1 5, 201 4
business is imbued with public interest.
Development Bank vs. Guariña Agricultural and Realty Development Cor-
poration, G.R. No. 1 60758, January 1 5, 201 4
FACTS: 5. Nature of Bank Funds and Bank Deposits
The Sps. Capistrano owned a residential lot in the Infant Jesus Subdivision n Bacoor,
Cavite. They availed of the Unified Home Lending Program from the National Home Consolidated Bank and Trust Corporation vs. Court of Appeals, G.R. No. 1
Mortgage Finance Corporation. They executed a construction contract with GCB 38569, September 1 1 , 2003
Builders, financed by a loan from Commsavings Bank (now GSIS Family Bank) in
accordance with the UHLP. According to the terms of this construction contract, the
house was to be built within 75 days 6. Stipulation on Interest
As part of the requirements for the release of the loan, Estrella Capistrano
had to sign a certificate of house completion and acceptance. She did, and the loan was
FIDELITY SAVINGS AND MORTGAGE On December 9, 1969, the Monetary Board issued a Resolution directing the liquida-
tion of the affairs of Fidelity Savings Bank. The liquidation proceedings has not been
BANK vs. CENZON (CFI Judge) and terminated and is still pending when this case reached the Court,
SPOUSES TIMOTEO AND OLIMPIA SAN- Spouses Santiago, through their counsel, sent demand letter demanding the immedi -
ate payment of the aforementioned savings and time deposits.
TIAGO CFI of Manila (now RTC) ordered the payment of the P90,000 balance with accrued
April 5, 1990 interests until fully paid, P30,000 as exemplary damages and P10,000 for attorney’s
REGALADO, J fees.
Mica Maurinne M. Adao
ISSUES and RULING
SUMMARY: Spouses Santiago deposited P100,000 with Fidelity Bank. On Feb 18, 1. Whether or not an insolvent bank like the Fidelity Savings and Mortgage Bank may
1969, the Monetary Board found Fidelity to be insolvent and issued a Resolution for - be adjudged to pay interest on unpaid deposits even after its closure by the Central
bidding it to do business in the Philippines and ordering the Acting Superintendent of Bank by reason of insolvency without violating the provisions of the Civil Code on
Banks to take charge, in the name of the Monetary Board, of the Bank's assets. Only preference of credits? NO
P10,000 has been returned to Spouses Santiago so it demanded payment and filed a 2. Whether or not an insolvent bank like the Fidelity Savings and Mortgage Bank may
case for the remaining deposits.CFI ordered Fidelity to pay the P90,000 balance with be adjudged to pay moral and exemplary damages, attorney's fees and costs when
interest until fully paid and awarded exemplary damages and attorney’s fee. SC modi- the insolvency is caused b the anomalous real estate transactions without violating
fied the ruling in that interest can only accrue up until the bank was in operation. The the provisions of the Civil Code on preference of credits? NO
award for damages was deleted because bad faith and fraud was not proven.
RATIO:
DOCTIRNE: A banking institution which has been declared insolvent and sub- 1. It is settled jurisprudence that a banking institution which has been declared in-
sequently ordered closed by the Central Bank of the Philippines cannot be held liable solvent and subsequently ordered closed by the Central Bank of the Philippines can-
to pay interest on bank deposits which accrued during the period when the bank is not be held liable to pay interest on bank deposits which accrued during the period
actually closed and non-operational. The obligation to pay interest on the deposit when the bank is actually closed and non-operational.
ceases the moment the operation of the bank is completely suspended by the duly
constituted authority, the Central Bank. The Overseas Bank of Manila vs. Court of Appeals and Tony D. Tapi,: It is a matter of
common knowledge, which the Court take judicial notice of, that what enables a bank
Spouses Timoteo and Olimpia Santiago deposited P50,000 (May 16, 1968) as savings to pay stipulated interest on money deposited with it is that thru the other aspects of
and P50,000 (July 6, 1968) as time deposit with Fidelity Savings Bank its operation it is able to generate funds to cover the payment of such interest. Unless
a bank can lend money, engage in international transactions, acquire foreclosed mort-
On February 18, 1969, the Monetary Board, after finding the report of the Superin- gaged properties or their proceeds and generally engage in other banking and finan-
tendent of Banks, that the condition of Fidelity Savings and Mortgage Bank is one of cing activities from which it can derive income, it is inconceivable how it can carry on
insolvency, to be true, issued Resolution No. 350 deciding, among others, as follows: as a depository obligated to pay stipulated interest. Conventional wisdom dictates this
(1) To forbid the Fidelity Savings Bank to do business in the Philippines; (2) To in- inexorable fair and just conclusion. And it can be said that all who deposit money in
struct the Acting Superintendent of Banks to take charge, in the name of the Monetary banks are aware of such a simple economic proposition. Consequently, it should be
Board, of the Bank's assets deemed read into every contract of deposit with a bank that the obligation to pay in-
Sometime on October 10, 1969 the Philippine Deposit Insurance Corporation paid terest on the deposit ceases the moment the operation of the bank is completely sus-
Spouses Santiago the P10,000.00 on the aggregate deposits of P100,000.00 pursuant pended by the duly constituted authority, the Central Bank.
to Republic Act No. 5517, thereby leaving a deposit balance of P90,000.00
It is manifest that petitioner cannot be held liable for interest on bank deposits which Deposit No. 0210 (Exhibit B) until February 18, 1969. The awards for moral and ex-
accrued from the time it was prohibited by the Central Bank to continue with its bank- emplary damages, and attorney's fees are hereby DELETED.
ing operations, that is, when Resolution No. 350 to that effect was issued on February
18, 1969.
2. The awards of moral and exemplary damages and attorney's fees are erroneous. It ILEANA DR. MACALINAO, Petitioner, vs.
is not disputed, that there was no fraud or bad faith on the part of Fidelity in accepting
the deposits of Spouses Santiago. Fidelity could not even be faulted in not immedi - BANK OF THE PHILIPPINE ISLANDS,
ately returning the amount claimed considering that the demand to pay was made
and Civil Case was filed in the trial court several months after the Central Bank had Respondent
ordered Fidelity's closure. By that time, Fidelity was no longer in a position to comply Date: September 19, 2009
with its obligations to its creditors, including Spouses Santiago. Even the trial court Ponente: Velasco, Jr. J.
had to admit that Fidelity failed to pay Spouses Santiago because it was already in - Kathleen Tuason
solvent. Further, this case is not one of the specified or analogous cases wherein
moral damages may be recovered. SUMMARY: Macalinao, a BPI cardholder, made purchase with the use
of her credit card, and subsequently defaulted in payments. Under the
There is no valid basis for the award of exemplary damages which is supposed to terms and conditions of her credit card, the charges undpaid after due
serve as a warning to other banks from dissipating their assets in anomalous transac-
date shall bear interest at the rate of 3% per month and additional 3%
tions. It was not proven, and neither was there a categorical finding made by the trial
court, that Fidelity actually engaged in anomalous real estate transactions. Hence, it penalty per month. For her failure to pay, BPI filed a case against her
was error for the lower court to impose exemplary damages upon Fidelity since, in and her husband at the MeTC. MeTC ruled in favor of BPI and ordered
contracts, such sanction requires that the offending party acted in a wanton, fraudu - Macalinao and her husband to pay the amount of PhP 141,518.34 plus
lent, reckless, oppressive or malevolent manner. Neither does this case present the interest and penalty charges of 2% per month. RTC affirmed. CA
situation where attorney's fees may be awarded. modified ruling and held that the MeTC erred in modifying the amount
of interest rate from 3% monthly to only 2% considering that
In the absence of fraud, bad faith, malice or wanton attitude, Fidelity may, therefore,
Macalinao freely availed herself of the credit card facility offered by
not be held responsible for damages which may be reasonably attributed to the non-
performance of the obligation. BPI to the general public. SC held that the interest rate and penalty
charge of 3% per month should be equitably reduced to 2% per month
Although Fidelity is correct in its contention that Spouses Santiago’s claims should or 24% per annum.
have been filed in the liquidation proceedings pending before then CFI of Manila, the
decision rendered in the instant case would not be violative of the legal provisions on DOCTRINE: When the stipulation on the interest rate is void, it is as if
preference and concurrence of credits. As the trial court puts it: “. . . But this order of there was no express contract thereon; hence, courts may reduce the
payment should not be understood as raising these deposits to the category of pre - interest rate as reason and equity demand, which would depend on the
ferred credits of the defendant Fidelity Savings and Mortgage Bank but shall be paid circumstances of each case. In the present case, the fact that petitioner
in accordance with the Bank Liquidation Rules and Regulations embodied in the Or -
made partial payments makes the stipulated penalty charge of 3% per
der of the. Court of First Instance of Manila, Branch XIII dated October 3, 1972 (Exh.
3). . . . “ month or 36% per annum, in addition to regular interests, iniquitous
WHEREFORE, the judgment appealed from is hereby MODIFIED. Petitioner Fidelity and unconscionable.
Savings and Mortgage Bank is hereby declared liable to pay private respondents
Timoteo and Olimpia Santiago the sum of P90,000.00, with accrued interest in accord-
ance with the terms of Savings Account Deposit No. 16-0536 and Certificate of Time FACTS:
Ileana Macalinao was an approved cardholder of BPI Mastercard. Macalinao made in modifying the amount of interest rate from 3% monthly to only 2%
some purchases through the use of the said credit card and defaulted in paying for considering that Macalinao freely availed herself of the credit card facility
said purchases. She subsequently received a letter dated January 5, 2004 from offered by BPI to the general public.
respondent BPI, demanding payment P141,518.34.
WON the interest rate should be reduced to 2%. YES
Macalinao claims that the interest rate and penalty charge of 3% per month imposed
Under the Terms and Conditions Governing the Issuance and Use of the BPI Credit
and BPI Mastercard, the charges or balance thereof remaining unpaid after the by the CA is iniquitous as the same translates to 36% per annum or thrice the legal
payment due date indicated on the monthly Statement of Accounts shall bear interest rate of interest.
at the rate of 3% per month and an additional penalty fee equivalent to another 3%
per month.
- PAYMENT OF CHARGES – x x x The charges or balance thereof On the other hand, BPI asserts that said interest rate and penalty charge are
remaining unpaid after the payment due date indicated on reasonable as the same are based on the Terms and Conditions Governing the
the monthly Statement of Accounts shall bear interest at the Issuance and Use of the BPI Credit Card.
rate of 3% per month for BPI Express Credit, BPI Gold Mas-
tercard and an additional penalty fee equivalent to another
3% of the amount due for every month or a fraction of a SC held that the interest rate and penalty charge of 3% per month should be equitably
month’s delay. PROVIDED that if there occurs any change on reduced to 2% per month or 24% per annum.
the prevailing market rates, BCC shall have the option to adjust
the rate of interest and/or penalty fee due on the outstanding
obligation with prior notice to the cardholder. x x x x In the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card,
there was a stipulation on the 3% interest rate. Nevertheless, it should be noted that
this was not the first time that the SC has considered the interest rate of 36% per
For failure of Macalinao to settle her obligations, BPI filed with the MeTC a complaint annum as excessive and unconscionable.
for a sum of money against her and her husband, Danilo SJ. Macalinao. BPI prayed for - In the case of Chua vs. Timan, the Court held that the stipulated interest of 3%
the payment of P154,608.78 plus 3.25% finance charges and late payment charges and higher is excessive, iniquitous, unconscionable, and exorbitant. Such
equivalent to 6% of the amount due from February 29, 2004 and an amount stipulations are void for being contrary to morals, if not against the law.
equivalent to 25% of the total amount due as attorney’s fees, and of the cost of suit.
Since the stipulation on the interest rate is void, it is as if there was no express
contract thereon. Hence, courts may reduce the interest rate as reason and
MeTC ruled in favor of BPI and ordered Macalinao and her husband to pay the amount equity demand.
of P141,518.34 plus interest and penalty charges of 2% per month.
The same is true with respect to the penalty charge. Notably, under the Terms and
Conditions Governing the Issuance and Use of the BPI Credit Card, it was also stated
RTC affirmed the MeTC decision. CA affirmed with modification with respect to the therein that respondent BPI shall impose an additional penalty charge of 3% per
total amount due and the interest rate. month. Pertinently, Article 1229 of the Civil Code states:
Art. 1229. The judge shall equitably reduce the penalty
- CA held that BPI should not compound the interest in the instant case ab- when the principal obligation has been partly or irregularly complied
sent a stipulation to that effect. It also held, however, that the MeTC erred with by the debtor. Even if there has been no performance, the
penalty may also be reduced by the courts if it is iniquitous or ordered interest to be computed up to the date that PTCI consigned the
unconscionable. redemption amount with the RTC.
In exercising this power to determine what is iniquitous and unconscionable, courts

Facts: In April 1979, Estelito and her husband Alfredo obtained a P583K loan
must consider the circumstances of each case since what may be iniquitous and from Pacific Banking Corporation (PBC) secured by a real estate mortgage on
unconscionable in one may be totally just and equitable in another. their Quezon City property. The mortgage was eventually extended to secure
additional loans, discounting lines, overdrafts, and other credit accommodations
obtained from PBC.
In this case, Macalinao made partial payments to respondent BPI, as indicated in her
Billing Statements. Further, the stipulated penalty charge of 3% per month or 36% When the Lipats failed to pay their loans, PBC foreclosed on the subject
per annum, in addition to regular interests, is indeed iniquitous and unconscionable. property. Eugenio Trinidad was declared the highest bidder during the public
auction and was issued a certificate of sale in January 1989. This certificate was
registered in April 1989.
Interest rate pegged by the CA at 1.5% monthly is equitably reduced to 1% monthly
and penalty charge at 1.5% monthly to 1% monthly or a total of 2% per month and In November 1989, the Lipats filed a complaint for annulment of mortgage,
24% per annum in line with Art. 1229 of the Civil Code. extra-judicial foreclosure, and certificate of sale with the RTC of Quezon City

against Eugenio, the Registrar of Deeds, and the ex-officio sheriff of Quezon City.
Heirs of Lipat v. Heirs of Trinidad The RTC dismissed the complaint but granted the Lipats five months and 17 days
from the finality of the decision to exercise their right of redemption over the
G.R. No. 185644/2 March 2010/Third Division/Petition for Review on Certiorari
foreclosed property. This ruling was eventually affirmed by the Supreme Court in
Heirs of Estelita Burgos-Lipat (Alan and Alfredo Jr.) – petitioners
Lipat v. Pacific Banking Corporation (April 2003).
Heirs of Eugenio Trinidad (Asuncion, Victor, Imaculada, Celestina, Fernando,
Michael, and Josefina) – respondents
Meanwhile, the Lipats assigned their rights over the property to Partas
Decision by J. Corona, Digest by Pip
Transportation Co., Inc. In June 2004, within the given period for redemption,
PTCI exercised the right of redemption and paid the redemption amount
Short Version: The Lipats mortgaged their property to PBC. PBC foreclosed and computed by the sheriff. However, the Heirs of Trinidad refused to claim the
Trinidad emerged the highest bidder in the public auction. The Lipats filed a case redemption money and surrender the certificate of title covering the foreclosed
to annul the mortgage and extra-judicial foreclosure (and subsequent sale). The property, claiming the amount tendered was inadequate, i.e., the interest of 1%
RTC dismissed the complaint but gave them five months and 17 days to redeem. per month was computed only for a one-year period. Ultimately, the RTC upheld
The RTC ruling was affirmed by the SC. the exercise of redemption and directed the Trinidads to surrender the certificate
of title.
The Lipats assigned their rights to PTCI, which paid the redemption amount.
The Heirs of Trinidad refused to accept it because they found the interest to be PTCI moved for execution of the RTC’s order, which was granted. The
insufficient (1% per month for one year). Trinidads filed a petition for certiorari with the Court of Appeals. The CA granted
the petition and ruled that the right to redemption should have been exercised
The Supreme Court ruled that under Section 78 of the General Banking Act, within one year from the date of registration of the certificate of sale. The CA
the rate of interest is that stipulated in the mortgage contract, applied for a one- denied the MR.
year period reckoned from the date of registration of the certificate of sale.
Considering the exceptional circumstances of this case, however (the five month Issues:
and 17-day period was well beyond the one year rule for redemption), the Court
(1) Was the right of redemption exercised within the period provided by law?
Not really, but the Court did not apply the rule in this case pro hac vice.
Asia Trust Development Bank vs. Carmelo H. Tuble, G.R. No. 1 83987, July
(2) Was the interest rate computed by the sheriff correct? NO.
25, 201 2
Ruling: Petition granted, CA decision set aside. Advocates for Truth in Lending vs. BSP, G.R. No. 1 92986, January 1 5, 201
3
Ratio:
(1) The one-year redemption period applied by the CA is the rule that generally 7. Grant of Loans and Security Requirements
applies to foreclosure of mortgage by a bank. The period of redemption is not
a. Ratio of Net Worth to Total Risk Assets
tolled by the filing of a complaint or petition for annulment of the mortgage and
the foreclosure sale conducted pursuant to the said mortgage. However, b. Single Borrower’s Limit
considering the exceptional circumstances surrounding this case, the Court
decided not to apply the rule. c. Restrictions on Bank Exposure to DOSRI (Directors, Officers,
Stockholders and their Related Interest
In Lipat, the Court upheld the RTC decision giving the Lipats five months and
17 days from the finality of the trial court’s decision to redeem their foreclosed
property. That case, already final and executory, became the law of the case
between the parties, including their heirs. Hence, even if the five months and 17
Jose Go vs. BSP
days was beyond the one-year period from the registration of the sale, the Court Oct 23, 2009
upheld it. Brion, J.
Kaye de Chavez
(2) The amount tendered to redeem the foreclosed property was determined by
the sheriff at the rate of 1% per month for only one year. Section 78 of the
General Banking Act requires payment of the amount fixed by the court in Summary: Petitioner was charged of violating the prohibition found in the GBA
the order of execution, with interest thereon at the rate specified in the against directors being an obligor of the bank, directly or indirectly. Petitioner says
mortgage contract, and all the costs and other judicial expenses incurred by that the information is defective because it only makes the officer of the bank li-
the bank or institution concerned by reason of the execution and sale and as able if he is either a debtor to a guarantor; that the use of "or" means that his being
a result of the custody of said property less the income received from the both a debtor and guarantor takes him beyond tha ambit of the prohibition.
property. The rate of interest specified in the mortgage contract shall be
applied for the one-year period reckoned from the date of registration of Doctrine: RA 337 actually imposes three restrictions: approval, reportorial, and
the certificate of sale in accordance with the General Banking Act. ceiling requirements. 1) The approval requirement refers to the written approval of
the majority of the bank’s board of directors required before bank directors and of-
In this case, however, since the Lipats had effectively more than one year to ficers can in any manner be an obligor for money borrowed from or loaned by the
exercise the right of redemption, justice, fairness and equity require that they pay bank. 2) The reportorial requirement, on the other hand, mandates that any such
12% p.a. interest beyond the one-year period up to 16 June 2004, when PTCI approval should be entered upon the records of the corporation, and a copy of the
consigned the redemption price with the RTC. entry be transmitted to the appropriate supervising department. 3) The ceiling re-
quirement under the second paragraph of Section 83 regulates the amount of credit
Voting: Velasco, Jr., Nachura, Del Castillo, and Mendoza, JJ., concur. accommodations that banks may extend to their directors or officers by limiting
these to an amount equivalent to the respective outstanding deposits and book
value of the paid-in capital contribution in the bank. Failure to observe the three holders, provided it is “limited to an amount equivalent to
requirements constitutes commission of three separate and different offenses. the respective outstanding deposits and book value of the
paid-in capital contribution in the bank.
FACTS: - The RTC found for Go, and granted Go's motion to quash said informa-
- An information under the General Banking Act was filed against Go be- tion.
fore the RTC: Accused, being then the Director and the President and - The prosecution filed a petition for certiorari to question RTC's order be-
Chief Executive Officer of the Orient Commercial Banking Corporation fore the CA. The word “and/or” did not materially affect the validity of the
(Orient Bank), a commercial banking institution and taking advantage of Information, as it merely stated a mode of committing the crime that the
his position as such officer/director of the said bank, did then and there second paragraph of Section 83 (referring to the credit accommodation
wilfully, unlawfully and knowingly borrow, either directly or indirectly, limit) cannot be interpreted as an exception second paragraph only sets
for himself or as the representative of his other related companies, the de- borrowing limits.
posits or funds of the said banking institution and/or become a guarantor,
indorser or obligor for loans from the said bank to others, facilitating and ISSUE/HELD:
granting and/or caused the facilitating and granting of credit lines/loans WON the CA erred in its decision. NO, petition is denied.
and, among others, to the New Zealand Accounts loans TWO BILLION
AND SEVEN HUNDRED FIFTY-FOUR MILLION NINE HUNDRED RATIO:
FIVE THOUSAND AND EIGHT HUNDRED FIFTY-SEVEN without · The determinative test in appreciating a motion to quash xxx "is the suffi-
the written approval of the majority of the Board of Directors of said Ori- ciency of the averments in the information, the information only needs to
ent Bank. state the ultimate facts; the evidentiary and other details can be provided
- Go pleaded not guilty. during the trial."
- Before the trial could commence, however, Go filed on February 26, 2003 · Under Section 83 of RA 337, the following elements must be present to
a motion to quash the Information constitute a violation:
- that the Information was defective, as the facts charged therein do o (1) That offender is a director or officer of any banking institution
not constitute an offense under Section 83 of RA 337. o (2) he directly or indirectly, for himself or as representative or
- Go averred that based on the facts alleged in the Information, he agent of another, performs any of the following acts:
was being prosecuted for borrowing the deposits or funds of the § a) borrows any of the deposits or funds of such bank;
Orient Bank and/or acting as a guarantor, indorser or obligor for § b) becomes a guarantor, indorser, or surety for loans from
the bank’s loans to other persons. The use of the word “and/or” such bank to others,
meant that he was charged for being either a borrower or a guaran- § c) he becomes in any manner an obligor for money bor-
tor, or for being both a borrower and guarantor. rowed from bank or loaned by it.
- Go claimed that the charge was not only vague, but also did not o (3) The offender has performed any of such acts without the writ-
constitute an offense. He posited that Section 83 of RA 337 penal- ten approval of the majority of the directors of the bank, excluding
ized only directors and officers of banking institutions who acted the offender.
either as borrower or as guarantor, but not as both. · The essence of the crime is becoming an obligor of the bank without se-
- He further stated that the information failed to state that his alleged act of curing the necessary written approval of the majority of the bank’s direc-
borrowing and/or guarantying was not among the exceptions provided for tors. The second element merely lists down the various modes of commit-
in the law. ting the offense. The third mode, by declaring that no director shall in any
- The second paragraph of Section 83 allowed banks to extend manner be an obligor for money borrowed from the bank or loaned by it
credit accommodations to their directors, officers, and stock- serves a catch-all phrase that covers any situation when a director or offi-
cer of the bank becomes its obligor. To make a distinction between the act February 1, 2010
of borrowing and guarantying is therefore unnecessary because in either
Del Castillo, J.
situation, the director or officer concerned becomes an obligor of the bank.
· Banks were not created for the benefit of their directors and officers; they
cannot use the assets of the bank for their own benefit, except as may be SUMMARY: Spouses Enrico and Amalia Carlos appeared to have a loan of P8 million
permitted by law. Congress has thus deemed it essential to impose restric- with RBSM, but had never applied for such loan. Hilario Soriano, president of RBSM,
tions on borrowings by bank directors and officers in order to protect the allegedly ordered, facilitated, and received the proceeds of the loan; and the P8 mil -
public, especially the depositors. Hence, when the law prohibits directors lion loan had never been authorized by RBSM's Board of Directors and no report was
and officers of banking institutions from becoming in any manner an submitted to the Department of Rural Banks, Supervision and Examination Sector of
obligor of the bank (unless with the approval of the board), the terms of the BSP. 2 Informations were filed against him under the DOSRI law and Estafa under
the prohibition shall be the standards to be applied to directors’ transac- RPC. He alleged that the two are inconsistent but the SC ruled that he can be charged
tions such as those involved in the present case. for both.
· Credit accommodation limit is not an exception nor is it an element of the
offence. DOCTRINE: A bank officer violates the DOSRI law when he acquires bank funds for
· RA 337 actually imposes three restrictions: approval, reportorial, and ceil- his personal benefit, even if such acquisition was facilitated by a fraudulent loan ap -
ing requirements. plication. Directors, officers, stockholders, and their related interests cannot be al-
lowed to interpose the fraudulent nature of the loan as a defense to escape culpability
o The approval requirement refers to the written approval of the ma-
for their circumvention of Section 83 of Republic Act (RA) No. 337. The prohibition in
jority of the bank’s board of directors required before bank direc-
Section 83 is broad enough to cover various modes of borrowing. It covers loans by a
tors and officers can in any manner be an obligor for money bor- bank director or officer which are made either: (1) directly, (2) indirectly, (3) for him-
rowed from or loaned by the bank. self, (4) or as the representative or agent of others. It applies even if the director or
o The reportorial requirement, on the other hand, mandates that any officer is a mere guarantor, indorser or surety for someone else's loan or is in any
such approval should be entered upon the records of the corpora- manner an obligor for money borrowed from the bank or loaned by it. The covered
tion, and a copy of the entry be transmitted to the appropriate su- transactions are prohibited unless the approval, reportorial and ceiling requirements
pervising department. under Section 83 are complied with. The prohibition is intended to protect the public,
o The ceiling requirement under the second paragraph of Section 83 especially the depositors, from the overborrowing of bank funds by bank officers, di-
regulates the amount of credit accommodations that banks may ex- rectors, stockholders and related interests, as such overborrowing may lead to bank
tend to their directors or officers by limiting these to an amount failures.
equivalent to the respective outstanding deposits and book value
of the paid-in capital contribution in the bank
· Evidently, the failure to observe the three requirements under Section 83
paves the way for the prosecution of three different offenses, each with its FACTS: Spouses Enrico and Amalia Carlos appeared to have an outstanding loan of P8
own set of elements. A successful indictment for failing to comply with million with the Rural Bank of San Miguel (Bulacan), Inc. (RBSM), but had never ap-
the approval requirement will not necessitate proof that the other two were plied for nor received such loan. Hilario Soriano, president of RBSM, allegedly or-
likewise not observed. dered, facilitated, and received the proceeds of the loan; and the P8 million loan had
never been authorized by RBSM's Board of Directors and no report was submitted to
the Department of Rural Banks, Supervision and Examination Sector of the BSP.
2 Informations were filed against Soriano.
SORIANO v. BSP
The first was for estafa through falsification of commercial documents, under loan from RBSM by putting the loan in the name of depositor Enrico Carlos; and that
Article 315, paragraph 1(b), of the Revised Penal Code (RPC), in relation to Article 172 he did this without complying with the requisite board approval, reportorial, and ceil -
of the RPC and PD 1689. It basically alleged that petitioner and his co-accused, in ing requirements.
abuse of the confidence reposed in them as RBSM officers, caused the falsification of a
number of loan documents, making it appear that one Enrico Carlos filled up the In Criminal Case No. 237-M-2001 for estafa thru falsification of commercial doc-
same, and thereby succeeded in securing a loan and converting the loan proceeds for uments, the information alleged that petitioner, by taking advantage of his position as
their personal gain and benefit. president of RBSM, falsified various loan documents to make it appear that an Enrico
Carlos secured a loan of P8 million from RBSM; that he succeeded in obtaining the
The second was for violation of Section 83 of RA 337, as amended by PD loan proceeds; that he later converted the loan proceeds to his own personal gain and
1795. The said provision refers to the prohibition against the so-called DOSRI loans. benefit; and that his action caused damage and prejudice to RBSM, its creditors, the
The information alleged that, in his capacity as President of RBSM, he indirectly se- BSP, and the PDIC.
cured an P8 million loan with RBSM, for his personal use and benefit, without the
written consent and approval of the bank's Board of Directors, without entering the There is no basis for the quashal of the informations as “they contain material
said transaction in the bank's records, and without transmitting a copy of the transac - allegations charging Soriano with violation of DOSRI rules and estafa thru falsification
tion to the supervising department of the bank. His ruse was facilitated by placing the of commercial documents”.
loan in the name of an unsuspecting RBSM depositor, one Enrico Carlos. Also, Soriano’s theory is based on the false premises that the loan was ex-
Soriano filed a motion to quash alleging that the facts charged do not consti- tended to him by the bank in his own name, and that he became the owner of the loan
tute an offense. He contended that the commission of estafa under paragraph 1(b) of proceeds. Both premises are wrong. The bank money (amounting to P8 million)
Article 315 of the RPC is inherently incompatible with the violation of DOSRI law (as which came to his possession was money held in trust or administration by him for
set out in Section 83 of RA 337, as amended by PD 1795), hence a person cannot be the bank, in his fiduciary capacity as the President of said bank. It is not accurate to
charged for both offenses. He theorized that the characterization of possession is dif- say that petitioner became the owner of the P8 million because it was the proceeds of
ferent in the two offenses. If he acquired the loan as DOSRI, he owned the loaned a loan. That would have been correct if the bank knowingly extended the loan to peti -
money and therefore, cannot misappropriate or convert it as contemplated in the of- tioner himself. But that is not the case here. According to the information for estafa,
fense of estafa. Conversely, if he committed estafa, then he merely held the money in the loan was supposed to be for another person, a certain “Enrico Carlos”; Soriano,
trust for someone else and therefore, did not acquire a loan in violation of DOSRI through falsification, made it appear that said “Enrico Carlos” applied for the loan
rules. when in fact he (“Enrico Carlos”) did not. Through such fraudulent device, he ob-
tained the loan proceeds and converted the same. Under these circumstances, it can -
ISSUE: Whether a loan transaction within the ambit of the DOSRI law (violation not be said that petitioner became the legal owner of the P8 million. Thus, he re-
of Section 83 of RA 337, as amended) could be the subject of Estafa under Article mained the bank’s fiduciary with respect to that money, which makes it capable of
315 (1) (b) of the RPC- YES misappropriation or conversion in his hands.
RATIO: In considering a motion to quash on such ground, the test is “whether the The next question is whether there can also be, at the same time, a charge for
facts alleged, if hypothetically admitted, would establish the essential elements of the DOSRI violation in such a situation wherein the accused bank officer did not secure a
offense charged as defined by law. Facts that constitute the defense against the charge loan in his own name, but was alleged to have used the name of another person in or-
must be proved by [him] during trial. Such facts or circumstances do not constitute der to indirectly secure a loan from the bank. We answer this in the affirmative. Sec -
proper grounds for a motion to quash the information on the ground that the material tion 83 of RA 337 reads:
averments do not constitute the offense”.
Section 83. No director or officer of any banking institution shall, either directly or in -
Both informations would establish the essential elements of the crime of DOSRI directly, for himself or as the representative or agent of others, borrow any of the de -
violation and estafa thru falsification of commercial documents. posits of funds of such bank, nor shall he become a guarantor, indorser, or surety for
loans from such bank to others, or in any manner be an obligor for moneys borrowed
In Criminal Case No. 238-M-2001 for violation of DOSRI rules, the information from the bank or loaned by it, except with the written approval of the majority of the
alleged that Soriano was the president of RBSM; that he was able to indirectly obtain a directors of the bank, excluding the director concerned. Any such approval shall be
entered upon the records of the corporation and a copy of such entry shall be trans- In sum, the informations filed against petitioner do not negate each other.
mitted forthwith to the Superintendent of Banks. The office of any director or officer
of a bank who violates the provisions of this section shall immediately become vacant DISPOSITIVE: WHEREFORE, the petition is DENIED. The assailed September 26,
and the director or officer shall be punished by imprisonment of not less than one 2003 Decision as well as the February 5, 2004 Resolution of the Court of Appeals in
year nor more than ten years and by a fine of not less than one thousand nor more CA-G.R. SP No. 67657 are AFFIRMED. Costs against petitioner.
than ten thousand pesos. x x x SO ORDERED.
The prohibition in Section 83 is broad enough to cover various modes of borrow-
ing. It covers loans by a bank director or officer which are made either: (1) directly, Republic v Sandiganbayan
(2) indirectly, (3) for himself, (4) or as the representative or agent of others. It ap- April 12 2011
plies even if the director or officer is a mere guarantor, indorser or surety for some- Ponente: Bersamin, J.
one else's loan or is in any manner an obligor for money borrowed from the bank or Leigh Siazon (adopted from C2015 corpo digest)
loaned by it. The covered transactions are prohibited unless the approval, reportorial
and ceiling requirements under Section 83 are complied with. The prohibition is in- SUMMARY: [restrictions on bank exposure to DOSRI] Cojuangco was
tended to protect the public, especially the depositors, from the overborrowing of known as the coconut king as Marcos placed him in prime positions in
bank funds by bank officers, directors, stockholders and related interests, as such the Philippine Coconut Authority, the United Coconut Mills, Inc., United
overborrowing may lead to bank failures. It has been said that “banking institutions Coconut Planters Bank, United Coconut Planters Life Assurance
are not created for the benefit of the directors [or officers]. While directors have great Corporation, and United Coconut Chemicals, Inc. When Marcos fell,
powers as directors, they have no special privileges as individuals. They cannot use PCGG went after his ill-gotten wealth. What is involved here is the
the assets of the bank for their own benefit except as permitted by law. Stringent re - block of shares representing 20% of the outstanding capital stock of
strictions are placed about them so that when acting both for the bank and for one of SMC. These shares were in the name of Cojuangco et al and PCGG
themselves at the same time, they must keep within certain prescribed lines regarded claimed that the funds used to obtain these shares were coco levy
by the legislature as essential to safety in the banking business.” funds or public funds in the corporations where Cojuangco had
control. Thus, the shares should be reconveyed to government.
A direct borrowing is one that is made in the name of the DOSRI himself or
where the DOSRI is a named party, while an indirect borrowing includes one that is Republic claimed that Cojuangco breached his fiduciary duty as
made by a third party, but the DOSRI has a stake in the transaction. The latter type – member of the board of directors of the public corporations from
indirect borrowing – applies here. where the money used to buy the shares came. SC held that there was
The information describes the manner of securing the loan as indirect; names no fiduciary duty breached and that Cojuangco was not holding the
Soriano as the benefactor of the indirect loan; and states that the requirements of the shares in trust for the coconut farmers. He was the owner of the
law were not complied with. It contains all the required elements for a violation of shares.
Section 83, even if petitioner did not secure the loan in his own name. DOCTRINE: There must be competent evidence to establish that the
loans granted were in the nature of DOSRI or were issued in violation
The broad interpretation of the prohibition in Section 83 is justified by the of the Single Borrower’s Limit; nonetheless, even assuming that they
fact that it even expressly covers loans to third parties where the third parties are were of such nature, the loans would not be void for that reason.
aware of the transaction (such as principals represented by the DOSRI), and where Instead, the bank or the officers responsible for the approval and grant
the DOSRI’s interest does not appear to be beneficial but even burdensome (such as in of the DOSRI loan would be subject to sanctions under the law.
cases when the DOSRI acts as a mere guarantor or surety). If the law finds it neces -
sary to protect the bank and the banking system in such situations, it will surely be il- FACTS:
logical for it to exclude a case like this where the DOSRI acted for his own benefit, us - For over 2 decades, the issue of ownership of the sequestered block of shares
ing the name of an unsuspecting person. A contrary interpretation will effectively al- representing 20% of the outstanding capital stock of SMC has remained unresolved.
low a DOSRI to use dummies to circumvent the requirements of the law.
July 31, 1987 – Republic commenced a complaint against Eduardo Cojuangco Jr. and Cooperation and Assistance” which governed the rules for the conduct of management of SMC
several others before the Sandiganbayan. and the disposition of the shares which he bought.
(g) All together, Cojuangco purchased 33 million shares of the SMC through 14 holding
companies. The same 14 companies were in turn owned by the following 6 so-called CIIF
March 24, 1999 – Sandiganbayan allowed the subdivision of the complaint into 8
Companies.
complaints, each pertaining to distinct transactions and properties and impleading as (h) Defendant Corporations are but “shell” corporations owned by interlocking shareholders
defendants only the parties alleged to have participated in the relevant transactions who have previously admitted that they are just “nominee stockholders” who do not have any
or to have owned the specific properties involved. One of them is Civil Case No. proprietary interest over the shares in their names. The respective affidavits of the following,
0033- F: Acquisition of SMC shares of stock namely: Jose C. Concepcion, Florentino M. Herrera III, Teresita J. Herbosa, Teodoro D. Regala,
Victoria C. de los Reyes, Manuel R. Roxas, Rogelio A. Vinluan, Eduardo U. Escuete and Franklin
Individual defendants in Civil Case F: Cojuangco, President Marcos and First Lady M. Drilon, who were all, at the time they became such stockholders, lawyers of the Angara
Imelda R. Marcos, the ACCRA lawyers, and Ursua. 6 corporations were impleaded as Abello Concepcion Regala & Cruz (ACCRA) Law Offices, the previous counsel who incorporated
corporate defendants, collectively referred to herein as the CIIF Oil Mills, and their said corporations, prove that they were merely nominee stockholders thereof.
(i) Cojuangco acquired a total of 16,276,879 shares of SMC from the Ayala group
14 holding companies.
(k) The other respondent Corporations are owned by interlocking shareholders who are
likewise lawyers in the ACCRA
Allegedly, Cojuangco purchased a block of 33 million shares of SMC stock through the Law Offices and had admitted their status as “nominee stockholders” only.
14 holding companies owned by CIIF. The block of 33,133,266 shares of SMC shall be (l) These companies, which ACCRA Law Offices organized for Defendant Cojuangco to be able
referred to as CIIF block of shares. to control more than 60% of SMC shares, were funded by institutions which depended upon the
coconut levy such as the UCPB, UNICOM, United Coconut Planters Assurance Corp. (COCOLIFE),
Also impleaded as defendants were several corporations alleged to have been under among others. Cojuangco and his ACCRA lawyers used the funds from 6 large coconut oil mills
Cojuangco’s control and used by him to acquire the block of shares of SMC totalling and 10 copra trading companies to borrow money from the UCPB and purchase these holding
16,276,879 at the time of acquisition (representing approximately 20% of the capital companies and the SMC stocks. Cojuangco used $150 million from the coconut levy.
stock of SMC). These corporations are referred to as Cojuangco corporations, to
distinguish them from CIIF Oil Mills. May 7, 2004 – Sandiganbayan held that the CIIF Companies and the 14 holding
companies and the CIIF block of SMC shares of stock are declared owned by the
Material averments in the complaint: government in-trust for all the coconut farmers and ordered reconveyed to the
(a) Having control over the coconut levy, Cojuangco invested the funds in diverse activities, government.
such as the various businesses SMC was engaged in (e.g. large beer, food, packaging, and
livestock); The issue related to our topic is the issue on the “various sources” of funds Cojuangco
(b) He entered SMC in early 1983 when he bought most of the 20 million shares Enrique Zobel and his companies claimed were used to acquire the SMC shares. Cojuangco said that
owned in the Company. The shares, worth $49 million, represented 20% of SMC; he obtained loans from UCPB and advances from the CIIF Oil Mills. Republic
(c) Cojuangco also acquired the Soriano stocks through a series of complicated and secret concluded that, as Cojuangco was the President and CEO of both UCPB and CIIF Oil
agreements, a key feature of which was a “voting trust agreement” that stipulated that Andres, Mills, he (1) took money from the bank entrusted by law with the administration of
Jr. would proxy over the vote of the shares owned by Soriano and Cojuangco. This agreement,
coconut levy funds and (2) took more money from the very corporations/oil mills in
which accounted for 30% of the outstanding shares of SMC and which lasted for 5 years,
enabled the Sorianos to retain management control of SMC for the same period; which part of those coconut levy funds (the CIIF) was placed – treating the funds of
(d) In exchange for an SMC investment of $45 million in non-voting preferred shares in UCPB, UCPB and the CIIF as his own personal capital to buy ‘his’ SMC shares.”
Soriano served as the vice-chairman of the supposed bank of the coconut farmers, UCPB, and in Sandiganbayan did not agree with the Republic’s conclusion.
return, Cojuangco, for investing funds from the coconut levy, was named vice-chairman of SMC;
(e) Consequently, Cojuangco enjoyed the privilege of appointing his nominees to the SMC BIG ISSUE: Whether the sequestered sizable block of shares representing 20% of the
Board, to which he appointed key members of the ACCRA Law Firm (herein Defendants) outstanding capital stock of SMC at the time of acquisition belonged to their
instead of coconut farmers whose money really funded the sale; registered owners (Cojuangco et al) or to the coconut farmers
(f) The scheme of Cojuangco to use the lawyers of the said Firm was revealed in a document
which he signed on 19 February 1983 entitled “Principles and Framework of Mutual
Republic contends: COCONUT LEVY FUNDS ARE PUBLIC FUNDS. THE SMC SHARES,
WHICH WERE ACQUIRED BY RESPONDENTS COJUANGCO, JR. AND THE COJUANGCO [only issue pertinent to topic] NO VIOLATION OF THE DOSRI AND SINGLE
COMPANIES WITH THE USE OF COCONUT LEVY FUNDS – IN VIOLATION OF BORROWER’S LIMIT RESTRICTIONS
RESPONDENT COJUANGCO, JR.’S FIDUCIARY OBLIGATION – ARE, NECESSARILY,
PUBLIC IN CHARACTER AND SHOULD BE RECONVEYED TO THE GOVERNMENT. The Republic’s lack of proof on the source of the funds by which Cojuangco, et al. had
acquired their block of SMC shares has made it shift its position, that it now suggests
Court disagreed. that Cojuangco had been enabled to obtain the loans by the issuance of LOI 926
exempting the UCPB from the DOSRI and the Single Borrower’s Limit restrictions.
Republic’s assertion that coconut levy funds had been used to source the payment for
the Cojuangco block of SMC shares was premised on its allegation that the UCPB and We reject the Republic’s suggestion. The Republic adduced no evidence on the
the CIIF Oil Mills were public corporations. But the premise was grossly erroneous significant particulars of the supposed loan, like the amount, the actual borrower, the
and overly presumptuous, because: approving official, etc. It did not also establish whether or not the loans were DOSRI
(a) The fact of the UCPB and the CIIF Oil Mills being public corporations or issued in violation of the Single Borrower’s Limit. Secondly, the Republic could not
or government-owned or government-controlled corporations pre- outrightly assume that President Marcos had issued LOI 926 for the purpose of
cisely remained controverted by Cojuangco, et al. in light of the lack of allowing the loans by the UCPB in favor of Cojuangco. There must be competent
any competent to that effect being in the records; evidence to that effect. And, finally, the loans, assuming that they were of a DOSRI
nature or without the benefit of the required approvals or in excess of the Single
(b) Cojuangco explicitly averred that the UCPB was a “private corpora-
Borrower’s Limit, would not be void for that reason. Instead, the bank or the officers
tion;” and responsible for the approval and grant of the DOSRI loan would be subject only to
(c) The Republic did not competently identify or establish which ones of sanctions under the law.
the Cojuangco corporations had supposedly received advances from
the CIIF Oil Mills. FOOTNOTE ON DOSRI:
Republic asserts that the contested block of shares had been paid for with DOSRI is the acronym derived from the first letters of the words Directors, Officers,
“borrowings” from the UCPB and “advances” from the CIIF Oil Mills, and that such Stockholders and their Related Interests. The DOSRI restriction is designed to prevent
borrowings and advances had been illegal because the shares had not been purchased undue advantage to be granted to such bank officers and their related interests in the
for the “benefit of the Coconut Farmers.” Republic relied on the admissions grant of bank loans, credit accommodations, and guarantees that may be extended,
supposedly made in Cojuangco’s Answer to the Amended Complaint. directly or indirectly, by a bank to its directors, officers, stockholders and their related
interests; and limits the outstanding loans, credit accommodations, and guarantees
Indeed, Cojuangco’s Answer indicate that Cojuangco thereby expressly qualified his that a bank may extend to each of its stockholders, directors, or officers and their
admission of having been the President and a Director of the UCPB with the averment related interest to an amount equivalent to their respective unencumbered deposits
that the UCPB was a “private corporation;” that his Answer’s allegation of his being a and book value of their paid-in capital contributions in the bank.
member of the Board of Directors of the United Coconut Oil Mills, Inc. did not admit
that he was a member of the Board of Directors of the CIIF Oil Mills, because the The applicable DOSRI provision was Section 83 of Republic Act No. 337 (General
United Coconut Oil Mills, Inc. was not one of the CIIF Oil Mills; and that Banking Law), as amended by PD 1795:
his Answer nowhere contained any admission or statement that he had held the
various positions in the government or in the private corporations at the same Section 83. No director or officer of any banking institution shall, either directly or indirectly,
time and in 1983, the time when the contested acquisition of the SMC shares of stock for himself or as the representative or agent of other, borrow any of the deposits of funds of
took place. such banks, nor shall he become a guarantor, indorser, or surety for loans from such bank to
others, or in any manner be an obligor for money borrowed from the bank or loaned by it,
Republic’s burden to establish by preponderance of evidence that respondents’ SMC except with the written approval of the majority of the directors of the bank, excluding the
director concerned. Any such approval shall be entered upon the records of the corporation
shares had been illegally acquired with coco levy funds was not discharged. and a copy of such entry shall be transmitted forthwith to the Superintendent of Banks. The
office of any director or officer of a bank who violates the provisions of this section shall Thus, the Sandiganbayan could not fairly find that Cojuangco had committed breach of
immediately become vacant and the director or officer shall be punished by imprisonment of any fiduciary duties as an officer and member of the Board of Directors of the UCPB.
not less than one year nor more than ten years and by a fine of not less than one thousand nor For one, the Amended Complaint contained no clear factual allegation on which to
more than ten thousand pesos.
predicate the application of said articles. Although the trust relationship supposedly
The Monetary Board may regulate the amount of credit accommodations that may be extended,
directly or indirectly, by banking institutions to their directors, officers, or stockholders.
arose from Cojuangco’s being an officer and member of the Board of Directors of the
However, the outstanding credit accommodations which a bank may extend to each of its UCPB, the link between this alleged fact and the borrowings or advances was not
stockholders owning two per cent (2%) or more of the subscribed capital stock, its directors, or established. Nor was there evidence on the loans or borrowings, their amounts, the
its officers, shall be limited to an amount equivalent to the respective outstanding deposits and approving authority, etc.
book value of the paid-in capital contribution in the bank: Provided, however, That loans and
advances to officers in the form of fringe benefits granted in accordance with rules and The thrust of the Republic that the funds were borrowed or lent might even preclude
regulations as may be prescribed by the Monetary Board shall not be subject to the preceding any consequent trust implication, because then it would be a contract of loan, which
limitation. cannot be characterized as fiduciary. Absent any special facts and circumstances
proving a higher degree of responsibility, any dealings between a lender and
ON THE ISSUE OF THE BREACH OF FIDUCIARY DUTY borrower are not fiduciary in nature.
Republic invoked the following pertinent statutory provision:
This explains why, for example, a trust receipt transaction is not classified as a simple
Civil Code, Article 1455. When any trustee, guardian or other person holding a fiduciary
loan and is characterized as fiduciary, because the Trust Receipts Law (P.D. No. 115)
relationship uses trust funds for the purchase of property and causes the conveyance to be
made to him or to a third person, a trust is established by operation of law in favor of the punishes the dishonesty and abuse of confidence in the handling of money or goods to
person to whom the funds belong. the prejudice of another regardless of whether the latter is the owner.

Civil Code, Article 1456. If property is acquired through mistake or fraud, the person obtaining Based on the foregoing, a debtor can appropriate the thing loaned without any
it s by force of law, considered a trustee of an implied trust for the benefit of the person from responsibility or duty to his creditor to return the very thing that was loaned or to
whom the property comes. report how the proceeds were used. Nor can he be compelled to return the proceeds
and fruits of the loan, for there is nothing under our laws that compel a debtor in a
Corporation Code, Section 31. Liability of directors, trustees or officers.—Directors or trustees contract of loan to do so. As owner, the debtor can dispose of the thing borrowed and
who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or
his act will not be considered misappropriation of the thing. The only liability on his
who are guilty of gross negligence or bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in conflict with their duty as such directors, or part is to pay the loan together with the interest that is either stipulated or provided
trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the under existing laws.
corporation, its stockholders or members and other persons.
DISPOSITIVE
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, 1. The block of shares in SMC in the names of Cojuangco et al is the exclu-
any interest adverse to the corporation in respect of any matter which has been reposed in him sive property of Cojuangco et al as registered owners.
in confidence, as to which equity imposes a disability upon him to deal in his own behalf, he
shall be liable as a trustee for the corporation and must account for the profits which otherwise 2. The lifting of the writs of sequestration is affirmed. (Issuances of the
would have accrued to the corporation. writs of sequestration suffered from fatal irregularities/non-compli-
ance with the PCGG rules, i.e. issued by only one commissioner when
The conditions for the application of said articles require factual foundations to be PCGG rules explicitly say at least 2 commissioners)
first laid out in appropriate judicial proceedings. Hence, concluding that Cojuangco
breached fiduciary duties as an officer and member of the Board of Directors of the
UCPB without competent evidence thereon would be unwarranted and unreasonable.

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Commercial Law Review | Divina | 2nd Sem AY 2014-2015 |Page 1

Busuego v. CA placing the names of the offenders in a watchlist. The requirement of

The Overseas Bank of Manila (OBM) is a commercial banking corporation duly

agreed to purchase 53,000 shares of stock from Provident. Eagle did

Ruling: Petition denied. Court of Appeals and CFI affirmed. SUMMARY:

Close Now, Hear Later

Accordingly, the MB can immediately implement its resolution prohibiting a banking

SUMMARY: Central Bank filed a Petition for Assistance in the

Resolutions of the Monetary Board with regard to handling

7 Acting in behalf of the Rural bank of Muntinlupa

ISSUES/HELD: Should the issue of whether the Monetary Board’s actions

(a) the institution may be reorganized and rehabilitated to such an extent as

Section 29, par. 3, of R.A. 265 as amended by P. D. 1827 provides

On the jurisdiction of the RTC not acting as a liquidation court

April 1998: RTC promulgated its decision in favor of Land Bank. It

AZIZ RAJKOTWALA, WILLIAM

Sometime in 1998, Ombudsman conducted an investigation on the alleged “scam” on

WON the testimony of Marasigan and the accompanying documents are

5. Garnishment of Deposits, Including Foreign Deposits ISSUES/HELD:

RATIO 23 January 1967

o The corporation continued operations despite the commencement of

ISSUE: DOCTRINE: Sec. 2 of the General Banking Act provides in part -

o It argues that an alien-owned bank can temporarily hold the land

6) Chinabank claims that the Consitutional provision should be liberally con-

7) However, the Constitution is absolute in its terms.

Decision affirmed. Facts

After evaluating the financial statements of JAPRL Development Corporation (JAPRL)

Banks therefore redistribute wealth in the economy by channeling idle savings to

CA: Affirmed with modification

Comsavings v. Capistrano RATIO:

In exercising this power to determine what is iniquitous and unconscionable, courts

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